Federal District Court Dismisses Fiduciary Breach Lawsuit Brought Against Fidelity and Unysis Corp.

The United States District Court for the Eastern District of Pennsylvania dismissed an ERISA fiduciary breach lawsuit brought against Unisys Corp, and Fidelity on Monday of this week. In Renfro v. Unisys Corp. (E.D. Pa., No. 07-2098, 4/26/10), the plaintiff's alleged that Unisys's Section 401(k) plan held $2 billion in assets between 2000 and 2007. The plan had 30,000 participants, placing it in the top 1 percent of all Section 401(k) plans in the United States. The plan offered participants 70 investment options, including mutual funds, index funds, commingled pools, fixed income funds, and a money market fund. The Plaintiff's alleged that the investment funds offered fees ranging from as little as 0.10 percent to as high as 1.21 percent. It was alleged that nearly $1.9 billion of the plan's assets were held in Fidelity-branded retail mutual funds and all of the assets were held in vehicles managed or operated to some extent by a Fidelity affiliate, the court said. A group of Unysis 401(k) plan participants participants filed a lawsuit against Unisys, the plan fiduciaries, and the Fidelity companies. They claimed that the defendants breached their ERISA fiduciary duties by causing plan participants and beneficiaries to pay excessive administrative and investment management fees. In particular, the participants asserted that Unisys should have taken advantage of the plan's large size to negotiate lower fees or increased services for the plan's participants and beneficiaries.

In granting Unisys's motion to dismiss, the District Court found that there was nothing in ERISA that would have required the fiduciaries of Unisys's Section 401(k) plan “to get the best deal imaginable.” Rather, the Court found, ERISA merely requires fiduciaries “to act carefully, skillfully, prudently, diligently, and solely in the interest of participants and beneficiaries." According to the Court, "[w]hile this is not a light duty, it does not support a lawsuit that simply claims the fiduciaries could have done better had they worked harder to leverage their market power.” The Court further noted that “[t]here is nothing about the slate of investment options the Plan offered that suggests the Unisys Defendants did not meet the requisite standard of care. The Plan offered participants a number of investment options with varying fees, risks, and potential rewards...." The Court also commented found that even if Unisys selected overly expensive funds for the plan, it would still be entitled to summary judgment because its plan met the safe harbor provisions of ERISA Section 404(c). In so ruling, the court rejected the plaintiffs' reliance on Department of Labor regulations indicating fiduciaries will not be shielded by Section 404(c) when they select imprudent investments for the plan. The court said it would not defer to the Department of Labor's interpretation of Section 404(c).

The District Court also dismissed fiduciary breach claims that had been brought against the 401 (k) plan's service and investment providers Fidelity Management Trust Co., Fidelity Investments Institutional Operations Co., and Fidelity Management & Research Co. The Court held that none of the Fidelity defendants acted as fiduciaries of Unisys's Section 401(k) plan. In rejecting the plaintiffs' contention that Fidelity Management had “veto power” over the selection of plan investment options and as such it had the requisite discretionary authority or responsibility that would render it a plan fiduciary. The court said Fidelity Management had no “veto power” because at all times it was Unisys's fiduciaries that had authority to decide which investments would be offered under the plan. The court also rejected the plaintiffs' allegation that Fidelity Management was a fiduciary because it exercised discretion over “float interest” on plan contributions. [Float interest is the interest earned on plan contributions from the time that they were received by Fidelity Management until the time they were credited to participant accounts.] The Court noted that, “[e]ven if FMTC is a fiduciary with respect to float interest, that does not render it a fiduciary with respect to investment selections,” the court said.

Big Blow To Wal-Mart

CNN reports that the U.S. Court of Appeals for the Ninth Circuit has certified the largest class-action employment lawsuit in U.S. history, in a long-standing dispute against retailer Wal-Mart Stores Inc. over alleged gender bias in pay and promotions. According to CNN, the Ninth Circuit ruled Monday that the combined multiparty litigation can move ahead to trial, where a decision against the company could result in billions in damages. At issue in the case is whether more than a million current and former Wal-Mart employees can band together in their claims of discrimination, which they say has occurred over the past decade, at least. The plaintiffs allege that women were paid less than, and were given fewer opportunities for promotion than, their male counterparts. They seek back pay and punitive damages against the world's largest retailer. (See http://www.cnn.com/ for more on this case).

Supreme Court Rejects "One Strike And You're Out Approach" To Review Of Plan Administrators' Decisions

The Supreme Court handed down a significant - and, quite frankly, obvious and unnecessary - benefits decision yesterday. In Conkright v. Frommert, No. 08–810, participants in an ERISA pension benefit plan, who had left the employment of Xerox Corp., received lump-sum distributions and later been rehired by Xerox, sued Xerox and others for improper calculation of their benefits. Following a partial grant of Xerox's motion to dismiss, the United States District Court for the Western District of New York granted summary judgment for Xerox, and the participants appealed. The Second Circuit Court of Appeals, affirmed in part, vacated in part and remanded. On remand, following the recalculation of benefits by Xerox, the District Court declined to afford Xerox's determination any deference based on Xerox's earlier error, and entered order from which the defendants appealed. The Court of Appeals affirmed in part, vacated in part and remanded. Certiorari was granted by the Supreme Court.

The Supreme Court held that the District Court should have applied a deferential standard of review to the Plan Administrator's interpretation of the Plan on remand. The Supreme Court noted that its earlier decision in Firestone Tire & Rubber Co. v. Bruch looked to “principles of trust law” for guidance, and that under trust law, the appropriate standard depends on the language of the instrument creating the trust. When a trust instrument gives the trustee “power to construe disputed or doubtful terms, ... the trustee's interpretation will not be disturbed if reasonable." Under Firestone and the Xerox Plan's terms, the Plan Administrator should have been entitled to deference when interpreting the Plan. The Supreme Court noted, however, that the Court of Appeals below had crafted an exception to Firestone deference, when it held that a court need not apply a deferential standard when a plan administrator's previous construction of the same plan terms was found to violate ERISA. The Supreme Court noted that the Second Circuit's “one-strike-and-you're-out” approach had no basis in Firestone, which set out a broad standard of deference with no suggestion that it was susceptible to ad hoc exceptions. The Supreme Court also noted that it had recently held in Metropolitan Life Ins. Co v. Glenn, that a plan administrator operating under a systemic conflict of interest is nonetheless still entitled to deferential review. In light of that ruling, the Court found it difficult to see why a single honest mistake should require a different result. The Court also noted that ERISA represents a “ ‘careful balancing’ between ensuring fair and prompt enforcement of rights under a plan and the encouragement of the creation of such plans,” and that Firestone deference preserves this “careful balancing” and protects the statute's interests in efficiency, predictability, and uniformity.

Do Employers Have To Accommodate Employees' Disability Related Difficulties In Getting To Work?

In an important case with significant implications for employers and employees, the United States Court of Appeals for the Third Circuit ruled April 8, 2010 that, under certain circumstances, the Americans With Disabilities Act can obligate an employer to accommodate an employee’s disability-related difficulties in getting to work (if reasonable).

The case, Colwell v. Rite Aid Corp., No. 08-4675 involved an employee who was hired in April 2005 as a part-time clerk, Coldwell, at one of Rite-Aid’s stores. Her schedule varied but she generally worked the 9 a.m. – 2 p.m. shift or the 5 p.m. – 9 p.m. shift. During the summer 0f 2005, she was diagnosed with retinal vein occlusion and glaucoma in her left eye and she later lost vision in her left eye. As a result, she could no longer drive at night. Because she lived in an area without public transportation or taxis, Colwell had no reliable way to get to work for the evening shift. She asked to be assigned only to the day shifts but her supervisor refused, saying that it “wouldn’t be fair” to other employees. Colwell provided her supervisor with a doctor’s note as proof that she could not drive at night. Again, her supervisor declined Colwell’s request to be assigned only to day shifts. Colwell had to rely on family members to transport her to and from work on the days she was scheduled to work at night. Coldwell eventually submitted a letter of resignation.

Coldwell filed suit in federal district court in Pennsylvania. The trial court ruled in favor of Rite-Aid (on the employer's motion for summary judgment prior to trial), finding that the ADA was designed to cover barriers to an employee’s ability to work that exist inside the workplace, not difficulties over which the employer has no control, such as whether an employee can get to or from work.

On appeal, the question before the United States Court of Appeals for the Third Circuit was “whether a shift-change request can be considered a reasonable accommodation for an employee who cannot drive at night” because of a disability. The Third Circuit held that under certain circumstances the ADA can obligate an employer to accommodate an employee’s disability-related difficulties in getting to work, if reasonable. According to the Court, “[o]ne such circumstance is when the requested accommodation is a change to a workplace condition that is entirely within an employer’s control and that would allow the employee to get to work and perform her job.” The Court noted that a change in shifts could be that kind of accommodation.

Significantly, the court distinguished this from an employee’s request for assistance in getting to work. For example, according to the Court, an employer would not have a duty to provide an employee with transportation to or from work. But an employer does have a duty, where reasonable, to accommodate an employee by changing the times that the employee is required to be at work. Thus the Third Circuit overruled the district court’s grant of judgment in favor or Rite-Aid and remanded the case back to the federal district court for a jury trial.

Jason Ehrenberg Quoted In Law360 Article Discussing Mandatory Requirement Policies

Bailey & Ehrenberg partner Jason Ehrenberg recently was quoted in the Law360 article titled, "Kelley Drye May Set Trend In Ending Retirement Policy" Mr. Ehrenberg comments on law firm mandatory retirement policies. To read the full article, visit www.law360.com (subscription required). To view a PDF version of the article, visit www.becounsel.com.

Social Media Websites and Restrictive Covenants

There is an interesting article on the website Portfolio.com today about a new restrictive covenant lawsuit involving the use of the social-networking site LinkedIn. Portfolio.com reports that TEKsystems has accused some former employees of its Edina, Minnesota office of violating non-compete and non-solicitation agreements the individuals had signed while employed with the company. In a suit filed in federal court in Minneapolis in mid-March, TEKsystems alleged that the former employees wrongfully contacted former clients and co-workers in violation of their non-competition and non-solicitation agreements. The company pointed to the former employees' LinkedIn web pages as evidence of the breach of the agreements. The company alleged, among other things, that the former employees messaged invitations to existing TEKsystems employees and customers and included TEKsystems customers on their contacts lists. According to the article, as case law develops, (a) courts could decide whether the online connections employees make at work belong to the employee or employer, and (b) courts will have a lot of discretion in deciding whether comparable customer lists and contacts are trade secrets and whether social-networking activity can be covered by competitive agreements.