The U.S. District Court for the Western District of North Carolina issued a ruling this week in an Employee Retirement Income Security Act (ERISA) fiduciary breach lawsuit filed against Duke Energy and several other related defendants.
The order, based on a recommendation prepared by a U.S. magistrate judge, denies the defendants’ motion to dismiss the lawsuit and sets the stage for discovery and trial—or a potential settlement.
The plaintiffs claim their plan’s fiduciaries allowed the payment of “exorbitant excess fees,” making it “reasonable to infer the defendants have failed to follow these prudent practices and have thus failed to uphold their fiduciary duties.”
According to the lawsuit, from the beginning of 2014 through the end of 2018, the plan had between 33,000 and 39,000 participants, and between $6.7 billion and $8.6 billion in assets. The plaintiffs say plans of this size are often referred to as “jumbo” or “mega” plans and have “significant bargaining power to extract extraordinarily low fees for services,” including for recordkeeping and managed account services.
For its part, Duke Energy says its retirement savings plan has been carefully designed and administered as a retirement savings tool for the company’s many employees. In a prior statement to PLANADVISER, the company said Duke Energy and its fiduciaries “take seriously their responsibilities under the federal Employee Retirement Income Security Act of 1974, and work diligently to fully discharge their duties under the law.” They said the company would vigorously defend against this lawsuit, which can now proceed to discovery.
Much of the text of the recommendation and subsequent pro-plaintiff order is dedicated to discussion of the standard of pleading that applies in these cases under the Federal Rule of Civil Procedure 12(b)(6). Under this standard, a claim has facial plausibility—and thus can proceed beyond a rote motion to dismiss—when the plaintiff “pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.”
In a precedent-setting case, Ashcroft v. Iqbal, the Supreme Court articulated a two-step process for determining whether a complaint meets this plausibility standard. As the recommendation summarizes, the first issue is for the court to identify with skepticism any allegations that, because they are no more than conclusions, are not entitled to the assumption of truth. The recommendation notes that “threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice” to state an actionable claim.
Second, to the extent there are well-pleaded factual allegations, the court should assume their truth and then determine whether they plausibly give rise to an entitlement to relief. The recommendation emphasizes that the act of determining whether a complaint contains sufficient facts to state a plausible claim for relief will necessarily be “a context-specific task that requires the reviewing court to draw on its judicial experience and common sense.”
From here, the recommendation cites an important precedent applying in the 8th U.S. Circuit, summarizing it as follows: “No matter how clever or diligent, ERISA plaintiffs generally lack the inside information necessary to make out their claims in detail unless and until discovery commences. Thus, while a plaintiff must offer sufficient factual allegations to show that he or she is not merely engaged in a fishing expedition or strike suit, we must also take account of their limited access to crucial information. If plaintiffs cannot state a claim without pleading facts which tend systemically to be in the sole possession of the defendants, the remedial scheme of the statute will fail, and the crucial rights secured by ERISA will suffer. These considerations counsel careful and holistic evaluation of an ERISA complaint’s factual allegations before concluding that they do not support a plausible inference that the plaintiff is entitled to relief.”
Having spelled all this out, the recommendation and order promptly conclude that the plaintiffs have sufficiently stated a claim for breach of fiduciary duty.
“They allege that the defendants used Fidelity for recordkeeping services since 2009,” the recommendation recounts. “Plan participants paid $58 to $67 for recordkeeping services from 2014 to 2018, while similar plans paid less for comparable services. Fidelity stipulated that it would have provided comparable services to similarly sized plans for $14 to $21 since 2014. The defendants failed to renegotiate with Fidelity or solicit competitive bids until 2019, and the plan’s per-participant fees remained steady while fees across the industry dropped. Taken in the light most favorable to the plaintiffs and under the totality of the circumstances, these allegations raise a plausible inference that the defendants breached their fiduciary duty.”
This pro-plaintiff ruling comes in the wake of the filing of a much-anticipated Supreme Court order in the case known as Hughes v. Northwestern University, wherein the high court ruled that it is the employer’s obligation, not the employee’s, to make sure funds and fees in a defined contribution (DC) retirement plan are prudent and not excessively costly.