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Court Punts Plaintiffs’ Suit for Lack of “Plausible” Points – With Prejudice


Another federal court has refused to accept the assumption that all recordkeeping services are “fungible” – and tossed an excessive fee suit – again, and this time with prejudice.

The plaintiffs here – Keith K. Kruchten, Angel D. Muratalla and William Begani – sued on behalf of the $2.1. billion Ricoh USA, Inc. Retirement Savings Plan a little more than a year ago. They’re represented by Capozzi Adler PC and rely on a foundation of allegations that are basically a “rinse and repeat” from other suits. In fact, that first suit was a mere 27 pages long, but in that they nonetheless managed to allege that the Ricoh defendants as fiduciaries “breached the duties they owed to the Plan, to Plaintiffs, and to the other participants of the Plan by, inter alia,

(1) failing to objectively and adequately review the Plan’s investment portfolio with due care to ensure that each investment option was prudent, in terms of cost; and

(2) failing to control the Plan’s recordkeeping administration costs” – and that those shortcomings not only constituted a breach of the fiduciary duty, but “…were contrary to actions of a reasonable fiduciary and cost the Plan and its participants millions of dollars….” 

More specifically, the suit claimed that the $2.1 billion plan’s annual recordkeeping fees were as high as $103/participant – and maintained that it was imprudent to pay fees this high since recordkeeping services were, basically, an interchangeable commodity.

Case History

That said, last November Judge Juan R. Sánchez made equally short order of the claims, noting that (even) “taking all facts in the Amended Complaint as true and deciding all inferences in their favor, Plaintiffs fail to plausibly allege the Committee breached its ERISA-imposed fiduciary duty by charging unreasonable recordkeeping fees. Plaintiffs also do not state a failure to monitor claim against Ricoh and the Board, since this second claim is derivative of the first. Accordingly, Defendants' motion to dismiss will be granted.” In coming to that conclusion, he noted that the suit “fails to include any information about the specific services used by Defendants' Plan or the benchmark plans.” 

He continued to note that the plaintiffs here “allege nothing about the services chosen by the benchmark plans, the plans included in the NEPC survey, or those under review in their cited case law,” while “fiduciaries may select diverse services from bundled offerings or elect additional ala carte services, prioritizing various options differently depending on their plans' unique needs and reasonably choosing to pay more for higher quality services. Without this ‘apples to apples’ information, this Court cannot assess whether the Plan even pays for the same services as its comparators, much less what ‘similarly situated fiduciaries’ would do.” But then gave them an opportunity to remedy the shortcomings in their suit.

The plaintiffs did come back with an amended complaint, adding allegations “averring that all large plans require the same type of services, of which all recordkeepers are able to provide the same quality.” Moreover, they argued that, “because recordkeeping services are fungible, they are only distinguished by price, and higher fees are per se unreasonable.” To which the fiduciary defendants again moved to dismiss these claims.

Current Consideration

Which brings us to the current consideration (Kruchten v. Ricoh USA Inc., E.D. Pa., No. 2:22-cv-00678, 4/20/23) – where Judge Sanchez noted (again) that “plaintiffs again fail to plausibly allege Defendants acted imprudently by charging Plan participants unreasonable recordkeeping fees.”

After restating what ERISA’s standards of prudence are, and demand, Judge Sanchez repeated his assessment (citing the ruling in Mator v. Wesco), commenting that the plaintiffs’ assertion that all recordkeepers provide the same quality of services was “conclusory,” and “insufficient to render comparison meaningful.  Indeed, the assertion defies common sense.” Judge Sanchez noted that the Labor Department “expressly recommends considering more than just price – including "the quality of their services and customer satisfaction" – when selecting recordkeepers,” and that “even the NEPC survey on which Plaintiffs rely notes that recordkeeping fees are in part a function of "the package of services the plan sponsor has contracted for." 

He continued by explaining (referencing the Supreme Court’s ruling in Hughes v. Northwestern University) that “within the ‘careful, context-sensitive scrutiny’ the Supreme Court mandates in evaluating ERISA claims, vaguely alleging recordkeeping services are fungible does not plausibly allege a breach.” 

“Without more,” he continued, “the SAC (Second Amended Complaint) fails to state a claim upon which relief may be granted, and Defendants' Motion to Dismiss will be granted.”

As for providing (another) opportunity to amend their suit, Judge Sanchez commented that “Plaintiffs have been given three chances to properly plead a claim of breach of fiduciary duty. As a matter of law, a bare ‘price tag to price tag comparison’ is insufficient to plausibly plead this claim. Plaintiffs have not suggested they will be able to add additional allegations of imprudence beyond high recordkeeping fees, meaning an additional complaint would not be legally sufficient. Because a Third Amended Complaint ‘would not withstand a motion to dismiss,’ leave to amend will be denied.”

And dismissed the suit – this time with prejudice.

What This Means

Even in the wake of the Supreme Court’s decision in Hughes v. Northwestern University (which was expected to resolve the issue of which party bore the burden of proof in such litigation, but arguably didn’t), there is an emerging split in various district courts as to what exactly constitutes a “plausible” inference of a fiduciary breach.

There have recently been a number of cases inspired by decisions in the Sixth Circuit (starting with Yosaun Smith v. CommonSpirit Health, et al.) that have demanded more than the ubiquitous tables with ostensibly comparable plans and fees to “plausibly” establish a fiduciary breach. You can add this one – in the Third Circuit – to that list.