Duane Morris ERISA Class Action Review – 2024

Class action litigation in the consumer fraud area has exponentially increased over the past several years. Most consumer fraud class actions come with the possibility of excessive payouts for corporations. We hope the Duane Morris Consumer Fraud Class Action Review – 2023 will demystify some of the complexities of consumer fraud class action litigation through our analysis of trends and significant rulings that enable corporate counsel to make informed decisions in dealing with complex litigation risks.

DISCLAIMER The material in this Review is of the nature of general commentary only. It is not meant as or offered as legal advice on any particular issue and should not be considered as such. The views expressed are solely those of the authors. In addition, the authors disclaim any and all liability to any person in respect of anything and of the consequences of anything done wholly or partly in reliance on the contents of this Review. This disclaimer is from the Declaration of Principles jointly adopted by the Committee of the American Bar Association and a Committee of Publishers and Associations.

CITATION FORMATS All citations in the Duane Morris ERISA Class Action Review are designed to facilitate research. If available, the preferred citation of the opinion included in the West bound volumes is used, such as Baysal, et al. v. Midvale Indemnity Co., 78 F.4th 976 (7th Cir. 2023). If the decision is not available in the preferred format, a Lexis cite from the electronic database is provided, such as Moehrl, et al. v. National Association of Realtors, 2023 U.S. Dist. LEXIS 53299 (N.D. Ill. Mar. 29, 2023). If a ruling is not available in one of these sources, the full case name and docket information is included, such as Yates, et al. v. Traeger Pellet Grills , Case No. 19-CV-723 (D. Utah Sept. 7, 2023). eBOOK HIGHLIGHTS The Duane Morris ERISA Class Action Review is available for use on a smartphone, laptop, iPad, or any personal electronic reader by using any eBook reader application. eBook reading allows users to quickly scroll, highlight important information, link directly to different sections of the Review, and bookmark pages for quick access at a later time. The eBook is designed for easy navigation and quick access to informative data. The eBook is available by scanning the below QR code:

Duane Morris ERISA Class Action Review – 2024

NOTE FROM THE EDITORS The stakes at issue in class action litigation are typically significant and are apt to keep corporate counsel and senior management up at night. A company ’ s market share and corporate reputation are often implicated by a class action and these exposures and risks put immense pressure on corporate decision- makers. The purpose of the Duane Morris ERISA Class Action Review is multi-faceted. We hope it will demystify some of the complexities of class action litigation, and keep corporate counsel updated on the ever- evolving nuances of Rule 23 issues. In this respect, we hope this book will provide our clients with an analysis of trends and significant rulings that enable them to make informed decisions in dealing with complex litigation risks. Defense of ERISA class actions is a hallmark of the litigation practice at Duane Morris. We hope this book – manifesting the collective experience and expertise of our class action defense group – will assist our clients by identifying developing trends in the case law and offering practical approaches in dealing with class action litigation.

Sincerely,

Duane Morris ERISA Class Action Review – 2024

CONTRIBUTORS

Duane Morris ERISA Class Action Review – 2024

GLOSSARY AND KEY U.S. SUPREME COURT DECISIONS Adequacy Of Representation – Plaintiffs must show adequacy of representation per Rule 23(a)(4) to secure class certification. It requires representative plaintiffs and their counsel to be capable of fairly and adequately protecting the interests of the class. Amchem Products, Inc. v. Windsor, et al. , 521 U.S. 591 (1997) – Windsor is the U.S. Supreme Court decision that elucidated the requirements in Rule 23(b), insofar as common questions must predominate over any questions affecting only individual class members and class resolution must be superior to other methods for the adjudication of the claims. Ascertainability – Although not an explicit requirement of Rule 23, some courts hold that the members of a proposed class must by ascertainable by objective criteria. Comcast Corp. v. Behrend, et al. , 569 U.S. 27 (2013) – Comcast is the U.S. Supreme Court decision that interpreted Rule 23(b)(3) to require that, for questions of law or fact common to the class, the plaintiffs’ damages model must show damages are capable of resolution on a class-wide basis. Commonality – Plaintiffs must show commonality per Rule 23(a)(2) to secure class certification. This requires that common questions of law and fact exist as to the proposed class members. Class – A group of individuals that has suffered a similar loss or alleged illegal experience on whose behalf one or more representatives seek to bring suit. Class Action – The civil action brought by one or more plaintiffs in which they seek to sue on behalf of themselves and others not named in the suit but alleged to have suffered the same or similar harm. Class Certification – The judicial process in which a court reviews the submissions of the parties to determine whether the plaintiffs have met their burden of showing that class treatment is the most appropriate form of adjudication. In federal courts, the process is governed by Rule 23 of the Federal Rules of Civil Procedure. Cy Pres Fund – In class action settlement agreements, this is the money set aside for distribution to a § 501(c) organization when class members do not return a settlement claim form and money is left over after distribution to the class. Decertification – Following an order granting conditional certification of a collective action or certification of a class action, a defendant can move for decertification based on the grounds that the members of the collective action are not actually similarly-situated or that the requirements of Rule 23 are no longer satisfied for the class action. Epic Systems Inc. v. Lewis, et al. , 138 S. Ct. 1612 (2018) – Epic Systems is the U.S. Supreme Court decision holding that arbitration agreements requiring individual arbitration and waiving a litigant ’ s right to bring or participate in class actions are enforceable under the Federal Arbitration Act. Opt-Out Procedures – If a court certifies a class under Rule 23(b)(3), class members are bound by the court ’ s judgment unless they opt-out after receiving notice of the lawsuit. Numerosity – Plaintiffs must show that their proposed class is sufficiently numerous that adding each class member to the complaint would be impractical. This is a requirement for class certification imposed by Rule 23(a)(1).

Duane Morris ERISA Class Action Review – 2024

Ortiz, et al. v. Fibreboard Corp., 527 U.S. 815 (1999) – Ortiz is the U.S. Supreme Court ruling that interpreted Rule 23(b)(3) to require personal notice and an opportunity to opt-out of a class action where money damages are sought in a class action. Predominance – The Rule 23(b)(3) requirement that, to obtain class certification, the plaintiffs must show that common questions predominate over any questions affecting individual members. Rule 23 – This rule from the Federal Rules of Civil Procedure governs class actions in federal courts and requires that a party seeking class certification meet four requirements of section (a) and one of three requirements under section (b) of the rule. Rule 23(a) – It prescribes that a class meet four requirements for purposes of class certification, including numerosity, commonality, typicality, and adequacy of representation. Rule 23(b) – To secure class certification, a class must meet one of three requirements of Rule 23(b)(1), Rule 23(b)(2), or Rule 23(b)(3). Rule 23(b)(1) – A class action may be maintained if Rule 23(a) is satisfied and if prosecuting separate actions would create a risk of inconsistent or varying adjudications with respect to individual class members or adjudications with respect to individual class members that, as a practical matter, would be dispositive of the interests of the other members not parties to the individual adjudications or would substantially impair or impede their ability to protect their interests. Rule 23(b)(2) – A class action may be maintained if Rule 23(a) is satisfied and the party opposing the class has acted or refused to act on grounds that apply generally to the class, so that final injunctive relief or corresponding declaratory relief is appropriate respecting the class as a whole. Rule 23(b)(3) – A class action may be maintained if Rule 23(a) is satisfied and questions of law or fact common to class members predominate over any questions affecting only individual members and a class action is superior to other available methods for fairly and efficiently adjudicating the controversy. Superiority – The Rule 23(b)(3) requirement that a class action can be permitted only if class resolution is the superior method of adjudicating the claims. Typicality – The plaintiffs’ claims and defenses must be typical to those of proposed class members’ claims. This is required by Rule 23(a)(3). Wal-Mart Stores, Inc. v. Dukes, et al., 564 U.S. 338 (2011) – Wal-Mart is the U.S. Supreme Court ruling that tightened the commonality requirement of Rule 23(a)(2) and held that judges must conduct a “rigorous analysis” to determine whether there is a “common” contention central to the validity of the claims that is “capable of class-wide resolution.”

Duane Morris ERISA Class Action Review – 2024

TABLE OF CONTENTS

Page Overview ........................................................................................................................ 8 I. Introduction ............................................................................................ 8 II. What Should Companies Expect In 2024? ........................................... 8 ERISA Class Actions ................................................................................................... 11 I. Executive Summary.............................................................................. 11 II. Significant Rulings In ERISA Class Actions ...................................... 12 1. Rulings On Motions To Dismiss ERISA Class Action Claims For Failure To State A Claim ....................................................................... 12 2. The Impact Of Hughes v. Northwestern On Rule 12(b)(6) Rulings... 13 3. The Totality Of Circumstances Approach .......................................... 14 4. Other Interpretations Of Hughes v. Northwestern ............................. 15 5. Other Cases Citing Hughes, et al. v. Northwestern ........................... 16 6. Other Rule 12(b)(6) Rulings In ERISA Class Actions ........................ 19 7. Motions To Dismiss Based On Lack Of Standing Pursuant To Rule 12(b)(1) .................................................................................................. 20 8. Rulings Granting Class Certification Over Standing And Related Challenges............................................................................................. 24 9. Rulings Granting Class Certification Over Challenges Of Class Member Differentiation Due To Voluntary Waiver ............................. 25 10. Other Decisions Granting Class Certification.................................... 26 11. Rulings Denying Class Certification................................................... 29 12. Issues In Motions To Compel Arbitration .......................................... 31 III. Top ERISA Class Action Settlements In 2023.................................... 33 Table Of 2023 ERISA Class Action Litigation Rulings.............................................. 35

Duane Morris ERISA Class Action Review – 2024

Overview

I. Introduction Class action litigation presents one of the most significant risks to corporate defendants today. Procedural mechanisms like the one set forth in Rule 23 of the Federal Rules of Civil Procedure have the potential to expand a claim asserted on behalf of a single person into a claim asserted on behalf of a behemoth that includes every employee, customer, or user of a particular company, product, or service, over an extended period. A class action allows one or more individuals to pursue claims on behalf of a defined and sometimes sprawling group of similarly situated individuals. When the plaintiffs’ bar aggregates the claims of many individuals in a single lawsuit, a class action can present substantial implications for a corporate defendant. As a result, class action litigation poses some of the most significant legal risks that companies face. By joining the claims of many individuals in a single lawsuit, class actions have the potential to increase potential damages exponentially. A negative ruling in a class action has the potential to reshape a defendant’s business model, to impact future cases, as well as to set guidelines for the entire industry. This can make the outcome of a class action lawsuit significant and potentially devastating for a company. Due to their potential implications, class actions are often costly to defend. Defending against a class action can be a time-consuming and resource-intensive process that diverts management attention from core business activities. Plaintiffs can attempt to leverage this reality to make class actions as expensive and disruptive as possible, in an effort to bring about litigation fatigue and to extract a sizable settlement. Given the potential size and impact of class actions, class actions and class action settlements inevitably attract media attention and lead to public scrutiny. Negative publicity surrounding a class action or class action settlement can have widespread implications, including potential harm to a company's reputation, potential damage to its brand, and potential drop in consumer trust. It sometimes spells the end of the career of a general counsel or chief executive officer if the problems at the heart of the lawsuit happened on their watch. Class actions are often complex legal proceedings with uncertain outcomes. The complexity can arise from managing multiple claims, myriad legal issues, and assorted class members, making it challenging for corporate defendants to predict and control the result. Due to these factors, corporate defendants should approach class actions from a broad vantage point with a thoughtful and multi-faceted defense strategy. We developed this one-of-a-kind resource to provide a practical desk reference for corporate counsel faced with defending ERISA class action litigation. II. What Should Companies Expect In 2024? Class action litigation is a staple of the American judicial system. The volume of class action filings has increased each year for the past decade, and 2024 is likely to follow that trend. In this environment, corporate programs designed to ensure compliance with existing laws and strategies to mitigate class action litigation risks are corporate imperatives. The plaintiffs’ bar is nothing if not innovative and resourceful. Given the massive class action settlement figures in 2022 and 2023 (a combined total of $113 billion), coupled with the ever-developing law, corporations can expect more lawsuits, expansive class theories, and an equally if not more aggressive plaintiffs’ bar in 2024. These conditions necessitate planning, preparation, and decision-making to position corporations to withstand and defend class action exposures.

Duane Morris ERISA Class Action Review – 2024

Defendants often have very little time to react to the plaintiff’s forum choice after a class action is filed, even though it may be one of the most important initial questions in the case. In turn, a cascading number of strategic considerations are typically faced by corporate decision-makers upon receipt of the class action filing. Should the company opt to remove the case from state court to federal court (and are there grounds to do so under the Class Action Fairness Act of 2005)? Is it better to have a federal judge who has the time and expertise to fully vet the parties’ briefs and arguments and likely will apply a more rigorous evidentiary standard to expert testimony and class certification requirements? However, will removing the case cause other plaintiff’s counsel to track the litigation and lead to more sophisticated counsel becoming involved or more “tag-along” class action filings? Will removing the case make settlement more difficult and potentially affect the structure of the settlement as well as its costs and the exposure in the class action? How will standing issues play out in each forum, and is standing a viable defense to gut the basis of the class theories? Can jurisdictional defenses fracture the class action by invoking Bristol-Myers Squibb ? Does the company have an arbitration agreement with employees, consumers, or third-parties that would support a motion to compel arbitration of the claims in the lawsuit on an individual, bilateral basis? Is the potential of a motion to transfer the case to an MDL after removal good or bad for the ultimate defense and handling of the litigation? What are the steps for a full and complete early case assessment, and is the company’s relevant electronically-stored information (ESI) available, assessable, and in a format that can be easily and quickly analyzed? Are there ways to resolve the individual complaint, either before filing responsive pleadings or by way of negotiation with plaintiffs’ counsel? Could early concessions or a voluntary change to a challenged practice moot the litigation, or lead to an argument by plaintiff’s counsel that they are entitled to attorneys’ fees if corporate changes are made? Once the parties are at issue in the litigation, another series of strategic decisions needs to be confronted. Should the company request a stay of discovery while the court is considering a motion to dismiss? Should the defendant agree to broader discovery in the hope of demonstrating the presence of individualized issues to set up its class certification defenses? How broadly should discovery be drafted and what type of agreement on ESI is appropriate? Can the defendant make predominance arguments regarding varying facts without allowing broad discovery on those facts? Is bifurcation of discovery between merits issues and class issues still a viable option after Rule 23 case law has made clear that merits issues can overlap with the elements of class certification? Are communications allowed with class members before and/or after certification and on what terms? Is the list of class members discoverable? Is discovery allowed from absent class members and, if so, in what forms? Can and should a corporate defendant move for summary judgment before class certification (as to the named plaintiffs’ claims individually or as to all class claims)? Are there advantages even if the motion will not win the case (for instance, narrowing the case, causing the plaintiff to respond in an individualized way, etc.)? As to the future opposition to the plaintiffs’ motion for class certification, can the class definition be attacked because it includes uninjured class members? Further, it is rare that a motion for class certification is filed without an accompanying expert witness report. Likewise, virtually every opposition brief uses expert testimony. When should a defense expert be retained, on what subjects, and how should they plan their support of the defense efforts to block class certification? The competing expert testimony typically centers on whether the claims can be proven with common evidence although they can be used for many other purposes (e.g., numerosity, feasibility of notice, merits issues, etc.). Daubert motions, which test the admissibility of expert testimony, are an essential part of almost every class certification battle, and the U.S. Supreme Court has focused on expert testimony in several of its recent class certification decisions. Does the court apply the same Daubert standard at class certification as it does before trial? Does the expert rely upon admissible evidence? Does the testimony “fit” the legal theory and claims? Would the testimony be admissible in an ordinary single plaintiff case? Should the plaintiff or defendant hire a consulting expert to assist in litigating the case? How can an expert use sampling to support claims of class-wide liability or impact? Finally, corporations must consider settlement from the very beginning of a class action and the desire for a final global resolution can drive decision-making in terms of overall defense strategies. Defendants may

Duane Morris ERISA Class Action Review – 2024

decide not to remove or compel arbitration; plaintiffs may avoid issuing press releases to avoid copycat cases. Settlement on a class-wide basis pose myriad strategic issues. When the defense has decided to settle, a corporation will normally want the most expansive class definition and the broadest release, even though it has vociferously opposed any certification earlier in the case. When the terms of a settlement are finally hammered out, the plaintiff’s lawyers and defense counsel share a common goal of obtaining approval and will then join forces to this end and against any objectors who oppose the accord. These crucial questions are inevitably posed by any class action litigation. By their very nature, class actions involve decisions on strategy at every turn. The positions of the parties are constantly changing and corporate defendants must always be looking ahead and anticipating issues during every phase of the litigation. We hope the Duane Morris ERISA Class Action Review provides practical insights into complex potential strategies relevant to all aspects of class action litigation and other claims that can cost billions of dollars and require changed business practices in order to resolve.

Duane Morris ERISA Class Action Review – 2024

ERISA Class Actions I. Executive Summary

The surge of class action litigation filed under the Employee Retirement Income Security Act (ERISA), 29 U.S.C. §§ 1001 et seq ., over the last several years persisted in 2023, with class action litigators in the plaintiffs’ bar continuing to focus on challenges ERISA fiduciaries’ management of 401(k) and other retirement plans. Plaintiffs continue to assert that ERISA fiduciaries breached their fiduciary duties of prudence and loyalty by, among other things, offering expensive or underperforming investment options and charging participants excessive recordkeeping and administrative fees. Hundreds fee and expense class actions have been filed since 2020, driven by a number of familiar plaintiffs’ class action law firms alongside some new entrants into the space. Class certification remains challenging to defeat outright in these and other ERISA cases given the nature of the claims, which typically assert that discrete types of alleged plan mismanagement led to common injuries affecting large numbers of plan participants in similar ways. Indeed, courts often reject challenges to standing and compliance with the requirements of Rules 23(a) and (b), concluding that factual differences in the type of benefits or investments at issue are merits or damages issues less relevant to certification than allegations that the defendants’ conduct produced similar, broad-based injuries. Nonetheless, defendants pour significant resources into attacking these cases in their infancy. Both sides know that early dismissal may be the defendants’ best hope of avoiding the burden and expense of the protracted discovery that will come before and after class certification, which is often viewed as a foregone conclusion in ERISA litigation. In fact, this dynamic is central the strategy of the plaintiffs’ bar in many of these cases. If the plaintiffs can overcome initial challenges, they can then leverage the prospect of substantial defense costs to obtain an early seven-figure settlement that still costs less than defending the case through summary judgment and trial. To defeat these claims, many defendants argue that putative class action complaints fail to state plausible claims under Rule 12(b)(6). Specifically, defendants often contend that that plaintiffs simply label any plan ’ s failure to select cheaper or better performing investment options as a purported breach of fiduciary duty, but do so without alleging anything to support a plausible inference that the fiduciaries’ decision- making process was flawed. For their part, the plaintiffs’ bar argues that their lack of access to confidential information about the relevant fiduciary processes unfairly handicaps their ability to offer the more detailed allegations that the defendants demand. Historically, the results of these disputes have been mixed. As discussed in this Chapter, while litigators on both sides of the aisle anticipated that the U.S. Supreme Court ’ s decision in Hughes, et al. v. Northwestern University, 142 S.Ct. 737 (2022), would clarify the pleading standards in these cases, it ultimately failed to do so, though courts in succeeding cases have generally focused their evaluations of the plausibility of plaintiffs’ claims on the sufficiency of the comparators they have provided. Without additional guidance from the Supreme Court, these and other battles and strategies continue to play out in courts across the country, which issued a number of significant rulings in ERISA class actions in 2023. Beyond challenges to the sufficiency of plaintiffs’ allegations, the plaintiffs’ class action bar continued to have success fending off defense challenges to standing in motions to dismiss under Rule 12(b)(1) and the satisfaction of Rule 23(a) ’ s commonality, typicality, and adequacy requirements based on factual

Duane Morris ERISA Class Action Review – 2024

differences between the representative and class claims. Courts also issued conflicting decisions on the enforceability of mandatory arbitration and class action waiver provisions with respect to ERISA claims. These decisions were heavily slanted toward denying motions to compel arbitration and enforce class action waiver provisions despite the spate of recent Supreme Court decisions upholding the enforceability of such provisions in employment and other contexts. ERISA class action litigation remains an active area with significant financial upside for the plaintiffs’ bar and high defense and settlement costs for defendants. Absent clarifying guidance from the Supreme Court on a number of contested issues in the space, it is likely to remain so. II. Significant Rulings In ERISA Class Actions In 2023, the plaintiffs’ bar was successful in obtaining class certification 82% of the time, with 42 of 51 total motions being granted by the courts.

The significant ERISA decisions in 2023 can be grouped in several categories, including: (i) rulings on motions to dismiss class action claims; (ii) rulings granting class certification over standing and related challenges; (iii) rulings granting class certification over challenges to disqualify class members due to individual waivers of suit; and (iv) other class certification decisions, and (v) motions to compel arbitration and enforce class action waivers. 1. Rulings On Motions To Dismiss ERISA Class Action Claims For Failure To State A Claim In 2023, federal courts frequently addressed motions to dismiss ERISA class action complaints for failure to state a viable claim under Rule 12(b)(6). Although these rulings do not directly address class certification, they are central to both sides’ litigation strategy and, as a practical matter, can be outcome-determinative. A loss for the defendant at this stage will open the door to extensive and costly discovery. Capitalizing on that prospect, the plaintiffs’ bar often may seek to settle the matter quickly for less than the defendants’ costs to defend the class action. Claims concerning breaches of the fiduciary duties of

prudence and loyalty represent the largest category of ERISA class actions. These claims generally allege one or more theories, such that defendants chose poor investments, they retained underperforming actively-managed funds, they charged excessive recordkeeping fees, or they inappropriately invested in retail shares when cheaper institutional shares were available. Plaintiffs who raise such claims face a conundrum. One the one hand, courts have consistently held that, to survive a Rule 12(b)(6) motion, it is not enough to merely point out that a plan has underperformed relative to the market or to rely on unadorned cost comparisons. Rather, because breach of the duty of prudence claims focus on the existence of a deficient process and not just the end result, the plaintiffs must point to some defect in the process by which the defendants selected or managed investments or plan service providers. On the other hand, without the benefit of discovery, plaintiffs rarely have access to

Duane Morris ERISA Class Action Review – 2024

information about that decision-making process. Courts have struggled to develop and apply a clear pleading standard for such cases and, consequently, their rulings are sometimes difficult to reconcile. 2. The Impact Of Hughes v. Northwestern On Rule 12(b)(6) Rulings In 2022, both sides of the ERISA bar hoped that the U.S. Supreme Court would offer a measure of clarity in Hughes, et al. v. Northwestern University, 142 S. Ct. 737 (2022). Although the Supreme Court issued a rare 8-0 decision (Justice Barrett did not participate), the opinion failed to clarify any of the issues surrounding the pleading standard in these cases. Rather, the Supreme Court issued a narrow ruling that offered only nominal guidance to lower courts. Hughes centered on allegations from a group of university employees that their retirement plan had offered needlessly expensive options and charged excessive recordkeeping fees. Affirming the district court ’ s dismissal of the claims, the Seventh Circuit held that plaintiffs’ allegations were insufficient as a matter of law. In part, the Seventh Circuit reasoned that because defendants offered a number of low-cost investment options, its inclusion of other, more expensive options did not constitute a breach of the duty of prudence. While this was only one component of the Seventh Circuit ’ s decision, the Supreme Court framed it as an inappropriate “categorical rule” that was “inconsistent with the context-specific inquiry that the ERISA requires and fails to take into account respondents’ duty to monitor all plan investments and remove any imprudent ones. As a result, the Supreme Court vacated the decision in its entirety. Id. at 740. While the Supreme Court acknowledged that “the circumstances facing an ERISA fiduciary will implicate difficult tradeoffs” and that “courts must give due regard to the range of reasonable judgments a fiduciary may make based on her experience and expertise,” it failed to clarify more broadly a clear pleading standard for breach of fiduciary duty claims. Id. at 742. In the wake of Hughes , federal courts have continued to reach inconsistent results as they try to find their way through this murky area. It remains true that courts will generally dismiss a duty of prudence claim if the plaintiff merely argues that a plan has underperformed the market without pointing to specific bad decisions and/or providing detailed comparator allegations to establish a defect in the challenged fiduciary processes. However, the precise threshold for plausibility remains unclear. For example, the Seventh Circuit ’ s decision on remand from the Supreme Court ’ s decision in Hughes demonstrates the ruling ’ s failure to clarify very much. In March 2023, the Seventh Circuit issued its remand decision in Hughes, et al. v. Northwestern University , 63 F.4th 615 (7th Cir. 2023). The Seventh Circuit opined that the Supreme Court in Hughes did not render revenue sharing a per se violation of the ERISA, did not require fiduciaries “to scour the market to find and offer the cheapest fund possible,” and did not disallow plans to offer a wide variety of funds. Hughes , 63 F.4th at 625-26. However, the Seventh Circuit seemed clearest on what the Supreme Court did not do and reversed the dismissal of claimed breaches of the duty of prudence due to (i) excessive recordkeeping fees and (ii) an imprudent share-class fund in the absence of a “concrete standard” of plausibility required for a claim to survive a motion to dismiss. Id. at 626. In reversing the dismissal of these claims, the Seventh Circuit explained that the Supreme Court demanded a context-specific determination of whether the plaintiffs have made a plausible claim of a breach of the duty of prudence under the standard of plausibility articulated in Bell Atlantic Corp. v. Twombly , 550 U.S. 544, 570 (2007), and Ashcroft v. Iqbal , 556 U.S. 662, 678 (2009). The Seventh Circuit re-examined its prior reasons for dismissing the plaintiffs’ claims in light of the Supreme Court ’ s decision. Id. at 631. First, the Seventh Circuit discussed its prior finding that plan participants could keep recordkeeping costs low by selecting low-cost funds themselves, determining that the Supreme Court foreclosed that argument by rejecting dismissal of a claim of breach of the duty of prudence based on participant control. Id. Second, the Seventh Circuit explained that although the presence of revenue sharing does not amount to a per se violation of ERISA, under the Supreme Court ’ s ruling, neither does its presence eliminate the possibility of an ERISA violation. Id.

Duane Morris ERISA Class Action Review – 2024

The Seventh Circuit narrowed its inquiry to determine whether “plaintiffs have pleaded sufficient facts to render it plausible” that Northwestern ’ s unreasonable recordkeeping fees and failure to “take actions that would have reduced such fees.” Id. The Seventh Circuit found that the plaintiffs’ identification of comparator university plans with similar benefits and lower recordkeeping fees, together with its contention that “recordkeeping services are fungible and that the market for them is highly competitive,” were sufficient for their claims of excessive recordkeeping fees and of investment in imprudent share-class funds to “cross the line from possibility to plausibility.” Id. at 633. The Seventh Circuit declined to require the plaintiffs to “prove that another record-keeper would have offered a lower fee or that consolidation was actually available,” explaining that doing so would be holding the plaintiffs to a higher standard than that required by the Supreme Court in Hughes . Id. The Seventh Circuit was sure to mention, however, that “[c]laims for excessive recordkeeping fees in a future case may or may not survive based on different pleadings and the specific circumstances facing the ERISA fiduciary.” Id. Similarly, under the Supreme Court ’ s standard in Hughes , the Seventh Circuit found allegations of the plan ’ s imprudent fund retention and offering of annuities with high expense ratios were sufficient for plaintiffs to plead their claim of maintenance of imprudent funds because they need only show “cheaper institutional shares were plausibly available.” Id. at 634-35. The Seventh Circuit opined that the claim was substantiated by expert testimony that Northwestern would have had significant bargaining power as a jumbo-retirement plan. Id. at 635. Finally, the Seventh Circuit affirmed dismissal of the plaintiffs’ duty of prudence claim for maintenance of duplicative funds, reasoning that the complaint did not explain how the plaintiffs were actually confused and injured by the offering of duplicative funds. Id. at 637. Beyond the Hughes case, the uncertain impact of the Supreme Court ’ s decision is apparent in the varied approaches to analyzing 12(b)(6) motions taken by other federal courts in closely-watched cases. 3. The Totality Of Circumstances Approach For example, in Stengl, et al. v. L3Harris Technologies, Inc. , 2023 U.S. Dist. LEXIS 50692 (M.D. Fla. Mar. 24, 2023), the court cited Hughes in connection with its application of a novel “totality of circumstances” standard to evaluate the plausibility of the plaintiffs’ claims. In so doing, it purported to evaluate the ERISA claims “as a whole” and “in context.” Id. at *35. Specifically, the court considered the plaintiffs’ claims that the defendants had been imprudent by: (i) choosing funds with excessive management fees, (ii) failing to choose the fee class with the lowest expense ratio, (iii) failing to investigate low-cost collective investment trusts, (iv) failing to use modern portfolio tools, (v) violating the Plan ’ s investment policy statement, (vi) using actively managed funds, (vii) failing to diversify, and (viii) incurring excessive recordkeeping costs. Id. at *6-15. In denying the defendants’ motion to dismiss, the court “doubt[ed] that some of the individual allegations here by themselves are enough to state a claim, [but] in sum total [found] it plausible that the defendant Investment Committee ’ s process was flawed.” Id. at *33. The court clarified its application of the Hughes decision by explaining “this is not a case where nothing plus nothing adds up to something; instead, the individual well-pled allegations accumulate as fractional parts of the whole, at some point crossing the plausibility line.” Id. at *33-34. In Lopez, et al. v. Embry-Riddle Aeronautical University, Inc. , 2023 U.S. Dist. LEXIS 197183 (M.D. Fla. July 12, 2023), the court again reasoned that the totality of circumstances “warrant[ed] additional fact- finding.” Id. at 28 (citing Hughes , 142 S. Ct. at 742). The plaintiffs alleged that the defendant breached its duty of prudence by: (i) selecting and maintaining high-cost investments compared to similar options, (ii) failing to investigate lower-cost share classes of certain mutual funds, and (iii) failing to monitor excessive recordkeeping fees. Id. at 26. In denying the motion to dismiss, the court explained that the plausibility standard required at the pleading stage “does not equate to a standard of definitiveness,” and instead found that the question of whether the defendant breached its duty was a fact-intensive question, the

Duane Morris ERISA Class Action Review – 2024

resolution of which would depend on closer evaluation of the merits. Id. at *29. In Waldner, et al. v. Natixis Investment Managers, L.P ., 2023 U.S. Dist. LEXIS 86177 (D. Mass. Mar. 24, 2023), the court likewise considered and endorsed the Magistrate Judge ’ s similar “totality of circumstances” approach in denying the defendants’ motion to dismiss the plaintiffs’ duty of prudence and loyalty claims. Id. at *7. There, the plaintiffs’ “seven sets of factual allegations,” alleging self-dealing evidenced by (i) the products available, (ii) the products newly added, (iii) the fact that the allegedly self- dealing product options were not selected by many other ERISA plans, (iv) some of the allegedly self- dealing products had unusually high expense ratios, (v) some of the allegedly self-dealing products underperformed, (vi) there was evidence of outflows of the allegedly self-dealing products in the market at- large, and (vii) three of the offered products showed negative returns. Id. at 8. 4. Other Interpretations Of Hughes v. Northwestern Other rulings post- Hughes have taken a more skeptical approach. In Probst, et al. v. Eli Lilly and Co. , 2023 WL 1782611 (S.D. Ind. Feb. 3, 2023), the court dismissed the plaintiffs’ claim of a breach of the duty of prudence based on excessive recordkeeping fees as implausible under the Supreme Court ’ s decision in Hughes and Seventh Circuit precedent despite thirteen different factual allegations against the defendants. The court found that the plaintiffs’ allegations failed to address the recordkeeping fees’ cost relative to the services rendered and that the plaintiffs’ comparator plans were not sufficiently similar to the plan at issue. Id. at *33-35. The court also examined the plaintiffs’ descriptions of comparator plans, finding that their reliance on publicly available information was problematic because “the comparator plans received services other than recordkeeping, but all services are lumped into one sum.” Id. at 38-39. Ultimately, the court found the plaintiffs’ allegations conclusory and relied on Seventh Circuit precedent to dismiss the claim based on a lack of “specific facts showing that the recordkeeping fees were ‘ excessive relative to the services rendered. ’ ” Id. at *41. In fact, the court in Probst was dismissive of the Supreme Court ’ s guidance to employ a plausibility standard in motions to dismiss claims of breaches of the duty of prudence, instead relying on the Seventh Circuit ’ s reasoning that “ Hughes did not ‘ have any bearing on the analysis of [recordkeeping fees] claims. ’ ” Id. at *29. While Probst was decided before the Seventh Circuit heard Hughes on remand and it is therefore unclear how it would apply the Court of Appeals’ directive to employ the Hughes standard on a recordkeeping fees claim, it is clear that courts have taken different approaches to fill the analytical vacuum. The court in Lard, et al. v. Marmon Holdings, Inc., 2023 U.S. Dist. LEXIS 169206 (N.D. Ill. Sept. 22, 2023), as in Probst , granted the defendant ’ s motion to dismiss, applying both the Supreme Court ’ s Hughes decision and the Seventh Circuit ’ s further discussion of that decision on remand. The plaintiffs alleged that the defendants breached their fiduciary duty of prudence by allowing the Plan to pay excessive recordkeeping fees and by retaining underperforming retirement funds in violation of the ERISA. Id. at *2. The defendants filed a motion to dismiss, and the court granted the motion without prejudice. Id. at *14-15. The plaintiffs asserted that the Plan charged excessive recordkeeping and administrative fees and consisted of underperforming custom retirement funds. Id. at *2. The plaintiffs generally argued that all national record-keepers could provide the same services at a lower cost. Id. at *8. The court, however, found that the plaintiffs did not acknowledge all of the services provided by the record-keepers when outlining the plan ’ s comparators and therefore failed to meet the pleading standard set forth in the Seventh Circuit ’ s Hughes decision on remand. Id. at *11. Concerning investment returns, the plaintiffs argued that certain funds underperformed other available alternatives. Id. However, the court determined that the plaintiffs’ return comparisons likewise failed to demonstrate that their proposed comparators were sufficiently similar to the plan ’ s funds. Id. at *12-13. The court did not cite Hughes directly in explaining its finding with regards to the investment returns, but explained that the plaintiffs did not provide “ ‘ meaningful benchmarks ’ ” to guide the court ’ s inferences. Id. at *13.

Duane Morris ERISA Class Action Review – 2024

Other courts have applied the Supreme Court ’ s decision in Hughes and the Seventh Circuit ’ s decision on remand to find some claims to be plausible and others to implausible in the same case. For example, in Seibert, et al. v. Nokia Of America Corp ., 2023 U.S. Dist. LEXIS 137621 (D.N.J. Aug. 8, 2023), the court found the plaintiffs plausibly alleged that the defendant breached its duty of prudence through excessive recordkeeping fees, but did not plausibly allege a breach of the same through failure to ascertain that each investment was prudent. Id. at *21-43. The court found that, in light of the Hughes decisions, the plaintiffs successfully pleaded that the defendants breached the duty of prudence through excessive recordkeeping fees because they alleged a combination of facts indicating imprudence, including increases in fees and unfavorable comparisons to the marketplace. Id. at 25-26. Notably, the court did not require that the plaintiffs provide information about the specific comparators demonstrating the methodology used to lower recordkeeping costs that the plaintiffs in Hughes provided, reasoning that the additional context provided was sufficient to survive a motion to dismiss. Id. 26 n. 6. Still, the court applied Hughes ’ context-specific plausibility standard to dismiss the plaintiffs’ claim of a breach of the duty of prudence based on failure to ascertain each investment was prudent without prejudice. Id. at 21. The court found that the plaintiffs offered insufficient comparisons to their plan, merely alleged that there are cheaper alternatives in the marketplace, and failed to allege anything about the performance of the challenged funds. Id. at 11-21. However, the court left open the opportunity for the plaintiffs to plausibly allege the facts required to make out a claim of maintenance of imprudent investments. Id. at 21. 5. Other Cases Citing Hughes, et al. v. Northwestern Given the failure of Hughes to clarify the pleading standards in these cases, most courts have instead relied on it for basic principles applicable in evaluating 12(b)(6) challenges to ERISA breach of fiduciary duty claims. In most of these cases, courts have focused on whether the plaintiffs had alleged enough detail about the recordkeeping services offered to or investment offerings made by alleged comparator plans to establish those comparators as appropriate benchmarks for judging the defendants’ conduct. In Sigetich, et al. v. Kroger Co ., 2023 U.S. Dist. LEXIS 40359 (S.D. Ohio Mar. 9, 2023), for example, the court cited the Supreme Court ’ s decision in Hughes to establish the basic premise that ERISA fiduciaries face difficult tradeoffs. Id. at *20. The plaintiffs, participants in the defendants’ retirement plan, filed a class action alleging that the defendants charged excessive recordkeeping fees for the plan in violation of ERISA ’ s duty of prudence. The plaintiffs contended that the plan paid excessive fees when compared to other 401(k) plans with a similar number of participants, and brought claims alleging: (i) breach of the duty of prudence related to recordkeeping fees against the defendants; and (ii) failure to adequately monitor other fiduciaries related to recordkeeping fees against the defendants. Id. at *10-11. The defendants brought a motion to dismiss. In granting the motion, the court opined that the plaintiffs failed to plead a duty of prudence claim because they failed to allege that the plan ’ s recordkeeping fees were excessive when compared to services rendered. Id. at *23. The court stated that the fees from the plaintiffs’ cited “comparable plans” from other providers were not actually comparable plans. The court determined that the plaintiff failed to provide the necessary information to show that the defendants were imprudent when choosing a record-keeper. As such, the plaintiffs’ claim of a breach of the duty of prudence was implausible. The court also found that the claim that defendants breached their duty to monitor other fiduciaries responsible for the plan ’ s recordkeeping fees depended on the sufficiency of the plaintiff ’ s breach of prudence claims and therefore dismissed that claim as well. In Locascio, et al. v. Fluor Corp., 2023 U.S. Dist. LEXIS 9162 (N.D. Tex. Jan. 18, 2023), the court relied on the Supreme Court ’ s decision in Hughes for the same principle as Sigitech , i.e., that ERISA fiduciaries face difficult tradeoffs that courts must consider in their evaluations of motions to dismiss claims of breaches of the duty of prudence . Id. at *13-14. The plaintiffs filed a class action alleging the defendants breached their fiduciary duty of prudence in violation of the ERISA. The defendants filed a motion to dismiss pursuant to Rule 12(b)(6), and the court granted the motion. The court found that the plaintiffs failed to provide sufficient evidence to plausibly allege a breach of fiduciary duty because they did not include meaningful comparisons in their pleadings to demonstrate that the selected funds were sufficiently similar

Duane Morris ERISA Class Action Review – 2024

benchmarks. Id. at 18. In Matney, et al. v. Barrick Gold Of North America, 80 F.4th 1136 (10th Cir. 2023), the Tenth Circuit employed the Supreme Court ’ s decision in Hughes to establish several basic principles, including that (i) analysis of duty of prudence claims is context specific, and (ii) the Twombly and Iqbal “plausibility” standards apply with equal force in ERISA duty of prudence cases. In Matney , the plaintiffs alleged a breach of the duty of prudence due to the “offering of high-cost funds and charging [of] high fees.” Id. at 1141. The Tenth Circuit affirmed the district court ’ s dismissal of the claims. Id. The Tenth Circuit combined the high-cost fund and high fees issues and determined that the plaintiffs’ suggested comparator plans were not sufficiently comparable to the plan to establish a plausible claim. Id. at 1148-49. The Tenth Circuit outlined some similarities between the relevant plan and comparator plans that might make a claim of imprudence based on the offering of high-cost funds plausible, listing “similar investment strategies, similar investment objectives, or similar risk profiles.” Id. at 1148. Furthermore, it cited aspects of comparator plans that could support a plausible claim of imprudence based on excessive recordkeeping fees by describing comparators that render similar services to the relevant plan. Id. Based on these benchmarks, the Tenth Circuit determined that the plaintiffs’ allegations did not demonstrate sufficient similarity to the relevant plan and upheld the district court ’ s dismissal of their claims. Meanwhile, in Miller, et al. v. Packaging Corp. Of America Inc. , 2023 U.S. Dist. LEXIS 55337 (W.D. Mich. Mar. 30, 2023), the court used the Supreme Court ’ s opinion in Hughes to establish that the evaluation of claims of breaches of the duty of prudence are context-specific. Id. at *21. The plaintiffs alleged that the presence of high-cost investment options amounted to a breach of the fiduciary duty of prudence. Id. at *22. The court took a context-specific approach in evaluating whether the defendant breached its duty of prudence by failing to “select initial investment options with care, to monitor plan investments, and to remove imprudent ones.” Id. at *20. The court determined the plaintiffs made out a plausible claim of a breach of the duty of prudence in the defendant ’ s selection and monitoring of funds, a claim of breach that the court found was inextricable from the defendant ’ s potentially imprudent process. Id. at 30. The court reasoned that the plaintiffs successfully made out these claims by citing comparator funds that offered lower investment fees than the defendant ’ s managed funds. Id. at *22. At the same time, the court dismissed the plaintiffs’ claim of a breach of the duty of prudence based on excessive recordkeeping fees because the allegations on which it was based were conclusory. The noted that the plaintiffs did not provide factual allegations that the defendant ’ s selection process for recordkeeping services was imprudent under the ERISA merely by providing insufficient comparators that varied in what services they provided and arguing that a competitive bidding process was the only way to prudently select a record- keeper. Id. Similarly, the court in Singh, et al. v. Deloitte LLP, 2023 U.S. Dist. LEXIS 6910 (S.D.N.Y. Jan. 13, 2023) , used the Supreme Court ’ s Hughes decision to establish that the determination of whether a fiduciary has breached the duty of prudence is context-specific. The defendants filed a motion to dismiss pursuant to Rule 12(b)(6), and the court granted the motion. The plaintiffs claimed that one of the defendants breached its fiduciary duty to ensure that the investment options for both plans were appropriate, reasonably priced, and performed well compared to their peers. Id. at *1-6. The plaintiffs alleged that the recordkeeping fees for the Plans were higher than those of comparable plans, and the costs depended on the number of participants rather than the assets under management. Id. at *4. The plaintiffs contended that prudent fiduciaries would negotiate fixed annual compensation for recordkeeping based on a per-participant rate rather than as a percentage of assets, and that the defendants acted imprudently by failing to do so. Id. at *6. Additionally, the plaintiffs argued that certain funds offered by the Plans had excessively high expense ratios compared to industry medians and averages and that given the high costs, combined with the recordkeeping fees, the defendants acted imprudently in managing the Plans. Id. The court found that the plaintiffs’ comparisons to other plans’ fees and industry averages did not consider the specific services provided by the record-keeper or the funds’ performance relative to their costs. Id. at *14. Therefore, the court dismissed the plaintiffs’ claims for a breach of fiduciary duty, as they failed to provide sufficient evidence that the defendants had acted imprudently. Id. at *20.

Duane Morris ERISA Class Action Review – 2024

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