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A participant-plaintiff’s revised attempt to hold the plan sponsor liable as a fiduciary for theft from her 401(k) account has, once again, fallen short.
The suit, originally filed against the fiduciaries of the Abbott Labs retirement plan and Alight Solutions, LLC, the recordkeeper for the plan, alleged that the defendants “failed to enforce a security question routine set up for security purposes on the Defendants’ website” … and “instead simply provided a one-time code over the phone that was used to loot Ms. Bartnett’s account.” And then, “rather than communicating with Ms. Bartnett via email concerning changes to her account, as Defendants knew Ms. Bartnett preferred, they mailed notices, allowing the theft to be consummated and $245,000 to be transferred out of the country via email to an Indian IP address before Ms. Bartnett could take any steps to halt the fraud.” Ms. Bartnett is, of course, the plaintiff in the case.
Last October U.S. District Judge Thomas M. Durkin of the U.S. District Court for the Northern District of Illinois dispensed with the allegations involving the plan fiduciaries, but left the door open for the plaintiffs to amend their complaint. They did so the following month—and Judge Durkin once again considered the issues (Bartnett v. Abbott Laboratories et al., case number 1: 20-cv-02127, in the U.S. District Court for the Northern District of Illinois), pursuant to the Abbot Labs fiduciaries move to dismiss that amended complaint—and, once again, he dismissed the amended complaint—with a twist.
After recounting the particulars of the account theft (you can do so here), Judge Durkin turned to the focus of the new Abbot Labs motion arguing that plaintiff Bartnett had not sufficiently alleged that they breached their fiduciary duties of prudence and monitoring.
The (New) Allegations
As for those claims, Bartnett[i] alleged that the Abbott Defendants breached their duties by hiring Alight in 2003 and again in 2015 despite knowing that Alight “[fumbled] cybersecurity and data privacy” responsibilities, “lack[ed] experience with retirement plans,” “fail[ed] to provide quality plan administration services,” “[had] inadequate policies and practices,” and was subject to “recent litigation and/or enforcement actions.[ii]”
After recounting those instances (see below), Judge Durkin commented: “Neither party has pointed the Court to an ERISA fiduciary duty case that involves allegations similar to those alleged here, nor is the Court aware of one. In any event, the Seventh Circuit has expressly stated that a plaintiff who brings a breach of fiduciary claim, including one based on imprudence, must ‘plausibly allege action that was objectively unreasonable.’”
On that point, he wrote that “although she claims that the Abbott Defendants were imprudent for hiring Alight, the incidents referenced in her amended complaint occurred after Alight was first offered the job. Indeed, Alight was hired in 2003, and the first incident identified by Bartnett occurred in 2013. The Court cannot infer that the Abbott Defendants breached their duty of prudence by hiring Alight in 2003 based on events a decade later.” Now, Judge Durkin acknowledged that there was a rehiring decision made in 2015 but concluded that “…Bartnett’s claim still fails because the incidents that pre-date Alight’s rehiring do not give rise to the inference that renewing Alight’s contract was objectively unreasonable. Indeed, the two incidents that occurred before Alight was rehired were limited in size and scope, did not involve significant lapses in security protocols, and no client funds were stolen.”
Plaintiff Bartnett cited a case from the Second Circuit that found that an ERISA fiduciary duty claim may survive a motion to dismiss if the complaint “alleges fact[s] that show that an adequate investigation would have revealed to a reasonable fiduciary that their hiring was improvident.” To which, after stating that this court was “not bound by Second Circuit case law,” Judge Durkin nonetheless found the reference unpersuasive in this case. “Although an investigation by the Abbott Defendants in 2015 would have shown that two isolated incidents occurred under Aon Hewitt’s watch, Aon Hewitt presumably handled tens of thousands of customer transactions that year and rehiring a plan administrator with a less-than-perfect track record does not plausibly allege imprudent conduct. That is especially so given that neither incident seemed to involve Alight’s performance on behalf of the Abbott Labs Stock Retirement Plan.”
Judge Durkin acknowledged that in his previous dismissal he had drawn attention to “conclusory allegations in her original complaint amounted to nothing more than speculation,” and that the amended complaint “now contains over a dozen new allegations,” and that “many of them are quite detailed.” However, he still concluded that “none of them speak to whether the Abbott Defendants monitored (or failed to monitor) Alight’s performance vis-à-vis the Abbott Labs Stock Retirement Plan.” Noting that they “…focus instead on Alight’s performance as an administrator for other plans (specifically the Reed Elsevier LTD Program and the Estee Lauder Plan),” and that “the Court cannot reasonably infer that the Abbott Defendants breached their duty to monitor based on incidents that did not involve them.”
Indeed, in a statement that seemed to narrow the field of fiduciary inquiry, Judge Durkin commented that, “The duty to monitor requires fiduciaries to keep track of how an administrator performs for their own plan, not others.”
As for the recent announcement of a Labor Department investigation (see DOL Stepping Up Cybersecurity Focus), Judge Durkin noted that “the DOL’s investigation of Alight does not save Bartnett’s claim from dismissal. Public court filings show that the investigation opened six months after Bartnett’s funds were stolen,” and that “the Abbott Defendants cannot be expected to know about the investigation before it even began. And although Bartnett argues that the previous incidents demonstrate that the Abbott Defendants knew about Alight’s ‘lax attitude toward data security,’ she has not alleged any action by the Abbott Defendants plausibly showing that they failed to monitor Alight’s performance as it relates to the Abbott Labs Stock Retirement Plan specifically.”
Not ‘Dead’ Yet
That said, Judge Durkin wasn’t quite yet prepared to close the door on the plaintiff’s case. He wrote that “counsel explained at the parties’ last status hearing that Bartnett and the Abbott Defendants have started limited discovery pursuant to the Court’s order on November 6, 2020. Once this limited discovery closes, Bartnett may move for leave to file a second amended complaint if she reasonably believes that new allegations address the deficiencies described in this opinion.”
That said, “…for now, absent plausible allegations in the first amended complaint that the Abbott Defendants were objectively unreasonable, the Court finds that Bartnett has failed to state a fiduciary duty claim based on the duties of prudence and monitoring,” and dismissed Bartnett’s fiduciary duty claim without prejudice. However, he did bound in that window, noting that Bartnett “may file a motion for leave to file a second amended complaint if she reasonably believes she can cure the deficiencies described in this opinion regarding the Abbott Defendants,” but that that motion must be filed within 30 days or dismissal of the fiduciary claim against the Abbott Defendants will be with prejudice.
And—“Should the Abbott Defendants move to dismiss Bartnett’s second amended complaint, and should the Court grant that motion, dismissal will likely be with prejudice given the repeated opportunities Bartnett has had to state a plausible claim for relief against the Abbott Defendants.”
What This Means
While the conclusions here are doubtless of comfort to busy plan fiduciaries, one might well think that publicity regarding a pattern of potential problems, even at other plans, would at least place the issue as a matter of discussion for prudent fiduciaries.
We do not know, of course, that that did not happen here. But if it hasn’t already, this case—and the others cited here (not to mention the Labor Department’s renewed emphasis)—might well warrant a discussion for plan committees going forward.
[i] Barnett is represented by Todd Rowden, James Oakley and Donnell Bell of Taft Stettinius & Hollister LLP.
[ii] Specifically, the instances noted in Judge Durkin’s decision were as follows. In 2013, an international cybercrime ring targeted Aon Hewitt and several other private companies, obtaining customer login information and stealing millions of dollars from several financial institutions. In 2015, a manual mailing error at Aon Hewitt resulted in the disclosure of client information to an unintended recipient. The information included names, dates of birth, Social Security numbers and pension information. Also in 2015, participants in a benefits program “inadvertently” accessed personal information about other participants, including their Social Security numbers. In 2016, an unknown person or persons “potential[ly]” accessed the personal records of 2,892 individuals. The records included Social Security numbers, contact information, dates of birth, and more. Also in 2016, Alight allegedly allowed an unauthorized user to initiate three separate transfers from a 401(k) retirement account belonging to someone else. The transfers totaled $99,000. In 2019, Alight disclosed that emails sent to certain individuals since 2014 inadvertently included their Social Security numbers. Alight also disclosed that between 2016 to 2019, URLs linking to certain Alight websites included Social Security numbers and dates of birth. Also in 2019, the U.S. Department of Labor disclosed that it is investigating Alight for processing unauthorized transfers from ERISA plan accounts and failing to timely report cybersecurity breaches.
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