Nagy v. CEP America, LLC

Background

This putative class action arises under the Employee Retirement Income Security Act (ERISA). Daniel E. Nagy and Maria Romero are participants in Vituity’s 401(k) Profit Sharing Plan. CEP America, LLC, doing business as Vituity, was the plan administrator, and the MedAmerica Retirement & Benefits Committee and its members handled some delegated responsibilities. Schwab Retirement Plan Services and its affiliates served as the plan’s recordkeeper.

The complaint asserted claims involving two general subjects. First, the plaintiffs alleged that the plan paid Schwab excessive recordkeeping fees and that defendants selected an unreasonably low-yield Schwab Savings Account as the plan’s capital-preservation option. Second, they alleged that Vituity charged excessive administrative fees. The plaintiffs also alleged that the Savings Account and the payments to Vituity were prohibited transactions under ERISA. The opinion states that the plaintiffs clarified at oral argument that they were not pursuing a separate breach-of-loyalty claim.

Standing

The defendants argued under Federal Rule of Civil Procedure 12(b)(1) that Nagy lacked Article III standing because his separation agreement released ERISA claims against Vituity. The court rejected that argument. It relied on Ninth Circuit precedent holding that an individual release does not release representative claims brought under ERISA § 502(a)(2) on behalf of a plan. The court concluded that Nagy retained the right to recover, like other plan participants, if a representative claim brought on behalf of the plan succeeded. The motion to dismiss Nagy for lack of standing was denied.

Breach-of-prudence claims

The court applied Rule 12(b)(6), which tests whether a complaint adequately states a legally recognizable claim supported by sufficient factual allegations.

For the claim concerning Schwab’s recordkeeping fees, the court found the allegations sufficient to support a plausible inference of imprudence. The plaintiffs alleged that the plan paid Schwab approximately $250 to $450 per participant each year for standard recordkeeping services, while comparable plans paid substantially less. The motion to dismiss Count V was denied.

For the claim concerning fees paid to Vituity, the court found the allegations insufficient. The plaintiffs did not adequately identify the administrative services Vituity provided, provide a meaningful comparison point, or otherwise supply a non-speculative basis for concluding that Vituity’s fees were excessive. Count III was dismissed for failure to state a claim, with leave to amend.

The court also dismissed Count I, concerning the plan’s Savings Account. The court explained that the prudence inquiry focuses on the fiduciary’s decision-making process rather than merely on investment results. The plaintiffs alleged that other options offered higher returns, but they did not plead facts showing that the defendants’ selection of the FDIC-insured Savings Account was imprudent, that the protections associated with the alternatives were comparable, or that Schwab improperly influenced the decision. The alleged theory that the Savings Account was selected to benefit Schwab and subsidize another plan was found speculative. Count I was dismissed for failure to state a claim, with leave to amend.

Prohibited-transaction claims

The court denied the motion to dismiss Count II. The plaintiffs alleged that putting plan or participant money into the Savings Account constituted lending money or extending credit to Schwab, a party in interest, in violation of ERISA § 406(a)(1)(B). Although the defendants argued that this interpretation was too broad, the court found that they had not provided authority supporting their restrictive interpretation and concluded that the claim was adequately pleaded at this stage.

The court also denied the motion to dismiss Count IV. That count concerned payments the plan made to Vituity for administrative services and alleged prohibited transactions under ERISA §§ 406(a)(1)(D) and 406(b). The defendants relied on statutory and regulatory exceptions for reasonable compensation and service-related reimbursement. The court treated those exceptions as potential affirmative defenses and concluded that considering them was inappropriate on a motion to dismiss because the defenses were not established on the face of the complaint. The court therefore found that the plaintiffs adequately stated Count IV.

Disposition

The motion to dismiss Nagy under Rule 12(b)(1) for lack of standing was denied. The Rule 12(b)(6) motion was granted as to Count I, concerning the Savings Account, and Count III, concerning payments to Vituity; both claims were dismissed with leave to amend. The motion was otherwise denied. The plaintiffs were directed to file any amended complaint within 21 days of the order.