A U.S. District Court Judge in Philadelphia has rejected a petition by Teva Pharmaceuticals USA Inc. to dismiss an ERISA complaint by current and former members of the company's 401(k) plan, allowing the case to proceed to trial.
"We deny defendants' motion to dismiss for failure to state a claim," U.S. District Court Judge Mark Kearney wrote in a March 31 opinion. "The participants plead substantial circumstantial evidence from which we can reasonably infer a (fiduciary) breach might have occurred."
The participants filed a lawsuit in December alleging that Teva's fiduciaries failed to reduce plan expenses or "exercise appropriate judgment" in selecting investment options in the case of Pinnell et al. vs. Teva Pharmaceuticals USA Inc. et al.
The plaintiffs said plan executives should have used collective investment trusts instead of mutual funds to reduce expenses and didn't choose the lowest-cost mutual funds shares that were available in the marketplace.
The plaintiffs, seeking class-action status, alleged that the ERISA violations took place from Dec. 6, 2013 to June 28, 2019, the day that Teva switched all mutual fund options to collective investment trust options, according to court documents.
"We also take the participants' well-pleaded factual allegations as true and draw every reasonable inference from them in their favor," Judge Kearney wrote.
"This factual disagreement (with defendants) points to the need for discovery," he wrote, referring to the data-sharing process between parties that is a precursor to a trial.
"Defendants argue the employees must allege fatal flaws in the fiduciary process but instead only alleged the plan fiduciaries did not select the lowest-cost investment options in every instance," the judge wrote. "But the participants plausibly alleged defendants failed to adequately review the plan's investment portfolio to ensure prudence of investment options, maintaining expensive investments despite the availability of 'virtually identical' lower-cost alternatives."
Teva Pharmaceuticals USA Inc., North Wales, Pa., is a wholly owned subsidiary of Israel-based Teva Pharmaceutical Industries Ltd. The parent company isn't a defendant.
The Teva Pharmaceuticals Retirement Plan had assets of $1.66 billion as of Dec. 31, 2018, according to the latest Form 5500 filing.