The U.S. District Court for the Northern District of Texas has issued a mixed order in an Employee Retirement Income Security Act lawsuit filed against the Kimberly-Clark Corporation and its board of directors, in their capacity as fiduciaries to the company’s 401(k) and profit sharing plan.  

Technically, the order rejects the defendants’ motion to dismiss the lawsuit, but it also determines that the plaintiffs in the case have not sufficiently pled their claims and thus instructs them to replead their suit prior to an April 22 deadline. According to the court’s order, a failure by the plaintiffs to replead by this date will result in the dismissal—without prejudice—of their suit.

The plaintiffs in the case allege that the defendants breached their fiduciary duties by authorizing the Kimberly-Clark defined contribution retirement plan to pay unreasonably high fees for administrative and recordkeeping services. The lawsuit asks that the court require the defendants to make good to the plan all losses resulting from their alleged breaches of fiduciary duty.

According to the complaint, the plan has more than 16,000 participants and assets of approximately $4 billion, which gave it substantial bargaining power regarding the fees and expenses that were charged against participants’ accounts. The plaintiffs say the defendants failed to monitor the fees paid by the plan to ensure that they were reasonable and failed to adequately disclose fees associated with the plan to participants.

The order from the court runs to just six pages. It recounts how the defense has argued for dismissal pursuant to Federal Rule of Civil Procedure 12(b)(6), asserting that the plaintiffs have failed to state claims upon which relief can be granted. The defense has contended that the allegations in plaintiffs’ complaint are insufficient to support claims for fiduciary breaches of the duty of prudence, loyalty and monitoring.

In their dismissal motion, the defendants asserted that plaintiffs’ allegations with respect to the individual “Doe” defendants are particularly lacking, and that there is no body of Texas law that allows a board of directors to be sued as an entity independent of the corporation it serves. In addition, the defendants suggested the plaintiffs lack Article III standing under the U.S. Constitution, and they therefore also moved to dismiss any such claims pursuant to Federal Rule of Civil Procedure 12(b)(1).

The court’s order states that the ultimate question in a Rule 12(b)(6) motion is whether the complaint states a valid claim when it is viewed in the light most favorable to the plaintiff. It notes that, while well-pleaded facts of a complaint are to be accepted as true, legal conclusions are not entitled to the assumption of truth. Further, the order states, a court is “not to strain to find inferences favorable to the plaintiff” and is not to accept “conclusory allegations, unwarranted deductions or legal conclusions.”

After reviewing the plaintiffs’ complaint and the parties’ various submissions, the court agrees that the plaintiffs’ claims for fiduciary breaches of the duty of prudence, loyalty and monitoring are not sufficiently pleaded for purposes of Rule 12(b)(6). The order also agrees that the allegations in the plaintiffs’ complaint are likewise insufficient to establish that they have Article III standing to pursue any claim that defendants breached their fiduciary duties by permitting the plan’s recordkeepers to recoup fees in whole or in part through revenue sharing. Further, the order states that the plaintiffs’ contention that certain deficiencies in their case may be resolved through discovery and that such issues are, therefore, not appropriate for a motion to dismiss, is not a valid basis for defeating defendants’ motion under Rules 12(b)(6) or 12(b)(1).

“On the other hand,” the order continues, “the law as to whether the board of directors can be sued as a legal entity was not sufficiently briefed by either party. Likewise, plaintiffs’ one-sentence conclusory response in a footnote regarding its duty of loyalty claim was woefully deficient, conclusory and unhelpful. Whether such a response amounted to an abandonment of their duty of loyalty claim is a close call.”

After making these points in favor of the defense, the order ultimately concludes that, because the plaintiffs have not previously amended their pleadings and it is unclear at this juncture whether amendment would be futile or unnecessarily delay the resolution of this action, the court must deny without prejudice the defendants’ motion and allow plaintiffs to amend their pleadings.

The full text of the order is available here.