ERISA Fiduciary Litigation Update – A Second Johnson & Johnson Dismissal

Last week, a federal district court dismissed the plaintiff employees’ breach of fiduciary duty claims in the bellwether case Lewandowski v. Johnson & Johnson (J&J). In February 2024, the plaintiffs filed this lawsuit against their employer, J&J, alleging that the company mismanaged its prescription drug plan, resulting in higher overall plan spending and increased premiums and out-of-pocket costs for participants. The plaintiffs argued that prudent fiduciaries would not agree to pay unreasonable prices for certain generic medications and that this overpayment was a breach of the employer’s fiduciary duties under ERISA.

In its opinion, the court found that the employees did not have legal standing to sue because they were unable to demonstrate that they paid higher premiums as a result of the plan over paying for certain generic medications. The court explained that in defined benefit plans, the employer is ultimately responsible for funding the aggregate expenses of the plan and, therefore, the participants lack individual interests in the plan assets. The court also indicated that the plan vested J&J with the sole discretion to set participant contribution rates and that many factors influence these amounts beyond prescription drug costs.

This is the second dismissal of the breach of fiduciary duty claims in this case. The dismissal is without prejudice, so the plaintiffs do have the opportunity to file a third amended complaint within 30 days. The court’s opinion made several references to a recent dismissal in a similar matter, Navarro v. Wells Fargo. A third ERISA breach of fiduciary duty case related to prescription drug costs, Stern v. JPMorgan Chase, is also awaiting a judge’s decision on the employer’s motion to dismiss. JPMorgan’s motion to dismiss is unique from the other cases; it argues that determining drug coverage and setting participant premiums constitute plan design decisions, not fiduciary functions governed by ERISA.

The outcomes of these cases do not lessen the importance of strong fiduciary oversight and plan governance procedures. Employers should continue to prioritize plan documentation review, document plan decision making and engage in ongoing monitoring of plan service providers. As these cases make their way through the federal courts, we will continue to monitor the substantive developments and share updates with employer plan sponsors.