Humphries v. Mitsubishi Chemical America, Inc.

Background

Robert Humphries and Dennis Mowry brought a proposed class action under the Employee Retirement Income Security Act, or ERISA, against Mitsubishi Chemical America, Inc., the Administrative Committee of the Mitsubishi Chemical America Employees’ Savings Plan, members of Mitsubishi Chemical’s Board of Directors, and unnamed defendants. They alleged that the defendants breached their fiduciary duty of prudence by failing to monitor available lower-cost mutual-fund share classes and by allowing the plan to pay excessive recordkeeping and administrative fees.

The plan offered seven mutual funds through share classes that plaintiffs alleged were more expensive than otherwise identical lower-cost share classes. Mowry invested in two of the challenged funds. Plaintiffs also alleged that the plan paid between $84 and $211 per participant in annual recordkeeping expenses from 2017 through 2021, while comparable plans allegedly paid less. The court had previously dismissed Humphries’s initial complaint without prejudice and allowed amendment.

Standing for the Share-Class Claim

The defendants argued that the plaintiffs lacked standing to challenge five funds in which neither plaintiff personally invested. The court treated that argument as a challenge to federal subject-matter jurisdiction because standing is a jurisdictional requirement.

The court held that the plaintiffs had adequately pleaded class standing for all seven funds. Mowry alleged an actual injury from investing in two challenged funds. The court also found that the claims concerning the other five funds involved the same alleged failure: using an inadequate process to monitor share classes and select lower-cost alternatives. Because the claims involved similar inquiries and proof about the defendants’ process, the court concluded that the plaintiffs had a sufficient stake to assert the claims on behalf of the proposed class at this stage.

Share-Class Fiduciary-Duty Claim

The court held that the plaintiffs adequately stated a claim that the defendants breached ERISA’s duty of prudence. The complaint identified specific funds, the allegedly selected share classes, the lower-cost alternatives, and the differences in expense ratios. The court found that these allegations supported a reasonable inference that an adequate investigation—such as reviewing the funds’ prospectuses—would have revealed the lower-cost alternatives.

The defendants argued that their later removal of some funds and conversion of one fund to a lower-cost share class showed that they had monitored the investments. They also argued that higher-cost share classes might have provided revenue-sharing benefits that reduced the plan’s overall costs. The court held that these competing explanations could not be resolved on a motion to dismiss. The court therefore denied the motion to dismiss the share-class claim.

Excessive-Fees Claim

The court dismissed the excessive recordkeeping-fees claim with prejudice. It explained that plaintiffs challenging fees must provide meaningful comparisons addressing the services provided, the quality of those services, the fees charged by comparable plans, and the plan’s bargaining power.

The court found that the amended complaint still relied mainly on differences in per-participant fees and did not adequately describe the number, nature, or quality of the services provided by the Mitsubishi Chemical plan or its comparator plans. The plaintiffs’ allegation that recordkeeping services were standardized, fungible, and offered at a fixed price did not eliminate the need for service-specific comparisons. The court held that recent Second Circuit decisions required more than allegations that other plans paid less.

Claims Against Mitsubishi Chemical and the Board

The court held that the allegations plausibly identified Mitsubishi Chemical as an ERISA fiduciary. The plan’s annual reports identified Mitsubishi Chemical as the plan administrator, and the complaint alleged that Mitsubishi Chemical had authority over the plan’s operation, management, and administration.

The court reached a different conclusion regarding the Board of Directors. It found that the complaint did not adequately allege that individual Board members exercised discretionary authority over investment decisions, failed to monitor the Administrative Committee, or knowingly participated in another fiduciary’s breach. The court therefore dismissed the claims against the Board of Directors with prejudice.

Disposition

The court’s conclusion stated that the defendants’ motion to dismiss was granted in part and denied in part. The excessive-fees claim was dismissed with prejudice, and the claims against the Board of Directors were dismissed with prejudice. The motion was denied as to the plaintiffs’ mutual-fund share-class claim. The court directed the Clerk of Court to terminate the motion at Docket 59.