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Plaintiffs Get an Express ‘Check Out’ in Excessive Fee Suit

Litigation

A different set of plaintiffs tried a (slightly) different approach (with different attorneys) in an excessive fee suit—but got the same result.

The defendant in this instance was Trader Joe’s Company Retirement Plan, who had been sued for a variety of alleged fiduciary ills back in 2019 by former participants plaintiffs Nicolas R. Marks and Lorri Bowling. Presented with a motion to dismiss that case back in April, Judge Percy Anderson of the U.S. District Court for the Central District of California did just that—in a detailed analysis essentially finding that the plaintiffs failed to offer more than mere allegations of impropriety. He left the door open for those plaintiffs to do “better”—but, as is acknowledged in this case, they failed to do so within the allotted time,[i] and so that case has now been dismissed.

As noted above, the plaintiffs in this case made much the same arguments as in that earlier case—and Judge Anderson worked his way through them (Kong v. Trader Joe’s Co., C.D. Cal., No. 2:20-cv-05790, decision docketed 9/25/20) with the same efficiency.

One thing that is different—this time the plaintiff is represented by Capozzi Adler PC and Rosman & Germain LLP. The plaintiffs in the previous litigation were represented by Solouki & Savoy LLP, Wenzel Fenton Cabassa PA, and Michael C. McKay.

Offering Higher Cost Mutual Fund Shares 

“While Plaintiffs do include a chart in their Complaint of certain funds offered in the Plan compared to the funds’ I-class or institutional share counterparts, this is still insufficient to state a claim for breach of the fiduciary duty. While Plaintiffs have alleged that the institutional share classes were less expensive than the share classes in the Plan, they still do not allege ‘whether the investor class share offered other benefits that may have offset any additional costs.’ Further, the Complaint only alleges ‘median’ fees, rather than specific fee benchmarks they believe Defendants are required to reach.”

Defendants’ Monitoring of the Plan to Determine Availability of Lower Cost Mutual Funds

“…the Court finds Plaintiffs fail to allege any facts to support their allegation that Defendants do not adequately monitor the plan or investigate the availability of lower cost mutual funds. By Plaintiffs’ own admissions, the Plan offered a diverse array of funds. The fiduciary duty of prudence requires only that a fiduciary ‘offer participants meaningful choices about how to invest their retirement savings’ and a ‘range of investment options.’ Here, the Complaint lacks any facts to suggest Defendants failed to meet this standard. In addition, the judicially noticed documents show that the Committee made numerous changes to the Plan lineup during the proposed Class Period.”

Reasonableness of Capital Research’s Recordkeeping Fees

“…the Court finds Plaintiffs have not offered any facts to suggest that a $48 per participant recordkeeping fee is ‘unreasonable.’ Whereas in Marks, Plaintiffs assumed for purposes of the Complaint that Capital Research’s recordkeeping fee was $140 per participant, here Plaintiffs acknowledge that the recordkeeping fee is approximately $48 per participant. While Plaintiffs affirmatively state what the allegedly excessive recordkeeping fee is, Plaintiffs fail to state any facts as to why this fee is unreasonable.”

Placing Revenue Sharing Funds Into a Compensation Recapture Account

“As the Court found in Marks, Plaintiffs do not allege any facts to support the conclusory allegation that Capital Research’s repayment of money to Plan participants demonstrates an ‘admission of excessive fees’ and in turn a breach of the duty of prudence.” Defendants fail to allege any facts from which this Court could infer that the use of a recapture account was not in the interest of Plan participants.”

Defendants’ Alleged Failure to Put Recordkeeping Fees Out to Bid

“As it did in Marks, the Court finds that ‘nothing in ERISA compels periodic competitive bidding.’ Here, Plaintiffs have failed to allege any facts from which one could infer that a competitive bidding service would have benefitted the Plan. Plaintiffs have failed to allege any facts showing that the same service might have even been available on the market for less. As the Court held in Marks, ‘there are no facts alleged showing that the Plan fiduciaries failed to consider putting the fee structure out for competitive bidding, or failed to negotiate a reasonable fee structure with Capital Research.’”

Plaintiffs’ Duty of Loyalty Claim

“The Court also finds Plaintiffs do not allege any additional facts to support their duty of loyalty claim outside of those alleged to support their duty of prudence claim. The Court therefore dismisses Plaintiffs’ duty of loyalty claim because the Complaint ‘does not differentiate between breach of the duty of prudence and breach of the duty of loyalty.’”

Failure to Monitor Fiduciaries

“Because Plaintiffs fail to plead a duty of prudence or loyalty claim, their second claim for relief, which is a derivative failure to monitor claim, also fails.”

In conclusion, Judge Anderson (also) noted, “For all of the foregoing reasons, Defendants’ Motion to Dismiss is granted. The Court cannot conclude at this point that any amendment would be futile. Therefore, the Court grants Plaintiffs leave to amend. Plaintiffs’ First Amended Complaint, if any, is to be filed within 14 days of the date of this Order. The failure to file a First Amended Complaint by this date will result in the dismissal of this action.” 

What This Means

After more than a decade and a half of excessive fee litigation (and millions in settlements), it’s easy to be lulled into a sense that allegations alone are “enough” to make the case, that, for example, you need only state that an RFP wasn’t issued to establish a de facto breach, you need only state that a specific per participant dollar charge is “reasonable” to sustain a claim that a larger figure is not reasonable, or that offering mutual fund share classes other than the lowest available is inherently imprudent. 

Not in Judge Anderson’s court, anyway.


[i]The Court subsequently dismissed the case without prejudice. Plaintiffs filed this case on June 29, 2020.

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