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 unnamed defendants. She alleged that the defendants breached their fiduciary duties of prudence and loyalty and failed to monitor other fiduciaries.

The claims concerned the defendants’ selection of USI Consulting Group (USICG), USI’s wholly owned subsidiary, to provide retirement-plan services. Cunningham alleged that USICG charged excessive direct and indirect fees for administrative and recordkeeping services, reducing participants’ account balances and investment returns. She also alleged that the defendants failed to investigate whether other providers could offer similar services at lower prices.

Rule 12(b)(6) standard

The defendants moved to dismiss under Federal Rule of Civil Procedure 12(b)(6), which tests whether a complaint alleges enough facts to state a plausible claim for relief. The court accepted the complaint’s factual allegations as true and drew reasonable inferences in Cunningham’s favor, but it did not accept conclusory statements without supporting facts.

Duty of prudence

The court held that Cunningham adequately addressed one deficiency identified in the court’s earlier ruling: her amended complaint explained how she calculated direct and indirect fees. She used Form 5500 filings, investment-fund prospectuses, revenue-sharing rates, and other public sources. The court found her explanation sufficient at the pleading stage and rejected the defendants’ argument that she had to provide additional evidence or every underlying source before discovery.

The court nevertheless held that Cunningham had not adequately alleged that USICG’s fees were excessive compared with fees charged by providers offering similar services. The complaint compared the Plan with other similarly sized plans and used service codes from Form 5500 filings. But Cunningham also alleged that service codes were entered at providers’ discretion and were not reliable indicators of the services actually provided. The court concluded that she had not reliably identified the full group of services provided by USICG, so she could not plausibly show that comparable providers offered the same group of services at a lower price.

The court also found that Cunningham’s comparisons involving another USICG client and an industry survey did not cure the problem. The complaint did not adequately describe the services provided to the other client, and the survey did not address the actual services provided by the plans it studied. The court therefore dismissed the duty-of-prudence claim for failure to state a claim.

Duty of loyalty

The court dismissed the duty-of-loyalty claim without prejudice. It found that the allegations largely repeated the excessive-fee allegations supporting the duty-of-prudence claim and therefore did not independently show that the defendants acted to benefit themselves or someone else. The court also found that Cunningham’s allegation that the Plan subsidized lower fees for another USICG client was based on an unreliable comparison and speculation. Because the court dismissed the loyalty claim on those grounds, it did not decide whether the claim was time-barred.

Failure to monitor

The court dismissed the failure-to-monitor claim because such a claim requires an underlying breach of fiduciary duty. Since Cunningham had not plausibly alleged a breach of the duties of prudence or loyalty, the monitoring claim could not proceed. The court found that her additional monitoring allegations did not change that conclusion.

Disposition

Judge Nelson S. Roman granted the defendants’ motion to dismiss and dismissed Cunningham’s amended complaint without prejudice. The court granted her leave to file a second amended complaint by February 6, 2024. The defendants were directed to answer or otherwise respond by March 7, 2024. The court stated that claims dismissed without prejudice could later be treated as dismissed with prejudice if Cunningham failed to file a second amended complaint on time and could not show good cause for the failure.