PARTIDA v. Schenker Inc.

Background

Diego Partida, a California resident and former Schenker, Inc. employee, participated in Schenker’s defined-contribution 401(k) Savings and Investment Plan. Schenker sponsored and administered the Plan, and the Schenker, Inc. Retirement Plans Committee oversaw the Plan’s investment options and expenses.

Partida filed a putative class action under the Employee Retirement Income Security Act of 1974, or ERISA. He alleged that Schenker and the Committee failed to use a prudent process to select and monitor investment funds, offered funds with higher expense ratios, and retained funds that underperformed available benchmarks. He sought to recover losses for current and former employees, participants, and beneficiaries of the Plan.

Motion to Transfer Venue

Defendants asked the court to transfer the case to the Eastern District of Virginia under 28 U.S.C. § 1404(a). Partida did not dispute that the case could have been brought there, so the court focused on convenience and fairness.

The court found that Partida’s choice of California weighed against transfer, although it received less weight because he brought a putative nationwide class action and the Plan’s administration occurred at Schenker’s headquarters in Virginia. Neither forum was more familiar with ERISA, a federal statute applied uniformly across the country. The court also found that access to evidence did not strongly favor either forum.

Defendants argued that witnesses and records were mainly in Virginia or elsewhere on the East Coast. The court gave those arguments less weight because the potential witnesses were Schenker employees, and Defendants had not sufficiently described the witnesses’ testimony or relevance. The court found that lower litigation costs and Virginia’s local interest weighed slightly in favor of transfer, but that the remaining factors were neutral or did not weigh heavily. The court therefore denied the motion to transfer venue.

Standing

Defendants argued that Partida lacked Article III standing to challenge investment funds in which he had not invested. The court rejected that argument. It explained that a participant in a defined-contribution plan can establish standing by alleging harm to the participant’s own account, including harm from a plan-wide decision-making process.

Partida alleged that Defendants’ conduct financially harmed his account and that he invested in one of the Plan’s funds. The court also noted that Defendants did not challenge his individual standing to pursue several prudence theories, including the selection of the Janus fund to replace the Oakmark fund, the use of higher-cost share classes, and excessive investment-adviser fees affecting all participants. The court stated that questions about whether Partida could represent people with different interests concerned class-representation requirements, such as typicality and adequacy, rather than standing at this stage.

Failure to State a Claim

The court applied Federal Rule of Civil Procedure 12(b)(6), which allows dismissal when a complaint does not allege enough facts to state a legally plausible claim. The court considered four causes of action.

Claim One: Breach of the Duty of Prudence

ERISA requires fiduciaries to act with the care, skill, prudence, and diligence that a prudent person would use in similar circumstances. The court explained that this duty concerns the fiduciary’s process for investigating and selecting investments, as well as monitoring them—not merely the investments’ results.

The court found that Partida primarily alleged poor fund performance, the availability of lower-cost alternatives, and comparisons to passive market indexes. In the court’s view, Partida did not allege facts showing that Defendants used a flawed process, that the selected alternatives had comparable aims and risks, or that the fees were excessive in relation to the specific services provided. The court also found that Partida did not identify the alleged misrepresentations about Plan options and expenses or explain how he relied on them to his detriment. The court dismissed the prudence claim with leave to amend.

Claim Two: Breach of the Duty of Loyalty

ERISA’s duty of loyalty requires fiduciaries to act solely for participants’ and beneficiaries’ interests. The court found that Partida’s allegations that the fiduciaries acted in their own interests and selected unnecessarily expensive funds were conclusory. He did not allege facts showing that the fiduciaries intended to benefit themselves or a third party at the Plan participants’ expense. The court also found that he did not adequately distinguish this claim from his prudence claim. The court dismissed this claim as part of its dismissal of the first amended complaint with leave to amend.

Claim Three: Failure to Monitor

The court stated that a failure-to-monitor claim depends on an adequately pleaded underlying breach of fiduciary duty. Because the underlying fiduciary-duty claims failed, the court dismissed the failure-to-monitor claim with leave to amend.

Claim Four: Breach of Fiduciary Duty by Omission

Partida alleged that Defendants failed to take legal action to correct unidentified prohibited transactions and engaged in prohibited transactions. The court found these allegations conclusory and insufficient to state a claim. It dismissed the breach-of-fiduciary-duty-by-omission claim with leave to amend.

Disposition

Judge Araceli Martinez-Olguin denied the motion to transfer venue and granted the motion to dismiss. The court dismissed the first amended complaint with leave to amend. Any amended complaint had to be filed by April 30, 2024, and no additional parties or claims could be added without the court’s permission or Defendants’ stipulation.