The U.S. District Court for the District of Colorado has ruled in the case of Ramos v. Banner Health, filing a split ruling that sides in part with the defense and in part with the sizable class of plaintiffs.
The underlying litigation arose out of alleged mismanagement of defendant Banner Health’s 401(k) plan. Plaintiff Lorraine Ramos and others brought the lawsuit against Banner Health and certain current and former employees, as well as against the advisory firm Jeffrey Slocum & Associates, which in January paid a $500,000 settlement to extricate itself from the ligation.
The plaintiffs allege the Banner Health defendants breached their fiduciary duties in various ways under the Employee Retirement Income Security Act (ERISA). In particular, they accuse the fiduciaries of failing to prudently monitor certain plan offerings; of retaining certain investment options for too long; of using a revenue sharing model to pay for recordkeeping services, which resulted in the paying of excessive recordkeeping fees and allegedly improper payments; and of impermissibly using plan assets to pay certain Banner expenses.
On January 6, the case proceeded to an eight-day bench trial to test five distinct counts. This is in addition to the production of more than 125,000 documents and 20 separate depositions. The parties also engaged in extensive expert discovery.
The new decision is nearly 140 pages long and cites an extensive amount of case law along with the results of the trial. Technically, the ruling requires another supplemental briefing, after which the court says it will order “judgment on certain counts in favor of plaintiffs, and on certain counts in favor of Banner defendants.”
There are some illustrative points in the ruling that are worth examining. For example, it notes that Banner defendants did not raise any argument about the timeliness of the plaintiffs’ claims at trial, or in their proposed preliminary or final findings of fact and conclusions of law.
“Because Banner defendants have not earlier raised any argument as to the timeliness of any of plaintiffs’ claims, much less established any facts which support a contention that plaintiffs’ claims are untimely, or that a three-year statute of limitation should apply, the court finds that ERISA’s six-year statute of limitations applies to all counts,” the ruling states.
The ruling also denotes that the court needn’t decide whether the Banner defendants were required to monitor the suitability of the specific investments in the plan’s mutual fund window, or whether Banner defendants breached any such duty. This is because court has concluded that the plaintiffs have failed to demonstrate that any such breach caused economic losses to plan participants.
“Causation of loss is not an axiomatic conclusion that flows from a breach of fiduciary duty,” the ruling states. “Failure to prove causation is fatal to the plaintiffs’ mutual fund window claim. To demonstrate a causal link between, on one hand, a breach of duty of prudence for failing to monitor and remove imprudent investments and, on the other, losses to the plan, plaintiffs must show that additional monitoring of the plan’s holdings would have averted the injury and caused a change of course by leading Banner defendants to remove imprudent investment options. To demonstrate that a change of course would have occurred with proper monitoring, plaintiffs must show that no reasonable fiduciary would have maintained the investment and thus Banner defendants would have acted differently had they engaged in proper monitoring. Plaintiffs have failed to establish, by a preponderance of the evidence, that any alleged failure to monitor or earlier remove the funds available to participants through the mutual fund window caused any economic losses to those plan participants.”
Similarly, the ruling states that the plaintiffs have “failed to carry their burden to show that the Fidelity Freedom Funds were imprudent investment options, such that Banner defendants should have removed these funds as a plan investment alternative by the second calendar quarter of 2011.”
On the other hand, the ruling sides with the plaintiffs on the claims regarding excessive recordkeeping fees.
“Many allegations concerning fiduciary conduct, such as reasonableness of ‘compensation for service’ are inherently factual questions for which neither ERISA nor the Department of Labor [DOL] gives specific guidance,” the ruling states. “Accordingly, the court examines whether Banner defendants’ process for evaluating recordkeeping and administrative fees paid to Fidelity was prudent. In doing so, the court finds and concludes that plaintiffs have carried their burden to show, by a preponderance of the evidence, that Banner defendants breached their fiduciary duty of prudence with respect to recordkeeping and administrative fees paid to Fidelity, and that this breach resulted in losses to the plan.”
This part of the ruling is based on the fact that the recordkeeping arrangement with Fidelity was entered into without any date of expiration or required renegotiation.
“During the term of the trust agreement with Fidelity, when recordkeeping fees were generally falling because of increasing competition, particularly in the mega plan market, Fidelity continued to collect uncapped, asset-based fees,” the ruling states. “From 2009 until 2015, the [defendants] did not engage in any process to consider whether the asset-based revenue sharing fee structure was appropriate, and whether the fees paid under that arrangement were reasonably related to the actual costs of administering the plan. … In stark contrast to the robust Fidelity Freedom Funds analysis it employed, the [defense] did not have a thorough process for evaluating the amounts paid to Fidelity for recordkeeping and administrative fees under the revenue sharing agreement.”
In the end, the court concludes that plaintiffs are entitled to judgment in their favor on three counts and that the defendants are entitled to judgment in their favor on two counts. Excluding prejudgment interest, plaintiffs are entitled to losses in the amount of $1,661,879.83 on Count 1 and $687,589 on Count 5.
“As discussed previously, prejudgment interest at fixed interest rate of 3.25%, with interest compounded monthly, is appropriate on these amounts, but has not yet been calculated,” the ruling states. “Therefore, the precise dollar amount to be awarded to plaintiffs for their losses remains under advisement, and judgment will not enter until the amount of prejudgment interest has been calculated. To determine the amount of prejudgment interest to be awarded to plaintiffs, the court will order the parties to confer and submit a notice regarding the appropriate amount of prejudgment interest.”
The full text of the ruling is available here.
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