Last week, U.S. District Judge Stefan Underhill denied Nationwide’s motion to dismiss the most recent amended complaint challenging alleged “revenue sharing” practices in Haddock v. Nationwide Financial Services, No. 3:01-CV-1552 (SRU) (D.Conn.). In his September 25, 2007 order (please click here for the full order), Judge Underhill denied Nationwide’s motion to dismiss the plaintiffs’ fifth amended complaint, holding that the plaintiffs’ elimination of certain claims in earlier amended complaints did not waive their right to reassert those claims later. Judge Underhill also declined to reconsider aspects of his earlier ruling on Nationwide’s summary judgment motion.
In 2001, trustees for a number of employer-sponsored profit-sharing retirement plans filed a putative class action against Nationwide (the plans’ investment provider), alleging that certain payments it received from mutual funds or their affiliates were actually provided in exchange for offering the funds as plan investment options under Nationwide’s variable annuity contracts, rather than for administrative services rendered. The trustees alleged that such an arrangement constituted both a breach of fiduciary duty and a prohibited transaction under ERISA.
In March 2006, Judge Underhill denied Nationwide’s motion for summary judgment. Haddock v. Nationwide Fin. Servs., 419 F. Supp. 2d 156 (D. Conn. 2006). Subsequent to this ruling, plaintiffs in Haddock filed a fifth amended complaint. Nationwide moved to dismiss this amended complaint in June 2006.
Judge Underhill’s March 2006 opinion had included the following rulings, both of which have been the subject of significant discussion:
a) A jury could find that Nationwide was a functional ERISA fiduciary by finding that it was exercising authority or control over plan assets to the extent that it was determining and altering which mutual funds would be offered as plan investment options under the annuity contracts.
b) “Plan assets” under ERISA include assets received by a fiduciary as a result of its fiduciary status or exercise of fiduciary discretion or authority and at the expense of plan participants. Under the foregoing “functional approach” to defining “plan assets,” the payments Nationwide was alleged to have received from mutual funds or their affiliates purportedly in exchange for offering the funds as investment options might be found to be plan assets.
In his September 25, 2007 ruling, Judge Underhill declined to reconsider either of these rulings.
The bulk of the September 25th order dealt with Nationwide’s argument that plaintiffs had waived their “fund selection” cause of action by alleging it in the initial complaint and omitting it from subsequent amended complaints in order to avoid responding to certain discovery. Judge Underhill found that this omission did not waive plaintiffs’ claim, and thus denied Nationwide’s motion to dismiss.