Boyette v. Montefiore Medical Center

Background

Sheila A. Boyette and Tiffany Jiminez, former Montefiore employees and participants in the Montefiore Medical Center 403(b) Plan, brought a proposed class action against Montefiore Medical Center, its Board of Trustees, the TDA Plan Committee, Dr. Michael Stocker, and John Does 1-30. They alleged that the defendants breached their fiduciary duty of prudence under the Employment Retirement Income Security Act (ERISA).

The plaintiffs challenged three aspects of the plan’s management. First, they alleged that the plan paid excessive recordkeeping fees compared with similarly sized plans. The plan used an asset-based fee schedule, meaning that recordkeeping fees were charged as a percentage of each participant’s account balance. Second, they alleged that the plan used more expensive share classes even though less expensive versions of certain funds were available. Third, they alleged that the plan retained higher-cost, underperforming funds instead of replacing them with lower-cost, better-performing alternatives. They also asserted a related claim that the defendants failed to monitor the plan.

Standing ruling

The defendants moved to dismiss under Federal Rule of Civil Procedure 12(b)(1) for lack of subject-matter jurisdiction and under Rule 12(b)(6) for failure to state a legally sufficient claim. The court considered the standing challenge first.

The court held that the plaintiffs had not adequately alleged an injury from the recordkeeping fees because they did not state the amount of those fees that either plaintiff actually paid. Because the fees depended on each participant’s account balance, the court could not determine from the complaint whether the plaintiffs’ individual fees were unreasonable.

The court also held that the plaintiffs lacked standing to challenge the expense ratios and performance of the identified funds because neither plaintiff invested in any of those funds. In a defined-contribution plan, the court explained, a participant’s benefit depends on that participant’s own contributions and investment choices. The plaintiffs therefore had not shown that the challenged funds caused them a particularized injury.

Failure to state a claim

The court stated that the standing defects were enough to dismiss the complaint, but it also addressed the Rule 12(b)(6) arguments. To state an ERISA prudence claim, a plaintiff must allege that the defendant was a fiduciary acting in that capacity and breached the fiduciary duty. The defendants did not dispute their fiduciary status; they disputed whether the complaint plausibly alleged a breach.

For the recordkeeping-fee claim, the court held that comparing the plan’s fees with fees paid by other plans was not enough. The plaintiffs also needed to plausibly allege that the fees were excessive in relation to the specific services provided to Montefiore’s plan. The complaint did not identify the services Montefiore’s recordkeepers provided with enough specificity or show that the comparator plans received the same services.

For the lower-cost share-class claim, the court held that the existence of a cheaper share class did not by itself show that the selected share class was imprudent. The plan’s filings indicated that four of the five challenged higher-cost share classes generated revenue-sharing payments that were credited back to the plan and allocated to eligible participant accounts. The court therefore found that the plaintiffs’ allegation that the more expensive share classes provided no additional benefit was insufficient to state a plausible prudence claim.

For the claim concerning underperforming funds, the court held that poor investment results alone did not establish imprudence. The complaint did not provide facts showing that the alleged underperformance was known or should have been known to the fiduciaries at the relevant time, or otherwise identify additional facts indicating an imprudent process.

The court dismissed the failure-to-monitor claim because it was derivative of the unsuccessful prudence claims. The court also declined to consider an expert declaration submitted with the complaint as support for the recordkeeping-fee allegations. It found that the declaration was prepared for the litigation, was not the type of legal document that could be treated as part of the pleading under Rule 10(c), and in any event offered conclusory opinions without sufficient factual support. A stipulation from another case also was not considered because it was not part of this case’s pleadings and did not bind these parties.

Disposition

The defendants’ motion to dismiss was granted. The complaint was dismissed without prejudice to the plaintiffs’ ability to move to file an amended complaint. Any such motion had to be filed within 30 days of the date of the Memorandum Opinion and Order and explain how the proposed amended complaint would resolve the identified defects. If no such motion was filed, the dismissal would be with prejudice. The Clerk was directed to close ECF No. 35.