Novo Nordisk Class Action Case Partially Dismissed

A federal judge in New Jersey dismissed on Monday an Employee Retirement Income Security Act of 1974 class action suit accusing pharmaceutical company Novo Nordisk Inc. and its fiduciary boards of mismanaging a $1.2 billion employee retirement plan.

The suit was brought by John Fumich, Laura Mischley, Raphael Hinton, Ronnie McLean and Thomas Chaffin, employees and plan participants, as plaintiffs, individually and on behalf of a proposed class. The class would have included all non-defendant participants or beneficiaries of the plan from September 13, 2018, through the date of judgment.

The complaint for Fumich, et al v. Novo Nordisk Inc. et al, filed in the U.S. District Court for the District of New Jersey in September 2024, alleged Novo Nordisk “did not exercise appropriate judgment in scrutinizing each investment option [in its 401(k) Savings Plan], initially and on an ongoing basis.”

The plaintiffs further alleged that the pharmaceutical giant failed to control the plan’s recordkeeping and administrative costs, charging participants excessive fees while the company allegedly used plan forfeitures to defray its own contributions.

Recently, the U.S. Department of Labor filed an amicus brief supporting plan sponsors’ use of the funds as their plan documents permit. However, the use of plan forfeitures to defray administrative costs or to offset employer contributions remains a commonly litigated issue.

Plaintiffs asserted claims for the breach of the fiduciary duty of prudence; breach of the fiduciary duty of loyalty; breach of ERISA’s anti-inurement provision, which mandates that the assets of a plan shall never inure to the employer’s benefit, but rather must be held exclusively to provide benefits to participants and to defray reasonable plan expenses; and failure to monitor fiduciaries.

U.S. District Judge Zahid N. Quraishi granted the defendant Novo Nordisk’s motion to dismiss, finding the plaintiffs failed to sufficiently show that the defendants breached their fiduciary duties under ERISA.

In his opinion, Quraishi stated that the plaintiffs failed to offer the “numerous and specific factual allegations” or “substantial circumstantial evidence” that would allow the court to infer the defendants breached their duty of prudence.

Citing a 2011 decision by the U.S. Third Circuit Court of Appeals in the case Renfro v. Unisys Corp., Quraishi added that the plaintiff “provided nothing more than conclusory assertions that [defendants] breached their duty to prudently and loyally select and maintain the plan’s mix and range of investment options.”

On the allegation that the plan sponsor breached ERISA’s anti-inurement provision by using forfeited funds to defray Novo Nordisk’s own contributions to the plan, Quraishi stated that the claim failed. He wrote that ERISA does not create a duty for a plan sponsor to maximize pecuniary benefits, only to ensure that plan participants have received the benefits promised to them.

“Notably and most fatal to the claim is that Plaintiffs do not allege that any of the forfeited assets left the Plan,” the opinion stated. “Furthermore, the Court agrees with Defendants that allegations that fiduciaries received incidental or indirect benefits does not satisfy a claim for breach of ERISA’s anti-inurement provision.”

A portion of the allegation that the Novo Nordisk retirement committee breached its duty of prudence by permitting the plan to pay extensive recordkeeping fees; and a portion of the allegation that Novo Nordisk and its board breached their duty to monitor the retirement committee, were permitted to proceed.

The plaintiffs in the case are represented by Mark K. Gyandoh and James A. Maro of Capozzi Adler P.C. and Peter A. Muhic of Muhic Law LLC. Jeremy Blumenfeld of Morgan, Lewis & Bockius LLP represented the defendants.

The plan had more than $2 billion in assets as of December 31, 2023, according to the lawsuit.