Source: https://www.erisa-employeebenefitslitigationblog.com/
Timestamp: 2019-04-20 10:38:32+00:00

Document:
Synopsis : Many parties to ERISA litigation and arbitration pay lip service to the burden of proof, put on their respective cases and leave it to the trier of fact to decide which side deserves the victory. Burdens of proof have become increasingly important, however, as procedural and substantive issues become more complex, and judges often have less time to deal with the subtleties in ERISA litigation. Burdens of proof thus demand more attention.
It is easy to glaze over a basic tenet of law that is getting more attention — Who has the burden of proof?
Emphasizing burdens of proof can mean the difference between winning or losing, and potentially millions of dollars in damages. Earlier this year, Putnam Investments LLC stated its intention to file a petition with the U.S. Supreme Court asking the high court to weigh in on who bears the burden of proving injury and whether retirement investment choices were prudent in ERISA fiduciary breach cases. (See Brotherston v. Putnam Investments, LLC, No. 17-1711 (1st Cir. Oct. 15, 2018)). This is not the first time that the Supreme Court has been asked to take up this issue as there is a significant split among the circuits—certain circuit courts have said causation is an element of the cause of action, other circuits have said it is the plaintiff’s burden to prove that the harm was attributable to the fiduciary, and still other circuits have said that the burden shifts to the fiduciary to show that it did not cause the harm. This is but one example where the burden of proof can have a significant effect on the outcome of a case.
Also, as cases become more complex, and judges and arbitrators are asked to navigate through more evidence, weigh the credibility of witnesses testifying by deposition video and transcript, and parse through heightened attorney showmanship, burdens of proof are likely to get more attention. A U.S. District Court Judge recently admonished an attorney for glazing over the evidence necessary to meet his burden, stating “I am not co-plaintiff counsel . . . I’m [not] supposed to now go find evidence to supplement your record. That’s totally improper.” (See Law360, 12/4/18, 10:40 PM, https://www.law360.com/articles/1107974 ).
A judge or arbitrator overwhelmed by complexity may be more receptive than counsel thinks. No party should ask the trier of fact to define his or her case. It is a claimant’s job to present his or her case with specificity and within the confines of the substantive and procedural law.
Seyfarth synopsis: The Second Circuit reversed dismissal of an ERISA stock drop class action finding plaintiff alleged enough to plausibly show that disclosure of alleged corporate problems would not have done more harm than good and sketching a treasure map for ERISA plaintiffs seeking to recover for 401(k) plan losses.
Many thought ERISA stock drop claims were doomed by the Supreme Court’s 2014 decision in Fifth Third Bancorp v. Dudenhoeffer, and given court rulings since that decision they largely were. The Second Circuit may have reversed that trend in a recent decision.
In Jander v. Retirement Plans Committee of IBM et al., No. 17-3518 (2d Cir. Dec. 10, 2018), investors in the IBM Company Stock Fund, an ESOP contained within the company’s 401(k) plan, claimed that the plan fiduciaries violated the duty of prudence by continuing to invest ESOP funds in IBM common stock, despite knowing that IBM’s microelectronics business was losing money, and was allegedly overvalued in company disclosures. The troubled division was losing $700 million annually, and eventually had to be sold on a write-down, causing IBM’s stock to fall by $12 per share, the complaint alleges.
The district court dismissed the complaint, finding plaintiffs had not pleaded facts showing the fiduciaries could not have reasonably concluded that available alternatives, such as disclosing the alleged difficulties, halting investment in IBM stock, or investing in hedging investments, would not have caused more harm than good.
The Second Circuit reversed. The Second Circuit analyzed Dudenhoeffer, and standards of pleading for a breach of the duty of prudence. The Second Circuit focused on the difference between whether a plaintiff must plead merely that an “average” fiduciary “would not” have viewed available alternatives as more likely to do harm than good to a plan, or a more stringent requirement to plead that “any” fiduciary “could not” have viewed the available alternatives as more likely to harm than help.
The Court declined to weigh in on the difference, however, because it found that the plaintiffs had adequately pleaded a breach of the duty of prudence under either standard. The Court recited several specific factual allegations, such as the fiduciaries’ alleged knowledge of the supposedly artificial price inflation, their power to disclose the truth, and the negative impact of the failure to disclose on the reputation of the company’s management, that cumulatively satisfied the plaintiffs’ burden. Notably, the Court also focused on the allegation that the defendants knew that the eventual disclosure regarding the troubled division was inevitable, and therefore earlier disclosure would have been less harmful to stock price than later disclosure.
By not weighing in on which of the “harm versus help” standards apply, but extensively examining the adequacy of plaintiffs’ specific allegations, and repeatedly noting the district courts’ duty to construe inferences in plaintiffs’ favor on a motion to dismiss, the Second Circuit has given putative ERISA stock drop plaintiffs a roadmap to survive a motion to dismiss, something that has largely eluded them since 2014. ESOP fiduciaries take heed.
Seyfarth Synopsis: A recent case from the Eastern District of Pennsylvania reaffirms the basic principle that a threshold element of any ERISA claim is pleading the existence of an ERISA plan.
Seyfarth Synopsis: A district court recently denied a motion to dismiss a 401(k) proprietary fund class action, continuing an overwhelming trend of allowing these cases to survive pleading challenges. On the bright side, however, the Eighth Circuit recently affirmed a dismissal of such a case, and the first of these cases to be tried resulted in a defense victory, which is on appeal with the First Circuit.
The plaintiffs’ bar sparked a new 401(k) class action trend a few years ago by targeting “proprietary” in- house investment products, alleging that fiduciaries were committing a breach by including their in-house proprietary funds in plans to the exclusion of less expensive, better-performing comparable options.
In most of these cases, plaintiffs have survived initial pleading challenges. Generally courts have found that allegations underlying these cases supported an inference that the fiduciaries engaged in a flawed process. See, e.g., Cryer v. Franklin Templeton Res., No. 16-cv-4265 (N.D. Cal. Jan. 17, 2017); Urakhchin v. Allianz Asset Mgmt. of Am., L.P., No. 15-cv-1614 (C.D. Cal. Aug. 5, 2016).
A district court in Maryland recently continued the trend by denying a motion to dismiss a first amended complaint for a proprietary fund case. See Feinberg v. T. Rowe Price Group, Inc., et al., D. Md. Case No. MJG-17-0427, 2018 BL 298391 (Aug. 20, 2018). In Feinberg, plaintiffs alleged that fiduciaries breached their duties and committed related ERISA violations by, among other things, including in the plan retail-class versions of in-house funds even though purportedly cheaper versions of the same funds were available for commercial customers. Notably, in addressing defendants’ argument that the plan documents required that they select an exclusive line-up of proprietary funds, the court found that the decision to structure the plan that way was a settlor, non-fiduciary function, and “did not provide a blanket defense” for the fiduciaries. The court concluded that plaintiffs pled sufficient allegations to raise plausible inferences to support all of their claims.
Defendants also argued that plaintiffs’ prohibited transaction claim was barred under ERISA’s six-year statute of repose, because no prohibited transaction (i.e. the initial inclusion of the fund in the plan) occurred within six years of the lawsuit. The court noted that while defendants “may have viable defenses,” the claim would not be dismissed now, because the court could infer a plausible timely claim of prohibited transactions, including the continuous monthly fees being paid for the funds at issue.
In contrast to this decision and the plaintiff-friendly trend on pleading challenges for these cases, one defense victory on a motion to dismiss was recently affirmed by the Eighth Circuit. See Meiners v. Wells Fargo & Co., No. 0:16-cv-003981, 2017 WL 2303968 (D. Minn. May 25, 2017); Eighth Circuit No. 17-2397 (Aug. 3, 2018). In that case, the Eighth Circuit expressly acknowledged the “challenging pleading burden” for plaintiffs because they have different levels of knowledge regarding the investment choices the fiduciary made versus how the choices were made. The Eighth Circuit held that the existence of a cheaper fund, as pled by plaintiff, doesn’t mean that a particular proprietary fund is too expensive in the market generally or that it’s otherwise an imprudent choice.
As any litigator knows, losing a motion to dismiss is the loss of merely one battle in what can be a long-fought (and not to mention, costly) war. In fact, in the first of these cases to go to trial resulted in a defense victory, which is pending appeal in the First Circuit. Brotherston v. Putnam Investments LLC, 1:15-cv-13825, 2017 WL 2634361, (D. Mass. June 19, 2017). While some companies avoid protracted litigation and choose to settle these cases at early stages, this is not to say that a sound fiduciary process cannot be ultimately vindicated in court. Stay tuned on further developments. . .

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