Welcome to Goodwin's ERISA Litigation Update. Litigation involving ERISA-governed benefits plans has exploded in recent years. Lawyers in our award-winning ERISA Litigation practice have extensive experience litigating these cases across the country, as well as representing clients in Department of Labor investigations. The ERISA Litigation Update will gather notable developments in this space, including important court decisions and appeals as well as regulatory guidance, and provide information regarding those developments on a quarterly basis.
1 Two District Courts Grant Motions to Dismiss Claims Challenging Health Plans' Prescription Drug Costs
Key Takeaway: Two district courts have dismissed claims challenging health plans' prescription drug costs, ruling that the plaintiffs lacked standing to bring their claims.
On Jan. 24, 2025, the US District Court of New Jersey largely dismissed a complaint filed against Johnson & Johnson challenging its management of its prescription drug program, finding that the plaintiff lacked standing to bring most of her claims. On March 24, 2025, the US District Court of Minnesota followed suit and dismissed a similar complaint against Wells Fargo on the same grounds. The allegations in both cases were substantially the same: that the defendants breached their fiduciary duties by mismanaging the company's prescription drug benefits plan, resulting in higher premiums and out-of-pocket costs for plan participants.
The courts dismissed plaintiffs' claims for lack of standing, following the Third Circuit Court of Appeals precedent in Knudsen v. MetLife Grp. Inc. (for which our previous reporting is here, and the decision is here). Specifically, the courts found that the plaintiffs' claims that they paid higher premiums due to the alleged breach were speculative — unsupported by any specific, nonconclusory factual allegations aside from mere supposition. With respect to out-of-pocket costs, the court in the case against Wells Fargo similarly held that the plaintiffs lacked standing because any claims of higher out-of-pocket costs were speculative. The court in the case against Johnson & Johnson instead concluded that the plaintiff lacked standing because she had far exceeded her out-of-pocket maximum each year, meaning that even if she prevailed on her claims with respect to a particular drug that she alleged had been overpriced, she would not be entitled to any reimbursement for those allegedly excessive costs — instead, the money would go to her insurance carrier. In standing terms, her alleged injury was not "redressable" by the relief she sought.
The cases are Lewandowski v. Johnson & Johnson, No. 24-671, District of New Jersey, and Navarro v. Wells Fargo & Co., No. 24-3043, District of Minnesota. Johnson & Johnson was granted leave to amend, and another phase of motion-to-dismiss briefing is expected. Judgment was entered in the Wells Fargo case, and the deadline for filing a notice of appeal is April 23. Goodwin represented MetLife in the Knudsen case.
2 District Court Grants Motion to Dismiss Forfeiture Claims; Plaintiff Appeals to the Ninth Circuit
Key Takeaway: A district court's order granting a motion to dismiss has been appealed to the Ninth Circuit Court of Appeals, which could become the first appellate court to weigh in on the recent trend of forfeiture claims.
On Feb. 5, 2025, the US District Court for the Northern District of California dismissed a lawsuit against HP and the committee responsible for overseeing the administration of HP's 401(k) plan. The complaint — one of many similar lawsuits filed in the past two years against different plan sponsors and fiduciaries — alleged that the defendants had violated the Employee Retirement Income Security Act of 1974 (ERISA) by allocating plan forfeitures to reduce HP's company contributions to the plan rather than to pay plan expenses borne by its participants. Last year, the court had granted the defendants' motion to dismiss with leave to amend, and the plaintiff had amended the complaint principally by including allegations that the defendants had a conflict of interest when allocating forfeitures and that they had failed to conduct an adequate investigation when doing so. The defendants moved to dismiss the amended complaint.
The district court again granted the motion to dismiss in its entirety. As it had found with respect to the initial complaint, the court held that the amended complaint's theory was impermissibly broad, first because it sought to compel the defendants to provide additional benefits to participants beyond those set forth in the HP plan and second because it was inconsistent with the "long history" of plans "using forfeitures to reduce employer contributions." The court further found that the additional allegations in the amended complaint failed to state a plausible claim.
The case is Hutchins v. HP. Inc., No. 23-5875, in the Northern District of California, and is available here. The decision has been appealed to the Ninth Circuit Court of Appeals, which has assigned it No. 25-826 and set May 1, 2025, as the deadline for the plaintiff to file his opening brief. On March 3, 2025, a different judge in the Northern District of California denied a motion to dismiss similar forfeiture claims; that case is McManus v. The Clorox Company, No. 23-5325, and the decision is available here.
3 District Court Dismisses Claim Challenging the Use of Managed Account Services as the Default Investment for a Retirement Plan
Key Takeaway: A district court dismissed a plaintiff's challenge of a retirement plan's use of managed account services as the plan's qualified default investment alternative (QDIA).
On Jan. 10, 2025, the US District Court for the Eastern District of Virginia dismissed an ERISA lawsuit against Bechtel Global Corporation (Bechtel) and the committee responsible for overseeing the administration of Bechtel's 401(k) plan, among other defendants. The complaint alleged that the defendants had violated ERISA by selecting and continuing to use a managed account service as the plan's QDIA as opposed to an allegedly cheaper or more common target date fund (TDF). The plaintiff alleged that this conduct violated ERISA's duty of prudence and duty to adequately monitor investments. The defendants moved to dismiss the complaint for failure to state a claim.
On Oct. 18, 2024, the court granted the defendants' first motion to dismiss without prejudice. The court found that the amended complaint did not plausibly allege a "meaningful benchmark" demonstrating that the managed account services were excessive in relation to the services rendered, and that the plaintiff's attempt to compare the managed account service fee to administrative fees of other 401(k) plans was an inapt comparison. The plaintiff then amended her complaint for the second time, and the defendants renewed their motion to dismiss.
On Jan. 10, 2025, the court issued an opinion and order granting the defendants' renewed motion to dismiss in its entirety and dismissed the plaintiff's claims with prejudice. The court again found that the plaintiff had failed to plead a plausible breach of fiduciary duties because she failed plead a "meaningful benchmark" supporting her excessive-fee claim. Specifically, the court found that the complaint failed to offer any allegation that the asset allocation models for the managed account service were comparable to a TDF. Moreover, the court found that based on the documents referenced in the amended complaint, the managed account service engaged in a level of asset allocation and management not present in a TDF — further demonstrating her inability to plausibly allege that a TDF was a meaningful benchmark for the plan's managed account offering. Additionally, the court noted that the plaintiff's theory that participant participation is required for a managed account to be a proper default investment selection was inconsistent with the Department of Labor's QDIA regulations, which expressly permit the use of a managed account as a QDIA "in the absence of an investment election by participants."
The case is Hanigan v. Bechtel Global Corp., No. 24-875, in the Eastern District of Virginia, and the opinions are available here and here. Goodwin represented Bechtel in this litigation.
4 District Court Trial Decision Finds Plan Sponsor Violated Duty of Loyalty by Failing to Monitor Investment Manager's Proxy Voting and ESG Activism
Key Takeaway: A district court found that the defendants' practices with respect to monitoring an investment manager's proxy voting activities were prudent and in line with industry practices but nonetheless also found the defendants breached the duty of loyalty by failing to investigate that investment manager's proxy voting and investing activities related to environmental, social, and governance (ESG) objectives. Notably, the subject plans did not offer or invest in ESG-focused investment options. The decision follows the court's order denying defendants' motion for summary judgment last summer, covered by Goodwin here.
On Jan. 10, 2025, the US District Court for the Northern District of Texas issued its Findings of Fact and Conclusions of Law following last summer's four-day bench trial, finding that American Airlines and the committee responsible for managing American Airlines' 401(k) plan breached their fiduciary duty of loyalty based on conflicts of interests between the defendants and one of the plan's investment managers.
With respect to the duty of prudence, the court found defendants acted consistently with prevailing industry standards, including by meeting quarterly, using an external consultant, and tracking investment performance as to peers and benchmarks. The court acknowledged that proxy voting is typically immaterial to the evaluation of investment performance and found that it is standard practice to outsource monitoring of proxy voting to an external consultant, as the defendants had done here.
However, the court found that the defendants were disloyal because they allowed their own corporate commitment to ESG to influence management of the plan. The court stated, "While such an alignment on ESG is permissible under ERISA when there is clear separation between corporate goals and fiduciary obligations . . . Defendants failed to take necessary precautions to maintain this critical divide, resulting in Defendants' willingness to allow [one of its investment managers] to use Plan assets with little to no accountability in the pursuit of ESG investing." The court pointed out that the investment manager was one of the company's largest shareholders and had financed significant amounts of debt for the company, and that the company employee responsible for managing the corporate relationship with the investment manager was the same person internally advising the plan and overseeing its investments. The court also focused on the investment manager's climate change initiatives and purported pressure it put on companies to comply with its ESG goals, including through proxy voting, and questioned why the defendants had not investigated proxy voting by its investment managers. Specifically, the court stated, "At a minimum, a loyal fiduciary would have monitored the situation more closely and even questioned [the investment manager's] non-pecuniary investment activities."
The case is Spence v. Am. Airlines, Inc., No. 23-552, in the Northern District of Texas, and the opinion is available here. The court deferred ruling on the question of losses and requested supplemental briefing, which was filed in February.
5 Upcoming Events
Speaking Engagement: 2025 ERISA Litigation Update: DOL ESG Rule, Fiduciary Duty Claims, Legal Theories and Tactics (April 17, 2025)
Christina Hennecken, Goodwin partner, will be speaking on a Strafford webinar discussing recent ERISA litigation and fiduciary duty claims, the recent lawsuit filed against the DOL regarding the ESG Rule, and best practices for employee benefits counsel.
6 Recent Events
Speaking Engagement: Cunningham v. Cornell University at the Supreme Court: An Oral Argument Readout (Jan. 23, 2025)
Jaime Santos, Alison Douglass, and Isabel Marin, along with Chantel Sheaks (vice president, retirement policy, at US Chamber of Commerce), hosted a webinar covering Cunningham v. Cornell University, a case about the relevant pleading standards and burdens for claims alleging a violation of ERISA's prohibited-transaction provisions. The webinar discussed the argument and what the case may mean for ERISA plan sponsors and service providers.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
