<nobr>Mar 20, 2009</nobr>

Labor Secretary, Plaintiffs, Interest Groups Call for Rehearing in Plan Fee Fiduciary Liability Case

The plaintiffs in Hecker v. Deere & Co. on March 9 filed a petition for rehearing in the U.S. Court of Appeals for the Seventh Circuit's February 12th ruling affirming the dismissal of claims for allegedly improper revenue sharing and excessive fees in the defendants' Section 401(k) plan. The plaintiffs had alleged that investment options offered by the plan included excessive and unreasonable fees and costs, and that the plan did not adequately disclose information about revenue sharing and costs to the plan participants.

The plaintiffs argue that a panel rehearing should be granted because the three-judge panel "misapprehended the law" by holding that providing an array of retail mutual funds satisfied Deere's duty of prudence under ERISA.

The Seventh Circuit has requested a reply from Deere and Fidelity in response to the plaintiff's rehearing request, which could mean that the court is actually considering rehearing. Most of the time, appellate courts simply deny petitions for panel rehearing and/or for rehearing en banc without bothering to ask the winner to respond to them. Therefore, this order signals that the petition is being taken quite seriously and has caused either a member of the original three-judge panel or another judge on the en banc court some disquiet about the panel decision.

The district court, whose dismissal was affirmed by the Seventh Circuit, held that:

• Disclosure requirements were complied with by Deere;


• ERISA Section 404(c) afforded defendants relief from fiduciary liability; and


• Fidelity was not a fiduciary for purpose of plan investment decisions.

The Seventh Circuit cited in its ruling ERIC's brief urging the court to consider the standards established by the Supreme Court in Bell Atlantic Corp. v. Twombly, which requires a pleading to allege facts giving rise to a plausible entitlement to relief rather than mere boilerplate allegations.

Following the plaintiff's petition for rehearing, Secretary of Labor Hilda Solis and several industry groups filed friend-of-the-court briefs urging the Seventh Circuit to rehear the case. Secretary Solis argues in her March 18 brief that a panel rehearing is necessary to "correct" the three-judge panel's "mistakes of law and fact in misconstruing" ERISA Section 404(c). Solis writes that the Seventh Circuit "may not have fully understood the potentially far-reaching ramifications of its decision, which permits fiduciaries to evade accountability for the imprudent selection and maintenance of funds in defined contribution plans."

Also filed March 18 was a joint brief by AARP, the National Senior Citizens Law Center, Pension Rights Center, Fund Democracy Inc, and the Consumer Federation of America arguing that by misinterpreting Section 404(c) the three-judge panel allowed Deere to "evade liability for selecting imprudent investments." Additionally, five law professors on March 17 filed a brief, arguing, among other things, that the panel's decision "drastically overstated" the proper scope of ERISA's Section 404(c) safe harbor for fiduciaries of Section 401(k) plans.

Hecker v. Deere is one of several class action suits concerning 401(k) plan fee and revenue-sharing arrangements. The allegations in this case are similar to those in Braden v. WalMart, except that in Braden there was no brokerage window and no suggestion that plaintiffs erred in their pleadings.

Appellate Decision in Hecker v. Deere

ERIC Amicus Brief

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