Mixed Ruling Filed in NFP–flexPATH ERISA Lawsuit

The complicated ruling offers some support for the defendants’ arguments but allows other claims to proceed to discovery and trial.

The U.S. District Court for the Central District of California has ruled in a complex Employee Retirement Income Security Act lawsuit involving multiple defendants, including NFP Retirement and one of its affiliates.

The plan sponsor involved in the case is the Wood Group, which is an international business involved in the U.S. oil and gas sector. According to the complaint, filed by plaintiffs under the representation of the well-known law firm Schlichter Bogard & Denton, the plan’s in-house fiduciaries and various service providers with functional fiduciary status failed to operate the Wood Group’s retirement plan for the exclusive benefit of participants and beneficiaries. The defendants are further accused of failing to ensure that all plan expenses were reasonable and that all plan investments were prudent.

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Instead of acting in the exclusive best interest of participants, the lawsuit contends, the Wood defendants and NFP caused the plan to invest in NFP’s collective investment trusts managed by its affiliate, flexPATH Strategies, which allegedly benefitted the NFP defendants at the expense of plan participants’ retirement savings. The complaint states that the Wood defendants and NFP also failed to use their plan’s bargaining power to obtain reasonable investment management fees, which caused unreasonable expenses to be charged to the plan.

The new ruling comes after several previous legal steps, including NFP filing a dismissal motion that was targeted at the plaintiffs’ second amended complaint. For their part, the plaintiffs opposed the motion, and NFP responded in turn. The flexPATH Strategies defendants also moved to dismiss the second amended complaint, and the plaintiffs also opposed this motion—a step which then drew a response from flexPATH. Finally, the Wood defendants, too, moved to dismiss the second complaint, which led to the same type of cross motion and response.

After the court posted a tentative order, both NFP and the Wood defendants filed a request for hearing. The court considered the arguments raised by both parties and found that oral arguments would not be helpful in this matter at this stage, leading it to issue the new order.

Specifically, the court has granted NFP’s motion to dismiss the first cause of action to the extent that it relies upon co-fiduciary liability for actions taken by flexPATH as investment manager. It has also dismissed the third cause of action with respect to the transactions involving the flexPATH CITs. The court further granted NFP’s motion to dismiss the second cause of action to the extent that it relies upon direct liability. However, the court has denied the remainder of NFP’s motion to dismiss.

Similarly, the court has granted the flexPATH motion to dismiss the third cause of action with respect to the transactions involving the flexPATH CITs, but it has denied the remainder of flexPATH’s motion to dismiss.

Additionally, the order grants the Wood defendants’ motion to dismiss the first cause of action to the extent that it relies upon co-fiduciary liability for actions taken by flexPATH as investment manager, and the third cause of action with respect to the transactions involving the flexPATH CITs. On the other hand, the court has denied the remainder of the Wood defendants’ motion to dismiss.

The ruling explains its support for NFP’s arguments by noting the allegations in the second amended complaint are “consistent with NFP rendering investment advice per its role as a fiduciary under Section 1002(21)(A)(ii), not exercising discretionary control as a fiduciary would under Section 1002(21)(A)(i).” It explains that the plaintiffs do not argue in opposition to this motion that the complaint alleges that NFP was responsible for selecting or removing any funds for the plan.

Accordingly, the court finds that plaintiffs have not stated a claim to the extent that it is premised on NFP’s direct responsibility for the selection and retention of the flexPATH target-date funds.

On the other hand, after extensive analysis, the court finds that plaintiffs have plausibly alleged that NFP breached its fiduciary duties in the provision of advice concerning both the initial selection as well as the ongoing retention of the flexPATH target-date funds.

The full text of the order is available here.

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