331 F. Supp. 3d 868
D. Me.2018Background
- Plaintiffs (current/former Wells Fargo employees) held Wells Fargo stock in 401(k) accounts and alleged large losses after September 2016 revelations of widespread unethical sales practices.
- Plaintiffs sued under ERISA, alleging breaches of the duties of prudence and loyalty by Wells Fargo and individual fiduciaries for failing to disclose the misconduct earlier.
- The court previously dismissed the prudence claim under the pleading standard set in Dudenhoeffer and allowed plaintiffs to replead the loyalty claim.
- Plaintiffs filed a second amended complaint reasserting loyalty claims; defendants moved to dismiss, arguing Dudenhoeffer’s standard should govern loyalty claims too and that the loyalty claim is otherwise deficient.
- The court analyzed whether Dudenhoeffer’s “more-harm-than-good”/heightened pleading considerations apply to loyalty claims and whether plaintiffs pleaded the subjective elements required for a loyalty breach.
- The court dismissed the second amended complaint with prejudice, concluding plaintiffs failed plausibly to plead a loyalty breach and again dismissed the prudence claim (preserved for appeal).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Dudenhoeffer’s prudence-specific pleading standard applies to ERISA loyalty claims in insider-information stock-drop cases | Allen et al.: loyalty claim should proceed without the Dudenhoeffer "more-harm-than-good" test | Wells Fargo: Dudenhoeffer's heightened pleading considerations should apply to loyalty claims to prevent evasion of PSLRA-like gatekeeping | Court: Dudenhoeffer’s procedural approach (rigorous Twombly/Iqbal review) applies, but the specific "more-harm-than-good" inquiry is prudence-specific and not required for loyalty claims |
| Whether plaintiffs plausibly alleged a breach of the duty of loyalty based on conflicts of interest and nondisclosure of inside corporate information | Plaintiffs: fiduciaries were incentivized to conceal misconduct to protect careers/positions and thereby disserved plan participants | Defendants: mere dual roles or adverse interests are insufficient; ERISA does not impose an affirmative duty to disclose general inside corporate information to participants | Court: dismissed loyalty claim—plaintiffs failed to plead the subjective motive element and cannot convert nondisclosure of corporate information into an ERISA duty to disclose |
| Whether allegations of affirmative misrepresentations support a loyalty claim | Plaintiffs: certain public statements/filings amounted to misleading communications that harmed plan participants | Defendants: alleged communications were corporate (not fiduciary) and plaintiffs did not plead reliance or that statements were made in fiduciary capacity | Held: court found misrepresentation allegations vague/abandoned or not pleaded as fiduciary communications; reliance not plausibly alleged; claim fails |
| Derivative/secondary fiduciary liability claims (Counts III & IV) | Plaintiffs: other defendants are liable derivatively if primary fiduciaries breached duties | Defendants: derivative claims depend on primary claims surviving | Held: derivative counts dismissed because primary fiduciary claims fail |
Key Cases Cited
- Fifth Third Bancorp v. Dudenhoeffer, 573 U.S. 409 (2014) (sets pleading guidance for ESOP prudence claims and endorses rigorous Twombly/Iqbal review)
- Ashcroft v. Iqbal, 556 U.S. 662 (2009) (plausibility pleading standard)
- Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007) (plausibility pleading standard)
- Merrill Lynch, Pierce, Fenner & Smith Inc. v. Dabit, 547 U.S. 71 (2006) (discusses PSLRA and securities-fraud filings)
- Braden v. Wal-Mart Stores, Inc., 588 F.3d 585 (8th Cir. 2009) (prudence standard is objective; fiduciary duties distinguished)
- Tussey v. ABB, Inc., 850 F.3d 951 (8th Cir. 2017) (loyalty violation can occur when fiduciary acts for improper motives)
- Trustees of the Graphic Commc'ns Int'l Union Upper Midwest Local 1M Health & Welfare Plan v. Bjorkedal, 516 F.3d 719 (8th Cir. 2008) (dual-capacity fiduciaries must wear fiduciary hat when making fiduciary decisions)
- Kalda v. Sioux Valley Physician Partners, Inc., 481 F.3d 639 (8th Cir. 2007) (fiduciaries may not mislead plan participants in fiduciary communications)
- Morrison v. MoneyGram Int'l, Inc., 607 F.Supp.2d 1033 (D. Minn. 2009) (corporate/public communications are not fiduciary communications absent further allegations)
- Roth v. Sawyer-Cleator Lumber Co., 16 F.3d 915 (8th Cir. 1994) (prudence claim requires showing what a prudent fiduciary would have done)