A federal judge has dismissed an excessive fee suit involving a $7.8 billion 401(k) plan, accepting the argument that the participant-plaintiff wasn’t even invested in the funds in question.
Mind you, as we’ve noted previously, the legal standard to survive a motion by defendants to dismiss a suit is set relatively high. Basically, there has to be a failure to state a plausible claim (not mere speculation) upon which relief can be granted, while making “all reasonable inferences” in favor of the party that is not seeking to dismiss the case.
Well, in the opinion of Judge Anthony J. Trenga (Morales v. Capital One Fin. Corp., E.D. Va., No. 1:21-cv-01454, 5/27/22), the case made by participant-plaintiff Raul Morales (represented by Capozzi Adler,[i] a firm that has been quite active in these suits of late) wasn’t enough to hold up under even that modest level of scrutiny.
He was apparently persuaded by the facts put forth by the Capital One defendants, who in their motion in support of dismissing the case, explained that while the suit focused on three domestic-equity funds[ii] available to Plan participants between 2015 and 2020, “plaintiff never invested in any of those funds, however. Instead, since he began participating in the Plan in early 2019, Plaintiff has always invested his Plan assets in a different investment option that the Complaint does not challenge.” In other words, no harm, no foul—and thus no reason to bring suit.
Capital One’s rebuttal didn’t stop there, however (though it likely could have), but went on to assert that while the suit claimed the funds in question were more expensive than the medians and averages for their investment category and underperformed their peers, the participant-plaintiff here had cited a “single study that courts routinely reject—without identifying any specific investments alleged to be prudent alternatives.” Capital One also noted that, “…the Complaint separately alleges imprudence based on the assertion that the Plan’s recordkeeping fees were more expensive—in a single year of the entire six-year putative class period—than the fees allegedly paid by seven other plans,” going on to state that “…even if a handful of other plans paid less in a single year, that does not show imprudence, i.e., that the Plan’s fees were outside the range of fees other plans pay.”
They also took issue with the comparison of the Capital One plan’s total alleged fees to only the direct fees of the other comparison plans, and that the suit focused “only on the price that different recordkeepers purportedly charged other plans, without any allegations about the services those plans received or how they compared to the services Fidelity provided to the Capital One Plan.” The motion went on to assert that that “incomplete assessment says nothing about the reasonableness of the Plan’s alleged fees, and it certainly does not allow an inference the Plan fiduciaries’ process was so flawed as to fall outside the ‘range of reasonable judgments’ that fiduciaries make.”
That said, Judge Trenga gave the plaintiff 14 days to “fix” (amend) their claims with regard to the claims of excessive recordkeeping fees.
[i] It’s not the first suit brought by Capozzi Adler tossed for a lack of standing to bring suit by the participant-plaintiff.
[ii] The Northern Small Cap Value Fund, the Fidelity Capital Appreciation Fund and the T. Rowe Price Institutional Large Cap Value Fund. As of 2020, the Plan no longer offered those investment options.
