Daily Archives: April 15, 2011

Walmart to Pay $440,000 to Settle EEOC Suit for Harassment of Latinos

Mexican-American Subjected Other Hispanic Employees to Ethnic Slurs at Fresno Sam’s Club, Federal Agency Charged

FRESNO, Calif. – Sam’s Club, the wholesale chain store owned and operated by Walmart, will pay $440,000 and furnish other relief to settle a national origin harassment lawsuit filed by the U.S. Equal Employment Opportunity Commission (EEOC), the agency announced today.

The EEOC contends that at least nine employees of Mexican descent at the Sam’s Club in Fresno, along with one who was married to a Mexican, endured ethnic slurs and derogatory remarks by a fellow co-worker who is Mexican-American. Since late 2005, the victims were barraged with near-daily insults about Mexicans such as “f—-n’ wetbacks,” and references to Mexicans only being good for cleaning the harasser’s home, according to the EEOC. The harasser even threatened to report three of the victims to immigration authorities despite their legal status. The victims and harasser – all female – worked in the demonstration department, serving food samples to customers.

The victims complained about the hostile work environment to management as early as April 2006 to no avail. Instead, the complaints only intensified the harassment and led to intimidation, said the EEOC. Another employee also began deriding a victim for her inability to speak English. It was not until after an official EEOC charge of discrimination was filed in October 2006 that Sam’s Club finally discharged the harasser in December 2006.

In May 2009, the EEOC filed its lawsuit in U.S. District Court, Eastern District of California (EEOC v. Walmart Stores, Inc. dba Sam’s Club, et al., Case No. 09-CV-00804), claiming that the harassment, and Walmart’s failure to appropriately address it, were in direct violation of Title VII of the Civil Rights Act of 1964. Aside from the monetary relief, the parties entered into a three-year consent decree which requires Walmart to comply with the following at its Sam’s Club locations in Fresno and/or Bakersfield, Calif.:

  • review and make available its policies against and complaint procedures for national origin discrimination, harassment and retaliation;
  • provide training to non-management employees in the Fresno location regarding anti-discrimination laws, including national origin discrimination and harassment;
  • provide separate training to management employees in the Fresno and Bakersfield locations which will including training on how to receive, investigate, or report to designated officials complaints of national origin discrimination, harassment and retaliation;
  • set up a record-keeping procedure for the Fresno location that provides for the centralized tracking system for such complaints;
  • report the handling of such complaints and compliance with the decree to the EEOC; and
  • provide neutral references for the victims upon inquiry.

“We commend Walmart for taking the issues of national origin harassment seriously and implementing preventative measures,” said Anna Y. Park, regional attorney for the EEOC’s Los Angeles District Office, which includes Fresno in its jurisdiction. “A work environment that is free of harassment ensures a more productive and vibrant workplace for all.”

Melissa Barrios, director of the EEOC’s Fresno Local Office, added, “National origin discrimination remains a serious problem in this region, and it is important to remember that harassment can manifest even within the same ethnic group. Employers failing to take immediate action send a message that such behavior is tolerated, giving license for others to do the same.”

According to company information, Walmart Stores, Inc. is an Arkansas-based international retailer, operating more than 8,300 stores worldwide, including Sam’s Club warehouses.

Sixth Circuit Reverses Dismissal of a Shareholder Derivative Action Based Upon the Lack of Independence of the Special Litigation Committee

In Booth Family Trust v. Jefferies, No. 09-3443, 2011 WL 1237583 (6th Cir. Apr. 5, 2011), the United States Court of Appeals for the Sixth Circuitreversed the district court dismissal of a shareholder derivative action, holding that the special litigation committee (“SLC”) of the board of directors, which recommended the dismissal, was not sufficiently independent of management.  The Court reached its decision despite the fact that one of the two members of the SLC recused himself from considering claims against the defendant Robert S. Singer (“Singer”), CEO of Abercrombie & Fitch Co. (“Abercrombie”), with whom the SLC member had a personal relationship. In fact, the Court held that the SLC member’s recusal constituted an admission that he, and thus the SLC as a whole, lacked independence. This decision, which applies Delaware law, reinforces the high standard of independence imposed on members of SLCs.

Plaintiffs were shareholders of Abercrombie. They filed a shareholder derivative suit against certain of Abercrombie’s officers and directors based upon allegations that they caused Abercrombie to make misleading public statements regarding the company’s business model of selling products with low manufacturing costs at high retail prices, resulting in a high per-unit margin. Plaintiffs alleged that while defendants were making the misleading statements, Abercrombie was amassing a large surplus of inventory such that the company would have to dramatically mark down its merchandise to clear out its inventory. The complaint alleges that insiders, including Singer, were aware that share prices would soon fall and sold a large number of their personally held shares on insider information.

In response to the allegations, Abercrombie’s board of directors created a SLC eventually composed of two board members, Allen Tuttle and Lauren Brisky. The SLC retained the law firm of Cahill Gordon & Reindel LLP, which took the lead in what would be a sixteen month investigation. Cahill did the bulk of the work in interviewing witnesses and reviewing documents and records, advised the two SLC members on the progress and results of the investigation, and made recommendations on how to proceed. When it came time to consider potential claims against Singer, Tuttle recused himself due to his prior personal and business relationship with Singer. Ultimately, the SLC produced a 144-page report which detailed its investigation and recommended to Abercrombie to seek a dismissal of the case on the ground that pursuing the claims would not be in the best interests of Abercrombie’s shareholders. The United States District Court for the Southern District of Ohio granted Abercrombie’s motion to dismiss, finding that the SLC was independent, proceeded in good faith and had a reasonable basis for its conclusions. Plaintiffs appealed.

Under the standard set out in Zapata Corp. v. Maldonado, 430 A.2d 779 (Del. 1981), a court must determine whether the SLC is independent, and whether it acted in good faith and had a reasonable basis for seeking the dismissal.  If the court makes these findings, it then has the option to apply its own business judgment to determine whether to dismiss the derivative action.

In Booth, the Sixth Circuit began by noting that other courts have not clearly articulated the standard of review to be applied to a lower court’s decision granting a motion to dismiss a derivative action based on the recommendations of an SLC. The Court found that the de novo review standard applies with respect to the first prong of the Zapata inquiry as to whether the SLC was independent, carried out the investigation in good faith, and had a reasonable basis supporting its conclusions. It also, however, left open the possibility that a more deferential review standard may apply to a lower court’s application of its own business judgment under the optional second prong in the Zapata test.

The Court then turned to the merits. It reversed the district court’s decision to grant the motion to dismiss. It based its reversal upon a finding that SLC member Tuttle was not independent. Because Tuttle lacked independence, the SLC also was not independent. The Court pointed to the fact that Tuttle had recused himself from considering allegations against Singer, a named defendant and central player in the shareholders’ allegations. “[B]ecause Tuttle … recused himself from considering claims against Singer,” the Court held “he effectively admitted he was not independent.” The Court also considered evidence that Tuttle and Singer had previously worked together, that Singer had spearheaded the effort to add Tuttle as a board member, and that Tuttle was planning on vacationing with Singer and his wife. Additionally, the Court noted that the claims against defendants were “not individual in nature.” In other words, Tuttle could not conclude that any claims against any other defendants had merit without implicitly concluding that those against Singer had merit. Abercrombie also did not establish that Tuttle’s recusal was effective. Moreover by recusing himself, Tuttle had impermissibly altered the Board’s resolution creating a two-member committee by creating a de facto one person committee led by Brisky. The Court did not rule on Brisky’s independence.

Under Delaware law, SLC’s are not presumed to be independent, and the SLC must prove its independence “beyond reproach.” The Court concluded by finding that, “Tuttle’s decision to recuse himself from considering claims against Singer, and Singer’s central role in the alleged wrongdoing, cast serious doubt on Tuttle’s objectivity as to the claims as a whole … where Abercrombie had the opportunity to work with competent counsel and cherry pick who would serve on its special litigation committee, it cannot now rely on the recommendation of a special litigation committee with such dubious independence.”

This decision confirms that Delaware corporations seeking to employ an SLC to investigate the allegations underlying a derivative lawsuit must take great care to ensure that the individuals it nominates to form the committee have no potentially material independence issues, including close personal relationships, with the defendants. At least according to the Sixth Circuit, recusal by a committee member will not automatically cure a potential independence issue. Because the precise contours of independence are highly fact specific and have not been delineated, a board seeking to establish an SLC should take great care to ensure independence of committee members at the outset of the committee’s work.

Patent Reform: Key Features of the Senate and House Bills Sheppard, Mullin, Richter & Hampton LLP

The Senate passed their version of a Patent Reform Bill (Senate Bill No. S. 23), on March 8, 2011 by a wide 95-5 margin. The bill makes significant changes, most notably including a first-inventor-to-file system, and an enhanced post-grant review procedures that will be conducted within the USPTO. There are 26 sections to the Senate bill. Some key features of the Senate Bill include:

  1. A first-inventor-to-file system and limitation of the one year grace period (Sec. 2);
  2. A Post-grant review proceeding (Sec. 5);
  3. New inter partes review proceeding (Sec. 5a);
  4. Preissuance submission by third parties (Sec. 7);
  5. USPTO fee-setting authority and USPTO funding (Secs. 9 and 10);
  6. A supplemental examination proceeding (Sec. 11);
  7. Elimination of the best mode defense (Sec. 15.);
  8. A transitional post-grant review of covered business method patents(Sec. 18); and
  9. A change to the False marking Statute (Sec. 2).

The House of Representatives introduced their own version of the Patent Reform Bill (House of Representatives Bill No. H.R. 1249) on March 30, 2011. The House bill is very similar to the Senate bill, but includes some notable differences. The first-inventor-to-file system and limitation of the one year grace period is the same in the passed Senate bill and recently introduced House bill. Regarding the post-grant review and inter partesreview proceedings, however, the House bill changes some of the standards of review and time limits in the Senate bill.

Below is a summary of some of the key features of the Senate bill, followed by a short analysis describing some important differences in the House bill.

1) First-inventor-to-file-system

The Senate bill moves to a first-inventor-to-file system, which would become effective 18 months after its enactment. The Senate bill eliminates current 35 U.S.C. § 102(g) and interferences, and questions of conception, diligence, reduction to practice, abandonment, suppression, and concealment.

Moving to a first-to-file system fundamentally changes other aspects of 35 U.S.C. §§ 102 and 103 (new 35 U.S.C. §§ 102 and 103 language provided on page 7). The Senate bill significantly reduces the present one-year grace period, which applies to prior art or disclosures from any source, be it derived from the inventor or from another. Under the Senate bill, that one-year grace period is limited to scenarios where the disclosure was (1) derived from the inventor or (2) made public after the inventor publicized his invention. In practical terms to a patent practitioner, the Senate bill severely limits the ability to antedate or use § 1.131 declarations to swear behind prior-filed references (when the applicant was prior inventor). The Senate bill would remove any possibility to swear behind prior art references or disclosures in, for example, the following cases:

  1. References (not derived from the inventor) that are published by another less than one year before the effective filing of the patent application.
  2. Some Section 102(e) secret prior art references.

For example, there would be no possibility to swear behind patent applications filed more than one year before the effective date of the patent application at issue, but published less than one year before that effective date.

The Senate bill appears to limit public uses or sales of the invention before the effective filing date. Under the current law, sales and offers-to-sell do not constitute a loss of right of a patent if those sales or offers-to-sell occurred less than one year before the effective filing date of the application. Any such grace period appears to be removed. This, however, may depend on the definition of “disclosure” made by the inventor. The Senate bill allows for “disclosures” made by the inventor if “1 year or less before the effective filing date” of the patent application. If sales or offers-to-sell constitute “disclosure,” then the rules regarding sales and offers-to sell of the invention (at least in the United States) would remain the same.

The Senate bill also removes geographic limitations for public uses or sales of the invention. Under the current law, an invention is not patentable if it was in public use or on sale in the United States more than one year prior to the effective filing date of the application (§ 102(b); or it was known or used by others in the United States prior to the date of invention (§ 102(a)). The Senate bill removes these geographical limitations. 35 U.S.C. § 102 of the Senate bill states that an invention is not patentable if it was “patented, described in a printed publication, or in public use, on sale, or otherwise available to the public before the effective filing date of the claimed invention.” No limit to the United States is stated. Thus, public use, sales, and knowledge by others, anywhere in the world could result in the loss of right to a patent.

House bill Provides the exact same language regarding 35 U.S.C. §§ 102 and 103.

2) Post-grant review 

The Senate bill provides another way for a third party to challenge a patent. The post-grant review has some interplay with the new inter partes review, which is summarized next. The post-grant review procedure includes the following features:

  • Allows third parties to file a petition within nine months from when the patent issues.
  • Third party may challenge any claim of the patent based on any provision of the statute (i.e., §§ 101, 102, 103 and 112). In other words, it is not limited to just prior art references as in presentinter partes and ex parte Reexamination.
  • The standard for whether a post-grant review will be conducted by the “Director” is:

if “information presented in the petition, if not rebutted would demonstrate that it is more likely than not that at least 1 of the claims challenged in the petition is unpatentable.” The determination for conducting a post-grant review “may also be satisfied by showing that the petition raises a novel or unsettled legal question that is important to other patents or patent applications.” § 324.

  • The patent owner may file a statement to challenge the petition.
  • The determination to proceed with a post-grant review is not appealable.
  • Post-grant reviews will be handled by a Patent Judge (Patent Trial and Appeal Board).
  • Post-grant reviews may not instituted if the petitioner has filed a civil action challenging the validity of the patent. § 325.
  • If an infringement claim is filed within three months of the issuance of a patent, the court cannot stay the consideration of the patent owner’s motion for preliminary injunction against infringement due to the filing of petition of a Post-grant review or Post-grant review was granted. § 325.
  • The Director is given broad discretion on how to regulate the post-grant review process, including for example procedures for submitting supplemental information, procedures for discovery, and providing either party with the right to an oral hearing. § 326.
  • The proceeding can be terminated by settlement of the parties or by a final decision of the board. § 327.
  • Final decisions are appealable to the Federal Circuit.

3) New inter partes Reexamination(now called inter partes review) 

As stated above, the timing for inter partes review interplays with the post-grant review system. A request for inter partes review can be filed only on the later of nine months after the issuance of a patent or after a post-grant review is terminated. (§ 311(c)). Other features include:

  • The standard for granting a request for inter partes review has changed in the Senate bill to “a reasonable likelihood that the petitioner will prevail with regard to at least one claim,” thereby raising the standard from a “substantial new question of patentability” under current inter partes reexamination. § 314(a).
  • The scope of review is still patents and printed publications, i.e., only challenging the patentability of one or more claims under §§ 102 or 103. § 311(b).
  • Unlike the current inter partes reexamination, the Senate bill’s inter partes review proceeding will be held before a Patent Judge (Patent Trial and Appeal Board).
  • The inter partes review may be terminated by settlement or by a final decision of the board. § 317.
  • The Director is given broad authority to establish regulations and how the proceedings will be carried out. For example, giving each party the right to an oral hearing, establishing procedures for submitting supplemental information, setting standards for discovery. § 316.
  • The decision to proceed with inter partes review is not appealable § 314(d).
  • Allows a preliminary response to be filed by the patent owner to explain why no inter partes review should be instituted. § 313.
  • The Senate bill prohibits an inter partes review from being initiated or maintained if the petitioner has filed a civil action challenging the validity of a claim of the patent or if more than six months have passed since the petitioner was served with a complaint alleging infringement. § 315(a and b).
  • The Senate bill includes estoppel provisions as provided in inter partes reexamination and does not allow for broadening of the claims. § 315(e).
  • The final decision by the board may be appealed to the Federal Circuit. § 319.

4) Preissuance submission by third parties

This provision of the Senate bill allows for third parties to file publications or patents for consideration to the USPTO if the submission is made in writing before the notice of allowance or the a later of: 1) 6 months after the application for patent is first published; or 2) the date of the first rejection of any claim by the USPTO. The brief language is provided below.

GENERAL.  Any third party may submit for consideration and inclusion in the record of a patent application, any patent, published patent application, or other printed publication of potential relevance to the examination of the application, if such submission is made in writing before the earlier of

A.    the date a notice of allowance under section 151 is given or mailed in the application for patent; or

B.     the later of

i.      6 months after the date on which the application for patent is first published under section 122 by the Office, or

ii.      the date of the first rejection under section 132 of any claim by the examiner during the examination of the application for patent.

5) USPTO fee-setting authority and USPTO funding 

Currently, Congress diverts some fees collected by the PTO for government operations. It has been estimated that about $800 million in collected patent fees have been diverted over the past two decades. The Senate bill eliminates fee diversion by amending 35 U.S.C. § 42(c).

6) Supplemental Examination Proceeding 

The Senate bill provides an additional, streamlined supplemental examination similar to an ex parte reexamination. The proceeding permits a patent owner to request “supplemental examination” for the USPTO to “consider, reconsider or correct information believed [by the patent owner] to be relevant to the patent.” The standard for granting such a request is that the information raises a “substantial new question of patentability,” which is the same as the current ex parte reexamination standard. In this proceeding, the patent owner does not have the right to file a patent owners statement. The proceeding appears to also be a means to correct any “inequitable” conduct during the prior examination. ”A patent will not be held unenforceable on the basis of conduct relating to information that had not been considered, was inadequately considered, or was incorrect in a prior examination of the patent if the information was considered, reconsidered, or corrected during a supplemental examination of the patent.  The making of a request under subsection (a), or the absence thereof, shall not be relevant to enforceability of the patent under section 282.”

7) Elimination of the best mode defense 

The best mode under section 112 is still a condition for patentability. Best mode, however, can not be used as a defense for which a patent may be invalid or unenforceable. The Senate bill language is as follows:
(3) Invalidity of the patent or any claim in suit for failure to comply with:

A.    any requirement of section 112, except that the failure to disclose the best mode shall not be a basis on which any claim of a patent may be canceled or held invalid or otherwise unenforceable; or

B.     any requirement of section 251.

8) Transitional post-grant review of covered business method patents

The Senate bill provides a post-granted review proceeding to determine the validity of business method patents. The proceeding is limited to petitioners who have been sued or charged with patent infringement of the particular business method patent.

9) False-Marking Statute

The Senate bill limits false-marking suits to the United States or any person who suffered a competitive injury as a result of a false-marking violation.

Key Differences in the House Bill

Again, the first-inventor-to-file system and limitation of the one year grace period is the same in the House bill. The big differences in the House bill relate to the post-grant review and inter partes review proceedings. The House bill changes some of the standards for determining whether to proceed and the House bill includes some important language regarding stay of other proceedings, such as patent infringement litigation. In general, the House bill’s changes are not favorable to the patentee. The House bill makes it easier to proceed with an inter partes review by lowering the standard and the House bill appears to make it easier to stay patent infringement actions in civil courts until these proceedings are terminated.

1) Post-Grant Review

The House bill expands the window of the post-grant review to twelve months after the issuance of a patent (rather than nine month window in the Senate bill). The House bill also permits review on the standard of “a novel legal question that is important to other patents or patent applications.”

The House bill also includes a new section providing guidance regarding requests for stays in other proceedings. The House bill includes considerations the courts should make regarding whether to grant a stay in a “civil action” (including patent infringement litigation as well as actions before the International Trade Commission); the court “shall decide” whether to grant the stay based on “whether the stay, or denial thereof, will simplify the issues . . . and streamline the trial.” (§ 330).

2) Inter partes review 

The House bill differs from the Senate bill by keeping the old standard for proceeding with a reexamination — a substantial new question of patentability (rather than showing a “reasonable likelihood that the petition would prevail with respect to at least one of the claims challenged in the petition” in the Senate Bill).

The inter partes review timing period is changed due to the expansion of the post-grant review window. A petition can be filed for an Inter partesreview from the later of twelve months after the issuance of a patent or after a post-grant review is terminated.

The House bill also includes a new section not in the Senate version regarding requests for stays similar to the post-grant review. The House bill provides guidance when a party seeks a stay in a “civil action” (including patent infringement litigation as well as actions before the International Trade Commission); the court “shall decide” whether to grant the stay based on “whether the stay, or denial thereof, will simplify the issues . . . and streamline the trial” (§ 320).

Senate Bill S23

§ 102. Conditions for patentability; novelty

(a) NOVELTY; PRIOR ART. A person shall be entitled to a patent unless:

  1. the claimed invention was patented, described in a printed publication, or in public use, on sale, or otherwise available to the public before the effective filing date of the claimed invention; or
  2. the claimed invention was described in a patent issued under section 151, or in an application for patent published or deemed published under section 122(b), in which the patent or application, as the case may be, names another inventor and was effectively filed before the effective filing date of the claimed invention.

(b) EXCEPTIONS.

1. DISCLOSURES MADE 1 YEAR OR LESS BEFORE THE EFFECTIVE FILING DATE OF THE CLAIMED INVENTION.

  • A disclosure made 1 year or less before the effective filing date of a claimed invention shall not be prior art to the claimed invention under subsection (a)(1) if:

A.       the disclosure was made by the inventor or joint inventor or by  another who obtained the subject matter disclosed directly or  indirectly from the inventor or a joint inventor; or

B.        the subject matter disclosed had, before such disclosure, been publicly disclosed by the inventor or a joint inventor or another who obtained the subject matter disclosed directly or indirectly from the inventor or a joint inventor.

2. DISCLOSURES APPEARING IN APPLICATIONS AND PATENTS.

  •  A disclosure shall not be prior art to a claimed invention under subsection (a)(2) if:

A.       the subject matter disclosed was obtained directly or indirectly from the inventor or a joint inventor;

B.        the subject matter disclosed had, before such subject matter was effectively filed under subsection (a)(2), been publicly disclosed  by the inventor or a joint inventor or another who obtained the subject matter disclosed directly or indirectly from the inventor or a joint inventor; or

C.        the subject matter disclosed and the claimed invention, not later than the effective filing date of the claimed invention, were      owned by the same person or subject to an obligation of         assignment to the same person.

(c) COMMON OWNERSHIP UNDER JOINT RESEARCH AGREEMENTS Subject matter disclosed and a claimed invention shall be deemed to have been owned by the same person or subject to an obligation of assignment to the same person in applying the provisions of subsection(b)(2)(C) if:

  1. the subject matter disclosed was developed and the claimed invention was made by, or on behalf of, 1 or more parties to a joint research agreement that was in effect on or before the effective filing date of the claimed invention;
  2. the claimed invention was made as a result of activities undertaken within the scope of the joint research agreement; and
  3. the application for patent for the claimed invention discloses or is amended to disclose the names of the parties to the joint research agreement.

(d) PATENTS AND PUBLISHED APPLICATIONS EFFECTIVE AS PRIOR ART. For purposes of determining whether a patent or application for patent is prior art to a claimed invention under subsection (a)(2), such patent or application shall be considered to have been effectively filed, with respect to any subject matter described in the patent or application

  1. if paragraph (2) does not apply, as of the actual filing date of the patent or the application for patent; or
  2. if the patent or application for patent is entitled to claim a right of priority under section 119, 365(a), or 365(b), or to claim the benefit of an earlier filing date under section 120, 121, or 365(c), based upon 1 or more prior filed applications for patent, as of the filing date of the earliest such application that describes the subject matter.

§103. Conditions for patentability; nonobvious subject matter

A patent for a claimed invention may not be obtained, notwithstanding that the claimed invention is not identically disclosed as set forth in section 102, if the differences between the claimed invention and the prior art are such that the claimed invention as a whole would have been obvious before the effective filing date of the claimed invention to a person having ordinary skill in the art to which the claimed invention pertains. Patentability shall not be negated by the manner in which the invention was made.

Seventh Circuit Reverses Summary Judgment In Kraft ERISA “Excessive Fees” Case

On April 11, 2011, a divided Seventh Circuit panel reversed summary judgment in favor of Kraft Foods Global, Inc. in a class action ERISA breach of fiduciary duty case involving “excessive fees” claims in connection with Kraft’s 401(k) plan. The main take away from the decision is that fiduciaries must continue to be diligent and thoroughly consider plan administration issues and document why decisions were made or not made or practices followed, even on decisions and practices once thought to be routine or common industry standards. By following such a prudent practice, fiduciaries will substantially increase their ability to defend challenges concerning fiduciary conduct.

In Kraft, plaintiffs alleged three primary claims considered on appeal: that the use of a unitized company stock fund as an investment option was improper; that the plan’s recordkeeping fees were too high and imprudently monitored; and that the fiduciaries imprudently allowed the plan trustee to retain interest income from “float.”

In a 2-1 decision, the panel ruled that the plaintiffs could proceed to trial on their theory that the unitized company stock fund was imprudently designed because of “investment drag” and “transaction drag” that is inherent with the widely popular unitized funds. Like most company stock funds, Kraft plan participants held units of the fund rather than directly holding shares of company stock. The plaintiffs alleged that the fiduciaries should have considered the “drag” that unitized funds cause on gains (and losses). The Seventh Circuit ruled that there was no evidence that the fiduciaries ever consciously decided in favor of a unitized plan finding that the benefits of a unitized fund outweighed the downsides, or whether they just ignored the issue. According to the majority, that was sufficient to proceed to trial. In a strongly worded dissent, Judge Cudahy called the plaintiffs’ theories on this, and others in the case, an “implausible class action based on nitpicking with respect to perfectly legitimate practices of fiduciaries.”

The majority further reversed summary judgment for the defendants on whether the recordkeeping fees were too high. The plaintiffs argued that the fiduciaries should have solicited competitive bids from other recordkeepers about every three years. Kraft had used the same recordkeeper since 1995, without a competitive bid, although Kraft received advice from several third-party independent consultants that the fees were reasonable. The plaintiffs submitted an opinion from an expert finding that the fees were excessive. In a decision with potentially wide-sweeping ramifications, the Seventh Circuit held that while the defendants’ reliance on the contemporaneous opinions of outside independent consultants that the fees were reasonable may be enough to prevail at trial, it was not enough to overcome the plaintiffs’ contrary admissible expert opinion at summary judgment which created a genuine issue of fact. The use of a consultant cannot “whitewash” otherwise unreasonable fees and a trier of fact could conclude that the defendants did not satisfy their duty solely through the use of independent consultants to ensure that the recordkeeping fees were reasonable. The dissent argued that the fiduciaries’ use of an outside consultant to confirm the reasonableness of the fees showed a prudent process and asked “what the majority’s holding means for ERISA fiduciaries” and “what is adequate to support a fee without the fear of litigation?” As noted by the dissent, this decision “will only serve to steer [fiduciaries] attention toward avoiding litigation instead of managing employee wealth.”

The Seventh Circuit upheld summary judgment for the defendants on whether the float income the trustee received was a reasonable part of the trustee’s overall compensation, because the fiduciaries proved that they received reports showing the float income and the plaintiffs failed to offer admissible evidence that such information was not considered.