Seyfarth Synopsis: A federal district court denied a motion to dismiss an ERISA complaint that was based in large part on secondhand “information and belief” allegations about the defendants’ business operations. The decision serves as a warning to defendants that they may be forced into costly discovery based on allegations that a plaintiff merely believes to be true.
We have commented on a Supreme Court decision making it more difficult for ERISA plaintiffs to withstand motions to dismiss in federal court and to proceed with expensive discovery. See The Supreme Court Further Narrows Federal Court Jurisdiction Over an ERISA Complaint, Relying on Article III of the Constitution | Beneficially Yours. A recent district court decision on a routine motion to dismiss, however, underscores that defendants continue to face challenges in obtaining dismissals of ERISA claims in federal court and avoiding discovery.
In Teamsters Local Union No. 727 Health and Welfare Fund v. De La Torre Funeral Home & Cremation Services, Inc., No. 19-cv-6082, 2021 U.S. Dist. Lexis 42046 (N.D. Ill. Mar. 5, 2021), the court refused to dismiss an ERISA and LMRA complaint seeking to hold defendants, who did not sign a collective bargaining agreement, liable for a settlement agreement related to delinquent contributions to various health, welfare, and pension funds. The plaintiff brought the allegations under alter ego, joint employer, and successor liability theories. The complaint was based in large part on “information and belief” allegations about the defendants’ business operations. The court noted that the allegations relied on secondhand information that plaintiff merely believed to be true, and that the allegations regarded matters particularly within the knowledge of the defendants. The court denied the defendants’ motion to dismiss, finding that such allegations were sufficient to allow the plaintiff’s claim to proceed.
This decision is important because of the substantial consequence of losing a motion to dismiss. Losing a motion to dismiss is a ticket to the often distasteful world of discovery. As the Supreme Court noted in Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007), discovery, at least in the class action context, is so expensive that it often leads to settlement regardless of the merits of the case. This is all the more true today given the enormous increase in electronic data a party maintains, especially after a pandemic that has created much more video and other electronic data that may be subject to discovery.
So, while the Supreme Court has made it more difficult under some circumstances for ERISA plaintiffs to withstand motions to dismiss, district courts may still favor discovery over dismissal. Individual district courts may decide to encourage settlement and preclude appellate review by allowing claims to continue, even when the allegations are based on information that a plaintiff merely believes to be true.
Motion to dismiss litigation in ERISA cases will continue to command the attention of federal courts. At issue is whether the plaintiff can allege enough to access substantial discovery rights.