ERISA Litigation Roundup: 401(k) Fee Suits Tossed for Pleading Deficiencies Is Positive Trend for Plan Fiduciaries

At a Glance

• While it is hard to reconcile Judge Griesbach’s dismissal of three lawsuits in one day with his refusal to dismiss similar lawsuits several days later (all filed by the same plaintiff’s firm), the dismissals for failure to include appropriate comparator plans are a positive trend for 401(k) plan fiduciaries in the Seventh Circuit, and has gained steam in the Sixth and Eighth Circuits as well.
• In these jurisdictions, plaintiffs are on notice that their complaints must provide allegations of meaningful comparator plans of similar size that received similar recordkeeping services to the plan at issue. Complaints lacking this specificity may face an early exit from litigation.

A judge in the Eastern District of Wisconsin recently issued a trio of decisions on the same day, which tossed suits alleging 401(k) plan mismanagement because all three complaints contained insufficient pleadings that did not use meaningful comparators to evaluate the plans at issue.

In Cotter v. Matthews Int’l Corp., Judge William C. Griesbach adopted the magistrate judge’s recommendation to dismiss the plaintiff’s second amended complaint for failure to state a claim. (E.D. Wis. Jan. 19, 2024). The plaintiff alleged that the 401(k) plan fiduciaries breached their duty of prudence by allowing the plan to pay excessive recordkeeping, administrative and investment management fees. In granting the defendant’s motion to dismiss, Judge Griesbach noted that the magistrate judge had correctly analyzed the plaintiff’s comparators and found them “disparate to the plan at issue.” The magistrate judge explained that the comparator plans varied significantly in size and thus could not be used to derive a reasonable fee for recordkeeping services. There was, therefore, no basis to allege that the plan’s recordkeeping fees were excessive. The plaintiff also failed to allege what reasonable fees would be for a comparably sized plan. Judge Griesbach concluded that “[w]ithout any comparators, the complaint contains no allegations that the amount of recordkeeping and administrative fees paid by the Plan breached the fiduciary duty of prudence.” The judge also denied plaintiff’s request to file a third amended complaint, stating “there must be some endpoint to this time-consuming and expensive cycle of litigation.”

Similarly, in Guyes v. Nestle USA Inc. (E.D. Wis. Jan. 19, 2024) and Laabs v. Faith Techs., Inc. (E.D. Wis. Jan. 19, 2024), Judge Griesbach adopted the same magistrate judge recommendation for the same reasons — lack of meaningful comparator plans. Notably, all three lawsuits were filed by the same law firm (Walcheske & Luzi LLC).

These decisions point to a positive trend for 401(k) fiduciaries in this jurisdiction, as Judge Griesbach followed the pleading standards set forth in recent Seventh Circuit breach of fiduciary duty cases. See Hughes v. Northwestern University, 63 F.4th 615 (7th Cir. 2023) and Albert v. Oshkosh Corp., 47 F.4th 570 (7th Cir. 2022). In Albert, the Seventh Circuit explained that plaintiffs must include appropriate “comparator plans” that specifically compare the excessive fees at issue between the plan in the lawsuit and the comparator plans. Albert at 579. The plaintiffs’ lawsuit simply failed to provide the required specificity to meet this standard.

However, just a few days after Judge Griesbach’s three dismissals, he denied two motions to dismiss in strikingly similar fiduciary breach cases — Glick v. Thedacare, Inc. (E.D. Wis. Jan. 22, 2024) and Nohara v. Prevea Clinic, Inc. (E.D. Wis. Jan. 22, 2024) — also filed by Walcheske & Luzi. In those cases, the court provided little analysis and noted it was a “close case,” but found the difference in the recordkeeping and administrative fees between the plan at issue and the comparator plans was significant enough to raise an inference that fiduciary duties were breached. Thus the complaints survived the pleading stage.

Faegre Drinker’s Perspective

While it is hard to reconcile Judge Griesbach’s dismissal of three lawsuits in one day with his refusal to dismiss similar lawsuits several days later (all filed by the same plaintiff’s firm), the dismissals for failure to include appropriate comparator plans are a positive trend for 401(k) plan fiduciaries in the Seventh Circuit, and has gained steam in other circuits as well. See Smith v. CommonSpirit Health (6th Cir. 2022) and Matousek v. MidAmerican Energy Co. (8th Cir. 2022). In these jurisdictions, plaintiffs are on notice that their complaints must provide allegations of meaningful comparator plans of similar size that received similar recordkeeping services to the plan at issue. Complaints lacking this specificity may face an early exit from litigation.