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Court of Appeals Affirms “Paternalistic” Breach of Fiduciary Duties

The US Court of Appeals for the Eighth Circuit recently affirmed a Minnesota district court’s dismissal of a claim against Wells Fargo & Company (Wells Fargo) under ERISA. A former employee had alleged Wells Fargo breached fiduciary duties by retaining Wells Fargo’s own investment funds as a 401(k) option, and defaulting to those funds when plan participants failed to elect another option.

In holding that the former employee failed to state a claim, the court in Meiners v. Wells Fargo & Co. reasoned that the plaintiff failed to plead facts showing the Wells Fargo investment funds were an imprudent choice. Specifically, the court found that the plaintiff’s allegations that an allegedly comparable fund performed better was not sufficient, especially given the other fund’s differing investment strategy. The court’s prior decision in Braden v. Wal-Mart Stores, Inc. established that plaintiffs could show that “a prudent fiduciary in like circumstances” would have selected a different fund by providing a basis for comparison–in other words, a benchmark. However, the Eighth Circuit declined the plaintiff’s invitation to extend the rationale of Braden by allowing a plaintiff to demonstrate imprudence with a benchmark that only possesses some similarities to the fund at issue.

The Eighth Circuit’s decision is in line with other courts’ rejection of ERISA claims based on the plaintiffs’ subjective views of which funds are the best overall investment. A US district court judge for the Northern District of Illinois recently labeled such breach of fiduciary duty claims “paternalistic” while dismissing a class action against Northwestern University.

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About this Author

J. Christian Nemeth, McDermott Will, business torts lawyer, aviation matters attorney
Partner

J. Christian (Chris) Nemeth provides legal counsel on complex commercial litigation, including contract disputes, shareholder derivative actions, financial and banking matters, business torts, aviation matters, insurance cases, white-collar criminal matters and health care litigation.

Chris represents clients in courts at the state and federal levels across the country, and has successfully tried cases involving a wide range of matters. He also arbitrates cases in domestic and international forums.

Chris has extensive...

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Elizabeth Rowe, IP Attorney, Litigation, McDermott Law Firm
Associate

Elizabeth M. Rowe focuses her practice on complex civil litigation. She has experience with contract interpretation, negligence and assumption of risk, breaches of fiduciary duty, and burden of proof.

While in law school, Elizabeth was a member of the University of Notre Dame Law School’s The Journal of Legislation. She also served as an intern in the Office of Congressman Mike McIntyre and as a law clerk in the Cook County Office of the Public Defender.

Elizabeth Rowe attended Marquette University for her BA and Notre Dame Law School for her JD.

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