Edward Jones' Self-Dealing Suit Permitted to Proceed

A federal court judge has denied most of Edward Jones’ motions to dismiss a lawsuit alleging the company favored its own investments and those of its “preferred partners” in its 401(k) plan, at the expense of performance.

The Edward Jones defendants argue that the breach of fiduciary claims should be dismissed because they fulfilled their duties by offering an array of investment options. Plaintiff Charlene F. McDonald’s complaint asserts that defendants violated their fiduciary obligations and affiliated themselves with funds which benefited defendants at the expense of the plan participants. U.S. District Judge Rodney W. Sippell of the U.S. District Court for the Eastern District of Missouri Defendants’ found Edward Jones’ defense that they offered an array of investment options does not insulate them from McDonald’s claims.

Edward Jones defendants argue that the complaint fails to state a claim for a breach of fiduciary duties and for a failure to defray plan expenses, but Sippell found the complaint, when read as a whole, has provided sufficient facts to plausibly state these claims. Defendants dispute the complaint’s factual allegations and argue that they acted within the Employee Retirement Income Security Act’s (ERISA) standards. “In deciding a motion to dismiss I must determine whether the complaint states a claim for relief. Defendants’ arguments in support of their motion to dismiss challenge the factual allegations of the complaint and are premature at this stage of the litigation,” Sippell wrote in his opinion.

The court rejected defendants’ argument that McDonald does not have standing to challenge the defendants’ duties regarding the plan funds in which she did not personally invest. Sippell noted that in addition to bringing claims on her own behalf, McDonald is seeking relief on behalf of the plan. In a suit brought pursuant to ERISA, a plan participant may seek recovery for the plan even where the participant did not personally invest in every one of the funds that caused an injury to the plan, he concluded.

Sippell also rejected Edward Jones’ argument that McDonald’s breach of fiduciary duty claims are time-barred. McDonald’s complaint alleges that defendants breached their fiduciary duties by making imprudent investments. Section 1113(2) of ERISA provides that a limitations period to bring an action runs from three years after the earliest date on which the plaintiff had actual knowledge of a breach of the statute. In her complaint McDonald alleges that she did not discover the “substance of deliberations, if any, of defendants concerning the plan’s menu of investment options or selection of service providers during the class period” until shortly before commencing the action. Sippell noted that for purposes of a motion to dismiss, a plaintiff’s factual allegations are deemed true. “It appears from the face of the complaint that this action was timely filed,” he wrote.

Finally, the defendants argue that defendant Jones Financial, Edward Jones parent, should be dismissed from this action because it was not a plan fiduciary. Sippell found that McDonald’s complaint does not allege that Jones Financial was a plan fiduciary nor does it assert any facts which would establish Jones Financial was a plan fiduciary, so he granted the motion to dismiss as to Jones Financial.