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Compliance January 4, 2019
Court Refuses to Dismiss Mutual of Omaha Self-Dealing Suit
The decision against Mutual of Omaha’s preliminary motions to dismiss a self-dealing lawsuit underscores the way district court judges tend to allow for discovery in ERISA matters, given the complex and often secretive nature of the facts and circumstances in question.
Reported by John Manganaro
A federal district court has denied Mutual of Omaha’s motion to summarily dismiss a lawsuit accusing its 401(k) plan’s fiduciaries of violating their fiduciary duties by selecting numerous investment options not for the benefit of the plan or its employees, but instead because they paid fees to Mutual of Omaha or its subsidiaries.
Citing a series of precedent-setting cases, Senior U.S. District Judge Joseph F. Bataillon of the U.S. District Court for the District of Nebraska explains in his opinion that an ERISA complaint of this nature does not need to describe in exhaustive detail the ways in which plaintiffs claim defendants breached their fiduciary duties.
“Under the federal rules, a complaint must contain a short and plain statement of the claim showing that the pleader is entitled to relief,” Bataillon states. “Specific facts are not necessary; the statement need only give the defendant fair notice of what the claim is and the grounds upon which it rests.”
On the other hand, as the judge explains, in order for a claim to survive a motion to dismiss under federal rules, the plaintiff’s obligation to provide the grounds for his entitlement to relief necessitates that the complaint contain “more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do.”
Weighing these two sides in the context of ruling on a summary motion for dismissal is “a context specific task” that requires the court “to draw on its judicial experience and common sense,” the decision states.
Under precedent, a court considering a motion to dismiss may begin by identifying pleadings that, because they are no more than conclusions, are not entitled to the assumption of truth. The fact of the matter is that, although legal conclusions can provide the framework of a complaint, they must be supported by factual allegations. As the judge here notes, federal courts follow a two-pronged approach to evaluate summary dismissal challenges. First, a court divides the allegations between factual and legal allegations; factual allegations should be accepted as true, but legal allegations should be disregarded. Second, the factual allegations must be parsed for facial plausibility.
Important to this decision, precedent also states that the plausibility standard “does not require a probability, but asks for more than a sheer possibility that a defendant has acted unlawfully.” In turn, the court must find enough factual matter (taken as true) to suggest that discovery will reveal evidence of the elements of the claim. When the allegations in a complaint, however true, could not raise a claim of entitlement to relief, the complaint should be dismissed.
This standard may seem to unfairly favor plaintiffs, but the judge points out that “no matter how clever or diligent, ERISA plaintiffs generally lack the inside information necessary to make out their claims in detail unless and until discovery commences.” Thus, without this benefit of the doubt, it is likely that few if any ERISA complaints would survive the motion to dismiss stage. The Supreme Court, for its part, has sought to enforce a middle ground, instructing lower courts to engage in “careful, context-sensitive scrutiny of a complaint’s allegations.”
Turning to the specific matter at hand, the court’s ruling is unequivocal.
“The court is cognizant of its role as the gatekeeper in these types of cases, particularly in terms of halting frivolous cases at the outset,” the decision states. “Such monitoring and review theoretically keep the cost lower and the payout higher for plan participants. However, the court finds that the facts as alleged by plaintiffs constitute a plausible claim of misconduct in the form of a breach of fiduciary duty and loyalty at this point in the lawsuit. Accordingly, the court will deny the motion to dismiss as to these claims.”
The court similarly rules flatly against the defense’s statute of limitations arguments, setting up a discovery process and potentially a full trial at some point in the future. The full text of the decision is available for download here.