Lowe’s ERISA Lawsuit Clears Pre-Trial Hurdle

A District Court has affirmed most of the recommendations made by a Magistrate Judge, who previously issued a memorandum concluding the ERISA fiduciary breach case should proceed.

Following recommendations from a Magistrate Judge a federal judge from the U.S. District Court for the Western District of North Carolina granted in part and denied in part Lowe’s Companies’ motion to dismiss an Employee Retirement Income Security Act (ERSIA) lawsuit.

The core of the fiduciary breach complaint is summarized as follows in case documents: “Lowe’s imprudently selected and retained the Hewitt Growth Fund for the Plan, in consultation with Hewitt (which served as the plan’s fiduciary investment consultant), despite the fact that (1) the Hewitt Growth Fund was a new and largely untested fund at the time it was added to the plan; (2) the Hewitt Growth Fund was underperforming its benchmark at the time it was added to the plan and continued to underperform after it was added to the plan; and (3) the Hewitt Growth Fund was not utilized by fiduciaries of any similarly-sized plans and was generally unpopular in the marketplace.”

According to the text of the complaint, defendants placed $1 billion of the Lowe’s 401(k) plan’s assets into the new fund. At least some of the money, plaintiffs allege, was inappropriately reallocated from eight existing funds in the plan, “which were generally performing well,” when the Hewitt Growth Fund replaced these options on the investment menu.

The decision comes after the District Court conducted a de novo review of Magistrate Judge David C. Keesler’s formal memorandum and recommendation (M&R) issued in this matter. For his part, Judge Keesler recommended that the Lowe’s motion to dismiss be denied, which in turn sparked the defendants’ to file an objection to the magisterial memorandum and recommendation.

In arguing against the Magistrate Judge’s recommendation, the Lowe’s defendants asserted a variety of objections, including that the M&R inappropriate applied a relaxed pleading standard derived from an 8th U.S. Circuit Court of Appeals opinion that has not been adopted by the 4th Circuit. The defense also challenged the finding that Lowe’s had any fiduciary duty for selecting or monitoring investment choices.

The text of the new decision examines each of six distinct objections individually.

On the first objection, U.S. District Judge Kenneth D. Bell explained that the Lowe’s defendants contend that the Magistrate Judge improperly applied Braden v. Wal-Mart Stores to create a lower pleading standard for ERISA cases. However, Bell stated that Braden does not create a lower pleading standard for ERISA cases.

“Rather, Braden simply stands for the proposition that courts should draw all reasonable inferences from the totality of the allegations, and not dismiss ERISA claims because the complaint fails to allege all the specifics of the conduct that leads to the breach of fiduciary duty,” Bell wrote. “In any event, notwithstanding the Magistrate Judge’s citation of Braden, the [District Court] has undertaken a careful and holistic evaluation of the complaint as a whole in accordance with Iqbal and Twombly.”

A similar result was reached after consideration of the objection that Lowe’s status as a fiduciary to the plan can be disputed.

“Because the 4th Circuit has expressly stated that a fiduciary may either be formally designated or exist by nature of de facto performance, the plan document is not dispositive of Lowe’s status as a plan fiduciary,” the decision states. “Further, the [District Court] agrees with prior decisions in this district that whether plaintiff will be able to show the requisite degree of control over the plan is a question to be addressed at later stages of this action. Therefore, the Court will not dismiss Count I on the grounds that plaintiff failed to adequately plead that Lowe’s is a de facto fiduciary of the plan.”

One area where the new decision sides with the Lowe’s defendants has to do with its monitoring of Aon Hewitt. In short, Bell agreed with Lowe’s argument that the M&R is “incorrect in finding that plaintiff has stated a claim against Lowe’s for failure to monitor Aon Hewitt.”

“The plan document provides that the administrative committee, not Lowe’s, has sole authority to appoint Aon Hewitt,” Bell wrote. “While Lowe’s admittedly has the obligation to monitor the fiduciaries it appoints directly, it stretches the bounds of the duty to monitor too far to hold Lowe’s responsible for monitoring every fiduciary employed by the plan, including those fiduciaries which the plan explicitly envisions being appointed by the administrative committee. Accordingly, Count II is dismissed to the extent that it is based on a claim that Lowe’s had a duty to monitor Aon Hewitt.”

With this logic in mind, Lowe’s motion to dismiss Count II was denied to the extent it alleges that Lowe’s failed to monitor the administrative committee, but granted to the extent it asserts claims against Lowe’s for the failure to monitor Aon Hewitt.