Court Dismisses ERISA Fiduciary Breach Claims Against J&J

January 28, 2025

On January 24, 2025, in the high-profile case of Lewandowski v. Johnson & Johnson, et al., a New Jersey district court dismissed two ERISA fiduciary breach claims filed against defendant Johnson & Johnson, in its capacity as group health plan sponsor, and its benefit committee (collectively, J&J). The court found that the plaintiff participant had failed to establish standing as required under Article III of the US Constitution. Generally, the court’s ruling and opinion are good news for plan sponsors, and highlight the many challenges plaintiffs will face in establishing Article III standing to pursue similar fiduciary breach claims.

In this case, which we covered in our March 12, 2024, article, the plaintiff, on behalf of herself and a proposed class of participants, alleged that J&J breached ERISA fiduciary duties by mismanaging their prescription drug plans. Among other items, the plaintiff’s amended complaint asserted that J&J failed to prudently select and monitor their pharmacy benefit manager (PBM) and negotiate more favorable pricing in their PBM services agreement. According to the complaint, these failures caused the plan to grossly overpay for prescription drugs, particularly generic drugs, which increased plan costs and resulted in higher participant premium payments and cost-sharing. The plaintiff further claimed she was personally harmed not only by paying higher premiums but also inflated plan prices for generic specialty prescription drugs available at lower cost in retail pharmacies.

In the first two counts of her complaint, the plaintiff sought damages for the alleged losses to the plan and participants, and other equitable and injunctive relief, respectively. In a third count, she also alleged that J&J failed to timely provide documents upon written request, as required by ERISA.

In response, J&J filed a motion to dismiss the complaint on the basis that the plaintiff did not allege the concrete harm or injury-in-fact necessary to establish Article III standing. Under Article III, a plaintiff must show 1) a personal injury-in-fact, 2) caused by the defendant, and 3) that would likely be addressed by a favorable court decision. The injury-in-fact must be actual or imminent and not conjectural or hypothetical. In J&J’s view, the plaintiff failed to show she had suffered personal harm or an injury from the prescription drug costs because she would have paid the exact same amount in premiums and total out-of-pocket costs each year she participated in the plan, regardless of the drug costs.

Upon review and analysis, the district court agreed with J&J, finding that the plaintiff lacked Article III standing to pursue the first two fiduciary breach counts of her complaint. First, the court found that the plaintiff had not alleged an injury-in-fact by citing harm to participants in the form of higher premiums, deductibles, coinsurance, and copays – nor lower wages or limited wage growth – noting that “such an injury, at best, is speculative and hypothetical.” Thus, the court concluded that the outcome of the lawsuit would not affect participants’ future benefit payments.

The district court cited the recent Third Circuit holding in Knudsen v. MetLife Group Inc., as “controlling and dispositive” on the issue of whether plaintiffs alleged actual injury. As explained in our October 9, 2024 article, in Knudsen, plaintiffs claimed the plan fiduciary’s misallocation of drug rebates harmed participants by increasing premium and OOP costs but failed to provide any specific facts to support this theory. Nor did the plaintiffs show they had an individual right to the rebates under the plan documents. Notably, the Knudsen decision relied in part on the Supreme Court opinion in Thole v. US Bank NA, which held that pension plan participants had not established an injury-in-fact due to the sponsor’s alleged mismanagement of plan assets because they had received their promised benefits.

Second, the district court considered whether the plaintiff suffered an injury-in-fact by paying higher prices for plan drugs available at lower cost elsewhere, thus causing her to pay more out-of-pocket. In the district court’s view, the plaintiff had suffered an injury-in-fact traceable to J&J’s alleged ERISA violations. Notwithstanding, the district court found the plaintiff lacked standing on this injury because it was not redressable by a court order. In other words, since the participant reached her plan out-of-pocket (OOP) limit each year, a favorable decision would not compensate her for those costs. However, the district court expressed no opinion as to the standing of a hypothetical plaintiff in the same situation who has not reached their OOP cap for expenditures.

Although the district court dismissed the plaintiff’s first two claims, the plaintiff was given leave to file a second amended complaint within 30 days to address the deficiencies identified in the court’s opinion. With respect to the third count regarding J&J’s alleged failure to timely provide documents, the court found that the plaintiff had plausibly stated a claim.

Our Observation: Following a wave of ERISA fiduciary breach class action lawsuits, the district court’s ruling is welcome news for group health plan sponsors and underscores the challenges that many participant plaintiffs will face in establishing Article III standing to pursue similar claims. The decision, adhering to prior ERISA precedents set in Thole and Knudsen, reinforces that participants must demonstrate a personal and concrete injury due to a fiduciary’s alleged breach that is redressable by court action; broad speculative claims will not suffice.

However, the district court left open the question of whether a participant who did not reach their plan’s OOP maximum could potentially establish an injury-in-fact based on excessive prescription drug costs. Such a possibility would seem contrary to the holding in Thole, under which participants who receive their promised benefits did not have a personal injury. Nor does ERISA require that participants must receive a benefit, let alone a specific prescription drug, at a price that does not exceed retail unless otherwise specified in the governing plan documents. (As a practical matter, sponsors would normally be evaluating prescription drug and other benefit program costs on an aggregate basis, not by each individual item or service. In addition, there could be other considerations in the plan’s overall benefit analysis, including pharmacy network availability and accessibility.)

Plan sponsors should be aware of this important and positive development in this very prominent case. However, since the court’s opinion doesn’t completely preclude a plaintiff (in this case or a similar one) from establishing standing on another set of facts, the decision will likely not end the wave of fiduciary breach lawsuits. Therefore, group health plan sponsors should continue to review their own ERISA fiduciary governance practices to ensure they are prudently fulfilling their fiduciary obligations to their plans and participants, including responding timely to written requests for plan documents, since this is the best protection against potential liabilities.

We will continue to monitor this case and report any relevant updates in Compliance Corner.

Lewandowski v. J&J 1.24.2025 Opinion