Fiduciary defendants are pressing for a reconsideration of their motion to dismiss an excessive fee suit, citing new precedent and its higher threshold to bring suit.
The Suit
Here participant-plaintiff Glick had argued (in August 2020) that ThedaCare, Inc. and its Board of Directors violated the duty of prudence under ERISA with respect to the ThedaCare Retirement and 403(b) Savings Plan because he alleged that:
(1) the Plan’s recordkeeping fees were “excessive;”
(2) the Plan includes investment share classes that did not result in the lowest “Net Investment Expense” to participants;
(3) the Plan’s actively managed investment and stable value investment options charged excessive fees compared to available alternatives; and
(4) the Plan’s “Managed Account Services”—Managed Advice and PortfolioXpress—were too expensive.
The History
Subsequently, ThedaCare moved to dismiss each of these claims—but on Aug. 25, 2022, the Court issued a Decision and Order denying in part ThedaCare’s motion to dismiss, largely based on the U.S. Supreme Court’s decision in Hughes v. Northwestern University.[i]
But then—just four days later, the Seventh Circuit issued its decision in Oshkosh, which the defendants here characterized as “a precedential opinion that affirmed this Court’s 12(b)(6) dismissal with prejudice of virtually identical[ii] ERISA fiduciary-breach claims in a lawsuit filed in this Court by the same counsel[iii] representing Mr. Glick.”
The Motion to Reconsider
In their motion for partial reconsideration (Glick v. ThedaCare, Inc., E.D. Wis., No. 1:20-cv-01236, motion for partial reconsideration 9/21/22) they argued that in doing so “the Seventh Circuit clarified Hughes’ limited reach,” going on to comment that “while Hughes rejected a narrow portion of the Seventh Circuit’s prior analysis—i.e., the “assumption that the availability of a mix of high-cost and low-cost investment options in a plan insulated fiduciaries from liability”—it did not create “a radically different approach” to evaluating the plausibility of fiduciary-breach claims under ERISA.” Rather, they saw the bulk of the Seventh Circuit’s reasoning from Divane v. Northwestern University as being left “intact” (as well as earlier Seventh Circuit decisions in Hecker v. Deere & Co. and Loomis v. Exelon Corp.—all decided in favor of fiduciary defendants).
“Oshkosh controls here,” they state, “and ThedaCare respectfully moves this Court to reconsider its Order due to this newly established precedent. Indeed, this is precisely the type of intervening change in authority that a motion for reconsideration is designed to address.” The defendants go on to state that “applying the Seventh Circuit’s decision in Oshkosh, each of Mr. Glick’s remaining claims fails as a matter of law and should be dismissed.”
They then turned to the recordkeeping fee claim and commented that “Oshkosh clarified three primary points.” One, that court reaffirmed its “reject[ion]” of “the notion that a failure to regularly solicit quotes or competitive bids from service providers breaches the duty of prudence.” Second, it confirmed that a proffered comparison of a plan’s recordkeeping fees with those allegedly paid by a “potentially random assortment” of other plans “from around the country” is not sufficient to demonstrate a plausible claim. And finally, they note that Oshkosh “made clear that to state a plausible imprudence claim based on allegedly excessive fees, a plaintiff must allege that the “fees were excessive relative to the services rendered”—citing Smith v. CommonSpirit Health.
“Applying these principles, the Seventh Circuit affirmed this Court’s well-reasoned analysis holding that the plaintiff in Oshkosh failed to assert a plausible fiduciary breach based on allegedly excessive recordkeeping fees. The same result should follow here, as the Complaint’s recordkeeping-fee allegations are virtually identical to those from the Oshkosh complaint.”
They also said that the court “should dismiss Mr. Glick’s claim relating to the Plan’s actively managed stable value product, which is just another iteration of the contention that ThedaCare could have selected a less-expensive alternative. The same reasoning applies to Mr. Glick’s claim premised on the Plan’s managed account services. Absent any basis for comparison regarding the investment fees and managed account service fees, the claims relying on those allegations should be dismissed under Oshkosh.
Finally, Mr. Glick’s failure to monitor claims, which are wholly derivative of his breach of prudence claims, cannot survive Oshkosh. For these reasons, and those described below, ThedaCare respectfully asks this Court to reconsider its Order based on Oshkosh and dismiss the Amended Complaint with prejudice.”
Stay tuned.
[i] At that same time Judge William C. Griesbach issued three opinions allowing fee challenges to largely advance against Prevea Clinic Inc., and Faith Technologies Inc., along with a fourth opinion dismissing similar claims against Plexus Corp. on standing grounds—in addition to ThedaCare. He had put about a half dozen cases on hold pending the Hughes v. Northwestern decision.
[ii] Specifically, they note that Plaintiff Glick alleged that the Court should “infer a flawed fiduciary process with respect to recordkeeping because ThedaCare purportedly (1) did not engage in a competitive bidding process for recordkeeping services and (2) the Plan’s recordkeeping fees exceeded the average fees of nineteen “comparable” plans.”
[iii] Walcheske & Luzi LLC represents the plan participants.
