The Supreme Court today granted a petition for a writ of certiorari to review the Seventh Circuit’s decision in Divane v. Northwestern University, 953 F.3d 980 (7th Cir. 2020), cert. granted sub nom., Hughes v. Northwestern University, No. 19-1401 (July 2, 2021) (“Hughes”).1 Hughes is one of the numerous “excessive fees” class action cases that have come to dominate the ERISA fiduciary litigation landscape in recent years. Indeed, more than 100 of these cases have been brought against sponsors and fiduciaries of participant-directed retirement plans in just the last year and a half. While the Seventh Circuit in Hughes affirmed the dismissal of the plaintiffs’ complaint, many of these excessive fees cases have survived motions to dismiss, subjecting plan sponsors and fiduciaries to costly and time consuming discovery.
As in many of these cases, the plaintiffs in Hughes allege, among other things, that the defendants breached their ERISA fiduciary duties by causing the university’s participant-directed retirement plans to pay excessive recordkeeping and investment management fees when lower-cost services or investment products allegedly were available. In petitioning for certiorari after the Seventh Circuit affirmed the district court’s dismissal of the complaint, the plaintiffs argued that the Seventh Circuit’s decision conflicted with the decisions of the Third Circuit in Sweda v. University of Pennsylvania, 923 F.3d 320 (3d Cir. 2019), and the Eighth Circuit in Davis v. Washington University in St. Louis, 960 F.3d 478 (8th Cir. 2020), both of which had allowed complaints to proceed beyond the motion to dismiss stage. The Supreme Court called for the views of the Solicitor General, which then filed an amicus curiae brief for the United States arguing that the petition should be granted.
The question presented by the petition, which the Supreme Court today agreed to review, is: “Whether allegations that a defined-contribution retirement plan paid or charged its participants fees that substantially exceeded fees for alternative available investment products or services are sufficient to state a claim against plan fiduciaries for breach of the duty of prudence under ERISA, 29 U.S.C. § 1104(a)(1)(B).” The Supreme Court’s decision to review this issue should bring some clarity to the pleading standard in this hotly litigated area, just as the Court’s decision several years ago in Dudenhoeffer did in employer stock drop cases.
1 Justice Barrett, formerly a judge on the Seventh Circuit, took no part in considering the petition.