Is the litigation tide turning in favor of plan sponsors? That’s a growing perception but one contradicted by data, at least when it comes to dismissal motions.
Fiduciary liability insurance provider Euclid Fiduciary found that, as of the end of July, plan sponsors “are only winning approximately 30% of dismissal motions—even less than the 35% success rate from the prior year.”
Even then, Euclid Managing Principal David Aronowitz described them as pyrrhic victories because plaintiff law firms usually amend the complaint to continue the litigation.
“Only 17% of cases in 2023 have been dismissed with prejudice [8 out of 46], and half of those dismissals with prejudice involve anemic challenges to BlackRock LifePath index funds, cases that never had any merit,” Aronowitz said.
Remove the four BlackRock LifePath cases, and the dismissal rate with prejudice is below 10%.
“The results show that most excessive fee and imprudent investment cases survive a motion to dismiss,” he added. “And even when certain claims are dismissed at the pleading stage, it rarely reduces the damages model enough to reduce the settlement leverage created in these cases.”
He concluded by noting that the pleading standard continues to evolve through a series of inflection points:
- After the January 2022 Hughes Supreme Court decision, plan sponsors lost motions to dismiss at a rate of 5:1;
- After the June 2022 CommonSpirit and August 2022 Oshkosh appellate decisions, plan sponsors began to win approximately 40% of motions;
- But that momentum has dissipated following the March 2023 Hughes II decision, with the rate now below 30% again; and less than 20% dismissals with prejudice.
“In the final analysis, the use of a motion to dismiss is an imperfect and weak tool for plan sponsors in combating excess fee and performance cases,” Aronowitz said. “But given how difficult it is to win summary judgment in these cases, we have no choice but to continue the long slog of advocating for a pleading standard that weeds out meritless cases."
SEE EUCLID’S 2023 MID-YEAR REVIEW HERE.
