In Baumeister v. Exelon, No. 21-cv-6505, 2022 U.S. Dist. LEXIS 176711 (N.D. Ill. Sep. 22, 2022) and Coyer v. Univar Sols. USA Inc., No. 22-cv-362, 2022 U.S. Dist. LEXIS 175972 (N.D. Ill. Sep. 28, 2022), two Illinois district courts became the first courts in the Seventh Circuit to rule on motions to dismiss ERISA fee and investment claims following the Seventh Circuit’s ruling in Albert v. Oshkosh, which affirmed dismissal of similar ERISA claims (we discussed the Albert decision here). In Albert, the court upheld the full dismissal of ERISA fee and investment claims in large part because plaintiffs failed to plead factual context showing the validity of the comparisons they drew between the plan’s expenses and other plans’ expenses. Based on this ruling, in Exelon, the district court dismissed all of plaintiffs’ claims of excessive recordkeeping and investment management fees, finding that plaintiffs failed to provide the factual context necessary to meet the plausibility standards required to survive a motion to dismiss. In Univar, the district court dismissed plaintiffs’ claims pertaining to the performance and fees of particular investment options but allowed plaintiffs’ excessive recordkeeping fee claims to survive.
In a familiar slate of allegations, plaintiffs in both cases claimed that plan fiduciaries breached their fiduciary duties under ERISA by permitting their respective plans to pay excessive recordkeeping fees. The Exelon complaint also included claims pertaining to investment advisor fees and investment management fees. The Univar complaint also included claims pertaining to investment option performance and alleged nondisclosures.
The Exelon Court’s Decision
In a short opinion, largely relying on the Seventh Circuit’s decision in Albert, the district court dismissed the complaint in its entirety while granting leave to replead. The court rejected plaintiffs’ efforts to support their claims with charts comparing the recordkeeping and investment management fees of the plan to fees of other allegedly comparable plans. With respect to the recordkeeping fees, the court found the charts insufficient because plaintiffs failed to plead facts showing that the selected comparator fees were for recordkeeping services of a similar nature or quality as those offered by the plan’s recordkeeper. With respect to the investment management fees, the court found the charts insufficient because plaintiffs’ conclusory allegations failed to provide sufficient information to establish that the allegedly comparable funds were appropriate benchmarks. The court also dismissed the claim relating to the investment advisor fees because it pled no facts showing the services offered by comparator plans were comparable to those offered by the plan’s selected service provider.
The Univar Court’s Decision
The district court in Univar also relied heavily on Albert but came to a different conclusion regarding the recordkeeping fee claims asserted. The court held that plaintiffs did not need to plead that the comparator plans received the same services in the same years in order to establish an inference of imprudence. Rather, it was sufficient that the complaint alleged that the services received were at least the same services that other plans received for lower fees. The court credited plaintiffs’ assertion that the primary drivers of recordkeeping costs in large plans are the number of accounts and whether fiduciaries solicited competitive bids—not the marginal cost of recordkeeping for each participant. Therefore, the court found that plaintiffs provided the comparative context required by Albert.
The court dismissed, however, plaintiffs’ claims that certain actively managed investment options offered were imprudent, holding that a fund’s underperformance does not necessarily imply imprudence. Further, the court found that plaintiffs relied on an improper comparison between index funds and actively managed funds. While plaintiffs attempted to leverage defendants’ switching out of challenged investment options as an admission that it was imprudent to have held these options, the court concluded that this fact cut equally against imprudence because it showed that defendants assessed their investment options and made appropriate changes.
Finally, both the Exelon and Univar courts concluded that plaintiffs failed to state a claim for breach of the duty of loyalty because they pleaded no facts showing a conflict of interest or any other disloyal behavior. The courts also agreed that duty to monitor claims are derivative of other fiduciary breach claims; accordingly, the Exelon court dismissed all duty to monitor claims while the Univar court dismissed duty to monitor claims that were coextensive with the other claims it dismissed.
The rulings in Exelon and Univar provide a measure of hope that Albert has started a trend in favor of dismissing claims that may have previously survived. In particular, these cases suggest that courts may increasingly apply more context-specific scrutiny of the alleged comparators at the motion to dismiss stage, and on that basis dismiss claims upon a finding that the alleged comparators are not appropriate comparators. But the fact that the recordkeeping claim survived in Univar demonstrates that some courts may still require fairly lax standards to evaluate such claims. And it remains to be seen whether Albert will have persuasive effect outside the Seventh Circuit.