Francesca Allen v. Wells Fargo & Company, 967 F.3d 767

Background

Wells Fargo sponsored a 401(k) ESOP/401(k) plan that automatically invested employer matches and offered funds concentrated in Wells Fargo stock.
From 2004–2016 Wells Fargo senior management imposed aggressive sales quotas that led to creation of millions of unauthorized customer accounts; regulators publicly fined Wells Fargo in September 2016 and the stock price fell sharply.
Plan participants (former/current employees) sued under ERISA §§ 409 and 502 alleging fiduciaries knew (or should have known) of the misconduct earlier, yet failed to disclose it, freeze purchases, or hedge the Plan’s Wells Fargo stock exposure.
The district court previously dismissed the prudence claim under the Dudenhoeffer standard and allowed repleading of a loyalty claim; after the second amended complaint the district court dismissed both prudence and loyalty claims and related derivative claims for failure to plausibly plead a breach.
On appeal the Eighth Circuit affirmed, holding Dudenhoeffer governs imprudence claims, Twombly/Iqbal governs disloyalty claims, and plaintiffs failed to plausibly plead either duty was breached or that derivative claims survived.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Breach of duty of prudence (inside-information theory)	Plaintiffs alleged fiduciaries knew of ongoing misconduct and that earlier disclosure or a purchase freeze would have reduced harm to the Plan.	Dudenhoeffer requires plaintiffs to allege a plausible alternative that would not violate securities laws and that a prudent fiduciary couldn’t conclude would do more harm than good; disclosure would likely "spook" the market and harm the fund.	Court applied Dudenhoeffer and held plaintiffs failed to plausibly allege a prudent fiduciary couldn’t conclude earlier disclosure would do more harm than good; prudence claim dismissed.
Breach of duty of loyalty (failure to disclose; conflicts)	Plaintiffs alleged fiduciaries acted disloyally by withholding nonpublic company misconduct and by self‑interestedly selling stock.	Duty of loyalty does not require disclosure of nonpublic corporate information; allegations are conclusory and largely recast the imprudence claim.	Court applied Twombly/Iqbal and held loyalty allegations insufficiently specific; disloyalty claim dismissed.
Applicability of Dudenhoeffer to loyalty claims	Plaintiffs argued Dudenhoeffer should not apply to loyalty claims.	Defendants urged Dudenhoeffer applies because loyalty claims here rest on inside information.	Court held Dudenhoeffer is limited to prudence claims; but Twombly/Iqbal nonetheless require plausible factual allegations for loyalty claims.
Derivative/co‑fiduciary and monitoring claims	Plaintiffs alleged derivative liability and failure to monitor other fiduciaries.	Defendants argued underlying fiduciary breaches were not plausibly alleged, so derivative claims fail.	Court held derivative claims fail because the underlying ERISA fiduciary breaches were not plausibly pleaded.

Key Cases Cited

Fifth Third Bancorp v. Dudenhoeffer, 573 U.S. 409 (establishing demanding pleading standard for ESOP imprudence claims based on inside information)
Amgen Inc. v. Harris, 136 S. Ct. 758 (reaffirming Dudenhoeffer’s standard and focus on whether a prudent fiduciary could conclude an alternative would do more harm than good)
Jander v. Retirement Plans Comm. of IBM, 910 F.3d 620 (2d Cir.) (example where court found plaintiff plausibly alleged earlier disclosure would be preferable because disclosure was inevitable)
Martone v. Robb, 902 F.3d 519 (5th Cir.) (rejecting generic economic‑principle argument that earlier disclosure is generally better and finding Dudenhoeffer unmet)
Singh v. RadioShack Corp., 882 F.3d 137 (5th Cir.) (finding disclosure could do more harm than good; dismissing imprudence claim)
Whitley v. BP, P.L.C., 838 F.3d 523 (5th Cir.) (discussing market‑spooking risk of untimely disclosure)
Lanfear v. Home Depot, Inc., 679 F.3d 1267 (11th Cir.) (holding ERISA does not impose duty to disclose nonpublic corporate information to participants)
Saumer v. Cliffs Nat. Res. Inc., 853 F.3d 855 (6th Cir.) (noting that an unexplained purchase freeze could be worse than disclosure because it may "spook" the market)
Usenko v. MEMC LLC, 926 F.3d 468 (8th Cir.) (clarifying that the Dudenhoeffer inquiry focuses on information available to fiduciaries at the time of decisions)
Shea v. Esensten, 107 F.3d 625 (8th Cir.) (distinguishing fiduciary duties to disclose plan‑related information from nonpublic corporate information)
Braden v. Wal‑Mart Stores, Inc., 588 F.3d 585 (8th Cir.) (holding fiduciaries must disclose complete and accurate material information about Plan funds)