Seventh Circuit Applies Hughes v. Northwestern University to Dismiss
Friday, September 9, 2022

In January 2022, the Supreme Court held in Hughes v. Northwestern University, 142 S. Ct. 737, that courts must apply a context-specific inquiry to determine whether plan participants state plausible breach of fiduciary duty claims against plan fiduciaries for violations of the Employee Retirement Income Security Act (“ERISA”) when selecting and monitoring investment funds and recordkeeping services under a plan.  In so doing, the Supreme Court reversed the Seventh Circuit’s decision in Divane v. Northwestern University, 953 F.3d 980 (7th Cir. 2020) (now known as Hughes), stating “The Seventh Circuit erred in relying on the participants’ ultimate choice over their investments to excuse allegedly imprudent decisions by [Northwestern fiduciaries].”  142 S. Ct. at 742.  Hughes is pending before the Seventh Circuit on remand.

On August 29, 2022, the Seventh Circuit applied the Supreme Court’s Hughes decision to affirm the dismissal of an excessive fee case brought against Oshkosh Corporation.  Albert v. Oshkosh Corporation, Case No. 1:20-cv-00901 Slip Op. (7th Cir. Aug. 29, 2022).  The plaintiff in Oshkosh alleged that the recordkeeping fees under the plan and investment management fees for certain investment funds under the plan were excessive and that Oshkosh’s plan fiduciaries breached their fiduciary duty under ERISA by failing to engage in a prudent decision-making process.  The plaintiff cited to various other plans allegedly similar to the Oshkosh plan with lower fees, and also faulted the Oshkosh plan fiduciaries for not conducting regular requests for proposals (RFPs) for recordkeeping services. 

The district court originally dismissed the case based on the Seventh Circuit’s earlier decision in Hughes, and plaintiffs appealed while Hughes was pending at the Supreme Court.  The Seventh Circuit in its current opinion concluded that the Supreme Court’s Hughes decision did not change the outcome of Oshkosh.  The Seventh Circuit focused on the Supreme Court’s statement that “the circumstances facing an ERISA fiduciary will implicate difficult tradeoffs, and courts must give due regard to the range or reasonable judgments a fiduciary may make based on her experience and expertise.”  Hughes, 142 S. Ct. at 742.  The Seventh Circuit further stated that “Hughes merely rejected this court’s assumption that the availability of a mix of high-cost and low-cost investment options in a plan insulated fiduciaries from liability.”  Slip Op. at 14.  The Seventh Circuit ultimately concluded that the plaintiff in Oshkosh could not survive a motion to dismiss merely by alleging that plan fiduciaries did not conduct regular RFPs or that other plans had lower fees, stating that plaintiff’s complaint simply does not provide “the kind of context that could move this claim from possibility to plausibility,” Slip Op. at 15, or provide a “sound basis for comparison.”  Slip Op. at 18.

Although this is an evolving area of law and different courts may apply Hughes in different ways, the Seventh Circuit’s decision reinforces the importance of maintaining rigorous fiduciary processes relating to selecting and monitoring funds and service providers under a plan.

 

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