Becker v. Wells Fargo & Co.

Background

Yvonne Becker filed a proposed class action concerning her participation in Wells Fargo’s 401(k) retirement plan. The plan is a defined-contribution pension plan governed by the Employment Retirement Income Security Act of 1974 (ERISA). Participants choose among investment options selected by plan fiduciaries, and their account values depend on contributions, investment gains, and fees and expenses.

Becker alleged that the fiduciary defendants selected and retained 17 Wells Fargo proprietary funds even though some underperformed their benchmarks, some lacked sufficient performance histories, and some charged higher fees than comparable non-proprietary funds. She also alleged that the plan’s assets were used to seed newly launched funds and that the defendants selected proprietary products to benefit Wells Fargo and its affiliates through fees and other compensation.

Becker asserted claims for breach of ERISA’s duties of loyalty and prudence, violations of ERISA’s prohibited-transaction rules, and knowing participation by Wells Fargo in prohibited transactions. The defendants moved to dismiss the complaint under Federal Rule of Civil Procedure 12(b)(6), arguing that Becker had not adequately pleaded viable ERISA claims. They also asked the court to dismiss the complaint with prejudice.

Standing and outside documents

The defendants argued that Becker lacked constitutional standing to challenge investments in funds in which she had not personally invested. The court rejected that argument at the pleading stage. It held that Becker plausibly alleged her own injury and also plausibly alleged broad fiduciary violations that caused losses to other plan investments. Because ERISA authorized her to seek relief on behalf of the plan, the court held that she had standing to seek relief for the plan as a whole.

The court also declined to consider documents submitted by the defendants. It found that the only document clearly incorporated into the complaint was the plan itself, and the excerpts provided by the defendants did not contain complete information. The court further concluded that the defendants were relying on the documents to create factual disputes that could not be resolved on a motion to dismiss.

Fiduciary-duty claims

ERISA requires fiduciaries to act loyally and prudently for plan participants and beneficiaries. At the pleading stage, a plaintiff must plausibly allege that the defendant acted as a fiduciary, breached fiduciary duties, and caused a loss to the plan. A claim based on investment performance or fees must include a meaningful benchmark for comparison.

The court held that Becker’s benchmarks were sufficiently meaningful because they were the same benchmarks the defendants had selected for comparison with the challenged funds. It found that Becker alleged more than the mere existence of cheaper investments. Taken together, her allegations supported an inference that the defendants selected and managed Wells Fargo funds despite the availability of better-performing or cheaper alternatives and that the decision-making process was affected by disloyalty or imprudence. The court therefore held that Becker had pleaded sufficient facts to support her fiduciary-breach claims.

Prohibited-transaction claims

ERISA’s prohibited-transaction provisions generally bar certain transactions between a plan and parties connected to its fiduciaries, as well as transactions involving fiduciary self-dealing. Becker alleged that the defendants caused the plan to purchase interests in Wells Fargo-affiliated funds from Wells Fargo and Wells Fargo Bank, transferred plan assets to Wells Fargo and its affiliates through fees, and directed plan investments in ways that benefited the defendants.

The court held that these allegations plausibly stated prohibited-transaction claims under ERISA. It rejected the defendants’ arguments that the complaint failed to allege self-dealing or transactions with parties in interest. The court also held that potential exemptions from ERISA’s prohibited-transaction rules were affirmative defenses that could not generally be resolved on a motion to dismiss, and that Becker did not need to plead subjective intent to state these claims.

As to Wells Fargo’s alleged knowing participation, the court held that Becker plausibly alleged that Wells Fargo was a party in interest, knowingly participated in fiduciary violations, and received fees or compensation from the plan. The court also found that her request for equitable relief, including return of allegedly improper fees, was sufficiently pleaded. At this stage, Becker was not required to trace the exact path of the fees; alleging that the path was traceable was enough.

Disposition

The court denied the defendants’ motion to dismiss. The opinion states that Becker has standing to seek relief on behalf of the plan as a whole, that the court would not rely on the defendants’ outside documents at this stage, and that Becker adequately pleaded ERISA fiduciary-breach and prohibited-transaction claims. The order did not decide whether Becker will ultimately prevail on those claims. The order was signed by United States District Judge Donovan W. Frank.