Cunningham v. USI Insurance Services, LLC

Background

Lauren Cunningham, a participating employee in the USI 401(k) Plan, filed a proposed class action under the Employee Retirement Income Security Act (ERISA). She sued USI Insurance Services, LLC; its Board of Directors; the USI 401(k) Plan Committee; and unidentified defendants. She alleged that these defendants breached fiduciary duties of prudence and loyalty and failed to monitor other fiduciaries.

The allegations concerned USI Consulting Group (USICG), a USI subsidiary selected to provide recordkeeping and other retirement-plan services. Cunningham alleged that USICG charged excessive fees directly from participants’ accounts and indirectly through investment options involving revenue sharing. She alleged that the Plan paid nearly three times what a prudent fiduciary would have paid and that the resulting lower returns reduced participants’ retirement savings.

Rule 12(b)(6) standard

The defendants moved to dismiss under Federal Rule of Civil Procedure 12(b)(6), which tests whether a complaint states a legally sufficient claim. The court had to accept the complaint’s factual allegations as true and draw reasonable inferences in Cunningham’s favor, but the complaint still had to contain enough facts to make the claims plausible rather than speculative.

Duty of prudence

The court dismissed the claim that the defendants breached ERISA’s duty of prudence. That duty requires fiduciaries to act with the care, skill, prudence, and diligence that a prudent person would use in similar circumstances. For an excessive-fee claim, the court held that Cunningham had to allege facts allowing a comparison between the fees charged and the specific services provided to the Plan.

Cunningham relied on a table comparing the Plan’s recordkeeping and administrative costs with costs reported by ten other retirement plans. The court found that the comparisons were inadequate because the other plans provided different or more limited services. In particular, none of the ten plans offered the pension consulting or valuation services that USICG provided to Plan participants. The court stated that Cunningham needed to identify plans providing the same overall set of services, or plans that collectively covered the services provided to the Plan.

The court also found that the complaint did not explain how Cunningham calculated the Plan’s alleged per-participant fees. The complaint gave some figures for direct deductions and compensation received by USICG, but it did not provide figures, estimates, or formulas showing how the alleged indirect fees were calculated. It also did not explain how the comparable plans’ figures were calculated. The court therefore dismissed the prudence claim without prejudice.

Duty of loyalty

The court dismissed the duty-of-loyalty claim without prejudice. Cunningham alleged that the defendants acted disloyally by using USICG, their own subsidiary, and allowing it to charge excessive fees for USI’s benefit. The court concluded, however, that the loyalty allegations closely mirrored the prudence allegations and essentially repackaged the alleged excessive fees as disloyal conduct. Because the loyalty claim depended on the same insufficient allegations, it failed to state a claim.

Failure to monitor

The court also dismissed the claim that the defendants failed to monitor other fiduciaries. Cunningham alleged that the defendants failed to evaluate the people responsible for the Plan’s fees, investigate lower-cost options, and remove officials whose performance was inadequate. The court treated this as a derivative claim, meaning it required a viable underlying fiduciary-duty violation. Because Cunningham had not adequately pleaded a prudence or loyalty violation, the monitoring claim also failed.

Disposition

Judge Nelson S. Roman granted the defendants’ motion to dismiss and dismissed the complaint without prejudice. The court granted Cunningham leave to file an amended complaint by May 20, 2022. The defendants were directed to answer or otherwise respond by June 20, 2022. The order stated that if Cunningham did not timely amend and could not show good cause, claims dismissed without prejudice could be deemed dismissed with prejudice.