18th Annual Workplace Class Action Report - 2022 Edition

348 Annual Workplace Class Action Litigation Report: 2022 Edition Wilson, et al. v. Craver, 2021 U.S. App. LEXIS 11181 (9th Cir. April 19, 2021). Plaintiff, an employee of Edison International, Inc., brought a putative class action alleging that two of the fiduciaries of Edison’s 401(k) employee stock ownership plan (“ESOP”) breached their duty of prudence in violation of the ERISA, which requires the fiduciary of a pension plan to act prudently in managing the plan’s assets. Plaintiff alleged that the fiduciaries violated the ERISA by allowing employees to continue to invest in Edison stock after learning that the stock was artificially inflated. Specifically, Plaintiff alleged that Defendants breached their duty of prudence because they knew that undisclosed misrepresentations were artificially inflating Edison’s stock price, yet they took no action to protect the Plan participants from the foreseeable harm that inevitably resulted when fraud is revealed to the market. Edison was the parent company of Southern California Edison Company ("SCE"), which supplied electricity to much of Southern California. The alleged misrepresentation was that SCE failed to disclose certain ex parte communications between SCE executives and California Public Utilities Commission ("CPUC") decision-makers that occurred while the CPUC was overseeing SCE’s rate-setting proceedings and settlement negotiations with ratepayer advocacy groups. Plaintiff alleged that the failure to disclose these communications was material to the market because once revealed, the ex parte communications called the highly anticipated settlement between the SCE and the ratepayer advocacy groups into question. Further, Plaintiff alleged that Defendants breached their duty of prudence because they knew that undisclosed misrepresentations were artificially inflating Edison’s stock price, yet they took no action to protect the Plan participants from the foreseeable harm that inevitably resulted when the fraud was revealed to the market. To state a duty-of-prudence claim against an ESOP fiduciary under Fifth Third Bancorp v. Dudenhoeffer , 573 U.S. 409, 428 (2014), the District Court noted that Plaintiffs must plausibly allege an alternative action so clearly beneficial that a prudent fiduciary could not conclude that it would be more likely to harm the fund than to help it. The District Court dismissed the lawsuit on the basis that Plaintiff failed plausibly to allege the requisite alternative action. On Plaintiffs’ appeal, the Ninth Circuit affirmed the District Court’s dismissal order. The Ninth Circuit held that the suit was properly dismissed for failure to state a claim because the complaint failed to state a duty-of-prudence claim under the Fifth Third standard because it did not plausibly allege an alternative action that was so clearly beneficial that a prudent fiduciary could not conclude that it would be more likely to harm the fund than to help it. As such, the Ninth Circuit held that that general economic principles upon which Plaintiff relied were not enough on their own to plead a duty-of-prudence violation because the complaint lacked context- specific allegations explaining why an earlier disclosure was so clearly beneficial that a prudent fiduciary could not conclude that disclosure would be more likely to harm the fund than help it. For these reasons, the Ninth Circuit determined that Plaintiff failed to state a claim for breach of the duty of prudence consistent with the standard announced in Fifth Third and it therefore affirmed the District Court’s order. (xii) Excessive Fee Claims In ERISA Class Actions Bilello, et al. v. Estee Lauder Inc., Case No. 20-CV-4770 (S.D.N.Y. June 7, 2021). Plaintiffs, a group of participants in Defendant’s retirement plan, filed a class action alleging that the plan charged excessive administrative fees in violation of the ERISA. Plaintiffs asserted that although the retirement plan was one of the largest funded plans of its kind, it failed to utilize its size as an advantage when bargaining for cheaper fees for plan participants. Plaintiffs contended that this led to plan participants losing retirement funds as a result of the excessive fees paid. The plan Defendant filed a motion to dismiss, which the Court denied. The Court declined to address the reason for denying the motion, but stated that it would explain its reasoning in a telephonic conference within 30 days. In Re MedStar ERISA Litigation, 2021 U.S. Dist. LEXIS 21792 (D. Md. Feb. 4, 2021). Plaintiffs, a group of participants in Defendants’ MedStar Health, Inc. Retirement Savings Plan (“the Plan”), filed a class action against Defendants asserting causes of action for breach of fiduciary duty, failure to monitor, and knowing breach of trust under the ERISA. According to Plaintiffs’ allegations, Defendants failed to monitor the typical expenses charged to similarly-sized plans and did not consider ways to lessen the fee burden on participants. Plaintiffs also pointed to three specific funds that allegedly underperformed their benchmarks and peer group, including the Fidelity Freedom Fund, the John Hancock Disciplined Value Fund, and the Baron Small Cap Fund. Defendants filed a motion to dismiss on the basis that Plaintiffs failed to state an adequate claim for relief. The Court denied Defendants’ motion. As to Plaintiffs’ breach of fiduciary duty claim, Defendants challenged whether Plaintiffs provided enough facts to raise a reasonable inference that Defendants breached their fiduciary duty of prudence. To that end, Plaintiffs’ primary claim was that Defendants’ breached their duty of prudence by