ERISA Breach of Fiduciary Duty Class Actions: Avoiding and Defending - - PowerPoint PPT Presentation

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ERISA Breach of Fiduciary Duty Class Actions: Avoiding and Defending Claims Against Companies and Fiduciaries

Leveraging Standing, Statute of Limitations, Exhaustion and Mandatory Arbitration to Defeat Claims; Proactive Methods to Prevent Claims

Today’s faculty features:

1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific TUESDAY, JULY 25, 2017

James O. Fleckner , Partner, Goodwin Procter, Boston Brian D. Netter, Partner, Mayer Brown, Washington, D.C.

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ERISA Breach of Fiduciary Duty Class Actions: Avoiding and Defending Claims Against Companies and Fiduciaries

James O. Fleckner Goodwin Procter LLP 100 Northern Ave. Boston, MA 02210 P: 617.570.1153 jfleckner@goodwinlaw.com Brian D. Netter Mayer Brown LLP 1999 K Street NW Washington, DC 20006 P: 202.263.3339 bnetter@mayerbrown.com

Brian Netter

Partner, Mayer Brown LLP

Brian D. Netter is a partner in Mayer Brown's Washington, D.C., office and Co-Chair

• f the ERISA Litigation practice and the Supreme Court and Appellate Litigation

practice. Brian’s innovative work has been recognized in The National Law Journal’s “Appellate Hot List” on four separate occasions, and he has been recognized by The National Law Journal and by Washington DC Super Lawyers as an emerging star in appellate litigation. On ERISA questions, Brian litigates class-action disputes and advises clients on issues prompting such litigation, particularly as relates to ERISA's fiduciary standards. He is a frequent commentator on the Supreme Court’s ERISA docket. Brian has also been honored as the firm’s partner of the year for pro bono matters. In recent pro bono representations, he won a landmark victory for the District of Columbia, establishing that the District (rather than Congress) has the right to spend locally raised revenues. And he convinced a federal appellate court to vacate the sentence of a federal inmate facing a death sentence based on constitutional violations during the trial. Earlier in his career, Brian served as a law clerk to Associate Justice Stephen Breyer

• n the US Supreme Court and to Judge Judith W. Rogers on the US Court of

Appeals for the DC Circuit. Prior to his career as a lawyer, Brian earned undergraduate and graduate degrees in Industrial & Operations Engineering.

Brian D. Netter Partner

t:202.263.3339 bnetter@mayerbrown.com

6

James O. Fleckner

Partner, Goodwin Procter LLP

Jamie Fleckner is a partner in Goodwin’s Financial Industry Practice and Chair of its ERISA Litigation Practice. Mr. Fleckner represents clients in a wide array of complex commercial litigation, with a focus on financial services and products, including investment management. He regularly litigates class and derivative actions under ERISA, the Investment Company Act of 1940, the Securities Exchange Act of 1934, and related federal and state laws. His practice also focuses on regulatory investigations and governmental proceedings, and has represented clients before the U.S. Department of Labor, Securities and Exchange Commission, Department of Justice, Pension Benefit Guaranty Corporation and state authorities.

• Mr. Fleckner represents companies and individual officers in class and derivative actions,

regulatory investigations and bankruptcy proceedings regarding the discharge of Investment Company Act, ERISA and other fiduciary duties. Currently, he is representing numerous clients in so-called “excessive fee” ERISA and Investment Company Act litigation, and other litigation challenging the discharge of fiduciary obligations. Since 2014, Mr. Fleckner has been listed in the nationwide ERISA Litigation category in Chambers USA: America’s Leading Lawyers for Business, where clients praise his "knowledge

• f the ERISA area and ability to distill concepts into practical strategic advice." Since 2015 he

has been recognized as a leading lawyer in the list of Who’s Who Legal: Pensions and Benefits. Since 2013 he has been recognized as a national leader in ERISA litigation by The Legal 500 United States.

• Mr. Fleckner is a nationally recognized lecturer and author on ERISA, Investment Company

Act, and related litigation topics. He has presented at over 90 conferences across the United States to legal and non-legal audiences.

James L. Fleckner Partner

t: 617.570.1153 jfleckner@goodwinlaw.com

7

Today’s Agenda

I. Current trends in ERISA breach of fiduciary duty class actions

A. Cases challenging mutual funds and other investment options B. Proprietary fund cases C. Stock-drop cases D. ESOP cases E. 403(b) university cases

8

Today’s Agenda

II. Strategies for defeating certification

A. Standing B. Statute of limitations C. Exhaustion of administrative remedies D. Mandatory arbitration E. Other effective strategies

• III. Best practices to avoid and reduce ERISA breach of

fiduciary duty class actions

9

Current trends in ERISA breach

• f fiduciary duty class actions

July 24, 2017 Title of Presentation | FileSite Number

10

• I. Current Trends in ERISA Breach of Fiduciary

Duty Class Actions

• Trend #1: Cases challenging mutual funds and other

investment options

• Three of the most recent and prevalent challenges to

investment decisions are claims that ERISA fiduciaries:

• (1) Failed to provide lower cost products;
• (2) Charged excessive fees; and
• (3) Applied inappropriate investment benchmarks.

11

• I. Current Trends in ERISA Breach of Fiduciary

Duty Class Actions

• Claim: Failing to provide lower cost products.
• Sulyma v. Intel Corp. Inv. Policy Comm., No. 15-CV-04977 (N.D. Cal.

2017)

• Accused Intel of losing > $100,000,000 in its workers’ retirement savings by

exposing them to alternative investments in hedge funds, commodities and private equity.

• Motion to dismiss granted because claims were time-barred.
• Cryer et al. v. Franklin Resources Inc., et al., No. 4:16-cv-04265 (N.D.
• Cal. 2017)
• Alleged Defendant used low-performing high cost funds, failed to offer stable

value fund, and committed self-dealing by offering certain proprietary funds.

• Motion to dismiss denied because investing in own products that had higher

fees, performed poorly, and allowed Defendant to collect excessive fees stated a claim.

12

• I. Current Trends in ERISA Breach of Fiduciary

Duty Class Actions

• Claim: Charging excessive fees.
• Troudt v. Oracle Corp., No. 1:16-cv-00175 (D. Colo. 2017)
• Plaintiffs claim that Oracle breached its fiduciary duties by failing to engage in a

prudent process for selecting and retaining investment options, which consistently unperformed, and paying excessive fees for recordkeeping and administrative services.

• Motion to dismiss denied because judge thought Rule 12(b)(6) was an

inappropriate place to resolve the allegations.

• White v. Chevron, No. 16-cv-0793 (N.D. Cal. 2016)
• Plaintiffs claim Chevron breached its fiduciary duties by 1) providing “retail”

instead of “institutional” investment options and 2) offering a money market fund as a capital preservation option.

• Motion to dismiss granted as court found:
• 1. “Fiduciaries have latitude to value investment features other than price.” Therefore,

must allege more than fiduciaries could have used institutional investment options.

• 2. Money market fund prudent as “one of an array of mainstream investment options.”

13

• I. Current Trends in ERISA Breach of Fiduciary

Duty Class Actions

• Claim: Applying inappropriate investment benchmarks.
• Ellis et. al. v. Fidelity Management Trust Company, No. 15-cv-14128

(D. Mass 2017).

• Plaintiffs claimed that Fidelity “attempted to conceal its improperly conservative

investment and excessive fees from investors by solely reporting to investors an inappropriate ‘money market’ benchmark.”

• Motion for summary judgment granted because plaintiffs failed to point to

specific moment or decision in which Defendant acted imprudently.

• “Fidelity periodically explored changing the Portfolio’s benchmark both to more and

less aggressive options, regularly conducting quantitative analyses of potential

• alternatives. . . .”

14

• I. Current Trends in ERISA Breach of Fiduciary

Duty Class Actions

• Claim: Failure to monitor investments and remove imprudent
• nes.
• White v. Chevron Corp., No. 16-CV-0793 (N.D. Cal. 2017)
• To state a claim for duty to monitor, must allege more than the fund is not

performing well.

• Brannen v. First Citizens Bankshares Inc., No. 6:15-CV-30 (S.D. Ga.

2016)

• Plaintiff stated a claim by alleging the plan purchased company stock in 2008

and has never investigated if it should continue investing in that stock.

• Questions still remaining from Tibble v. Edison Int’l, 135 S. Ct. 1823

(2015)

• How frequently must a fiduciary conduct monitoring activities?
• How thorough must the monitoring be?

15

• I. Current Trends in ERISA Breach of Fiduciary

Duty Class Actions

• Trend #2: Proprietary fund cases
• Claims against proprietary funds:
• Retaining proprietary funds despite the availability of

similar lower cost and better performing investment

• ptions.
• Underlying theme: inherent conflict.

16

• I. Current Trends in ERISA Breach of Fiduciary

Duty Class Actions

17

Claims Dismissed Motion to Dismiss Denied Brotherston v. Putnam Invs., LLC,

• No. 1:15-cv-13825-WGY (D. Mass.

2017) Bowers v. BB&T Corporation, 1:15- CV-732 (C.D. Cal. 2017) Meiners v. Wells Fargo, 16-cv-3981 (D. Minn. 2016) Urakhchin v. Allianz, 8:15-cv-01614 (C.D. Cal. 2016) Moreno v. Deutsche Bank, 15-cv- 9936 (S.D.N.Y. 2016) McDonald v. Edward Jones, 4:16 CV 1346 (E.D. Mo. 2017)

• I. Current Trends in ERISA Breach of Fiduciary

Duty Class Actions

• Brotherston v. Putnam Invs., LLC, No. 1:15-cv-13825-WGY (D. Mass.

2017)

• Claim: Defendants “have loaded the Plan exclusively with Putnam’s mutual

funds, without investigating whether Plan participants would be better served by investments managed by unaffiliated companies.”

• Holding: Proprietary fund claim dismissed because no evidence that fees

Putnam received were unreasonable as a matter of law.

• Comparing Putnam’s mutual funds to Vanguard’s index funds “compares apples and
• ranges.”
• Meiners v. Wells Fargo, 16-cv-3981 (D. Minn. 2016)
• Claim: Wells Fargo breached its fiduciary duty to the company’s 401(k) plan by
• ffering proprietary target-date funds.
• Holding: Dismissed with prejudice.
• Comparing fees to Vanguard does not show defendant’s “funds are more expensive

when compared to the market as a whole.”

• To show having proprietary funds as the default option is improper, must allege more

than excessive fees and underperformance.

18

• I. Current Trends in ERISA Breach of Fiduciary

Duty Class Actions

• Bowers v. BB&T Corporation, 1:15-CV-732 (C.D. Cal. 2017)
• Claim: Defendants loaded the plan with high-cost mutual funds run by BB&T’s

wholly-owned subsidiary, which kicked back a portion of the management fees it received to BB&T.

• Holding: “The Court concludes plaintiffs have stated claims on which relief may

be granted.”

• No additional analysis.
• Urakhchin v. Allianz, 8:15-cv-01614 (C.D. Cal. 2016)
• Claim: Excessive fees, self-dealing.
• Holding: Motion to dismiss denied because allegations that Allianz funds had

excessive fees and underperformed stated a claim.

• If plan as a whole was a prudent portfolio was a question of fact.

19

• I. Current Trends in ERISA Breach of Fiduciary

Duty Class Actions

• Moreno v. Deutsche Bank, 15-cv-9936, (S.D.N.Y. 2016)
• Claim: Deutsch Bank (DB) offered its own index and mutual funds, which were

similar to other non-DB funds, but charged greater fees and collected those fees.

• Holding: Motion to dismissed denied.
• Alleged that proprietary fund charged management and administrative fees

eleven times greater than an otherwise similar Vanguard S&P 500 index.

• McDonald v. Edward Jones, 4:14-CV-1346 (E.D. Mo. 2017)
• Claim: Edward Jones receives asset fees and sales fees from “Preferred

Product Partners” for many mutual funds it offers as investment options in its

• Plan. These fees are higher than similar products.
• Holding: motion to dismiss denied because claims of excessive fees, which

Edward Jones received, is a question of fact inappropriate to resolve at this stage.

20

• I. Current Trends in ERISA Breach of Fiduciary

Duty Class Actions

• Trend #3: Stock-drop cases
• Typically filed as class actions, these lawsuits allege that the

company, its board of directors, its senior officers, and/or plan administrators are ERISA fiduciaries who breached their fiduciary duties.

• Typical allegation: company established a defined contribution

plan, featuring company stock as an investment option, and participants suffered losses because the company declined.

• Alleged fiduciary breaches associated with these lawsuits

include:

• Imprudently offering employer stock as a plan option;
• Misleading participants into investing in company stock; and
• Failing to inform participants of material information related to the

company.

21

• I. Current Trends in ERISA Breach of Fiduciary

Duty Class Actions

• Two Supreme Court cases:
• Fifth Third Bancorp v. Dudenhoeffer, 134 S. Ct. 2459 (2014)
• The Supreme Court dismantled the long-standing principle that plan

investments in employer stock are presumptively prudent.

• ESOP fiduciaries are now subject to the same general duties

governing the behavior of all ERISA fiduciaries (other than the duty to diversify plan assets).

• “Dudenhoeffer appears to have raised the bar for plaintiffs seeking to

bring a claim based on a breach of the duty of prudence.” In re Lehman Bros. Sec. & ERISA Litig., 113 F.Supp.3d 745, 755 (S.D.N.Y. 2015).

• A claim against ESOP fiduciary only when:
• 1. Fiduciary could have acted consistent with security laws; and
• 2. Unlikely to harm fund with actions.
• Can rely on market price.

22

• I. Current Trends in ERISA Breach of Fiduciary

Duty Class Actions

• Amgen Inc. v. Harris, 136 S. Ct. 758 (2016) (per curiam)
• The Supreme Court doubles down on its “more harm than good”

standard from Dudenhoeffer.

• The Ninth Circuit sided with Participants-Plaintiffs, concluding that they

had shown that it was “quite plausible” that stopping further purchases

• f employer securities would not harm plan participants.
• Supreme Court reversed.
• After Dudenhoeffer and Amgen, it is not enough to allege that it would

have been a good idea to stop buying employer securities. Plaintiffs must allege that doing so could not possibly have been a bad idea.

23

• I. Current Trends in ERISA Breach of Fiduciary

Duty Class Actions

• Following Dudenhoeffer and Amgen, plaintiffs have generally

faired poorly in company stock cases.

• Pfeil v. State St. Bank & Trust Co., 806 F.3d 377 (6th Cir. 2015), cert.

denied, No. 15-1199, 2016 WL 1161688 (U.S. June 27, 2016): Affirming district court’s grant of motion to dismiss because plaintiffs failed to show a “special circumstance” rendering fiduciary’s reliance on stock’s market price imprudent.

• Rinehart v. Lehman Bros. Holdings Inc., 817 F.3d 56 (2d Cir. 2016):

Affirming district court’s dismissal of stock drop class action because Plaintiffs failed to allege “special circumstances,” facts regarding an inadequate investigation, or facts to meet the “more harm than good” standard.

• Whitley v. BP, P.L.C., 838 F.3d 523 (5th Cir. 2016): Reversing the district

court’s finding that plaintiffs stated a claim. The court held that a prudent fiduciary could have concluded disclosing information about BP’s alleged underreported risk exposure would “do more harm than good.” Such actions would, if anything, likely decrease BP’s stock price.

• Coburn v. Evercore Trust Co., 844 F.3d 965 (D.C. Cir. 2016): Affirming

district court’s dismissal of stock drop class action because plaintiffs failed to allege any special circumstances.

24

• I. Current Trends in ERISA Breach of Fiduciary

Duty Class Actions

• Some exceptions:
• Gedek v. Perez, 66 F. Supp. 3d 368 (W.D.N.Y. 2014) (pre-Amgen): Denying

motions to dismiss stock drop lawsuit as “a long, steady, virtually unstoppable downhill slide” was the type of “special circumstance” that nudges a claim based solely on public information from implausible to plausible.

• Ramirez v. J.C. Penney Corp., 6:14-cv-00601 (E.D. Tex. 2015): Denying

motion to dismiss because Defendants allegedly failed to disclose information about the risk of J.C. Penney’s transformation plan.

• Court accepted the argument that disclosure of this alleged information may be the
• nly action consistent with securities law and disclosing it early may minimize harm.
• Some settlements too:
• In re 2014 Avon Products, Inc. ERISA Litigation, 1:14-cv-10083-LGS

(S.D.N.Y. 2016): $6.25 million settlement of plaintiffs’ claims that defendant was aware of investigation of misconduct in China and therefore should have frozen stock purchases or disclosed the investigation.

25

• I. Current Trends in ERISA Breach of Fiduciary

Duty Class Actions

• What about inside information?
• Trustees do NOT need to disclose inside information or sell

stock based on it.

• Open question on if trustee must stop purchasing company

stock based on inside information.

• Probably do not have stop buying company’s stock even if trustee

knows financial troubles ahead.

• Signal would do more harm than good.

26

• I. Current Trends in ERISA Breach of Fiduciary

Duty Class Actions

• Trend #4: ESOPs cases
• Invests primarily in the stock of the company that employs the

plan participants.

• A congressionally blessed exception to the duty to diversify.
• Provide capital to companies needed for growth.
• Give employees an ownership stake in their company.
• Potential problem for ESOP trustees:
• Inside information v. best interest of the beneficiaries.
• ESOP cases were on the rise before the Trump administration.
• Considering the administration’s deregulatory stance, would expect

a drop in ESOP cases, but no articles yet evincing that trend.

27

• I. Current Trends in ERISA Breach of Fiduciary

Duty Class Actions

• Recent cases have not fared well for employers because of

easily-met pleading standards:

• Allen v. GreatBanc Trust Co., 835 F.3d 670 (7th Cir. 2016): “An

ERISA plaintiff need not plead the absence of exemptions to prohibited transactions.” Plaintiff need only plead that the transaction

• ccurred.
• The court believed its decision would not lead to a flood of litigation

because of Rule 11 and that plaintiffs would only bring claims against unsuccessful transactions.

• Future defendants are likely to have a harder time dismissing ESOP cases
• n pleading deficiency grounds.
• Five other circuits agree that section 408 exemptions are affirmative

defenses or that the defendant bears the burden of proof or both.

• Fish v. GreatBanc Trust Co., 749 F.3d 671 (7th Cir. 2014): It

is the defendant who bears the burden of proving a section 408 exemption.

28

• I. Current Trends in ERISA Breach of Fiduciary

Duty Class Actions

• Recent cases have not fared well for employers because of

easily-met pleading standards:

• Brundle v. Wilmington Trust N.A., 1:15–cv–1494, (E.D. Va.

2017): Defendant committed a prohibited transaction by failing to ensure that the ESOP paid no more than adequate consideration, and, as a result, damaged the ESOP by agreeing to overpay $29,773,250 for the stock.

• Fiduciary must scrutinize management’s projections for

consistency with past projections and evaluate the self-interest of managers making the projections.

29

• I. Current Trends in ERISA Breach of Fiduciary

Duty Class Actions

• Trend #5: 403(b) university cases
• 403(b) plans can be either governed by ERISA or not.
• The lawsuits recently filed target ERISA-governed plans

provided by private universities and other private nonprofit

• rganizations such as hospitals.
• These plans are similar, but not identical, to 401(k)s:
• Both are subject to ERISA’s fiduciary rules.
• Both are subject to ERISA’s reporting requirements.
• Both allow participants to self-direct investments.
• But 403(b)s historically offered more limited investment choices,

and had multiple recordkeepers.

30

• I. Current Trends in ERISA Breach of Fiduciary

Duty Class Actions

• Claims in these lawsuits are almost identical and made

against major universities.

31

Yale NYU MIT Duke John Hopkins Vanderbilt UPenn Northwestern Columbia Cornell USC University of Chicago Princeton Brown Washington University in St. Louis

• I. Current Trends in ERISA Breach of Fiduciary

Duty Class Actions

• The lawsuits allege:
• Excessive fees, including the use of multiple recordkeepers.
• Too many investment choices.
• Many plans offer hundreds of investment options.
• Allegedly duplicative investment options that dilute the plan’s ability

to pay lower fees.

• Amount of options allegedly confuses participants.
• Offering of retail share-class mutual funds instead of identical,

lower-cost institutional share-class funds.

• Not conducting a competitive bidding process for the plan’s

recordkeeping services.

32

• I. Current Trends in ERISA Breach of Fiduciary

Duty Class Actions

• The lawsuits allege other claims similar to those lodged at

401(k)s.

• Failure to leverage plan’s asset size to demand lower

administrative and investment management fees.

• Failure to replace expensive, poor-performing investments.
• Engaging and failing to monitor recordkeepers who earned

asset-based administrative fees through revenue-sharing arrangements (rather than flat per participant fees).

33

• I. Current Trends in ERISA Breach of Fiduciary

Duty Class Actions

• Mixed results in motions to dismiss decided to date.
• Clark v. Duke, 1:16-CV-1044 (M.D.N.C. 2017)
• Claim of too many investment options (>400) not dismissed.
• “Locked in” accounts time barred.
• Relevant time is when locking in occurred.
• Henderson v. Emory, 1:16-CV-2920 (N.D. Ga. 2017)
• Claim of too many investment options (111) dismissed.
• “Having too many options does not hurt the Plans’ participants,

but instead provides them opportunities to choose the investments that they prefer.”

• “Locked in” accounts not time barred.
• Duty to monitor, so losses within last six years not time barred.

34

Strategies for Defeating Certification

July 24, 2017 Title of Presentation | FileSite Number

35

Strategies for Defeating Certification: (FRCP 23)

• Federal Rule of Civil Procedure 23 controls plaintiffs’ ability

to bring class actions in federal court.

• Rule 23(a):
• (1) numerosity: “the class is so numerous that joinder of all

members is impracticable”;

• (2) commonality: “there are questions of law or fact common to

the class”;

• (3) typicality: “the claims or defenses of the representative

parties are typical of the claims or defenses of the class”; and

• (4) adequacy: “the representative parties will fairly and

adequately protect the interests of the class.”

36

II.A. Strategies for Defeating Certification: Standing

• Defendants may be able to defeat certification or limit the size of

any class by arguing that all or some of the proposed class lack constitutional or statutory standing.

• In re Boston Scientific ERISA Litig., 254 F.R.D. 24 (D. Mass.

2008)

• The court denied the motion for certification on the ground that,

because the named plaintiffs had suffered no harm from defendants’ breach, they lacked standing to represent absent class members that had.

• In re J.P. Morgan Chase Cash Balance Litig., 242 F.R.D. 265

(S.D.N.Y. 2007)

• The court excluded former plan participants from the certified class,

holding that these individuals lacked statutory standing under ERISA § 502(a)(1).

37

II.B. Strategies for Defeating Certification: Statute of Limitations

38

• Courts have also denied certification or limited class membership

due to ERISA’s statute of limitations.

• Bond v. Marriot Int’l, 296 F.R.D. 403 (D. Md. 2014)
• The court denied certification in part where the defendants’ statute of

limitations could not be tried on a class-wide basis because it required “individual determinations” regarding each class member.

• Sulyma v. Intel Corp., No. 15-CV-04977 NC (N.D. Cal. 2017)
• All claims time barred because the plaintiff received statements that

“repeatedly directed him” to the company’s benefit website.

• No “willful blindness.”

II.C. Strategies for Defeating Certification: Exhaustion of Administrative Remedies

39

• Courts may reject class certification upon finding that issues related

to the exhaustion of remedies call for an individualized assessment.

• Scott v. New York City Dist. Council of Carpenters Pension

Plan, 224 F.R.D. 353 (S.D.N.Y. 2004)

• The court denied certification upon finding, in part, that issue of whether

named plaintiff had exhausted his administrative remedies “would require an individualized assessment of the facts and circumstances surrounding his claim for benefits.”

• Carlstrom v. DecisionOne Corp., 217 F.R.D. 514 (D. Mont. 2003)
• The court denied certification because the named plaintiff did not

exhaust his administrative remedies.

II.D. Strategies for Defeating Certification: Mandatory Arbitration

• Advantages of a mandatory arbitration policy prohibiting class-

based dispute resolution include that such a policy:

• Minimizes risk of class actions;
• Minimizes public exposure related to allegations;
• Increases the likelihood of having an adjudicator with expertise in ERISA law;
• Increases the likelihood of overall success; and
• Lowers the costs of arbitrating vis-à-vis federal litigation.
• Disadvantages of a mandatory arbitration policy prohibiting class-

based dispute resolution include that such a policy:

• Decreases the likelihood of success on appeal in the event of an adverse

decision; and

• Involves several costs associated with its implementation, such as the costs of

drafting properly worded arbitration agreement, ensuring the agreement is properly formed under relevant contract law, and incorporating that agreement into the relevant plan.

40

II.D. Strategies for Defeating Certification: Mandatory Arbitration

• Mandatory arbitration agreements are valid under ERISA.
• Comer v. Micor, Inc., 436 F.3d 1098 (9th Cir. 2006)
• The Ninth Circuit explained that it had ‘‘expressed skepticism about the

arbitrability of ERISA claims . . . but those doubts seem to have been put to rest by the Supreme Court’s opinions.”

• Smith v. Aegon Companies Pension Plan, 769 F.3d 922 (6th
• Cir. 2014), cert. denied, 136 S. Ct. 791 (2016)
• The Sixth Circuit noted that it had “previously upheld the validity of

mandatory arbitration clauses in ERISA plans.”

• See also Chua v. Shippee, No. 13 C 383, 2013 WL 4846689

(N.D. Ill. Sept. 10, 2013); Hornsby v. Macon Cty. Greyhound Park, Inc., No. 3:10CV680-MHT, 2012 WL 2135470 (M.D. Ala. June 13, 2012); Secure Health Plans of Georgia, LLC v. DCA of Hawkinsville, LLC, No. CIV.A. 5:10-CV-417, 2010 WL 4823435 (M.D. Ga. Nov. 22, 2010).

41

II.D. Strategies for Defeating Certification: Mandatory Arbitration

• Class action waivers in arbitration agreements are generally valid.
• AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (2011)
• “[C]ourts must place arbitration agreements on an equal footing with
• ther contracts . . . and enforce them according to their terms.”
• “Requiring the availability of classwide arbitration interferes with

fundamental attributes of arbitration and thus creates a scheme inconsistent with the FAA. ”

• Rent-A-Ctr., W., Inc. v. Jackson, 561 U.S. 63 (2010)
• Arbitration agreements are “on an equal footing with other contracts”

and must be enforced according to their terms.

• Am. Exp. Co. v. Italian Colors Rest., 133 S. Ct. 2304 (2013)
• A contractual waiver of class arbitration is enforceable even when

plaintiffs’ cost of individually arbitrating a federal statutory claim exceeds the potential recovery.

42

II.D. Strategies for Defeating Certification: Mandatory Arbitration

• Class action waivers in arbitration agreements are likely valid

under ERISA.

• Luchini v. Carmax, Inc., No. CV F 12-0417 LJO DLB, 2012

WL 3862150 (E.D. Cal. Sept. 5, 2012)

• The district court dismissed, without prejudice, Plaintiff’s ERISA

class action claim because Plaintiff failed to provide any authority for a nonwaivable right to bring an ERISA class action.

• Hornsby v. Macon Cty. Greyhound Park, Inc., No.

3:10CV680-MHT, 2012 WL 2135470 (M.D. Ala. June 13, 2012)

• The district court upheld an arbitration agreement and barred

Plaintiffs’ ERISA class claims as silence on class claims in the arbitration agreement meant that Plaintiffs could not proceed as a class.

43

II.E. Strategies for Defeating Certification: Other Effective Strategies

• (1) Use of an economic expert may be used to defeat

ERISA class actions by showing, among other things:

• Lack of homogeneity of class’s interests;
• Lack of harm among class members; and
• Lack of common harm among class members.
• (2) Challenges to class commonality can be successful

when relying on Wal-Mart v. Dukes and its progeny to demonstrate, among other things, differences in class members’:

• Plan terms;
• Investment decisions;
• Damages; and
• Reliance on defendants’ representations.

44

II.E. Strategies for Defeating Certification: Other Effective Strategies (Use of Experts)

• Langbecker v. Electronic Data Systems Corp., 476 F.3d

299 (5th Cir. 2007)

• Experts may be able to show that the class’s interests are not

homogenous.

• Plaintiffs claimed that the defendants breached their fiduciary

duties by offering the company’s stock in the 401(k) plan.

• Defendants’ expert, Compass Lexecon, showed that thousands of

class members profited from this investment, and thousands more continued to invest in the company’s stock after the plaintiffs claimed it should be eliminated, after the company’s adverse disclosures, and after the company’s stock price dropped.

• The court found that the expert’s analysis defeated Rule 23(a)(4)’s

adequacy requirement; thus, the class was decertified.

45

II.E. Strategies for Defeating Certification: Other Effective Strategies (Use of Experts)

• Fishman Haygood Phelps Walmsley Willis & Swanson,

L.L.P. v. State Street Corp., No. CIVA 1:09-10533-PBS, 2010 WL 1223777 (D. Mass. Mar. 25, 2010)

• Experts may be used to provide analysis to defeat a potential class

before plaintiffs even seek certification.

• Plaintiffs claimed that the Defendant reinvested cash collateral in “long-

term, high-risk instruments” leading to realized and unrealized losses, rather than making more “prudent” investments in money market funds

• r Treasury securities.
• Defendant’s expert, NERA, presented testimony and expert analysis for

the defense demonstrating the lack of plaintiff injury and breach of fiduciary duties.

• This testimony and analysis led the Court to grant Defendants’ motion

to dismiss.

46

II.E. Strategies for Defeating Certification: Other Effective Strategies (Use of Experts)

• In re Principal U.S. Prop. Account ERISA Litig., No. 4:10-

CV-00198-JEG, 2013 WL 7218827 (S.D. Iowa Sept. 30, 2013)

• Economic experts may also be used to show that Plaintiffs failed to

demonstrate common damages among the class.

• Plaintiffs alleged that Defendants imprudently managed plan assets

and failed to properly monitor other managing fiduciaries.

• Defendants’ experts, Cornerstone Research, pointed to individual

issues related to calculating plaintiffs’ damages and the lack of damages shown by Plaintiffs’ damages calculus.

• The District Court denied class certification because Plaintiffs failed

to set forth a workable methodology for calculating damages on a classwide basis.

47

II.E. Strategies for Defeating Certification: Other Effective Strategies (Use of Experts)

• George v. Kraft Foods Glob., Inc., No. 08 C 3799, 2011

WL 5118815 (N.D. Ill. Oct. 25, 2011)

• Even if use of economic experts will not defeat ERISA class certification, these

experts can also be used to narrow ERISA classes and reduce damages.

• Plaintiffs alleged, among other things, that plan fiduciaries had breached their ERISA

duties by offering imprudent investment options in their retirement plan.

• Plaintiffs’ expert claimed that the inclusion of two allegedly imprudent investment

funds damaged the retirement plan by between $109.4 million and $179.6 million and that the retirement plan suffered additional losses of $28.5 million from excessive fees.

• Defendants’ expert, Compass Lexecon, opined that Plaintiffs’ expert’s calculations

were fundamentally flawed and that the plan’s losses, assuming liability, ranged from $0 to $22 million depending on the alternative investment. Defendants’ expert’s report also challenged plaintiffs’ class definition.

• Ultimately, the district court denied plaintiffs’ request for class certification, and,

shortly thereafter, the parties settled within the range estimated by Defendants’ expert.

• See also Spano v. The Boeing Co., 633 F.3d 574 (7th Cir. 2011) (providing a

comprehensive discussion of class certification considerations in connection with ERISA stock fund cases).

48

II.E. Strategies for Defeating Certification: Other Effective Strategies (Commonality Issue)

• Courts have also increasingly relied on the

Supreme Court’s decision in Wal-Mart v. Dukes to deny requests for certification in ERISA class actions.

• There exist a multitude of ways to show lack of

commonality through Wal-Mart, including disparate plan language among class members, dissimilar timing entering into plan among class members, and conflicting levels of harm among class members.

49

II.E. Strategies for Defeating Certification: Other Effective Strategies (Commonality Issue)

• Wal-Mart v. Dukes, 131 S. Ct. 2541 (2011)
• Background:
• Putative class of 1.5 million female employees.
• Claimed Title VII violation: local managers’ pay and

promotion decisions disproportionately favored men, having a disparate impact on women; and Wal-Mart’s refusal to cabin its managers’ authority amounted to disparate treatment.

• The District Court certified the class, finding that respondents

satisfied Rule 23(a), and the Ninth Circuit substantially affirmed.

• Supreme Court (5-4 decision authored by Scalia, J.)
• The Court reversed as to lower courts’ Rule 23(a) ruling.

50

II.E. Strategies for Defeating Certification: Other Effective Strategies (Commonality Issue)

• Wal-Mart v. Dukes, 131 S. Ct. 2541 (2011)
• On Rule 23(a) commonality:
• “Common Question”
• Must be provable with common evidence;
• Must have the same answer for all class members; and
• Must be central to the validity of the claim
• “What matters to class certification . . . is not the raising of

common ‘questions’—even in droves—but, rather the capacity of a classwide proceeding to generate common answers apt to drive the resolution of the litigation.”

• Court expresses skepticism toward “promises” of common

proof; instead, Court is interested in potential trial evidence.

51

II.E. Strategies for Defeating Certification: Other Effective Strategies (Commonality Issue)

• Lipstein v. UnitedHealth Grp., CIV. 11-1185 JBS/JS,

2013 WL 5410631 (D.N.J. Sept. 26, 2013)

• Applied Wal-Mart to conclude there was no commonality

for a proposed class of plans challenging how Medicare

• ffsets were calculated; plans had different language on

the issue and different standards of review.

• Groussman v. Motorola, Inc., 10 C 911, 2011 WL

5554030 (N.D. Ill. Nov. 15, 2011)

• Denied ERISA breach of fiduciary duties class because

the class does “not consist of individuals who uniformly invested in [company] stock at a set time and suffered in a similar manner.”

52

II.E. Strategies for Defeating Certification: Other Effective Strategies (Commonality Issue)

• In re Principal U.S. Prop. Account ERISA Litig., No. 4:10-

CV-00198-JEG, 2013 WL 7218827 (S.D. Iowa Sept. 30, 2013)

• Rejected motion for class certification because Plaintiffs failed to

show a methodology to calculate classwide damages.

• Bond v. Marriott Int’l, Inc., 296 F.R.D. 403 (D. Md. 2014)
• Plaintiffs alleging their plan should have been subject to ERISA’s

substantive requirements could not show commonality because many plaintiffs received more benefits than if ERISA’s requirements had been applied to the plan.

• Carr v. Int’l Game Tech., No. 3:09-CV-00584-ECR, 2012 WL

909437 (D. Nev. Mar. 16, 2012)

• Individual issues as to Plaintiffs’ reliance on Defendants’ alleged

misrepresentation required denial of class certification.

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Discussion: Best Practices to Avoid and Reduce ERISA Breach of Fiduciary Duty Class Actions

July 24, 2017 Title of Presentation | FileSite Number

54

ERISA Breach of Fiduciary Duty Class Actions: Avoiding and Defending Claims Against Companies and Fiduciaries

James O. Fleckner Goodwin Procter LLP 100 Northern Ave. Boston, MA 02210 P: 617.570.1153 jfleckner@goodwinlaw.com Brian D. Netter Mayer Brown LLP 1999 K Street NW Washington, DC 20006 P: 202.263.3339 bnetter@mayerbrown.com