Employee Benefits News examines legal developments that impact the employee benefits and executive compensation employers provide, including federal and state legislation, rules from federal...
Wells Fargo & Co. defeated, once again, claims that it caused financial losses to its workers’ 401(k) accounts by keeping company stock as an investment option despite knowing that its value was artificially inflated because of a 10-year ongoing cross-selling scheme.
The investors’ allegation that multiple Wells Fargo executives breached their loyalty duties under federal benefits law by failing to disclose inside information about the bank’s present and future financial condition isn’t sufficient to survive dismissal, Judge Patrick J. Schiltz of the U.S. District Court for the District of Minnesota held July 19.
The ruling comes 10 months after Schiltz tossed one of the investors’ fiduciary breach claims against the bank and allowed them to amend their loyalty claim with more specific allegations.
Schiltz’s ruling is the latest development in a lawsuit filed two years ago against the bank to hold it liable under the Employee Retirement Income Security Act for the losses suffered by participants in its 401(k) plan. The lawsuit followed the 2016 announcement that beginning in 2005, thousands of Wells Fargo employees had engaged in unethical sales practices, including opening more than 1.5 million deposit accounts and issuing over 500,000 credit-card applications for customers without their knowledge. The bank was fined $185 million by federal banking regulators, and the price of Wells Fargo stock dropped sharply.
The decision is another example of how difficult it is to pursue claims of fiduciary breaches on the basis of inside information under ERISA after a 2014 U.S. Supreme Court decision.
Schiltz’s ruling is noteworthy for its discussion of the distinction in pleading standards between ERISA claims of prudence and loyalty. Schiltz agreed with Wells Fargo that given how easy it is for a plaintiff to convert a prudence claim into a loyalty claim in an insider-information case, the Supreme Court would have as much concern about these loyalty claims as it had about the prudence claims in 2014.
An investor who brings a loyalty claim doesn’t have to allege or show anything about what a hypothetical prudent person would have done under the same circumstances, Schiltz said. Instead, investors must plead and show that the fiduciary acted to further his own interests rather than the interests of the fund, Schiltz said.
The investors’ allegations that Wells Fargo executives went beyond serving dual roles as fiduciaries and bank officers and breached their loyalty duty by failing to disclose material information falls short, Schiltz said.
DiCello Levitt & Casey LLC, Elias Gutzler Spicer LLC, Levi & Korsinsky LLP, Douglas J. Nill PLLC, Zimmerman Reed PLLP, Beasley Allen Crow Methvin Portis & Miles PC, Lockridge Grindal Nauen PLLP, and Grant & Eisenhofer PA represent the participants. Proskauer Rose LLP and Dorsey & Whitney LLP represent Wells Fargo.
The case is In re Wells Fargo ERISA 401(k) Litig., D. Minn., No. 0:16-cv-03405-PJS-BRT, order granting defendants’ motion to dismiss 7/19/18.
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