Second Amended ERISA Complaint Targeting Xerox HR Solutions Tossed by District Court

Xerox HR Solutions has won dismissal of a complicated Employee Retirement Income Security Act (ERISA) lawsuit filed by participants in a Ford Motor Company retirement plan in the U.S. District Court for the Eastern District of Michigan, Southern Division.

In the original complaint, Xerox was accused of collecting excessive fees and engaging in a type of pay-to-play arrangement with Financial Engines Inc., which was not actually named as a defendant but still factored significantly into the allegations of wrongdoing.

To say that the litigation has gone through some twists and turns is a definite understatement. The original complaint was amended once and failed, with the court soundly rejecting the plaintiffs’ allegations. However, the court allowed limited leave for repleading of certain allegations. This brought before the court the plaintiffs’ second—and significantly broader—bite at the apple. As the text of the new decision states, the second amended complaint included new allegations and new defendants not contemplated in the original complaint, and plaintiffs accordingly had sought leave to include these new items in the second amended complaint.

For their part, the Xerox defendants opposed the amendments and moved once again to dismiss the lawsuit, leading to the current decision, for which the court determined that a hearing was unnecessary. In short, because the plaintiffs’ second amended complaint fails to address the deficiencies identified in the court’s prior order, and because the proposed amendments are therefore deemed futile, the court has denied further leave to amend the complaint and has granted the Xerox defendant’s second motion to dismiss.

The text of the new decision says the amended complaint has failed because “it is an attempt to replead dismissed counts,” and because it includes an entirely new cause of action, violation of the Racketeer Influence Corrupt Organizations Act. Also problematic, it includes new parties, Xerox Corporation and Conduent, Inc.

“Having duly considered plaintiffs’ three bases to impute fiduciary status on defendant, the court rejected each,” the decision explains. “But it granted leave to replead as to one: whether defendant acted as a fiduciary by exercising de facto control over the election of Financial Engines as a fiduciary for the plans, per Hecker v. Deere & Co. The court explained that it was possible for a party to act as a functional fiduciary to the extent that the party exercised control over the means in which another fiduciary would act in a fiduciary capacity. In so doing, the court provided some caution—it noted its doubt that anything short of an allegation that defendant was directly involved in the Ford-Financial Engines negotiations would rise to the level of de facto control sufficient to impose liability.”

Plaintiffs’ second attempt has fared no better on this score.

“The second amended complaint essentially alleges that defendant used its influence as the Ford plans’ record keeper to encourage the Ford Plans to hire Financial Engines,” the decision states. “They claim that defendant said it would work with no other automated investment service provider on its platform, thereby requiring the Ford Plans to switch record keepers—a difficult and complex undertaking—if they wanted to use a different provider. And, according to plaintiffs, defendant marketed Financial Engines to the Ford plans, declined to market any of Financial Engine’s competitors, and encouraged the Ford plans to use Financial Engines. But these terms, chosen by plaintiffs, belie the sort of influence that defendant wielded here.”

The text of the decision further states that the defendant “did not choose Financial Engines for the Ford plans; the Ford plans did. … And Plaintiffs have alleged nothing to suggest that the decision was not ultimately up to the Ford plans to make.”

The full text of the lawsuit, which includes much more detailed discussion of the fiduciary breach claims and the rejected RICO allegations, is available here.