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Edward Jones Excessive Fee Dismissal Motion Mostly Dismissed (Again)

They say that “if at first you don’t succeed, try, try again” – but it didn’t help Edward Jones in an excessive fee suit brought by participants of its 401(k) plan.

The suit alleged that the Edward Jones plan had invested in at least 53 different investment options, “of which three were managed by Defendants and at least 40 more were managed by Partners or Preferred Partners of Edward Jones.” The suit also charged that the plan fiduciaries caused the plan to pay, directly or indirectly, tens of millions of dollars to the plan’s recordkeeper (Mercer HR Services, Inc.) that it alleges were “excessive and unreasonable” given the services provided, and that the fiduciaries “failed to monitor and control these costs despite lower-cost recordkeeping alternatives.”

Dismissals (Mostly) Dismissed?

On Oct. 12, 2016, the Edward Jones defendants filed their initial motion to dismiss, and early last year (Jan. 26, 2017), the court dismissed from the suit the Jones Financial Companies, L.L.L.P., because the complaint failed to allege any facts establishing it was a plan fiduciary, but denied the motion in all other respects, “finding the complaint stated viable claims.”

Then, a couple of weeks later an amended complaint was filed\ by plaintiffs Windle Pompey, Valeska Schultz and Melanie Waugh against Defendants Edward Jones, the Investment Committee, and the Investment Committee members during the relevant period.

On March 31, 2017, the Edward Jones defendants moved to dismiss all claims relating to the inclusion in the plan lineup of three investment options referred to as the Edward Jones Plan Portfolios (the Edward Jones Growth Fund, the Edward Jones Growth and Income Fund and the Edward Jones Income Fund) for failure to state a claim for breach and as time-barred under ERISA’s statute of limitations; Count II of the Complaint as to the Investment Committee for failure to allege that the Committee had any involvement in the selection or oversight of the plan’s recordkeeper; and the claims asserted by plaintiff Pompey because she was not a plan participant and thus lacked standing. To which the plaintiffs responded by amending their complaint, replacing Pompey with plaintiff Rosalind Staley; removing allegations concerning the three Edward Jones managed mutual funds; and adding the Edward Jones Profit Sharing and 401(k) Administrative Committee as defendants.

That said, the Edward Jones defendants then moved (again) to dismiss the complaint, arguing that Plaintiffs have “failed to plausibly allege a breach of fiduciary duties and failed to state a claim as to the Administrative Committee and the Investment Committee.”

Current Case

Which brings us to the current case (Schultz v. Edward Jones & Co., L.P., E.D. Mo., No. 4:16-cv-01346-JAR, defendants’ motion to dismiss denied 3/27/18), where U.S. District Judge John A. Ross began his analysis in the most recent attempt at dismissal by explaining that in ruling on a motion to dismiss, “…the Court assumes all facts alleged in the complaint are true, and liberally construes the complaint in the light most favorable to the plaintiff” – and, in language that provided a portent of his final conclusion, he noted that the Edward Jones defendants “acknowledge that their arguments in support of dismissal … are similar to the arguments previously raised by the Edward Jones entities named in the original complaint, and rejected by the Court.” However, he noted that – both because of the new parties involved on both sides of the suit, the defendants argue that it was “appropriate for the Court to consider once more their challenges to the legal sufficiency of the operative complaint.”

‘Same,’ Framed

With regard to claims regarding the offering of mutual funds of Preferred Fund Families, the Money Market Fund, certain retirement share classes of mutual funds, and actively managed funds, and allegations concerning excessive fees and Total Plan Costs, Ross said those were “the same allegations pled in the original complaint, and the arguments Defendants advance in support of dismissal are virtually identical to those raised in their original motion” – and, that while he could have made a different determination, “…absent new argument, the Court is led to the same conclusion.”

That said, Judge Ross acknowledged that the defendants claimed that “the law has continued to develop in this area since the Court’s previous dismissal of their motion to dismiss,” citing the case of Meiners v. Wells Fargo & Co., Civ. No. 16-3982 (DSD/FLN), 2017 WL 2303968 (D. Minn. May 25, 2017) in support of their current motion.

However, Ross explained that while in Meiners, the court held that the plaintiff’s breach of fiduciary duty claim, premised on allegations that the 401(k) plan invested in 12 proprietary funds with excessive fees, “merely allege[d] that [the defendant] failed to invest in the cheapest fund available,” the plaintiffs here had not only made specific allegations – that Mercer’s fees nearly tripled over the class period while the market rates for recordkeeping services declined, that the total weighted average expense ratio of the plan was high compared to market rates, that the defendants “failed to prudently monitor and control compensation to Mercer in light of the services provided,” and that the defendants’ “policy of distributing revenue sharing payments to the Plan was not adopted until 2016” – but that “several recent cases have rejected similar arguments to dismiss claims asserting ERISA fiduciary breaches against 401(k) plan fiduciaries.”

Ross also noted that the defendants “have advanced a new argument that the Complaint impermissibly groups together all Defendants, including the Administrative Committee and the Investment Committee, without asserting that each had a particular role in the misconduct alleged.”

All that said, “upon review and consideration,” Ross found that the plaintiffs had “sufficiently detailed and differentiated the claims asserted against the Administrative Committee and the Investment Committee,” that the amended complaint is “far from a ‘kitchen sink’ or ‘shotgun’ pleading in which a plaintiff brings every conceivable claim against every conceivable defendant, resulting in a cause of action so general that it fails to put the various defendants on notice of the allegations against them,” denied the defendants’ motion to dismiss the complaint.

In sum, Judge Ross determined that the plaintiffs’ allegations were sufficient to raise an inference of disloyalty and imprudence, and that the claims against the defendants were sufficiently detailed (“it is clear that Defendants are on notice of the claims against them and able to discern their respective roles in the alleged misconduct such that the case can move forward on the amended complaint”).