The telecommunications giant’s motion to have a controversial appellate court decision reconsidered by the full court has been rejected.
In petitioning for a rehearing of the appellate court’s decision back in September (Bugielski v. AT&T Servs., Inc., 9th Cir., No. 21-56196, rehearing petition 9/1/23), AT&T stated that “in a ‘watershed moment’ for ERISA plans and plan sponsors, the panel decision violated that imperative—departing from Supreme Court precedent and splitting with the Third and Seventh Circuits.” They went on to state that a “rehearing is needed to resolve these conflicts and restore uniformity on an important, recurring issue of ERISA law.”
The Suit
That arguably controversial decision came in the wake of a suit filed by participant-plaintiffs of the AT&T 401(k) that had argued that after AT&T engaged Fidelity as recordkeeper, Fidelity engaged Financial Engines for additional services (new brokerage and investment advisory services)—which the plaintiffs alleged not only cost plan participants more, but that AT&T got a discount on administrative services as a result. They also accused AT&T of breaching its “duty of candor” by not listing the money paid to Fidelity on the Form 5500 annual reports.
The Controversy
Bear in mind, the plaintiffs lost twice previously at the district court level—once in September 2021 and again back in 2018 (when they had been accorded a chance to “fix” their arguments) before (in August 2023) the U.S. Court of Appeals for the Ninth Circuit (Bugielski v. AT&T Servs., Inc., 9th Cir., No. 21-56196, 8/4/23), acknowledged their conclusions differed from other federal courts, concluding that “AT&T, by amending its contract with Fidelity to incorporate the services of BrokerageLink and Financial Engines, caused the Plan to engage in a prohibited transaction.”
More plainly, the Ninth Circuit held that AT&T’s recordkeeping contract with Fidelity COULD violate ERISA’s prohibited transaction rules—and instructed the district court to consider whether AT&T could avoid liability by showing that the transaction fell within a statutory exemption for arrangements that are “reasonable” and supported by fair compensation. A determination that an amicus brief filed by the U.S. Chamber of Commerce on behalf of the plan fiduciaries characterized as an “overly broad” interpretation of ERISA’s prohibited transaction rules—and one that it said would not only create incentives for litigation, but ultimately reduce services.
The Denial
Those arguments notwithstanding, the U.S. Court of Appeals for the Ninth Circuit last week (Bugielski v. AT&T Servs., Inc., 2023 BL 403285, 9th Cir., No. 21-56196, 11/8/23) denied the motion for a full court (en banc) rehearing of that decision. “The panel has unanimously voted to deny the petition for panel rehearing. Judge Bade has voted to deny the petition for rehearing en banc, and Judges Paez and Collins have so recommended. The full court has been advised of the petition for rehearing en banc and no judge has requested a vote on whether to rehear the matter en banc. Fed. R. App. P. 35.”
What This Means
Simply stated, the denial of a rehearing leaves the case where it was; with a directive for the lower court to reconsider the issue(s) already presented, but with the “new” interpretation of the issue provided by the appellate court. Or—and as seems likely considering the sweeping impact of this decision, and its argued divergence from similar cases in other districts—to appeal to a higher court.
Stay tuned.
