A U.S. District Court judge in Minneapolis dismissed for the second time a lawsuit by participants in the 401(k) plan of Wells Fargo & Co., saying plaintiffs failed to prove their complaints of fiduciary breaches regarding the management of a company stock fund within the plan.
The participants had argued that plan fiduciaries could have taken action to offset the alleged damage to the plan's stock fund following the issuance of a $100 million fine in September 2016 by the Consumer Finance Protection Bureau based on unethical sales practices by some Wells Fargo employees.
In his first dismissal of the case, in September 2017, U.S. District Judge Patrick J. Schiltz said the participants failed to show that an alternative action by a prudent fiduciary would have done a better job to protect the participants' investments.
Wells Fargo's stock closed at $49.77 on Sept. 7, 2016, the day before the fines were announced. It dropped to a low of $43.55 after the fines were announced, but the stock closed at $54.03 when the judge issued his first dismissal.
In the initial complaint, participants said Wells Fargo's fiduciaries violated their ERISA duty of prudence and duty of loyalty. The judge dismissed both claims, but said plaintiffs could file an amended complaint regarding duty of loyalty in the case of In Re; Wells Fargo ERISA 401(k) Litigation.
The judge rejected the amended complaint in a July 19, 2018, ruling. "Given that the court has already held that plaintiffs' prudence claim does not meet the standard" established by the U.S. Supreme Court in 2014, "the court must dismiss plaintiffs' loyalty claim for the same reason," he wrote.
The concerns that the Supreme Court justices "expressed about prudence claims apply with equal force to loyalty claims," he wrote. "Judges must be as concerned about weeding out meritless loyalty claims as they are about weeding out meritless prudence claims." He dismissed the complaint with prejudice.
The Wells Fargo & Company 401(k) Plan, Minneapolis, had $45.91 billion in assets as of Dec. 31, according to the company's latest 401(k) filing.
Robert Steyer is a reporter at InvestmentNews' sister publication Pensions & Investments.