Judge dismisses ERISA class action over Wells Fargo's prescription drug benefit practices

A federal judge has dismissed a proposed class action brought by four former Wells Fargo employees who accused the company of breaching its fiduciary duties under ERISA by mismanaging its employee health plan’s prescription drug benefits.

In a detailed ruling, U.S. District Judge Laura M. Provinzino held that the plaintiffs lacked Article III standing to pursue their claims because they failed to demonstrate a concrete, particularized injury that was traceable to the alleged misconduct and redressable by the court.

The plaintiffs—Sergio Navarro, Theresa Gamage, Dayle Bulla, and Jane Kinsella—are former Wells Fargo employees and former participants in the Wells Fargo & Company Health Plan (“the Plan”), a self-funded employee welfare benefit plan governed by ERISA. They sued on behalf of themselves, other similarly situated participants, and the Plan itself.

They alleged that Wells Fargo engaged in fiduciary mismanagement by contracting with Express Scripts, Inc. (“ESI”), a traditional pharmacy benefit manager (PBM), without a competitive bidding process and on terms that resulted in inflated prescription drug prices and excessive administrative fees.

Among the allegations:

• Price discrepancies for generic-specialty drugs: Plaintiffs alleged that ESI charged the Plan $1,881 for a 90-pill prescription of the prostate cancer drug abiraterone acetate, while the average acquisition cost was $82.80. Participants, under the Plan terms, were required to pay the full cost for such drugs—dispensed through ESI’s wholly owned pharmacy, Accredo—until meeting their deductibles.
• Benchmark pricing concerns: ESI used the AWP (Average Wholesale Price) benchmark to set pricing, which plaintiffs alleged was inflated and susceptible to manipulation. They claimed that using NADAC (National Average Drug Acquisition Cost) would have better aligned with true market prices.
• Administrative fees: From 2019 to 2022, administrative fees paid to ESI by the Plan increased from $9.2 million to $25.6 million, even as the number of participants declined. In contrast, another large plan paid significantly less per participant for similar services.
• No open bidding process: Plaintiffs said Wells Fargo failed to conduct a competitive process before engaging ESI and did not consider other PBM models, such as pass-through arrangements that might have lowered costs.

They claimed these actions constituted breaches of fiduciary duty under ERISA § 1104(a) and prohibited transactions under § 1106, seeking relief under 29 U.S.C. §§ 1132(a)(2) and (a)(3). Remedies sought included restitution, surcharge, disgorgement, removal of fiduciaries, replacement of the PBM, and the appointment of an independent fiduciary.

The Plan documents were central to the court’s analysis. Notably:

• Contribution discretion: Wells Fargo retained “sole discretion” to determine participant contribution amounts and had broad authority to modify those rates by participant class, benefit type, or other criteria.
• Expense allocation: The Plan allowed participant contributions to be used to cover all Plan expenses—not just those tied to an individual’s own benefits.

These provisions undermined the plaintiffs’ claims that their higher costs were directly caused by the challenged conduct.

Judge Provinzino granted Wells Fargo’s motion to dismiss under Rule 12(b)(1), finding that the plaintiffs lacked standing because their alleged harm was speculative, causation was insufficient, and requested relief would not necessarily redress the injury.

The court emphasized that plaintiffs did not allege they were denied any benefits promised under the Plan. Instead, they asserted they paid more than they should have due to mismanagement. The court found this harm to be too speculative, particularly given the Plan’s structure and Wells Fargo’s discretion to set contributions.

Because Wells Fargo had unilateral authority over participant contribution rates, the court found it too speculative to conclude that lower PBM costs would have resulted in lower premiums or out-of-pocket payments. Even if the court granted all requested relief - including removing fiduciaries and replacing the PBM - Wells Fargo could legally maintain or increase participant contributions.

“Merely changing ‘may’ to ‘would’ is a semantic sleight of hand,” the judge wrote, rejecting plaintiffs’ claim that reduced fees “would” have led to lower participant costs.

The court also found that because the plaintiffs were no longer participants in the Plan, they lacked standing to seek forward-looking remedies. They would not be affected by any prospective relief, such as replacing fiduciaries or changing the Plan structure.

The court drew on Thole v. U.S. Bank N.A., 590 U.S. 538 (2020), which held that participants in a defined-benefit plan lacked standing to sue over fiduciary mismanagement where they received all promised benefits. Although this case involved a health plan, not a pension, the court deemed the Plan similarly structured and concluded that the plaintiffs’ theory of harm fell short under Thole.

The court also considered the Third Circuit’s recent decision in Knudsen v. MetLife Grp., Inc., 117 F.4th 570 (3d Cir. 2024), which hypothetically allowed for ERISA standing based on excessive out-of-pocket health costs. However, the court found the plaintiffs’ claims too speculative under that framework as well.

The complaint was dismissed without prejudice, leaving open the possibility that a future plaintiff—perhaps one still participating in the Plan and able to allege specific, traceable harm—could pursue similar claims.

“The Court is not unsympathetic to Plaintiffs’ concerns,” Judge Provinzino wrote. “Prescription drug costs are high—even for those who are insured.” But under current law, she concluded, the plaintiffs lacked standing to proceed.