Fritton v. Taylor Corp.

Background

The plaintiffs—Jason C. Fritton, Marea Gibson, Brian W. Motzenbeeker, Dawn Duff, and Christopher Shearman, individually and on behalf of others similarly situated—alleged that Taylor Corporation, its Board of Directors, its Fiduciary Investment Committee, and individual directors and committee members violated the Employee Retirement Income Security Act (ERISA) in managing Taylor’s defined-contribution 401(k) and profit-sharing plan.

The amended complaint asserted that the plan fiduciaries breached their duty of prudence by allowing unreasonably high recordkeeping fees, excessive investment-management fees, and unnecessarily expensive investment share classes; by retaining an underperforming fund; and by failing to monitor the plan committee. The plaintiffs also alleged a breach of the duty of loyalty.

The defendants moved to dismiss under Federal Rule of Civil Procedure 12(b)(1), which concerns subject-matter jurisdiction, and Rule 12(b)(6), which concerns whether a complaint states a legally sufficient claim. This was the second round of dismissal motions.

Court’s analysis

Recordkeeping expenses. The court held that the plaintiffs still had not plausibly alleged that the plan’s recordkeeping fees were excessive. The plaintiffs did not provide a sufficiently comparable, “like-for-like” benchmark. Allegations about the recordkeeping market, plan bargaining power, possible requests for proposals, market competition, and Department of Labor disclosure rules did not establish that the fees were too high. The court also concluded that the plaintiffs had abandoned or waived reliance on allegations comparing the plan with another Fidelity plan. The 2014 and 2019 NEPC reports likewise did not explain how their per-participant fees were calculated and therefore did not supply a meaningful benchmark.

Investment-management fees. The plaintiffs alleged that the plan could have used lower-cost collective investment trusts—investment vehicles with regulatory features different from mutual funds—instead of T. Rowe Price target-date mutual funds. They also compared the expense ratios of 24 plan funds with median figures from an Investment Company Institute report. The court found both comparisons insufficient. The amended complaint did not plausibly explain why the collective investment trusts were meaningful benchmarks for the mutual funds, and the ICI medians did not distinguish between actively and passively managed funds. The court also noted that the ICI report itself said it was not intended to benchmark the costs of specific plans.

Expensive share classes. This theory survived. The plaintiffs alleged that the defendants selected more expensive individual share classes even though lower-cost institutional share classes were available, that the classes differed only in cost, and that the plan could qualify for the lower-cost classes. The defendants argued that revenue sharing provided an obvious lawful explanation for the higher-cost classes. The court declined to resolve that argument at the pleading stage because doing so would require deciding whether revenue sharing occurred in each challenged fund and whether it benefited the plan, as well as rejecting the plaintiffs’ allegations about the use of revenue sharing.

Underperforming fund. The court dismissed the claim concerning the Victory Integrity Small Cap Value Fund Class Y. The plaintiffs relied partly on a Morningstar index that was not created until December 21, 2020, even though the alleged fiduciary period began in 2016. The court also found that the plaintiffs did not explain why the other lower-cost funds they identified were meaningful comparators. The plaintiffs did not respond to the defendants’ argument that the alleged performance differences were too small to support an inference of imprudence.

Duty of loyalty. The court found this claim implausible. The amended complaint referred to the duty of loyalty in one paragraph that merely stated the law and another paragraph that asserted a legal conclusion without explaining what any defendant did to breach that duty.

Failure to monitor. The court denied dismissal of the derivative failure-to-monitor claim against Taylor Corporation and its Board. The plaintiffs alleged that Taylor and the Board had authority to appoint and remove the committee fiduciaries, appointed committee members, had no system for monitoring or evaluating the committee, failed to monitor the committee’s performance and investment-review processes, and failed to remove the committee as a fiduciary.

Standing. The defendants’ jurisdictional challenge to the underperforming-fund theory depended on dismissal of all the other theories. Because the expensive-share-class theory survived, the court rejected that jurisdictional challenge. The order nevertheless granted the motion without prejudice as to the underperforming-fund theory.

Order

The court ordered that the defendants’ motion to dismiss was GRANTED IN PART and DENIED IN PART. It was GRANTED WITHOUT PREJUDICE as to the excessive-recordkeeping-expenses theory, excessive-management-fees theory, underperforming-fund theory, and duty-of-loyalty claim. It was DENIED in all other respects, including as to the expensive-share-class theory and the failure-to-monitor claim. The order was signed by Judge Eric C. Tostrud on August 21, 2023.