Summary Judgement Goes for Invesco in ERISA Lawsuit

The U.S. District Court for the Northern District of Georgia, Atlanta Division, has issued summary judgement in favor of the defense in a broad Employee Retirement Income Security Act (ERISA) lawsuit targeting Invesco.

Plaintiffs filed the complaint back in June 2018, naming a laundry list of defendants from across the Invesco organization, including individual officers and managers. Allegations leveled in the proposed self-dealing class action challenge varied widely and include many similar to other litigation. The plan was accused of offering too many investment options—nearly all of them affiliated in some way with Invesco—and of failing to use its leverage as one of the larger employer-sponsored retirement programs in the U.S. to negotiate for reduced costs for the benefit of plan participants.

Beyond these allegations, plan officials and Invesco leaders were accused of breaching their fiduciary duties by offering imprudent affiliated exchange-traded fund (ETF) investment products to participants. Further, the lawsuit alleges that the plan offered worse-performing retail shares instead of better-performing institutional shares. The list of allegations went on to suggest the firm added poorly performing proprietary mutual funds to the plan; that it offered imprudent Invesco-branded target-date funds (TDFs) with high expenses and poor performance; and that the plan fiduciaries erred in connection with offering collective investment trusts.

Ruling on these allegations, the Court sides with Invesco defendants, who argued for summary dismissal of the case based on the grounds that they had engaged in prudent and loyal processes in the operation of the retirement plans in question. However, the Court has granted the plaintiffs a 20 day period to amend the compliant to potentially address the case’s fatal shortcomings.

The decision cites a number of important precedent-setting cases, including the Supreme Court’s decision in Tibble vs. Edison.

“Because lawful and prudent decisions may have the same result as unlawful and imprudent decisions in this context, complaints that, when read as a whole, merely allege that fiduciary duties were breached because funds underperformed do not state a claim,” the decision states. “With the exception of one fund, the amended complaint fails to plausibly plead underperformance. … Plaintiff’s own allegations make clear that the example Invesco funds in fact outperformed seventeen of Plaintiff’s nineteen chosen alternatives at various points in time. … Furthermore, while the amended complaint is full of references to ‘excessive fees,’ with the exception of one fund, Plaintiff does not plead anything about the fees or expense ratio of any of the funds at all.”

As to why the Court has left the plaintiffs room to amend their complaint again, the following rationale is provided: “The Court does not agree with defendants that leave to amend the complaint should be denied as futile. Plaintiff’s allegations that during the class period, between 55% to 68% of all plan investments were affiliated with Invesco, and that by December 31, 2016, 81% of investments made by plan participants were in Invesco-affiliated funds, give the Court pause when it takes into consideration the allegation that the bonus performance criteria under the Invesco Executive Incentive Bonus Plan includes assets under management, net revenue yield on assets under management, operating revenues, and net asset flows.”

These allegations are further concerning, the Court states, considering the plaintiff’s allegations regarding the limitation of access to non-Invesco affiliated funds. In the end, though, the Court “cannot say that plaintiff has plausibly alleged that this state of affairs arose by conduct tainted by failure of effort, competence, or loyalty.”

The full text of the ruling also includes a detailed discussion of what it takes for a plaintiff to prove Article III standing under the U.S. Constitution in the context of an ERISA lawsuit. The Court even goes so far as to state its opposition to the ruling issued in the influential case known as Dorman v. Charles Schwab Corp.

“This Court would not reach the same result as Dorman, at least at this stage of the proceeding,” the decision states. “Plaintiff has alleged that misconduct regarding the [self-directed brokerage account] arises from the same misconduct that injured his retirement savings and the retirement savings of all participants. While the Court has dismissed these counts with leave to amend, the Court cannot say as a matter of law that plaintiff would never have standing to bring such a claim in connection with a properly alleged cause of action against defendants. Defendants do not contend that the [brokerage account] is somehow not part of the plan. Barring a plaintiff who may otherwise hold an ERISA claim from challenging conduct which is part and parcel with the plaintiff’s claim is at odds with the Supreme Court’s cases which hold ERISA’s enforcement provisions protect the entire plan. A plaintiff need not show that he has invested in every plan option in order to have standing to challenge the allegedly violative conduct, so long as ‘the gravamen of the plaintiff’s challenge is to the general practices which affect all of the plans.’”