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Compliance July 9, 2021
Land O’Lakes Lawsuit Stayed for Mediation
The judge in the fiduciary breach lawsuit has approved a joint motion to stay the proceedings while the parties engaged in mediation towards a potential settlement.
Reported by John Manganaro
The U.S. District Court for the District of Minnesota has stayed the Employee Retirement Income Security Act (ERISA) lawsuit filed in May 2020 against the Land O’Lakes dairy company.
The judge’s order comes after the filing of a joint motion to stay the proceedings while the parties enter a mediation process. The underlying lawsuit, one of many filed in recent years by the law firm Capozzi Adler, alleges fiduciaries of the Land O’Lakes Employee Savings & Supplemental Retirement Plan have failed to objectively and adequately review the plan’s investment portfolio with due care to ensure that each investment option was prudent in terms of cost.
The suit also alleges the defendants impermissibly maintained certain funds in the plan despite the availability of identical or similar investment options with lower costs and/or better performance histories. Additionally, the complaint includes allegations of disloyal actions taken by plan fiduciaries in the negotiation of service provider relationships.
Back in February, a ruling published by the same district court granted some elements of the defense’s motion to dismiss, while rejecting others. That ruling came in response to the Land O’Lakes defendants’ motion to dismiss the suit based on a lack of subject matter jurisdiction and failure to state a plausible claim.
Before analyzing and ruling on the issues at hand, the preliminary ruling stepped through the various arguments included in the complaint, noting how much of the suit is spent comparing the plan’s investment options with others it allegedly could have and should have used, and in comparing the administrative fees paid by the plan to those allegedly paid by peer plans.
“Plaintiffs challenge 18 of the plan’s 25 investment options, even though they only enrolled in three of those options,” the February ruling states. “Defendants argue that plaintiffs lack standing to challenge investment options in which they were not enrolled because they do not have a particularized and concrete injury relating to those options. Plaintiffs respond that they need not personally invest in each fund to have standing because they suffered overall injury from defendants’ fiduciary breaches and are entitled to bring a class action suit in a representative capacity. The court finds that plaintiffs have standing to challenge the entire plan.”
This determination followed in the footsteps of many prior rulings across the U.S., in which district court judges have embraced the concept that, once a plaintiff properly pleads an injury under their plan, that individual can pursue remedies on behalf of the whole plan and other participants, even though such allegations go beyond the individual’s injury. After this point of success for the plaintiffs, the ruling went on to side in one important way with the Land O’Lakes defendants.
“Plaintiffs compare the expense ratios of the plan’s funds to the median expense ratios in comparable funds in similarly sized plans,” the February ruling states. “This comparison demonstrates that all of the plan’s investment options were above ‘comparable’ median expense ratios of similarly sized plans. Defendants respond that the median expense ratios from the study are not meaningful benchmarks because the study does not distinguish between actively and passively managed accounts. The court agrees with defendants and finds that the study’s median expense ratios are not meaningful benchmarks.”
Though the outcome of the Land O’Lakes mediation process remains to be seen, context for what may come next can be found in the recent settlement agreement inked by Navy defense contractor Serco Inc. in a substantially similar piece of litigation. In that matter, which involved a somewhat smaller retirement plan but related allegations, the parties reached a $1.2 million settlement agreement after nearly a year of discovery, motions and mediation. In addition to the monetary settlement, the agreement includes an injunction on the plaintiffs from filing additional lawsuits on the same grounds as the original case, and the defense denies all allegations and liability for the allegations and claims.
The text of the new Land O’Lakes stay order is available here.