Rollins ERISA Challenge Tossed on Technical Issue

The U.S. District Court for the Northern District of Georgia, Atlanta Division, has ruled in favor of the defense’s motion to dismiss a lawsuit known as Fleming v. Rollins Inc.

The complaint in the case was filed a little less than a year ago. It accused the defendants, which include the Rollins Inc. company and its subsidiary Western Industries, of having imprudently selected higher-cost actively managed mutual funds and retail share classes over the lowest cost institutional share classes of the same mutual funds. Although the complaint noted that the defendants acted to remove the retail share classes and replace them with institutional share classes last year, it said “their action in this regard has [done] nothing to 1) repair the harm to the thousands of separated employees that withdrew millions of dollars, or 2) repair the accounts of current employees for the 2014, 2015, 2016, 2017 and 2018 plan years of prohibited transactions and trust damages.”

The plaintiffs also alleged the defendants improperly favored the economic interests of the plans’ recordkeeper—Prudential—allowing it to collect excessively high fees from the plans’ participants.

In their dismissal motion responding to these allegations, the defendants put forward five main arguments why the suit should be rejected. First, they argue the claims raised in the plaintiffs’ amended complaint are barred by their failure to exhaust their potential administrative remedies prior to filing. Second, the plaintiff lacks standing to pursue any claims. Third, the amended complaint fails to state a plausible claim for breach of fiduciary duty or any violation of the Employee Retirement Income Security Act (ERISA). Fourth, the defense argues, the amended complaint represents an impermissible “shotgun pleading” that fails to meet the standards of Federal Rule 8(a). Fifth and finally, the dismissal motion argues plaintiffs’ claims are barred by ERISA’s statute of repose to the extent they are based on allegations of conduct that are more than six years old.

The short, pro-defense ruling takes on only the first argument, given its overarching importance to the rest of the case. On this issue of the exhaustion of administrative remedies, the ruling states that a district court possesses discretion to excuse the exhaustion requirement. However, the 11th U.S. Circuit Court of Appeals, which has jurisdiction here, instructs that doing so is only proper in two situations: when requiring a plaintiff-claimant to resort to administrative remedies “would be futile or the remedy would be inadequate,” or when a claimant is “denied ‘meaningful access’ to the administrative review scheme in place.”

As the court describes, the plaintiffs here argue their failure to initiate or exhaust the administrative process under the plans is not fatal to their suit for two reasons. First, they claim that the plan does not provide for an administrative procedure for the breach of fiduciary duty claims brought here, and thus, their administrative remedies should be “deemed exhausted.” Second, the plaintiffs posit that their failure to exhaust their supposed administrative remedies falls within the recognized exception of futility.

Considering these issues, the ruling states the following: “According to plaintiffs, the plans provide grievance procedures for only two types of claims: (1) those ‘relating to the amount of any payment due under the plans’ and (2) those concerning ‘failure or error in implementing an investment direction with respect to a claimant’s account.’ Thus, plaintiffs argue that these deficiencies allow them to pursue their claims directly in federal court because there is no administrative procedure that they could have resorted to. However, the court finds plaintiffs’ reading of the plans incomplete. As defendants point out, the plans define a claim as ‘any grievance, complaint or claim concerning any aspect of the operation or administration of the plan or trust, including but not limited to claims for benefits and complaints concerning the investments of plan assets.’”

To back up its position, the dismissal ruling cites Lanfear v. Home Depot Inc.

“In Lanfear, former employees filed a complaint against Home Depot, without first exhausting their administrative remedies, for breach of fiduciary duty in the administration of a retirement plan,” the ruling explains. “The former employees maintained that exhaustion was not required because the plan’s provisions regarding the review and appeal process only referred to a ‘claim for benefits.’ Ultimately, the 11th Circuit held that the relevant plan’s broad definition of ‘claim’—coupled with the discretion granted to the plan administrators—were ‘sufficient to establish the availability of an administrative remedy’ for breach of fiduciary duty. The court finds that Lanfear is instructive here.”

In addition to some more technical conclusions drawn on the futility issue, the dismissal ruling states that the 11th Circuit “disfavors a finding of futility where a plaintiff has completely bypassed the administrative process, as is the case here.”

“In sum, under the law of the 11th Circuit, plaintiffs were required to exhaust the administrative remedy process available to them before filing suit but failed to do so,” the ruling concludes. “Plaintiffs also fall short of meeting the high standard necessary for the court to excuse their failure to exhaust the available administrative remedies pursuant to the futility exception. Accordingly, the court finds that plaintiff’s amended complaint is due to be dismissed.”

The full text of the ruling is available here.