ERISA Plan Sponsor's Failure to Disclose Fee-Sharing By Fund Advisor is Not a Breach of Fiduciary Duty
HECKER v. DEERE & COMPANY (February 12, 2009)
Deere & Co. sponsors 401(k) plans for its employees. It engaged Fidelity Management Trust Co. (“Trust”) to serve as trustee of two of the plans. Trust administered employees’ accounts, maintained records, and advised Deere regarding investment options to include in the plans. Both plans offered many different investment choices – Fidelity mutual funds, two investment funds managed by Trust, a Deere stock option, and an option that provided a link to over 2500 funds managed by different companies. The plan’s participants managed their own funds from among the choices. Each of the funds imposed a percentage of assets fee upon participants. Fidelity Management & Research Co. (“Research”) is the investment advisor for the Fidelity mutual funds. Research earned revenue from the mutual fund fees and shared it with Trust. Trust’s only compensation for managing Deere’s plans was the fee from Research. Dennis Hecker and other plan participants brought this class action against Deere, alleging that Deere violated its fiduciary duty under ERISA by providing options in the plans that charged excessive fees and by not disclosing the fee structure between Trust and Research. Hecker also sued Trust and Research as functional fiduciaries. The district court granted defendants’ motions to dismiss without addressing the class issue. Hecker appeals.
In their opinion, Judges Manion, Wood and Tinder affirmed. The Court addressed several issues on appeal:
1) Defendants’ motions to dismiss included hundreds of pages of documents related to the plans. The documents were either referred to in the complaint or were publicly available. The Court rejected Hecker’s argument that the district court improperly considered documents outside the complaint. The documents were used only to show the disclosures that had been made to plaintiffs. The district court was within its discretion to consider them without converting the motion to one for summary judgment.
2) Deere admits that it owed some fiduciary duties to plaintiffs. Trust and Research, however, deny that they are fiduciaries. The district court agreed. Hecker argues only that they are “functional fiduciaries.” In order to be a functional fiduciary, the Court stated, one must exercise some discretionary management or control over the plan. The Hecker complaint alleged that Trust and Research “played a role,” not that they exercised control. The Court held Hecker to his complaint and rejected his attempts to change his theory on appeal.
3) Even if Deere left an inaccurate impression that it was paying for the management of the fund, the Court agreed with the district court that there was nothing illegal about the revenue sharing agreement described in the complaint. The participants were fully informed of the amount of fees imposed by each fund and were free to direct their assets to whichever fund they chose. In order for there to be a breach of a fiduciary duty, there must have been a material omission. How Research distributed its fee is not material to plaintiffs – and they cannot make out a breach of fiduciary duty claim for that omission.
4) Hecker also asserts that Deere breached its fiduciary duty by selecting investment options with excessive fees. The Court held that no rational trier of fact could conclude that Deere failed to offer a sufficient array of vehicles – it offered over 2500 different vehicles with varying fees, all of which were also available to the public. The Court could find nothing in ERISA that required any particular mix of plans – so Deere’s decision may not even be within its fiduciary responsibilities. Even if it is, the Court found no breach.
5) The Court also addressed the ERISA “safe harbor” provision as an alternative grounds for affirmance. The normal ERISA imposition of a fiduciary duty on a plan manager is modified when the participants: exercise independent control of their assets, can choose from a broad range of alternatives, and have sufficient information to make informed choices. Then, a fiduciary is not liable for a participant’s loss resulting from that exercise of control. Although this “safe harbor” provision is an affirmative defense normally not applied on a Rule 12(b)(6) motion, the Court noted that it can be applied when the complaint establishes the very elements of the defense. Here, the 2500+ options to plan participants with fees ranging from .07% to 1% establish the elements of the safe harbor for Deere and Trust and Research.
6) The Court summarily rejected Hecker’s complaints with respect to the court’s refusal to entertain an amended complaint and its award of costs.
Coal miner Jeff Giles suffered a serious neck injury in the 1990s, which continued to cause him pain and limited his mobility for years. In 2002, the mine laid him off. Soon after, he had neck surgery, from which he failed to heal properly. Then, the mine announced its permanent closure. In late 2002, Giles’ doctor diagnosed him as having major depression. He prescribed 
The State of Illinois requires railroads to install walkways alongside railroad tracks in any switching yard built or renovated after February 2003. Norfolk Southern challenged the requirement in the district court, contending that it is preempted by federal law. The district court found for Illinois, first holding that federal law does not cover the subject matter and then, after a bench trial, deciding that the regulation does not conflict with a federal objective. Norfolk Southern appeals. 
Maria Zerente was employed by the City of Chicago Heights from 1995 until 2003, during the two terms of Mayor Ciambrone. Several candidates vied for the mayoral position in 2003, after Ciambrone announced that he would not run for reelection. Anthony DeLuca won on a fiscal responsibility platform. DeLuca hired Dan Proft as Chief of Staff. They both concluded that one of the City’s biggest fiscal problems was a bloated workforce. They fired seventeen employees and did not fill another seventeen open positions. Proft also came to believe that Zerente’s department was underperforming. DeLuca fired Zerente and replaced her with the man who had been his campaign treasurer. Zerente brought a § 1983 action against DeLuca and Proft, alleging that her firing was due to her political affiliation. The district court granted summary judgment to DeLuca and Proft. Zerente appeals.
Adetunji Akande was employed by the Illinois Department of Corrections. He served as a clinical casework supervisor in the clinical services division at the Robinson Correctional Facility (“RCF”). His job was subject to the Illinois Personnel Code. The Code provided that he could not be fired or demoted except for cause. The division was responsible for counseling and disciplinary activity at RCF. The division was run by a clinical services supervisor. The casework supervisors were intermediate managers. Their responsibilities included: resolving and reporting on serious disciplinary matters, supervising the delivery of services by the correctional counselors, evaluating correctional counselors, and performing other like duties. As of late 2003, Akande was the only supervisor. A new warden, Randall Grounds, arrived in early 2004. He came to doubt Akande’s job performance, particularly as it related to inputting disciplinary reports. He instructed Akande to personally input all data at the end of each day. Akande delegated the task. Grounds repeated his instructions. Akande continued to delegate the task. Ground referred Akande for discipline. His position that he was allowed to delegate the assigned tasks notwithstanding Grounds’ instructions was rejected. He received oral and written reprimands and a three-day suspension. In early 2004, Grounds removed Akande’s supervisory responsibilities. Shortly thereafter, Grounds presented Akande with a formal memorandum of responsibilities stating that all data entry for serious discipline was the supervisor’s responsibility. Akande left RCF with a “headache,” went on disability and never returned. Akande brought this action, alleging that he was effectively eliminated from his position, in which he had a property interest. The court granted summary judgment to defendants, holding that they were entitled to qualified immunity. Akande appealed..jpg)
R. Randle Construction Company and Ronald Randle (“Randle”) acted as a general contractor on a high school construction project. Disputes and delays resulted in Randle suffering a loss on the project. He retained Delta Consulting Group (“Delta”) to prepare and present a Request for Equitable Adjustment (“REA”). Delta estimated that the cost of their services would be $34,000. Delta prepared and presented an REA for $1.6 million. It was rejected. Delta prepared and submitted a second REA, this one for $1.7 million. Delta and Randle met with the school’s representatives to discuss the REA. Again, the school rejected the REA as unsupported by adequate documentary evidence. Randle met with the school once again, this time without Delta. He was again unsuccessful. Randle paid Delta’s periodic invoices through March 9, 2004, several days after this last meeting. Randle ultimately paid Delta a little more than $60,000 out of $144,000 billed. Randle and the school ultimately settled their dispute for $450,000. In October of 2004, Randle’s auditors sent a letter to Delta asking it to confirm an amount owed to Delta by Randle of $89,000. Delta replied to the letter – correcting the amount to $81,000. Randle did not object. When Delta sought to collect, Randle expressed his dissatisfaction with Delta’s services. Delta sued for the $81,000. Randle counterclaimed for breach of contract, alleging that Delta did not adequately present the REA. The district court granted summary judgment to Delta and awarded prejudgment and postjudgment interest. Randle appeals..jpg)
James Stilwell was an entrepreneur and property owner in central Illinois. Stilwell found himself at times in need of cash, however. He devised a scheme whereby he would write a check on his account at Tuscola National Bank (“TNB”) and present it to First State Bank of Monticello (“FSB”) in return for a bank money order. Stilwell frequently had no money in his account at TNB. Even though cashing a check for a noncustomer was against FSB’s policy, it sold him almost $2 million in money orders over the course of several months. When questioned by bank representatives, Stilwell made up stories to cover his scheme. Finally, TNB froze his account, leaving FSB with $307,000 in worthless checks. Stilwell agreed to repay FSB, but died before he did. FSB filed a claim with its insurer, Ohio Casualty Insurance Company (“Ohio Casualty”). Ohio Casualty denied the claim on two grounds: that the loss was not covered under the policy and that it was an excluded loss because it was caused by a FSB employee. FSB filed suit to recover. The district court granted summary judgment to FSB. FSB requested prejudgment interest in a Rule 59(e) motion. The court declined. Both Ohio Casualty and FSB appeal.
James Stilwell took out a $4 million life insurance policy with American General Life Insurance Company (“American General”). His wife and daughters were the beneficiaries. The policy allowed assignments but provided that no assignment would bind American General unless filed and recorded by American General. In 1999, in order to guarantee financing for his business, Stilwell made two assignments of the policy, each in the amount of $2 million, to Janko Financial Group. The next year, Janko assigned its rights to Tuscola, a related company created by Janko to handle the financing. Tuscola entered into a new agreement with Stilwell and reduced one $2 million guarantee to $1.25 million. Janko notified American General of the assignment on a form created in part by Stilwell’s agent and modified by Janko. American General received the form but recorded it as a release instead of an assignment. Mrs. Stilwell executed additional assignments to Tuscola in the amount of $250,000 and First Mid-Illinois Bank in the amount of $1 million. James died in 2003, owing Tuscola and the Bank (mostly Tuscola) $512,000. Tuscola and the Bank applied to American General for payment, referencing the $3.25 million in assignments. American General originally indicated that it had a record of the release of the two assignments in 1999. After Janko explained the reason for the form, American General reversed its position and paid the claim. American General paid other claims and remitted the balance to Mrs. Stilwell and her children. Mrs. Stilwell brought this action against American General, alleging that it overpaid Tuscola. She alleged that the 1999 assignments were released and the 2000 assignment to Tuscola was only $250,000. The district court granted summary judgment to American General. Mrs. Stilwell appeals..jpg)
William Nagle, a white male in his fifties, is a police officer with the Village of Calumet Park and has been for almost thirst years. He has been active in union matters for most of that time. The Village hired a new Police Chief (Davis, a black male in his fifties) and Assistant Chief (Rockett, a white female in her forties) in 2002. Nagle claims that Davis discriminated against him on racial and age bases. The incidents he complains of include: a) Davis asked Nagle when he was going to retire, b) Davis referred to Nagle and his peer group on several occasions as “old white mother f*****s,” c) Davis selectively disciplined Nagle in comparison to younger officers, d) Davis said he might be getting “too old” for the job, e) Davis suspended Nagle for failing to assist another officer but did not discipline another officer for the same conduct, and f) Davis reassigned Nagle to duties that Nagle considered undesirable. Nagle also contends that Davis discriminated against him because of his speech. Nagle had spoken up publicly at a meeting in opposition to Davis’ manpower reduction plans. Davis later criticized him for doing so. A few days later, Nagle was suspended for violating a new sick-leave policy. Nagle filed charges with the EEOC. A few weeks later, Davis again suspended Nagle, this time for preparing a union grievance while on-duty. The suspension was overturned and Nagle was paid for the time. He nevertheless filed a second EEOC charge alleging that his suspension was on account of his age and race and in retaliation for the earlier EEOC charge. After being suspended again for violating the sick-leave policy, Nagle filed a third charge alleging that that suspension and an earlier reassignment were made due to his age and race and in retaliation for his complaints. Nagle brought an action, alleging age discrimination under ADEA and race discrimination and retaliation under Title VII. He also brought a § 1983 action, alleging a violation of the First Amendment. The court granted summary judgment for defendants on all counts. Nagle appeals.
Margaret Collins has had a long-running dispute with the State of Illinois over her employment with the Illinois State Library. This is her third lawsuit, which the Seventh Circuit remanded to the district court for consideration of some of her claims. The road got a little bumpy after remand. The court ordered her to amend her complaint on four different occasions and forced her to respond to discovery. The parties finally arrived at an agreeable date for her deposition. Although she did appear, she refused to submit to interrogation with parties present. She was told they had a right to be there. One of the lawyers offered to call the magistrate to resolve the issue. Collins left. The defendants moved for dismissal of her complaint for discovery abuse and for their fees for preparing for the deposition. The court dismissed the complaint, stating that her refusal was “willful and egregious.” He also concluded that complaints she had about the court reporter and police officers in the vicinity were baseless. He also ordered Collins to pay the defendants’ fees and costs. Collins appeals.
"Skeeter" Baltzell worked for Ensign-Bickford Company (“Ensign”) as a truck loader. R&R Trucking (“R&R”) had a contract with Ensign to provide specialized tractor-trailers and drivers. Baltzell was the victim of an unfortunate accident in May 2000, when one of his Ensign co-workers backed up and crushed him between the trailer and the dock. Baltzell was severely injured in the accident and still requires constant care. Baltzell filed a claim with the Illinois Workers’ Compensation Commission and he and his wife filed this lawsuit. The Baltzells claimed damages arising from Baltzell’s injuries and his wife’s loss of consortium, naming R&R and the manufacturers of the tractor and trailer. The defendants brought contribution claims against Ensign. The jury awarded almost $14 million dollars and allocated fault 30% to Ensign and 70% to the other three defendants. Ensign moved to waive its workers’ compensation lien and to dismiss the contribution claims. The court denied its motion. Ensign appeals.
Theodis Nelms was admitted to the hospital in May 2002. He was diagnosed with several health problems, including pneumonia, respiratory failure and inflammation of the heart. He had open-heart surgery and was released in June. Nelms applied for social security benefits. He listed as his impairments his recovery from surgery, asthma and pneumonia. The Social Security Administration twice denied him benefits. In late 2002 and again in early 2003, Nelms was seen by an agency physician. Each doctor concluded that Nelms could perform light duties. Nelms was granted a hearing on his request in 2005. Nelms did not have a lawyer. The hearing lasted twenty minutes. Nelms listed his impairments in order of severity – heart, back, legs and asthma. He described his conditions and his pain, specifically noting that his asthma strikes when he is exposed to dust, pollen, hot or cold. The ALJ concluded that Nelms was not disabled, concluding that he was able to do light work. He relied on his smooth recovery from surgery, his only sporadic pain, his slight asthma, and his capacity to do light work. The Appeals Council denied review and the district court affirmed. Nelms appeals.
Korrin Stewart was diagnosed as HIV-positive when she was just fourteen years old. Shortly thereafter, she learned that it had actually developed into AIDS. At the age of eighteen, she applied for a wait-staff position at Lee’s Log Cabin (“Lee’s”). Lee’s found out that Stewart was HIV+. In fact, the manager wrote the notation “HIV+” on her application. The EEOC filed suit when Lee’s did not hire Stewart. Shortly before trial, the EEOC presented affidavits from Stewart and her doctors describing how AIDS affected her daily activities. The district court rejected the affidavits because the EEOC had never pleaded the presence of AIDS and, the court found, AIDS and HIV-positive were not synonymous. The court granted summary judgment for Lee’s. The panel of the Seventh Circuit affirmed. The Court thought that the EEOC “complicated the inquiry” by attempting to refashion its claim as AIDS claim late in the case. The Court called it a “major alteration” of the EEOC’s case. Relying on significant symptomatic differences at different stages of the disease, the Court thought it was highly relevant whether Stewart was HIV-positive or had AIDS. The EEOC sought rehearing and rehearing en banc.
Eugene Fischer is in prison. In a proceeding in the district court, the Government moved to renew a forfeiture judgment against him. The court granted the Government’s request by an order entered on November 5, 2008. Fischer asserts that he never was served with a copy of the order and only discovered its existence when he received a copy of the docket sheet in January 2009. His time for appeal having long ago run, Fischer filed a petition for mandamus seeking permission to file a notice of appeal from the November order.
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Watkins Motor Lines (“Watkins”) experienced three episodes of employee-on-employee murder or attempted murder. It decided it would no longer employ persons who had been convicted of a crime of violence. A few months after Watkins adopted its new policy, Lyndon Jackson applied for a job. Jackson had a criminal record. Watkins declined to hire him for that reason. Jackson filed a complaint with the EEOC. The EEOC initiated an investigation. It sought to determine whether the policy had a disparate impact on minorities and, if so, whether it was a business necessity. In April 2005, the EEOC issued a subpoena to Watkins. Watkins and Jackson reached a settlement in January 2006, contingent on the EEOC abandoning the investigation. Jackson withdrew his charge – but the EEOC pressed on. It sought to enforce the subpoena in the district court. The court dismissed the EEOC’s action for lack of subject-matter jurisdiction. The court concluded that no valid charge was pending because the EEOC should have allowed Jackson to settle and withdraw his charge. The EEOC appeals.
The police department of Springfield (the “City”) uses a promotion eligibility list to determine which officers can be promoted to sergeant. The list takes into account written and oral test scores, seniority and military service. The list is typically updated every two years but its life can be extended by a year. A list was due to be updated in October 2003 but was extended a year. At least one reason for the extension was to help one particular black officer (Ralph Harris) obtain a promotion. A few days before the new expiration date, the top three officers on the list were promoted, including Harris. Alan Jones, a white male, was fourth on the list. Once the new list was created, he dropped to twelfth place. He was not promoted until December 2006. Jones sued the City, claiming a violation of Title VII of the Civil Rights Act of 1964. He alleged that he was passed over for promotion because of his race. Jones conceded that there were no open positions but asserts that the City knew there would be a vacancy in a very short time and could have promoted him early – and would have promoted him early if he were black. The district court granted summary judgment to the City. Jones appeals.