ERISA Class Action Lawsuit Against John Hancock Dismissed

On Friday, the 3rd U.S. Circuit Court of Appeals upheld the dismissal of the class action lawsuit accusing John Hancock Life Insurance Co. and affiliates of excessive fee charges on retirement plans.

Lead plaintiffs had alleged that John Hancock and its affiliates had violated the Employment Retirement Income Security Act (ERISA) by charging excessive and duplicative “sales and service” fees for 401(k) retirement plans. The class action lawsuit was dismissed last year by U.S. District Judge William J. Martini.

In dismissing the class action lawsuit, Judge Martini noted that John Hancock was merely the service provider on the retirement plans, which were administered by trustees that served as the actual named fiduciaries, and found that the insurance company could not subsequently be held liable for the plaintiffs’ breach of fiduciary duty claims under ERISA.

“Because fiduciary status is an essential element of all of plaintiffs’ claims,” explained the judge in his order, “the court finds that the second amended complaint should be dismissed.” Judge Martini further pointed out that John Hancock negotiated and disclosed its fees from the outset, and it was the trustees who had the final say on which investment options would ultimately be included in the plan, not the company.

The plaintiffs appealed the John Hancock class action lawsuit to the 3rd Circuit and lost this past Friday. Judge D. Michael Fisher wrote in his opinion that that the participants’ claims were precluded by case law or lacked a nexus to the plaintiffs’ specific claims. In the Circuit court’s order, Judge Fisher pointed out an example where plaintiffs alleged that John Hancock was a fiduciary because it provided investment options to the trustees and the trustees subsequently selected investment options to provide to the proposed Class. However, he noted recent case law indicates that John Hancock cannot be considered a fiduciary under ERISA based on simply providing investment options.

Judge Fisher pointed to recent cases out of the 7th Circuit affirming that reasoning. “[T]he trustees still exercised final authority over what funds would be included on the small menus (and, by extension, what the accompanying expense ratios would be),” wrote Judge Fisher in the court’s opinion. “Nothing prevented the trustees from rejecting John Hancock’s product and selecting another service provider; the choice was theirs,” he continued.

The 3rd Circuit also rejected the plaintiffs’ arguments that John Hancock was an ERISA fiduciary because of alleged sharing of investment advice for compensation, pointing out that the plaintiffs’ argument did not provide a connection to the participants’ fee-related claims. Additionally, Judge Fisher pointed out in his order that John Hancock’s contracts with the plans expressly disclaimed any fiduciary role.

The attorneys for the plaintiffs said they will be seeking a rehearing en banc.

Circuit Judges D. Michael Fisher, Franklin S. Van Antwerpen and A. Wallace Tashima sat on the panel.

Plaintiffs are represented by Robert Lakind, Arnold Lakind, Robert Lytle, Moshe Maimon and Stephen Skillman of Szaferman Lakind Blumstein & Blader PC.

The John Hancock ERISA Class Action Lawsuit is Santomenno, et al. v. John Hancock Life Insurance Co., et al., Case No. 13-3467, before the 3rd U.S. Circuit Court of Appeals.