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A federal appeals court on Wednesday sharply questioned lawyers defending Quest Diagnostics Inc.’s pretrial victory in a lawsuit accusing the company of mismanaging workers’ retirement savings, pressing both sides on whether the lab giant followed its own investment rules. The exchange put the spotlight on the Quest 401(k) win suit, a case balancing on the fine line between prudent oversight and alleged fiduciary lapse.

Judges Probe Pretrial Victory

A three-judge panel of the U.S. Court of Appeals for the Third Circuit heard arguments from former Quest employees seeking to revive a proposed class action claiming their 401(k) savings were eroded by underperforming funds, in violation of the Employee Retirement Income Security Act (ERISA).

The appeal challenges a September 2024 ruling by U.S. District Judge Julien Xavier Neals, who granted Quest summary judgment. Neals found the company’s investment committee had diligently managed and monitored the plan’s offerings, delivering Quest a pretrial win.

But appellate judges zeroed in on a key dispute: whether that victory was premature, given expert testimony asserting Quest’s committee failed to follow its own investment policy statement.

A 1996 Precedent Looms Large

Expert Testimony Under the Microscope

During a pointed exchange, U.S. Circuit Judge Emil J. Bove quoted from a 1996 Third Circuit decision that reversed summary judgment for Unisys Corp. in a pension mismanagement case. In that ruling, expert testimony was found to raise a genuine dispute over fiduciary process.

“That language,” Bove told Quest’s attorney, Melissa D. Hill of Morgan Lewis & Bockius LLP, “lands pretty hard in this case,” inviting her to explain why it should not control the outcome here.

Hill argued the Unisys case differed because the expert opinions there were supported by stronger record evidence. Judge Bove pushed back, asking whether such weaknesses should instead be tested through cross-examination at trial.

Should a Jury Weigh the Policy Question?

U.S. Circuit Judge David J. Porter also pressed Quest’s counsel on why the dispute over adherence to the investment policy statement should not go before a jury, even if compliance with the policy was not strictly mandatory.

“I get it, it’s not mandatory,” Porter said. “But why wouldn’t that be a material fact for a jury to weigh — failure to follow the committee’s own investment policy statement?”

Porter further questioned attorneys on changes Quest made to its investment policy statement after litigation began, probing whether those revisions carried legal significance.

Skepticism From One Judge

Not Every Expert Clears Summary Judgment

U.S. Circuit Judge Stephanos Bibas appeared more doubtful about reviving the case. In an exchange with Alec J. Berin of Miller Shah LLP, who represents the proposed class, Bibas cited a Jan. 9 unpublished Third Circuit opinion affirming summary judgment in Young Cho v. Prudential Insurance Co. of America et al.

That decision, Bibas noted, involved expert evidence yet still upheld a finding of a prudent investment process.

“So an expert doesn’t automatically get you past summary judgment,” Bibas said, adding that hiring an expert alone does not guarantee a trial.

Berin countered that the Prudential case differed because it was not based on violations of an investment policy statement or standards chosen by the fiduciaries themselves.

Who’s Representing Whom

The panel consisted of Judges Bibas, Porter and Bove.

The proposed class is represented by Alec J. Berin, James E. Miller, Laurie Rubinow, James C. Shah and John C. Roberts of Miller Shah LLP. Quest Diagnostics Inc. and other defendants are represented by Melissa D. Hill, Jeremy P. Blumenfeld, Tyler J. Hill and Gina F. McGuire of Morgan Lewis & Bockius LLP.

Representatives for both sides did not immediately respond to requests for comment Wednesday.

As the Third Circuit weighs its decision, the Quest 401(k) win suit stands as a reminder that, in ERISA litigation, the smallest policy footnote can become the fulcrum of a billion-dollar argument.