Edward Jones largely fell short in its attempt to dismiss a lawsuit accusing it of breaching its fiduciary duties by enriching itself at the expense of plan participants.
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.”
In reviewing the issues, Judge Rodney Sippel noted that in considering a motion to dismiss, “plaintiff’s factual allegations are deemed true.” He went on to note that the plaintiff Charlene McDonald had alleged that Edward Jones received asset fees and sales fees from “Preferred Product Partners” for many mutual funds it offers as investment options in the plan, and that they had breached their duties as a fiduciary because those options brought with them higher management fees for some of the mutual funds than fees charged by identical mutual funds available.
Case for Dismissal
Judge Sippel explained that the defendants had moved to dismiss the complaint on several grounds, including that they had fulfilled their duties by offering an array of investment options, although the court noted that that fact “does not insulate Defendants from McDonald’s claims.” Moreover, while the defendants “argue that the complaint fails to state a claim for a breach of fiduciary duties and for a failure to defray plan expenses,” Judge Sippel noted that “…the complaint, when read as a whole, has provided sufficient facts to plausibly state these claims.” And finally, though Sippel noted that the “defendants dispute the complaint’s factual allegations and argue that they acted within ERISA”s standards,” he concluded that “Defendants’ arguments in support of their motion to dismiss challenge the factual allegations of the complaint and are premature at this stage of the litigation.”
Judge Sippel dismissed arguments that the plaintiff lacked standing to challenge the use of funds in which she did not personally invest (since she was suing on behalf of the plan as a whole), and that the claims were time-barred.
There was one count on which Edward Jones prevailed. Having argued that Jones Financial, Edward Jones parent, should be dismissed from this action because it was not a plan fiduciary, Judge SIppel noted that “McDonald’s complaint does not allege that Jones Financial was a plan fiduciary nor does it assert any facts which would establish Jones Financial was a plan fiduciary. As a result, I will grant the motion to dismiss as to Jones Financial.”
The case is McDonald v. Edward D. Jones & Co., 2017 BL 23357, E.D. Mo., No. 4:16-cv-01346-RWS, 1/26/17.
