PARTIDA v. Schenker Inc.

Background

Diego Partida brought a putative class action under the Employee Retirement Income Security Act of 1974, a federal law governing employee-benefit plans, against Schenker Inc., the Schenker, Inc. Retirement Plans Committee, and Does 1-50. He sued on behalf of current and former employees, participants, and beneficiaries of Schenker’s 401(k) Savings and Investment Plan, seeking to recover losses allegedly caused by mismanagement of the Plan.

Partida’s first amended complaint asserted four claims. The court previously dismissed that complaint and allowed amendment. Partida then filed the operative second amended complaint, which asserted two claims: breach of the duty of prudence under ERISA and failure to monitor other plan fiduciaries. The defendants moved to dismiss both claims under Federal Rule of Civil Procedure 12(b)(6), which permits dismissal when a complaint does not allege enough facts to state a legally valid claim.

Duty of Prudence

The court explained that an ERISA fiduciary must act with the care that a prudent person familiar with similar matters would use. The relevant question is generally the fiduciary’s process for investigating and making decisions, rather than simply whether an investment performed well or poorly. Poor performance by itself does not establish imprudence; a plaintiff must allege additional facts indicating that the fiduciary’s process was deficient.

Partida alleged that the defendants breached this duty by retaining the underperforming Wells Fargo Growth Fund, offering higher-cost share classes when lower-cost alternatives were available, and paying higher fees than other plans.

As to the Wells Fargo Growth Fund, the court found that the second amended complaint attacked the fund’s performance rather than adequately alleging a flawed selection process. Partida also failed to provide a meaningful benchmark. The proposed comparison funds did not have sufficiently similar goals, risks, or potential rewards, and they were passively managed market indexes while the challenged Wells Fargo fund was actively managed. The court concluded that Partida had not alleged facts showing why those funds were suitable comparisons.

As to the higher-cost share classes, the court found that allegations about the availability of cheaper share classes, without more, did not state an imprudence claim. The defendants showed, and Partida did not contest, that the Plan’s share classes were less expensive overall because of revenue sharing. The court concluded that Partida alleged only that the defendants could have made cheaper or better-performing choices, not facts making it more plausible than not that a fiduciary breach occurred.

As to service fees, Partida compared the Plan’s fees with recordkeeping fees paid by eight other plans. The court found the comparison inadequate because it did not consistently compare the services and fees involved, and the other plans had many more participants and significantly more assets. Partida also did not allege enough about the services provided to the Plan or why the fees were excessive for those services. The court further noted that fiduciaries are not required to regularly seek competitive bids for recordkeeping services under the cited authority.

The court therefore concluded that Partida had not stated a claim for breach of the duty of prudence.

Failure to Monitor

The court dismissed Partida’s failure-to-monitor claim because that claim was derivative of the prudence claim. Since Partida had not stated an underlying ERISA violation, he also had not stated a claim for failure to monitor other plan fiduciaries.

Additional Prudential Fund Allegations

The second amended complaint added allegations concerning the defendants’ alleged imprudent retention of the Prudential Stable Value fund. The court treated those allegations as a new claim because they had not appeared in the first amended complaint. The court’s earlier order had prohibited adding parties or claims without the court’s permission or the defendants’ agreement. The court therefore dismissed that claim as well.

Leave to Amend and Disposition

Partida requested permission to file a third amended complaint but did not identify what new allegations he would add or explain why another amendment would not be futile. The defendants argued that dismissal should be with prejudice because Partida had received multiple opportunities to correct the pleading deficiencies.

The court found that Partida had already been given leave to amend and had not cured the deficiencies. It concluded that further amendment would be futile, granted the defendants’ motion to dismiss, and dismissed the second amended complaint with prejudice.