Monday, November 30, 2009

Eighth Circuit Reinstates ERISA Case Against Wal-Mart Involving Iqbal Plausibility Standard

401K_2 A number of my ERISA friends have sent me the case of Braden v. Wal-Mart Stores, No. 08-3798 (8th Cir. Nov. 25, 2009).  The case involves a class action dispute, alleging breach of fiduciary issues in the way that Wal-Mart managed its profit sharing and 401(k) retirement plans:

The gravamen of the complaint is that appellees failed adequately to evaluate the investment options included in the Plan. It alleges that the process by which the mutual funds were selected was tainted by appellees' failure to consider trustee Merrill Lynch's interest in including funds that shared their fees with the trustee. The result of these failures, according to Braden, is that some or all of the investment options included in the Plan charge excessive fees. He estimates that these fees have unnecessarily cost the Plan some $60 million over the past six years and will continue to waste approximately $20 million per year . . . .

Braden alleges extensive facts in support of these claims. He claims that Wal-
Mart's retirement plan is relatively large and that plans of such size have substantial bargaining power in the highly competitive 401(k) marketplace. As a result, plansn such as Wal-Mart's can obtain institutional shares of mutual funds, which, Braden claims, are significantly cheaper than the retail shares generally offered to individual investors. Nonetheless, he alleges that the Plan only offers retail class shares to participants. Braden also avers that seven of the ten funds charge 12b-1 fees, which he alleges are used to benefit the fund companies but not Plan participants.

The case is significant because the Plan has over one million participants and nearly $10 billion in assets.

Wal-Mart had moved for a motion to dismiss under 12(b)(1) and 12(b)(6) and:

The district court granted the motion, concluding that Braden lacked constitutional standing to assert claims based on breaches of fiduciary duty prior to the date he first contributed to the Plan and that he otherwise failed to state any plausible claim upon which relief could be granted.

The Eight Circuit reversed and remanded. Specifically on the standing issue, the court held that that Braden made a sufficient showing on Article III standing and proving a cause of action under ERISA and that the district court erred in concluding that he lacked standing to maintain claims for the period before he began participating in the Plan:

In reaching this conclusion, the district court mixed two distinct issues. Whether Braden may pursue claims on behalf of the Plan at all is a question of constitutional standing which turns on his personal injury. Whether relief may be had for a certain period of time is a separate question, and its answer turns on the cause of action Braden asserts.

On the plausibility issue, the court took issue with the high standards the district court placed on the plaintiffs under Iqbal and Twombley:

We conclude that the district court erred in its application of Rule 8. Accepting Braden's well pleaded factual allegations as true, he has stated a claim for breach of fiduciary duty.

The district court erred in two ways. It ignored reasonable inferences supported by the facts alleged. It also drew inferences in appellees' favor, faulting Braden for failing to plead facts tending to contradict those inferences. Each of these errors violates the familiar axiom that on a motion to dismiss, inferences are to be drawn in favor of the non-moving party.

More specifically,

Braden's allegations are sufficient to state a claim that appellees breached their duty of loyalty by failing to disclose details about the revenue sharing payments. Braden alleges that those payments corrupted the fund selection process—that each fund was selected for inclusion in the Plan because it made payments to the trustee, and not because it was a prudent investment.

So, at this stage of the litigation, nothing of real substance has been decided as far as ERISA violations, but at least the court suggests that ERISA defendants will not be normally able to avoid more searching inquiries into their fiduciary acts in these fee litigation cases through a combination of standing and process objections.


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