On July 13, Judge Julie Rebecca Rubin of the U.S. District Court for the District of Maryland issued a pair of extremely favorable decisions in a class action lawsuit alleging claims under the Employee Retirement Income Security Act of 1974 (“ERISA”). The case is Moler, et al, v. University of Maryland Medical System, et al, Case 1:21-cv-01824-JRR (D. Md.).
The Court Granted Plaintiffs’ Motion to Strike Extraneous Exhibits
First, Judge Rubin issued the attached Memorandum Opinion Granting the Plaintiffs’ Motion to Strike most of the exhibits appended to the University of Maryland Medical System’s (“UMMS”) motion to dismiss the Class Action Complaint. This decision blunted many of UMMS’s factual arguments, which were based on these extraneous documents. Judge Rubin’s opinion makes it clear that it would be improper to consider such factual disputes in the context of a motion on the pleadings, and before plaintiffs have had an opportunity to engage in discovery.
The Court Denied the UMMS Defendants’ Motion to Dismiss the Complaint
Second, Judge Rubin issued the attached Memorandum Opinion Denying Defendants’ Motion to Dismiss in its entirety. Plaintiffs’ Complaint alleged that a “flawed fiduciary process employed by Defendants resulted in the selection of high-cost funds through GoalMaker, and that those funds performed poorly.” Opinion at 4. In upholding this claim, the court stated: “Plaintiffs have alleged facts to support an inference of imprudence, as they have alleged well-pled facts regarding performance of the chosen funds in comparison to the less-expensive funds, and superior performance of the less expensive choice. These facts, assumed true, support the inference that Defendants breached their fiduciary duty in selecting the higher-cost funds.” Id. at 6-7.
Plaintiffs further alleged “that Defendants breached their fiduciary duties in failing to investigate and select lower cost alternative funds,” and, in particular, that GoalMaker’s “actively managed funds … charged grossly excessive fees in comparison to other comparable or superior alternatives and that those actively managed funds historically underperformed during the relevant period.” Id. at 7. The UMMS defendants argued that we improperly relied on hindsight and that “a fiduciary’s decisions are evaluated at the time they were made.” Id. The court rejected this argument noting that the Plans’ funds underperformed for at least 5 years, and that such “long-term underperformance is categorically different than showing what a fiduciary should have done in hindsight.” Id. at 8.
Moreover, the court differentiated the recent Sixth Circuit opinion in Smith v. CommonSpirit Health, No. 21-5964, 2022 U.S. App. LEXIS 17043 (6th Cir. June 21, 2022), which “affirmed the district court’s dismissal of plaintiff’s complaint where the plaintiff had ‘not plausibly pleaded that this ERISA plan acted imprudently merely by offering actively managed funds in its mix of investment options.’” CommonSpirit, 2022 U.S. App. LEXIS 17043, at *10. In rejecting the defendants’ analogy to CommonSpirit, the court stated: “Here, Plaintiffs’ allegations go beyond reliance upon other investments that outperformed the selected funds. Plaintiffs complain that the funds at issue underperformed, using other investments as a comparator, and that Defendants’ continued inclusion of the underperforming funds amounts to imprudence in violation of Defendants’ duties.” Opinion at 9. The court added, “Plaintiffs’ allegations are far more robust than those in Smith [v. CommonSpirit], where Smith essentially rested on a thin charge that there may have been better options out there.” Id. at 9-10.
The court also rejected the UMMS defendants’ argument that their removal of certain funds during the class period demonstrated a prudent fiduciary process, stating: “These arguments proffered by Defendants are fact-based merits defenses not properly resolved on a motion to dismiss.” Id. at 10.
Finally, the plaintiffs claimed that the UMMS defendants breached their duty of prudence by failing to monitor and control the Plans’ recordkeeping and administrative costs. The UMMS defendants’ argued for dismissal of this claim on the grounds “that Plaintiffs fail to allege facts sufficient to show that the fees were excessive for the services rendered.” Id. at 11. The court ruled that this factual dispute could not be resolved on a motion to dismiss, stating: “[W]hether charged fees and the concomitant fiduciary monitoring amount to a breach of duty are questions not to be resolved on a motion to dismiss where the allegations state a sound claim.” Id. at 12.
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Edelson Lechtzin LLP is a national class action law firm with offices in Pennsylvania and California. In addition to cases involving employee benefit plans our lawyers focus on class and collective litigation in cases alleging violations of the federal antitrust laws, securities and investment fraud, wage theft and unpaid overtime, consumer fraud, and dangerous and defective drugs and medical devices.