On May 8, 2012, the United States Court of Appeals for the Second Circuit summarily affirmed the granting of judgment on the pleadings by the United States District Court for the Southern District of New York in favor of JP Morgan Chase & Co. (“JP Morgan”) and various affiliated individuals and committees. In so doing, the Second Circuit reiterated and expanded upon its adoption of the presumption of prudence (better known as the Moench presumption, named for the Third Circuit’s decision in Moench v. Robertson, 62 F.3d 553 (3d Cir. 1995)) for employee stock ownership plans (“ESOP”) and eligible individual account plans (“EIAP”) that the Second Circuit announced last fall in In re Citigroup ERISA Litig., 662 F.3d 128 (2d Cir. 2011).
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On May 8, 2012, in Lanfear, et al. v. Home Depot, Inc., et al., the Eleventh Circuit joined the Second, Third, Fifth, Sixth and Ninth Circuits by officially adopting the Moench presumption of prudence as the applicable standard of review with regard to a plan fiduciary’s decision to offer company stock as an investment option in eligible individual account plans. The Eleventh Circuit also joined those courts applying the presumption at all stages of litigation (including the pleading stage). Further, the Eleventh Circuit adopted the “sponsor intent” test originally promulgated in Moench (rather than a viability or brink of collapse test). As such, we reiterate our prior recommendation that sponsors include an explicit statement of their intent regarding the employer stock fund.
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It’s that time of year again. Final exams are almost over, the school year is ending, and summer recess is almost here. With graduations looming, May often serves as a time to reflect on the past and look to the future. Inspired by the sense of nostalgia this time of year brings, we thought it would be a good time to reflect on how ERISA stock drop class actions have fared in the Circuit Courts of Appeal during this spring semester of 2012.
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On April 16, 2012, the Third Circuit allowed three participants to pursue their excessive 401(k) fees lawsuit directly against John Hancock Life Insurance Company and its affiliates (collectively, John Hancock). The Third Circuit panel vacated the District Court’s dismissal of the lawsuit based on the participants’ failure to make a pre-suit demand on the plan trustees and join the trustees as parties. In vacating the District Court’s decision, the Third Circuit held that neither pre-suit demand nor joinder of the plan trustees is a prerequisite to participant lawsuits under ERISA § 502(a). Plaintiffs also sued under the Investment Company Act of 1940 (“ICA”), 15 U.S.C. § 80a-1 et seq. The Third Circuit affirmed the District Court’s dismissal of the ICA claims because the participants were no longer investors in the funds at the time of suit.
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In a much anticipated development, a federal circuit court has weighed in on the availability of “reformation” and “surcharge” under ERISA § 502(a)(3), following the Supreme Court’s decision in CIGNA Corp. v. Amara, 131 S. Ct. 1866 (2011). In Skinner v. Northrop Grumman Ret. Plan B et al., a three-judge panel of the Ninth Circuit held that inaccuracies in a summary plan description (“SPD”) did not warrant reformation or an equitable surcharge under ERISA § 502(a)(3).
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On February 29, 2012, a unanimous panel of the Third Circuit rejected a bid for summary judgment by class action plaintiffs who claimed that the integrated technology company Siemens Corporation and its related benefit plans violated ERISA by refusing to provide the plaintiffs with permanent job separation (“PJS”) pension benefits when Siemens terminated their employment. The Third Circuit remanded the case to the district court, with instructions to enter summary judgment in favor of Siemens and the Siemens Plans.
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On February 3, 2012, the Department of Labor published a final rule concerning the disclosures that need to be made by service providers under ERISA Section 408(b)(2). Comprehensive in scope, these disclosure rules have broad implications for plan fiduciaries and service providers. However, now that the regulations have been finalized, the question remains: what should you, a responsible plan fiduciary or a covered service provider, now do to comply with these regulations?
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On February 15, 2012, the Honorable Barbara J. Crabb of the United States District Court for the Western District of Wisconsin certified a class of retired Kraft Foods Global, Inc. (“Kraft”) employees at Kraft’s Madison, Wisconsin, meat processing plant over changes to the retirees’ health benefits. The plaintiffs allege that Kraft’s decision to eliminate an HMO option and to increase prescription drug costs violated the vested rights of the retirees, in contravention of ERISA, and breached certain collective bargaining agreements in violation of the Taft-Hartley Act.
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Perhaps the Second Circuit could borrow a line from the late, great CBS broadcast journalist Edward R. Murrow. On February 1, 2012, the Second Circuit effectively said “good night, and good luck” to plaintiffs seeking to bring a putative class action lawsuit against CBS, after concluding that the plaintiffs’ claims were time-barred.
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Last month in Curtis v. Hartford Life & Accident Ins. Co., an Illinois District Court held that a state insurance regulation banning discretionary clauses in insurance contracts trumped an ERISA plan’s choice of law provision.
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On December 28, 2011, the United States District Court for the District of Colorado blocked a chiropractor’s attempt to recover benefits for providing services to NFL players and their families under a new Colorado statute, holding the doctor’s claims were preempted by ERISA.
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On December 22, 2011, the United States District Court for the Eastern District of Michigan upheld a mandatory arbitration provision of a plant closing agreement (“PCA”) providing lifetime healthcare benefits to retired workers who had formerly worked at a closed plant. The case is International Union, United Automobile, Aerospace, and Agricultural Implement Works of America (UAW), et al. v. Kelsey-Hayes Company, et al., Case No. 11-14434 (E.D. Mich. Dec. 22, 2011).
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From the Alston and Bird ERISA Litigation Practice Group
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The Department of Labor (“DOL”) has returned to the fray over the future of the Moench presumption. On December 14, 2011, the DOL was given the “go ahead” from the Second Circuit to file an amicus curiae brief in the McGraw-Hill matter.
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On November 15, 2011, Judge Samuel Der-Yeghiayan of the Northern District of Illinois denied certification of a potential class of Motorola 401k Plan participants, concluding that Plaintiffs failed to meet their burden of showing that there was “commonality” among the proposed class members. The Court made clear that – after Walmart Stores, Inc. v. Dukes – the burden is far higher to survive the “rigorous analysis” that the Rule 23 prerequisites have been satisfied. Now, generalized statements that “other courts certified classes in other ERISA cases” simply does not suffice to show “commonality” to make the case suitable for class certification. See Grousman v. Motorola, Inc. No. 10-C-911, 2011 WL 5554030 (N.D. Ill. Nov. 15, 2011).
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To presume prudence or not to presume prudence? The Second Circuit recently chose the former, joining the Third, Fifth, Sixth and Ninth Circuits in holding that the presumption of prudence is the applicable standard in reviewing breach of fiduciary duty claims related to investments in employer stock. (The Third Circuit put its stamp on the presumption over fifteen years ago in Moench v. Robertson, 62 F.3d 553 (3rd Cir. 1995), coining the now famous “Moench presumption” moniker.)
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Earlier this year, the Third Circuit considered whether American Airlines properly terminated a commercial airline pilot’s claim for long-term disability (“LTD”) benefits, where the pilot’s putative disability claim arose from a psychotic episode.
In Miller v. American Airlines, 632 F.3d 837 (3d Cir. 2011), the Third Circuit reversed the decision of the United States District Court for the Middle District of Pennsylvania, which had granted summary judgment for American Airlines, the benefits plan and the plan administration committee. In reaching its decision, the Third Circuit parsed through the contents of the termination letter that was sent to the pilot and weighed the impact of its contents in determining whether the decision to terminate the pilot’s LTD benefits was arbitrary and capricious.
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On October 19, 2011, the Second Circuit affirmed the dismissal of two high-profile employer-stock drop cases and joined several sister circuits in officially adopting the Moench presumption of prudence. The Second Circuit also joined those courts expanding the Moench presumption to all eligible individual account plans (not just employee stock ownership plans) and applying the presumption at all stages of litigation, including the pleading stage. In re Citigroup ERISA Litigation and Gearren v. McGraw-Hill Cos., Inc. were argued in tandem and decided by separately issued opinions filed on the same day.
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After losing summary judgment before the United States District Court for the Northern District of Ohio, which was affirmed by the United States Court of Appeals for the Sixth Circuit, two doctors have asked the Supreme Court of the United States for a writ of certiroari to review the lower courts’ determination that the trustee of their 401(k) accounts breached its fiduciary duties after the investment advisor selected by the doctors defrauded them.
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In 1998, CIGNA Corporation converted its pension program from a defined benefit plan to a cash balance plan. In response, a lawsuit was brought on behalf of approximately 25,000 beneficiaries to challenge adoption of the new plan. The District Court found that the new plan was not as beneficial as the old plan in many ways, and that CIGNA failed to provide accurate and complete information to participants about the changes. As a remedy, the District Court used ERISA § 502(a)(1)(B) to reform the plan, and CIGNA was ordered to pay benefits based on this reformed plan.
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