Breach of Fiduciary Duty

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This week’s notable decision, Perrone v. Johnson & Johnson, et al., No. CV 19-00923 (FLW), 2020 WL 2060324 (D.N.J. Apr. 29, 2020), is a case involving allegations of investing in company stock when corporate insiders knew, and actively concealed, its talc powder (baby powder) contains asbestos. This is yet another case dismissed for failing to meet the high pleading standard set by the Supreme Court in Fifth Third Bancorp v. Dudenhoeffer, 573 U.S. 409 (2014).

Plaintiffs filed this as a purported class action against Johnson & Johnson, Peter Fasolo and Dominic Caruso, senior executives of the company and members of the benefits committee. Plaintiffs complaint alleges that as early as 1957, Johnson & Johnson knew its talc powder contains asbestos and not only concealed its knowledge for decades but engaged in an active campaign of providing misinformation and misleading statements about the safety of its product. However, in December 2018, Reuters published an article revealing the long history of actively hiding the presence of asbestos in its talc powder. The news article caused Johnson & Johnson’s stock to decline by more than 10%. 
Continue Reading Johnson & Johnson Escapes Breach of Fiduciary Duty Lawsuit Due to Dudenhoeffer’s Difficult Pleading Standard

This week’s notable decision is one from a wave of ERISA lawsuits against universities over allegations of imprudent investments and excessive fees.  In Divane v. Northwestern Univ., No. 18-2569, __F.3d__, 2020 WL 1444966 (7th Cir. Mar. 25, 2020), the Seventh Circuit Court of Appeals upheld the dismissal of claims alleging that Northwestern breached its fiduciary duty as a prudent investor.   

Plaintiffs, who are beneficiaries of the Northwestern University Retirement Plan and the Northwestern University Voluntary Savings Plan (“the Plans”), alleged that Northwestern, the Plans’ administrator and designated fiduciary, breached its duty to act as a prudent fiduciary and that they are entitled to relief under ERISA, 29 U.S.C. §§ 1132(a)(2) and 1109(a).  “In their amended complaint, plaintiffs specifically alleged that Northwestern failed to act as a prudent fiduciary when it included the Stock Account as a plan investment offering and allowed TIAA-CREF to serve as a recordkeeper for its funds (Count I); created a multi-entity recordkeeping arrangement (Count III); and provided investment options that were too numerous, too expensive, and underperforming (Count V). In Counts II, IV, and VI, plaintiffs claimed the above conduct also constituted prohibited transactions under ERISA. Id. § 1106.”  Divane, 2020 WL 1444966, at *5.

In upholding the district court’s dismissal, the Seventh Circuit made several key findings.  
Continue Reading Seventh Circuit Rules for Northwestern University in Retirement Plan Investment Dispute

Yesterday, in Retirement Plans Committee of IBM v. Jander, No. 18-1165, 2020 WL 201024 (U.S. Jan. 14, 2020), the U.S. Supreme Court vacated and remanded a closely watched ESOP breach of fiduciary duty case to the Second Circuit Court of Appeals.  The High Court’s per curiam decision is a short one so allow me to give you some background to understand the full picture.

In December 2018, the Second Circuit issued a decision in Jander v. Ret. Plans Comm. of IBM, 910 F.3d 620 (2d Cir. 2018), cert. granted, 139 S. Ct. 2667, 204 L. Ed. 2d 1068 (2019), and vacated and remanded sub nom. Retirement Plans Committee of IBM v. Jander, No. 18-1165, 2020 WL 201024 (U.S. Jan. 14, 2020), where it addressed the question of what standard one must meet to plausibly allege that fiduciaries of an employee stock option plan (“ESOP”) have violated ERISA’s duty of prudence.
Continue Reading Supreme Court Sends Closely Watched Fiduciary Duty Case Back to the Second Circuit Court of Appeals