The U.S. Court of Appeals for the Seventh Circuit appeared receptive to reviving an ERISA class action suit against Northwestern University, claiming mismanagement of the workers’ 403(b) plan, albeit on a limited scale. The employees alleged that Northwestern breached their fiduciary duties under ERISA by allowing too many investment options, causing them to pay excessive fees. In addition, they claimed that including the more expensive share classes of mutual funds precluded their access to lower-fee institutional share classes of mutual funds.
Recent court decisions were highly relevant to the court discussion, including a U.S. Supreme Court’s decision suggesting that a district court erred in concluding amending the workers’ complaint in a similar case would be futile. The court further asked Northwestern’s attorney to distinguish the workers’ pleadings in Forman v. Tri-Health from this case, in which the U.S. Court of Appeals for the Sixth Circuit revived certain ERISA imprudence claims.
The judges also appeared skeptical of Northwestern’s contention that the workers should meet the pleading standard articulated by the U.S. Supreme Court in Fifth Third Bank v. Dudenhoeffer to survive a motion to dismiss. That case dealt with the alleged mismanagement of an Employee Stock Ownership Plan (ESOP) and set forth a very high pleading standard, historically used to prove insider trading in ESOP cases. Counsel for Northwestern claimed that the Dudenhoeffer standard was indicative of the judgment that a fiduciary may make, based on experience and expertise.
The court examined the employees’ breach of fiduciary claim concerning recordkeeping fees and indicated that its decision in Albert v. Oshkosh supported a finding of a lack of evidence on that claim.
The case is Laura Divane et al. v. Northwestern University et al., case number 18-2569, U.S. Court of Appeals for the Seventh Circuit.
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