Plaintiff Fails to Make Her Case in Excessive Fee Suit

A participant-plaintiff has had her excessive fee/imprudent investment claims dismissed—for an interesting reason.

The plaintiff in this case (Lange v. Infinity Healthcare Physicians, SC, W.D. Wis., No. 3:20-cv-00737, 7/16/21) is Amanda Lange, a physician assistant who sued her employer (Wisconsin medical provider Infinity Healthcare Inc.), more specifically the fiduciaries of the $136 million plan in which she participates. She claimed[i] that the Infinity fiduciaries breached their fiduciary duties by paying excessive recordkeeping fees to Great-West, by choosing imprudent investment options, and that they compounded those failures by failing to monitor the payment of recordkeeping fees and to adequately monitor the selection of plan investment options. The claims about imprudent investment options were, as many such suits are, predicated on the selection of (more expensive) actively managed funds—a list of which she included in her suit.

There’s just one problem—she didn’t have any of those investments in her account. 

In fact, and as Judge James D. Peterson of the U.S. District Court for the Western District of Wisconsin pointed out in his ruling, her “plan statements, which the Infinity fiduciaries submit in support of their motion, show that all of Lange’s retirement assets were invested in a fund called “Vanguard Target Retirement 2045.”

Target ‘Ed’

As it turns out, the Infinity fiduciaries relied on findings in the case of Thole v. U.S. Bank N.A.—but, as we’ve previously noted, that involved participant-plaintiffs in a defined benefit plan—and who were denied standing because they’d receive the same benefit regardless of the fiduciary defendant investment choices[ii]. Plaintiff Lange argued that difference was sufficient to distinguish the example, but Judge Peterson aligned his thinking with that of the fiduciaries here who said the precedent was that a plaintiff lacks standing if she challenges investment decisions that did not personally affect her, “a principle that would apply to both defined-benefit and defined-contribution plans,” Judge Peterson wrote.

But ultimately, plaintiff Lange (and her counsel, Walcheske & Luzi LLC) came up short, despite speculating that “fees paid under other funds could have affected the value of the Vanguard 2045 fund because the Vanguard 2045 fund is “essentially made up of other funds” (Judge Peterson cited the prospectus, which noted that it did indeed invest in other Vanguard mutual funds), “but none of these funds are included in the list of allegedly imprudent funds in Lange’s complaint, either,” he commented.

‘Spread’ Allegations

“Lange also contends that the Infinity fiduciaries’ selection of imprudent investment options ‘impacted all Plan participants, including herself.’ … But she fails to explain why she believes this to be true, and she adduces no evidence to support this conclusion, which she supports with only a general citation to a nine-page span of her amended complaint,” Peterson noted.  Indeed, he noted that the amended suit “…primarily consists of allegations about the actively managed funds in which Lange did not invest. She doesn’t allege that these funds’ management fees were spread across all plan participants in any way. The only allegation that concerns Lange specifically is her allegation that ‘Plaintiff and the Plan’s Participants incurred actual expenses and costs,’” he wrote, noting that the chart provided “…merely sums up the allegedly excessive management costs from the challenged plans—plans in which Lange did not invest. Lange has failed to adduce competent proof to support her allegations that she was harmed by these investment decisions, so she hasn’t carried her burden.”

As for the alleged imprudence of the recordkeeping charges, Plaintiff Lange once again pulls a page from other litigants and points to revenue-sharing practices. That said, and once again looking to the fund in which she is actually invested, Judge Peterson comments that, “The Vanguard 2045 prospectuses submitted by the Infinity fiduciaries state that the Vanguard 2045 fund paid no ‘12b-1 Distribution Fee’ for any of the years in question.”

Plaintiff Lange (or more likely her counsel) apparently was of the opinion that all she had to do was allege an actual injury, but Judge Peterson was having none of it. “The Infinity fiduciaries have adduced evidence that Vanguard 2045 fund participants did not pay any recordkeeping fees to Great-West. Again, Lange must provide competent proof that she did pay such fees to survive a motion to dismiss these claims,” he explained.

Having been rebuffed there, plaintiff Lange “…speculates that the other funds in which the Vanguard 2045 fund invests its assets might have paid Great-West through revenue sharing. And she further speculates that those payments to Great-West might have been incorporated into the Vanguard 2045 fund’s ‘Acquired Fund Fees and Expenses,’ which equal 0.15 percent of the fund’s assets per year,” Judge Peterson noted. “But she doesn’t offer any proof or even identify specific funds. She has failed to meet her burden in response to the Infinity fiduciaries’ factual challenge to this court’s jurisdiction, so the court must dismiss these claims, as well.”

That said, the Infinity fiduciaries were unsuccessful at convincing Judge Peterson to dismiss the claims “with prejudice[iii].” Here, Judge Peterson commented that, “Lange has already amended her complaint once, and she doesn’t seek leave to amend a second time. So the court will dismiss her claims without prejudice.”

What This Means

How the issues raised in Thole might apply to DC plans has already arisen in the case of Boley v. Universal Health Servs., Inc., recently fast-tracked to appeal in the Third Circuit. As you might imagine, the plaintiffs in that case have argued that Universal Health’s argument (that a plaintiff not invested in funds alleged to be imprudent lacked standing to sue) was “based largely on a faulty construct,” specifically the distinction between DC and DB plans. Indeed, in the majority opinion, Justice Kavanaugh pointed out that distinction, explaining that, “…participants in a defined-benefit plan are not similarly situated to the beneficiaries of a private trust or to participants in a defined-contribution plan, and they possess no equitable or property interest in the plan.” In fact, he noted that it was “of decisive importance to this case” that the plan in question was a DB plan, rather than a DC plan.

It doesn’t appear that this case will advance the cause—but it reminds us that the issue is still “out there.”