The U.S. District Court for the Northern District of Alabama has ruled against the defense’s motion to dismiss the lawsuit known as Ferguson v. BBVA Compass Bancshares.
The lead plaintiffs in the case are participants in the Compass SmartInvestor 401(k) Plan. They filed the lawsuit as representatives of a class of participants and beneficiaries of the plan against defendants BBVA Compass Bancshares, Compass Bancshares Inc. and BBVA USA Bancshares Inc. The complaint collectively refers to these entities as BBVA.
The plaintiffs accuse BBVA of mismanaging a $100 million money market fund “that was the investment equivalent of stuffing cash into a mattress.” They also suggest BBVA has failed to properly monitor investments and remove imprudent ones, “including high-cost mutual funds whose performance did not justify their increased costs.”
The new ruling, which stretches to just 10 pages, does not consider the ultimate merits of the case and instead rules on a narrow set of technical issues coming out of BBVA’s motion to dismiss the complaint under Rule 8 and Rule 12 of the Federal Rules of Civil Procedure.
Much of the text of the ruling is dedicated to a discussion of how federal courts may rule on so-called Rule 12 and Rule 8 motions, which are commonly filed by defendants in cases citing the Employee Retirement Income Security Act (ERISA). The court notes, for example, that when a Rule 12(b)(1) motion is filed in conjunction with other Rule 12 motions, the court should consider the Rule 12(b)(1) jurisdictional attack before addressing any attack on the merits.
“Facial attacks to subject matter jurisdiction require the court merely to look and see if the plaintiff’s complaint has sufficiently alleged a basis of subject matter jurisdiction, and the allegations in his complaint are taken as true for the purposes of the motion,” the ruling explains. “Factual attacks, on the other hand, challenge the existence of subject matter jurisdiction in fact.”
Generally, when a defendant raises a factual attack on subject matter jurisdiction, the district court may consider extrinsic evidence such as deposition testimony and affidavits. In so doing, a district court is free to weigh the facts and is not constrained to view them in the light most favorable to the plaintiff. Here, the defendants have asserted a factual challenge to subject matter jurisdiction, in addition to making arguments that the complaint fails under Rule 8, which is used to assess whether an actionable claim has been stated by the plaintiffs.
After this technical discussion, the ruling examines a more concrete issue. Namely, before filing suit, the lead plaintiffs allegedly did not avail themselves of the full claim procedures outlined in their plan’s governing documents. BBVA argues that this is a failure to exhaust administrative remedies that warrants outright dismissal.
For their part, the plaintiffs argue that they did not fail to exhaust this potential remedy “because the BBVA plan does not provide administrative remedies.” The plaintiffs base this argument on the assertion that their attorneys requested access to any required administrative procedures and none were provided.
“They also argue that even if they failed to exhaust available administrative remedies, that failure is excused,” the ruling states. “The court concludes that to the extent the plaintiffs were required to exhaust available administrative remedies, the failure is excused.”
The ruling continues: “In most cases, if a plan participant failed to take advantage of an available administrative appeal by pursuing it in compliance with a reasonable filing deadline, she has failed to exhaust her administrative remedies and that bars federal court review of her claim. But ‘most cases’ is not all cases, and a claimant’s failure to exhaust an administrative remedy provided for in a plan is excused if she reasonably believed, based upon what the summary plan description said, that she was not required to exhaust her administrative remedies before filing a lawsuit.”
The ruling then notes that the plan’s summary description provides that after a claim is wholly or partially denied by the committee, plan participants or their authorized representative “may appeal the retirement committee’s decision denying the claim within 60 days” of receiving notice of the denial. Five pages later, the document states that, “if a claim for a benefit is denied in whole or in part, an employee has the right to have the plan reviewed and the plan reconsidered.” The document also states that, “if a claim for benefits is denied or ignored, in whole or in part, suit may be filed in federal court.”
These provisions of the summary plan document provide to plan participants alternative avenues of recourse, none of which is mandatory, the ruling states, because in each instance, the summary plan description tells plan participants that they “may” or that they “have the right to” pursue a particular option.
“The [document] does not describe the claims procedures or ERISA rights as mandatory prerequisites to filing suit in federal court,” the ruling states. “The word ‘exhaustion’ does not appear in the [document]. Consequently, a reasonable person reading it likely would conclude that the ‘General Claim Procedure’ provisions and the provision providing for filing suit in federal court offer an either-or proposition.”
The full text of the ruling is available here.
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