Bouvy v. Analog Devices, Inc. ( 2020 )

1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 SOUTHERN DISTRICT OF CALIFORNIA 10 11 MICHAEL BOUVY Case No.: 19-cv-881 DMS (BLM) 12 Plaintiff, ORDER GRANTING IN PART AND 13 v. DENYING IN PART DEFENDANT’S MOTION TO DISMISS 14 ANALOG DEVICES, INC., a Massachusetts company, as successor to 15 LINEAR TECHNOLOGY 16 CORPORATION; LINEAR TECHNOLOGY LLC, a Delaware 17 company; LINEAR TECHNOLOGY 18 ADMINISTRATIVE COMMITTEE; and DOE DEFENDANTS 1–20, 19 Defendants. 20 21 22 Pending before the Court is Defendants’ motion to dismiss Plaintiff Michael 23 Bouvy’s First Amended Complaint (“FAC”). Plaintiff filed a response in opposition, and 24 Defendants filed a reply. The parties also filed supplemental briefing. For the following 25 reasons, the motion is granted in part and denied in part. 26 / / / 27 / / / 28 1 I. 2 BACKGROUND 3 This case arises out of Plaintiff’s putative class action against Analog Devices, Inc. 4 (“ADI”), Linear Technology Corporation (“LTC”), Linear Technology LLC, and Linear 5 Technology Administrative Committee (collectively “Defendants”) for alleged violations 6 of fiduciary duties imposed by the Employment Retirement Investment Savings Act of 7 1974, as amended (“ERISA”). Plaintiff filed the complaint on May 10, 2019, and thereafter 8 filed a First Amended Complaint (“FAC”) on September 24, 2019. 9 Defendants manage the Linear Technology 401(k) Plan (the “Plan”), an individual- 10 account, defined-contribution retirement plan. See 26 U.S.C. § 401(k). Plaintiff Michael 11 Bouvy (“Plaintiff” or “Bouvy”) is a former employee of LTC and a Plan “participant,” as 12 defined by 29 U.S.C. § 1002(7). (FAC ¶ 11.) LTC provided retirement benefits to eligible 13 employees between May 6, 2013, and May 6, 2019 (the “Class Period”). (FAC ¶ 13.) 14 On March 10, 2017, ADI, a Massachusetts Corporation, purchased LTC through a 15 cash and stock transaction, and on or around that time the assets and operations of LTC 16 merged with ADI. (FAC ¶¶ 20-23.) Linear Technology LLC (“LT LLC”) was formed as 17 a Delaware corporation on May 2, 2017.1 (FAC ¶ 22.) ADI continues to sell LTC’s power- 18 management products. (FAC ¶ 23.) After the merger between LTC and ADI, LTC’s past 19 fiduciary liabilities as “Plan Sponsor” and “Plan Administrator” were assigned by the 20 Plan’s governing documents to Linear Technology LLC. (FAC ¶ 25.) LTC was the “Plan 21 Sponsor” under 29 U.S.C. § 1002(16)(B), as reported on the Plan’s Form 5500 for 2016, 22 (FAC ¶ 16), and Linear Technology LLC was listed as the “Plan Sponsor” on the form in 23 2017. (FAC ¶ 17.) 24 25 26 1 Although ADI and Linear Technology LLC are separate corporations, Eileen Wynne, the 27 Vice President and Chief Accounting Officer of ADI, signed the Plan’s 2017 Form 5500 and Linear Technology LLC’s application to register as a foreign limited liability company, 28 1 Plaintiff and proposed class members are participants in the Plan. Most participants 2 in 401(k) plans “expect that their 401(k) accounts will be their principal source of income 3 after retirement.” (FAC ¶ 31.) The Plan is a defined contribution plan, and thus limits 4 employees to investment options selected by the plan’s fiduciaries, otherwise known as 5 “designated investment alternatives.” (FAC ¶ 32.) Because plan participants can only 6 invest in pre-selected options, “the participants bear the risk of poor investment selection 7 choices, whether due to poor performance, high fees, or both.” (FAC ¶ 29.) 8 Plan administrators charge two types of fees for the maintenance and management 9 of investment products: investment management expenses and administrative expenses. 10 (FAC ¶ 40.) Administrative fees account for costs associated with administering the Plan, 11 including recordkeeping, trustee and custodial services, and accounting costs. (FAC ¶ 45.) 12 The cost of recordkeeping services depends on the number of participants in the Plan, rather 13 than the amount of money in each participant’s account. (FAC ¶ 46.) 14 At all times referenced in the FAC, Defendants contracted with third-party 15 administrator Transamerica Retirement Solutions, LLC (“Transamerica”) to serve as the 16 Plan’s recordkeeper. (FAC ¶ 19.) Before June 1, 2015, the Plan compensated 17 Transamerica through revenue sharing. (FAC, Ex. 2 at 1.) Effective June 1, 2015, the Plan 18 began to charge an annual fee of $125 per participant, assessed quarterly. (Id.) In 2017, 19 the Plan paid Transamerica $542,867 in direct payments for recordkeeping— 20 approximately $229 per participant. (FAC ¶ 136.) 21 At the end of 2017, the Plan had approximately $616 million in assets and 2,369 22 participants with active account balances. (FAC ¶ 77.) On average, for plans with 2,000 23 participants and $200 million in assets, the average recordkeeping fee per participant was 24 $5. (FAC ¶ 134.) In addition to these direct payments, the Plan paid Transamerica over 25 $1 million annually in revenue sharing from mutual funds. (FAC ¶¶ 144-146.) 26 Transamerica distributes the funds the Plan invests, and also manages the Plan’s 27 investments in the Transamerica funds. (FAC ¶ 120.) Transamerica was also compensated 28 1 from the investment fees for its proprietary products offered as investment options through 2 the Plan. (FAC ¶¶ 120-124, 147.) 3 Throughout the Class Period, the Plan’s investment options included twenty mutual 4 funds and two fixed annuity contracts issued by Transamerica Life Insurance Company. 5 (FAC ¶ 78.) At the same time, the Plan’s investment expenses were higher than industry 6 averages: at least 18 of the 20 mutual funds offered in 2016 had above-average expenses. 7 (FAC ¶¶ 81-85). Many of these funds held a share class that was between 25 and 116 8 percent more expensive than readily available, identical mutual fund products. (FAC ¶ 9 96.) 10 Plaintiff contends the Plan’s participants lost millions of dollars of retirement 11 savings and anticipated retirement income because of Defendants’ failure to rein in the 12 Plan’s costs and failure to remove and replace underperforming funds. (FAC ¶ 4, 9.) Based 13 on these alleged facts, Plaintiff filed a FAC alleging that Defendants violated ERISA by: 14 (1) breaching their duties of prudence and loyalty by selecting investment options with 15 excessive fees when identical, lower-cost options were available and retaining expensive 16 funds with poor performance histories; (2) breaching their duties of prudence and loyalty 17 by compensating Transamerica with excessive recordkeeping fees; (3) failing to provide 18 disclosures to participants regarding investment and administrative fees; (4) engaging in 19 prohibited transactions with a party in interest; and (5) failing to monitor fiduciaries. On 20 November 25, 2019, Defendants filed the present motion to dismiss. (ECF No. 23.) 21 II. 22 LEGAL STANDARD 23 A. Motion to Dismiss for Failure to State a Claim 24 Federal Rule of Civil Procedure 8(a) requires a plaintiff to plead a claim with enough 25 specificity to “give the defendant fair notice of what the . . . claim is and the grounds upon 26 which it rests.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 545 (2007) (internal quotation 27 marks omitted). A motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) tests 28 the legal sufficiency of the claims asserted in the complaint. Fed. R. Civ. P. 12(b)(6); 1 Navarro v. Block, 250 F.3d 729, 731 (9th Cir. 2001). In deciding a motion to dismiss, all 2 material factual allegations of the complaint are accepted as true, as well as all reasonable 3 inferences to be drawn from them, Cahill v. Liberty Mut. Ins. Co., 80 F.3d 336, 338 (9th 4 Cir. 1996), but a court need not accept all conclusory allegations as true. Holden v. 5 Hagopian, 978 F.2d 1115, 1121 (9th Cir. 1992) (citation omitted). 6 A motion to dismiss should be granted if a plaintiff’s complaint fails to contain 7 “enough facts to state a claim to relief that is plausible.” Twombly, 550 U.S. at 544. “A 8 claim has facial plausibility when the plaintiff pleads factual content that allows the court 9 to draw the reasonable inference that the defendant is liable for the misconduct alleged.” 10 Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citing Twombly, 550 U.S. at 556). In deciding 11 a motion to dismiss, the Court “accept[s] the plaintiffs’ allegations as true and construe[s] 12 them in the light most favorable to the plaintiffs.” See Siracusano v. Matrixx Initiatives, 13 Inc., 585 F.3d 1167, 1177 (9th Cir. 2009); see also Starr v. Baca, 652 F.3d 1202, 1216 (9th 14 Cir. 2011) (“If there are two alternative explanations, one advanced by defendant and the 15 other advanced by plaintiff, both of which are plausible, plaintiff’s complaint survives a 16 motion to dismiss under Rule 12(b)(6).”) 17 In an ERISA case, “a complaint does not need to contain factual allegations that 18 refer directly to the fiduciary’s knowledge, methods, or investigations at the relevant 19 times,” Terraza v. Safeway, Inc., 241 F. Supp. 3d 1057, 1070 (N.D. Cal. 2017), because 20 “[t]hese facts will frequently be in the exclusive possession of the breaching fiduciary.” 21 Concha v. London, 62 F.3d 1493, 1503 (9th Cir. 1995). But “the court may be able to 22 reasonably infer from the circumstantial factual allegations that the fiduciary’s decision- 23 making process was flawed.” Terraza, 241 F. Supp. 3d at 1070; see also Braden v. Wal- 24 Mart Stores, Inc., 588 F.3d 585, 598 (8th Cir. 2008) (“No matter how clever or diligent, 25 ERISA plaintiffs generally lack the inside information necessary to make out their claims 26 in detail unless and until discovery commences.”) 27 / / / 28 / / / 1 III. 2 DISCUSSION 3 A. Statute of Limitations 4 Defendants first contend all of Plaintiff’s claims are time-barred. “The statute of 5 limitations is an affirmative defense[.]” United States v. Wilbur, 674 F.3d 1160, 1177 (9th 6 Cir. 2012). Plaintiffs “ordinarily need not plead on the subject of an anticipated affirmative 7 defense,” but “[w]hen an affirmative defense is obvious on the face of a complaint, … a 8 defendant can raise that defense in a motion to dismiss.” Rivera v. Peri & Sons Farms, 9 Inc., 735 F.3d 892, 902 (9th Cir. 2013) (internal quotation marks and citations omitted). 10 ERISA “requires plaintiffs with ‘actual knowledge’ of an alleged fiduciary breach 11 to file suit within three years of gaining that knowledge rather than within the 6-year period 12 that would otherwise apply.” Intel Corp. Inv. Policy Comm. v. Sulyma, 140 S. Ct. 768, 773 13 (2020) (Sulyma II) (citing § 413(a)(2)(A), 88 Stat. 889, as amended, 29 U.S.C. § 1113). 14 Although courts “must enforce plain and unambiguous statutory language in ERISA, as in 15 any statute, according to its terms,” ERISA does not define “actual knowledge.” Id. 16 (quoting Hardt v. Reliance Standard Life Ins. Co., 560 U.S. 242, 251 (2010)) (internal 17 quotation marks omitted). In Sulyma II, the Supreme Court held the plain meaning of the 18 phrase is clear: “to have ‘actual knowledge’ of a piece of information, one must in fact be 19 aware of it.” Id. Thus, the three-year statute of limitations under § 1113(2) “begins only 20 when a plaintiff actually is aware of the relevant facts, not when he should be.” Id. at 778. 21 The actual knowledge standard “does not preclude defendants from contending that 22 evidence of ‘willful blindness’ supports a finding of ‘actual knowledge.’” Id. (citing 23 Global-Tech Appliances, Inc. v. SEB S.A., 563 U.S. 754, 769 (2011)). “[A] willfully blind 24 defendant is one who takes deliberate actions to avoid confirming a high probability of 25 wrongdoing and who can almost be said to have actually known the critical facts.” Global- 26 Tech Appliances, Inc., 563 U.S. at 769–70. 27 Defendants contend Plaintiff “had actual knowledge of the facts underlying the 28 claims more than three years prior to filing his complaint,” (Def.’s Mem. of P. & A in Sup. 1 of Mot. to Dis. (“Mot.”), ECF No. 23, at 9), and alternatively, that Plaintiff was willfully 2 blind to the relevant facts. (Def.’s Supp. Br. on New Authority in Supp. Of Mot. (“Supp. 3 Br.”), ECF No. 28, at 4.) Plaintiff disagrees, noting the absence of any allegations in the 4 FAC that would indicate or create an inference of actual knowledge or willful blindness on 5 his part. (Pl.’s Resp. In Opp’n to Def.’s Mot. (“Opp’n”) at 7; Pl.’s Resp. to Def’s Supp. 6 Br. (“Resp. to Supp. Br.”) at 4.) 7 First, Defendants contend Plaintiff’s allegations in Count I, which allege in part that 8 the Plan’s investment options charged excessive fees compared to other options, are time- 9 barred because the Plan’s management fees and expense ratios were available on 10 Transamerica’s website as far back as 2015. (Mot. at 10.) Although Defendants contend 11 this information was available in an “easily understood” format (id.), Plaintiff argues the 12 availability of this information fails to demonstrate that he had actual knowledge. (Opp’n 13 at 8.) Notably, Defendants do not contend that Plaintiff accessed the information on the 14 website. And Plaintiff argues Defendants have failed to show how the information on the 15 website could “relate to the process by which Defendants arrived at their imprudent 16 decisions”—a process that is at the heart of a claim of fiduciary breach under 29 U.S.C. § 17 1104. (Opp’n at 8) (emphasis in original.) Indeed, “[w]hen beneficiaries claim the 18 fiduciary made an imprudent investment, actual knowledge of the breach will usually 19 require some knowledge of how the fiduciary selected the investment.” Tibble v. Edison 20 Int’l, 729 F.3d 1110, 1121 (9th Cir. 2013) (“Tibble II”), vacated on other grounds, 135 S. 21 Ct. 1823 (2015)) (internal brackets and quotation marks omitted) (emphasis in original). 22 Here, the availability of fee and expense ratios did not provide plaintiff with “actual 23 knowledge of the specifics of Defendant’s decision-making process,” (FAC ¶ 12), and 24 accordingly fail to demonstrate actual knowledge. 25 Defendants make additional arguments in their supplemental briefing on Sulyma II. 26 First, Defendants contend Plaintiff had actual knowledge, or was willfully blind, to the 27 relevant facts underlying his claims based on a March 2016 plan statement, which showed 28 him transferring in and out of funds offered by the Plan. (Supp. Br. at 4.) As to Count I, 1 Defendants contend this demonstrates Plaintiff “acquired knowledge of (or willfully 2 blinded himself to) the expense ratios reflecting investment management fees that were 3 available at the time of the transfers.” (Id.) Notwithstanding Plaintiff’s arguments about 4 Defendants’ reliance on documents not referenced in the FAC,2 and the potential 5 impropriety of raising such arguments on supplemental briefing,3 the Court finds the 6 information included on this statement fails to evidence either actual knowledge or willful 7 blindness. The information is similar to that available on Transamerica’s website; at best, 8 it shows the ratios were disclosed to Plaintiff, but evidence of disclosure alone is 9 insufficient to prove “actual knowledge” because “a given plaintiff will not necessarily be 10 aware of all facts disclosed to him; even a reasonably diligent plaintiff would not know 11 those facts immediately upon receiving the disclosure.” Sulyma II, 140 S. Ct. at 778. 12 The March 2016 Plan Statement also fails to meet the standard for willful blindness: 13 “(1) The defendant must subjectively believe that there is a high probability that a fact 14 exists and (2) the defendant must take deliberate actions to avoid learning of that fact.” 15 (Resp. to Supp. Br. at 5) (quoting Global-Tech Appliances, Inc., 563 U.S. at 769.) Here, 16 17 18 2 Plaintiff contends the Court should not consider the March 2016 statement because it is 19 “outside of and never referenced in the complaint.” (Resp. to Supp. Br. at 4.) In response, Defendants contend the Court may consider documents “on which the complaint relies, if 20 the document at issue is central to the claims asserted in the complaint, and no party 21 questions the authenticity of the document, even if the document is not attached to the complaint.” (Supp. Reply Br. at 3) (citations omitted). “Review is generally limited to the 22 contents of the complaint, but a court can consider a document on which the complaint 23 relies if the document is central to the plaintiff’s claim, and no party questions the authenticity of the document.” Sanders v. Brown, 504 F.3d 903, 910 (9th Cir. 2007). Here, 24 Defendants provide documents of Plaintiff’s plan statements. Plaintiff’s ERISA claims are 25 based on his involvement in the Plan and Defendants’ alleged breach of fiduciary duty. Therefore, the Court will consider the documents. 26 3 Plaintiff contends Sulyma II broke no new ground and therefore it was improper for 27 Defendants to provide new arguments in their supplemental briefing. (Resp. to Supp. Br. at 4.) The Court disagrees, but nonetheless finds Defendants’ new arguments 28 1 Defendants fail to demonstrate that the March 2016 statement evidences either of these 2 factors. Accordingly, Count I is not time-barred. 3 Next, Defendants argue Plaintiff’s claims under Count II and IV, which are based 4 on excessive recordkeeping fees and prohibited transactions with Transamerica, are time- 5 barred because Plaintiff had “actual knowledge of his excessive administrative fees … 6 because he was aware of the fees charged by Transamerica prior to April 2016 as it was 7 clearly displayed on his March 2016 Statement and deducted from his account.” (Supp. 8 Br. at 5.) Though the facts underlying the Counts differ,4 Defendants’ reliance on the 2015 9 Fee Disclosure on Transamerica’s website and the March 2016 Plan Statement again fail 10 to evidence either “actual knowledge” or “willful ignorance.” Neither statement shows 11 awareness of the facts disclosed, see Sulyma II, 140 S. Ct. at 778, or that Plaintiff had actual 12 knowledge of Defendants’ breached duties.5 As noted, all of Plaintiff’s claims depend on 13 Defendants’ decision-making process. For example, Count II depends on Defendants’ 14 decision to “engage and retain Transamerica as recordkeeper and pay it unreasonable fees 15 for those services.” (Opp’n at 10.) As such, Plaintiff lacks “actual knowledge” unless he 16 “has actual knowledge of the procedures used or not used by the fiduciary.” (Id.) (citing 17 Foster v. Adams and Assocs., Inc., 362 F. Supp. 3d 832, 836 (N.D. Cal. 2019)). 18 19 20 4 Count II “alleges that Defendants breached their fiduciary duties by failing to negotiate 21 and monitor reasonable recordkeeping plans for Plan participants” and Count IV alleges that Defendants “engaged in prohibited transactions with Transamerica by paying 22 unreasonably high recordkeeping fees and by loaning Plan assets to Transamerica in the 23 form of service credits.” (Opp’n at 9) (citing FAC ¶¶ 185-93, 199-208.) 5 Plaintiff notes the March 2016 statement only shows his investments were rebalanced, 24 not that he “subjectively believed that the Plan’s offerings were imprudent or that the Plan 25 was incurring excessive fees.” (Opp’n to Supp. Br. at 5.) Defendants contend Plaintiff at this point “must have acquired actual knowledge of the investment options’ expense ratio 26 … or made a deliberate choice to avoid learning that information.” (Supp. Reply Br. at 4.) 27 But Defendants also recognize that allegations of high fees alone are insufficient for a claim under Count I. (Mot. at 14.) Accordingly, disclosure of fees was insufficient for Plaintiff 28 1 Next, Count III alleges Defendants inadequately disclosed information on his 2 quarterly statements, thus requiring knowledge of omitted or misrepresented information. 3 (Opp’n at 11.) Defendants argue Plaintiff’s receipt of a March 2016 statement provided 4 Plaintiff with actual knowledge, or he was willfully blind, to the alleged deficiencies in the 5 Plan’s quarterly statements. (Supp. Reply Br. at 3.) But Plaintiff contends “[t]he point of 6 Count III is that critical information is missing from the documents Defendants point to, 7 and which [Plaintiff] did not receive until later.” (Opp’n at 11.) Accordingly, Defendants 8 fail to demonstrate actual knowledge or willful blindness. Interpreting the evidence in the 9 light most favorable to the Plaintiff, as the Court must at this stage, Defendant fails to 10 provide evidence indicating Plaintiff had actual knowledge or was willfully blind. At best, 11 Defendants provide information showing some of the relevant facts were disclosed to 12 Plaintiff, but the three-year statute of limitations under § 1113(2) “begins only when a 13 plaintiff actually is aware of the relevant facts.” Sulyma II, 140 S. Ct. at 778; see also 14 Global-Tech Appliances, 563 U.S. at 770 (“A court can properly find willful blindness only 15 where it can almost be said that the defendant actually knew”) (internal quotation marks 16 and citations omitted). Accordingly, the claims under Count III are not time-barred. 17 Finally, Count V arises out of Defendants’ failure to monitor for the aforementioned 18 breaches. (Opp’n at 10.) Defendants contend Count V is time-barred because it is 19 derivative of the other claims. (Mot. at 12.) Because the other claims are not time-barred, 20 Count V is timely. 21 B. Improper Defendant 22 Next, Defendants contend this case should be dismissed as to Defendant ADI 23 because it is not a proper defendant. Defendants argue “Plaintiff concedes that Linear 24 Technology Corporation … was in fact replaced by Liner Technology, LLC.” and 25 “Plaintiff alleges no breach by ADI or any ADI fiduciary after the Plan was dissolved.” 26 (Mot. at 25.) In response, Plaintiff notes that though ADI is not named in Plan documents, 27 it is a “functional fiduciary” under 29 U.S.C. § 1002(21)(A). (Opp’n at 25.) 28 1 Section 1002(21)(A) identifies a fiduciary when “a person … exercises any 2 discretionary authority or discretionary control respecting management of such plan or 3 exercises any authority or control respecting management or disposition of its assets.” 4 Therefore, “ERISA defines ‘fiduciary’ not in terms of formal trusteeship, but in functional 5 terms of control and authority over the plan.” Johnson v. Courtier, 572 F.3d 1067, 1076 6 (9th Cir. 2009) (emphasis in original). 7 Defendants do not argue ADI is not a “functional fiduciary” under Section 8 1002(21)(A), but rather allege ADI is an improper defendant because “it was never a 9 fiduciary of the Plan.” (Mot. at 25.) Although Defendants’ argument depends on Linear 10 Technology Corporation’s replacement by Linear Technology, LLC, (id.), Plaintiff alleges 11 “ADI exercised de facto control over LT LLC, the Plan’s named fiduciary … [a]nd 12 [Plaintiff] alleges fiduciary breaches before and after the companies merged.” (Opp’n at 13 25) (emphasis in original). Indeed, LT LLC’s application to register as a foreign limited 14 liability company was signed by Eileen Wynne, the Vice President and Chief Accounting 15 Officer of ADI. (FAC ¶¶ 22, 25.) “The issue of fiduciary status is a mixed question of law 16 and fact and courts typically will have insufficient facts at the motion to dismiss stage … 17 to determine functional or named fiduciary status.” Bagley v. KB Home, 2008 WL 18 11340342, at *5 (C.D. Cal. Feb. 22, 2008) (internal quotation marks and citations omitted). 19 Accepting Plaintiff’s allegations as true, the Court finds the allegations regarding 20 Defendant ADI’s fiduciary status are sufficient to survive this motion. 21 C. Standing 22 Next, Defendant contends the Court lacks standing over the putative class’ claims 23 related to funds Plaintiff did not invest in under Count I. (Mot. at 17.) To establish 24 standing, a plaintiff must show that he or she: “(1) suffered an injury in fact, (2) that is 25 fairly traceable to the challenged conduct of the defendant, and (3) that is likely to be 26 redressed by a favorable judicial decision.” Spokeo, Inc. v. Robins, 136 S. Ct. 1540, 1547 27 (2016). ERISA “authorize[s] plan participants to sue fiduciaries for losses the plan suffers 28 from a breach of their duties.” Glanton ex rel. ALCOA Prescription Drug Plan v. 1 AdvancePCS Inc., 465 F.3d 1123, 1124 (9th Cir. 2006); see 29 U.S.C. § 1132(a). “ERISA 2 plan beneficiaries may bring suits on behalf of the plan in a representative capacity … so 3 long as plaintiffs otherwise meet the requirements for Article III standing.” Id. at 1127. 4 Plaintiff alleges he has standing to pursue these claims because ERISA suits brought 5 under 29 U.S.C. § 1132(a)(2) are “brought in a representative capacity on behalf of the 6 plan as a whole, and the remedies under § 1109 protect the entire plan.” (Opp’n at 17, n. 7 4) (citing Braden, 588 F.3d at 594). Accordingly, Plaintiff contends he “may seek recovery 8 on behalf of the entire Plan ‘even if he did not personally invest in every one of the funds 9 that caused injury to the Plan.’” (Id.) (quoting Johnson v. Fujitsu Tech. and Bus. of Am., 10 Inc., 250 F. Supp. 3d 460, 465 (N.D. Cal. 2017)). Here, Plaintiff seeks certification of this 11 action on behalf of himself and others similarly situated, defined as: “[a]ll participants and 12 beneficiaries of the Linear Technology 401(k) Plan from May 6, 2013 through the date of 13 judgment.” (FAC ¶ 167.) He contends he has standing over the putative class member’s 14 claim based on Fujitsu, where the district court adopted the “class certification” approach 15 to standing in a putative class action from Melendres v. Arpaio: 16 “The class certification approach … holds that once the named plaintiff demonstrates her individual standing to bring a claim, the standing inquiry is 17 concluded, and the court proceeds to consider whether the Rule 23(a) 18 prerequisites for class certification have been met.” 19 20 Fujitsu, 250 F. Supp. 3d at 465 (quoting Melendres v. Arpaio, 784 F. 3d 1254, 1261– 21 62 (9th Cir. 2015)). Applying this approach, the district court stated the issue of “whether 22 named plaintiffs are appropriate class representatives” would be resolved at the class 23 certification case, because defendants did not dispute that plaintiffs had standing to bring 24 their own claims and that other individuals in the putative class invested in other options. 25 Id. 26 The Court agrees with Fujitsu. Here, Defendants do not dispute that Plaintiff has 27 standing related to the claims he himself invested in, or that members of the putative class 28 invested in the contested options. Plaintiff, on behalf of the putative class, contends that 1 Defendants’ alleged breaches of their fiduciary duties caused the Plan to incur “substantial 2 damages, including the erosion of millions of dollars of retirement savings and anticipated 3 retirement income for the Plan’s participants” and that such injuries could be redressed by 4 damages. (FAC ¶ 9.) Accordingly, Plaintiff demonstrates standing on behalf of himself 5 and the putative class. 6 D. Failure to State a Claim 7 “[A]n ERISA fiduciary has a duty of care with respect to management of existing [] 8 funds, along with liability for a breach of that duty.” Santomenno v. Transamerica Life 9 Ins. Co., 883 F.3d 833, 837 (9th Cir. 2018) (quoting Lockheed Corp. v. Spink, 517 U.S. 10 882, 887 (1996)) (internal quotation marks omitted). ERISA Section 404(a)(1) “imposes 11 the following duties on plan fiduciaries: the duty of loyalty, the duty of prudence, the duty 12 to diversify the investments, and the duty to act in accordance with the documents and 13 instruments governing the plan.” Terraza, 241 F. Supp. 3d at 1070 (citing 29 U.S.C. § 14 1104(a)(1)). 15 Here, Plaintiff contends Defendants breached their duties of loyalty and prudence. 16 (FAC ¶¶ 91-92.) Defendants contend all of Plaintiff’s claims should be dismissed for 17 failure to state a claim upon which relief can be granted. 18 1. Count I 19 In Count I, Plaintiff alleges a breach of the duties of loyalty6 and prudence and 20 investments with excessive fees, in violation of 29 U.S.C. § 1104(a)(1)(A)-(B). (FAC ¶¶ 21 173-184.) Plaintiff contends Defendants breached their fiduciary duties because (1) they 22 invested “millions of dollars in imprudent investment options, many of which were more 23 expensive and had poor performance histories relative” to other readily available options 24 (FAC ¶ 178); (2) they selected and retained higher fee share class investment options in 25 the Plan when identical lower cost funds were available (FAC ¶ 179); (3) they retained 26 27 28 1 expensive funds with poor performance histories and did not investigate lower cost, better 2 performing alternatives (FAC ¶ 180); and (4) they failed to prudently monitor the plan, 3 neglected to remove poor performing funds, and failed to consider better-performing 4 alternatives. (FAC ¶ 182) The “gravamen of Count I is that for nearly every mutual fund 5 offered, the Plan provided the higher-cost share class even though a lower-cost, but 6 otherwise identical, share class of the same mutual fund was available.” (Opp’n at 11) 7 (emphasis in original.) 8 ERISA requires fiduciaries to exercise “the care, skill, prudence, and diligence under 9 the circumstances then prevailing that a prudent man acting in a like capacity and familiar 10 with such matters would use in the conduct of an enterprise of a like character and with 11 like aims.” 29 U.S.C. § 1104(a)(1)(B). Pursuant to this standard, courts must assess 12 “whether the individual trustees, at the time they engaged in the challenged transactions, 13 employed the appropriate methods to investigate the merits of the investment and to 14 structure the investment.” Donovan v. Mazzola, 716 F.2d 1226, 1232 (9th Cir. 1983). 15 “Cost-conscious management is fundamental to prudence in the investment function, and 16 should be applied not only in making investments but also in monitoring and reviewing 17 investments.” Tibble v. Edison Int’l, 843 F.3d 1187, 1197–98 (9th Cir. 2016) (“Tibble III”) 18 (en banc) (internal quotation marks and citations omitted). 19 First, Defendants contend claims under this count are implausible because “ERISA 20 does not require fiduciaries to ‘scour the market to find and offer the cheapest possible 21 funds.’” (Mot. at 14) (quoting White v. Chevron Corp., 2017 WL 2352137, at *14 (N.D. 22 Cal. May 31, 2017) (“White II”)). Defendants note the Plan offered a wide range of 23 options, with expense ratios ranging from .07% to 1.32%, and contend “[t]his breadth of 24 investments and range of management fees is well within the spectrum that courts have 25 held reasonable as a matter of law.” (Mot. at 14) (internal quotation marks and citations 26 omitted.) In response, Plaintiff contends there is “no per se acceptable range of fees under 27 ERISA” and that the FAC shows there was “no need to ‘scour the market’ to locate lower 28 cost funds,” because the “same mutual fund was available at a lower cost.” (Opp’n at 12) 1 (emphasis in original.) Plaintiff contends the Plan paid fees “between 25% and 116% 2 higher than it should have paid for the identical mutual fund product.” (FAC at ¶ 96.) 3 Although Defendants need not “scour the market” to find the cheapest funds, an ERISA 4 fiduciary must act as a “prudent man” when managing plan assets. See 29 U.S.C. § 5 1104(a). The duty of prudence “extends to both the initial selection of an investment and 6 the continuous monitoring of investments to remove imprudent ones.” Terraza, 241 F. 7 Supp. 3d at 1070 (citing Tibble v. Edison Int’l, 135 S. Ct. 1823, 1828–29 (2015)). 8 Accordingly, Plaintiff contends Defendants failed to act prudently because they failed to 9 procure identical funds at a lower cost. 10 Nevertheless, a fiduciary breach is determined by analyzing “a fiduciary’s conduct 11 in arriving at an investment decision, not on its results.” Terraza, 241 F. Supp. 3d at 1069. 12 Here, Defendants contend there is an “easy” explanation for the management of the Plan: 13 because Transamerica “was compensated through revenue-sharing out of funds’ expense 14 ratios,” the Investment Committee “appropriately selected share classes that ensured that 15 recordkeeping needs would be furnished by Transamerica without any additional charges 16 to participants.” (Mot. at 15.) But Plaintiff contends Defendants’ explanation fails to fully 17 account for the difference in the rates because Defendants “do not contend, for instance, 18 that accepting higher upfront costs to avoid ‘additional charges’ is, in the end, a less 19 expensive or more prudent way to manage the Plan.” (Opp’n at 13.) 20 Notwithstanding these arguments, Defendants contend dismissal is warranted based 21 on White II. (Mot. at 15.) There, the district court held that “merely alleging that a plan 22 offered retail rather than institutional share classes is insufficient to carry a claim for 23 fiduciary breach,” and dismissal was warranted for claims of a breach of duty of prudence 24 in connection with defendants’ selecting funds with higher management fees “when 25 plaintiffs have acknowledged that more expensive share classes paid for [the plan’s] 26 recordkeeping services.” White II, 2017 WL 2352137, at *14. The Ninth Circuit affirmed 27 the district court in White III, finding the plaintiffs failed to meet the plausibility standard 28 of Iqbal and Twombly for their claims of breach of duty of loyalty and prudence because 1 “the allegations showed only that [the defendant] could have chosen different vehicles for 2 investment that performed better during the relevant period, or sought lower fees for 3 administration of the fund,” but “[n]one of the allegations made it more plausible than not 4 that any breach of a fiduciary duty occurred.” White v. Chevron Corp., 752 F. App’x 453, 5 455 (9th Cir. 2018) (“White III”) (citing In re Century Aluminum Co. Securities Litig., 729 6 F.3d 1104, 1108 (9th Cir. 2013)). 7 Here, Plaintiff contends his case differs from the plaintiffs in White II because rather 8 than claiming “that offering retail shares, without more, violates ERISA,” he contends 9 Defendants’ breach was based in their “failure to investigate the lower-cost shares, where 10 the use of higher-cost shares was not necessary to pay recordkeeping fees nor [to] provide 11 any other benefit to the plan.” (Opp’n at 14) (citing FAC ¶¶ 97-102.) Moreover, he 12 contends he goes beyond the plaintiffs in White, because he “specifically alleges ‘other 13 indicia of imprudence,’ in addition to the higher-cost shares: namely that the Plan (i) 14 retained funds that historically underperformed, and (ii) used expensive, actively managed 15 Transamerica funds as default selections.” (Id.) 16 The Court agrees and finds Plaintiff’s allegations are sufficient. In Terraza, the 17 district court denied defendant’s motion to dismiss, finding it could not “infer from the fee 18 differential on its own that the [d]efendants acted imprudently in selecting the challenged 19 funds,” but found enough facts to state a claim when the information about the fee 20 differential was combined with facts showing the investment options “underperformed 21 compared to their benchmark,” that defendants potentially “selected and retained at least 22 some of these relatively expensive and underperforming investment options” because the 23 bank controlling the plan was a trustee and record-keeper for the plan, and that certain 24 investments may have been “managed or significantly influenced” by the bank. Terraza, 25 241 F. Supp. 3d at 1076–77. Like the plaintiff in Terraza, Plaintiff alleges facts regarding 26 27 28 1 a fee differential as well as specific examples of funds that underperformed their peers,7 2 “concrete examples of cheaper better performing funds,” and allegations that “these 3 particular Transamerica investments were poor investment options and that Transamerica 4 benefitted at the expense of participants by retaining one third of the Plan’s assets in its 5 proprietary funds.” (Opp’n at 15) (citing FAC ¶ 130) (emphasis in original.) The Court 6 can infer from these facts that Defendants “engaged in a flawed decision-making process 7 by selecting and retaining the challenged investment options.” See Terraza, 241 F. Supp. 8 3d at 1076–77. Accordingly, Plaintiff provided enough factual allegations “to create a 9 plausible inference that defendants’ process of selecting funds and their monitoring of the 10 funds was imprudent.” See White II, 2017 WL 2352137, at 14. 11 2. Count II and Count IV 12 Defendants contend Plaintiff fails to state a claim under both Count II and Count IV 13 because (1) the Plan’s offering of Transamerica funds does not constitute a fiduciary 14 breach; (2) compensating a recordkeeper through revenue sharing does not constitute a 15 fiduciary breach; (3) Transamerica’s fees were reasonable “in light of the significant plan 16 service credits”; and (4) “not soliciting bids for recordkeeping services does not rise to the 17 level of a plausible breach of fiduciary duty.” (Mot. at 18-21.) 18 A. Count II8 19 First, Defendants contend Count II fails to state a claim because revenue sharing 20 arrangements are not per se imprudence and Plaintiff failed to plausibly allege 21 unreasonable and excessive direct fees. (Mot. at 18; Reply Br. at 6.) In Count II, Plaintiff 22 contends Defendants breached their fiduciary duties of loyalty and prudence by selecting 23 Transamerica as a plan service provider to perform recordkeeping services, and in 24 25 7 Although Defendants challenge the factual basis for Plaintiff’s claims, including by 26 showing that some funds did not underperform, (Mot. at 16), Plaintiff provided enough 27 information to create a factual inference that they indeed underperformed. (See Opp’n at 15.) 28 1 exchange compensating Transamerica from the Plan “in the form of direct payments and 2 revenue sharing along with related kick-back arrangements in which managers for the 3 Plan’s investment options annually deducted fees from investment assets and paid those 4 fees to Transamerica.” (FAC ¶ 188.) Moreover, Plaintiff alleges Defendants compensated 5 Transamerica with “excessive and unreasonable fees.” (FAC ¶ 189.) Defendant contends 6 Plaintiff “fails to show … any more than a sheer possibility that the Plan fiduciaries acted 7 unlawfully.” (Mot. at 18) (internal quotation marks and citations omitted.) 8 Plaintiff contends the fees were indeed unreasonable and excessive and points to 9 several facts to support their claims. First, Plaintiff notes since 2015 the Plan has paid 10 Transamerica “at minimum $125 per participant for recordkeeping services,” when 11 “similarly sized plans charge an average of $5 per participant for recordkeeping” and 12 “Defendants should have been able to procure recordkeeping services for less than $50 per 13 participant (a conservative measure)[.]” (Opp’n at 17) (citing FAC ¶¶ 133, 134, 142.) 14 Though Defendants argue these fees are not per se unreasonable, Plaintiff uses these figures 15 to support an inference that “Defendants failed to monitor the Plan, solicit competitive bids, 16 and rectify overpayments, causing a substantial loss.” (Opp’n at 17 n. 5.) Plaintiff notes 17 the fees paid “grew substantially from 2013 to 2017, even though Transamerica provided 18 no additional services[,”] and the amount paid to TransAmerica through revenue sharing 19 arrangements “nearly doubled from 2013 to 2017, despite the fact that the number of 20 participants only increased by 8%.” (Id. at 17-18) (citing FAC ¶¶ 153-56.) 21 Defendants contend Plaintiff nevertheless fails to state a claim because there are 22 alternative explanations for this behavior: namely, that the Plan retained Transamerica 23 products because “the Committee decided that these options were in line with the Plan’s 24 investment objectives.” (Mot. at 19.) Moreover, Defendants note the Plan’s decision to 25 compensate Transamerica through revenue sharing is a “common and acceptable 26 investment industry practice.” (Id.) (citing Tussey v. ABB, Inc., 746 F.3d 327, 336 (8th Cir. 27 2014)). Defendants contend the recordkeeping fees that increased after 2015 were 28 reasonable because Transamerica was compensated through a flat fee instead of the 1 previous revenue-sharing compensation model and Transamerica began to credit the 2 revenue sharing it received through increased Plan Service Credits. (Mot. at 20.) But in 3 response, Plaintiff notes these increased credits are not reflected on the Plan’s Forms 5500, 4 which instead “report additional compensation to Transamerica.” (Opp’n at 18.) 5 Nevertheless, this dispute fails to demonstrate a failure to state a claim, but rather goes to 6 the merits of Plaintiff’s allegations. 7 Lastly, Defendants again contend White II requires dismissal of Plaintiff’s claims 8 because Plaintiff fails to allege that fees were excessive before 2015, and therefore “all that 9 remains is plaintiff[’s] conclusory assertion that fees under a revenue-sharing arrangement 10 are necessarily excessive and unreasonable.” (Mot. at 19–20) (citing White I, 2016 WL 11 4502808, at *14.) In response, Plaintiff cites Creamer v. Starwood Hotels & Resorts 12 Worldwide, Inc., where plaintiffs survived a motion to dismiss for excessive fees, in part 13 because the district court found plaintiffs’ claims went beyond the plaintiffs in White I. 14 (Opp’n at 19-20) (citing 2017 WL 2992739, at *3 (C.D. Cal. May 11, 2017)). There, the 15 district court noted plaintiffs’ claims were dismissed in White because they failed to allege 16 “the amount of recordkeeping fees charged” or “the availability of cheaper recordkeeping 17 services.” See 2017 WL 2992739, at *3. Similarly, in Marshall v. Northrom Grumman 18 Corporation, the district court acknowledged White I indicated “a failure to solicit bids 19 may be warranted if facts are available that indicate ‘the same services were available for 20 less on the market.’” 2017 WL 2930839, at *11 (C.D. Cal. Jan. 30, 2017) (quoting White 21 I, 2016 WL 4502808, at *14). 22 Here, Plaintiff goes beyond White because he details the amount of fees charged and 23 the availability of cheaper, readily available recordkeeping services. Plaintiff does not 24 focus simply on the existence of a revenue-sharing arrangement but also provides detailed 25 facts to support a conclusion that Transamerica’s fees were higher than normal. On 26 balance, therefore, Defendants’ main “arguments attempt to litigate the claim – they do not 27 address the sufficiency of [p]laintiffs’ allegations at the pleading stage.” See Marshall, 28 1 2017 WL 2930839, at *11. Accordingly, Defendants’ motion to dismiss Plaintiff’s 2 imprudence claims under Count II is denied. 3 B. Count IV 4 Next, Defendants contend Plaintiff fails to state a claim under Count IV. In Count 5 IV, Plaintiff alleges Defendants engaged in prohibited transactions with a party in interest 6 (Transamerica), in violation of 29 U.S.C. § 1106(a)(1). (FAC ¶¶ 199-208). Plaintiff 7 alleges the Plan engaged in “prohibited transactions” by (1) “lending of money or other 8 extension of credit between the plan and a party in interest” in violation of 29 U.S.C. § 9 1106(a)(1)(B); (2) “furnishing of goods, services, or facilities between the plan and a party 10 in interest” in violation of § 1106(a)(1)(C); and (3) “transfer to, or use by or for the benefit 11 of a party of in interest, of any assets of the plan” in violation of § 1106(a)(1)(D). (FAC 12 ¶¶ 202-206). 13 ERISA § 406 details the types of transactions that are prohibited under § 1106, and 14 “begins with the premise that virtually all transactions between a plan and a party in 15 interest are prohibited, unless a statutory or administrative exemption applies.” Kanawi v. 16 Bechtel Corp., 590 F. Supp. 2d 1213, 1222 (N.D. Cal. 2008) (emphasis in original). ERISA 17 § 408(b) provides a list of statutory and administrative exemptions to § 406(a). Id. 18 Here, Plaintiff alleges Transamerica is a party in interest, and Defendants do not 19 dispute that. But Defendants contend Plaintiff’s claims fail because (1) revenue sharing is 20 not a prohibited transaction; and (2) “reasonable compensation to a service provider is a 21 legitimate plan expense that can be paid using plan assets per 29 U.S.C. § 1108(b)(2).” 22 (Mot. At 21-22.) First, Plaintiff argues “revenue sharing amounts cannot be plan assets, 23 and thus § 1106(a) does not apply.” (Opp’n at 23.) Next, Plaintiff contends it is 24 inappropriate to resolve the issue of reasonable compensation at this stage because the 25 section 408 “exemptions are affirmative defenses for pleading purposes, and so the plaintiff 26 has no duty to negate any or all of them,” (Opp’n at 23) (quoting Allen v. GreatBanc Tr. 27 Co., 835 F. 3d 679, 676 (7th Cir. 2016)), and the plausibility of the allegations of excessive 28 payments means the §1108 exemptions would not apply to Defendants. (Id.) 1 In response, Defendants first note that Plaintiff relies on a Department of Labor 2 opinion that states revenue-sharing payments are not plan assets, “and that an issue of fact 3 exists only when a plaintiff alleges that revenue sharing payments were held in trust for the 4 plan.” (Reply Br. at 9) (citing DOL Advisory Opinion 2013-03A, 2013 WL 3546834 (July 5 3, 2013). Relatedly, Defendants note Plaintiff fails to address “authority that holds revenue 6 sharing does not implicate plan assets.” (Reply Br. at 9.) The Court agrees with 7 Defendants. Plaintiff only argues Defendants’ defenses to Count IV raise “a prototypical 8 issue of fact that cannot be decided here,” (Opp’n at 24), but Plaintiff fails to address the 9 substance of Defendants’ arguments. 10 Moreover, Defendants allege Plaintiff “ignores that the payments were part of the 11 Plan’s contract with Transamerica, which cannot be a prohibited transaction.” (Reply Br. 12 at 9) (citing Danza v. Fid. Mgmt. Tr. Co., 533 F. App’x 120, 125 (3d Cir. 2013)). As such, 13 Defendants contend Plaintiff’s claim is “grounded in circular reasoning: the transactions 14 were prohibited because [Transamerica] was a party in interest, and [Transamerica] was a 15 party in interest because it engaged in the prohibited transaction.” See Seller v. Anthem 16 Life Ins. Co., 316 F. Supp. 3d 25, 35 (D.D.C. 2018). Plaintiff’s allegations fail to detail 17 why these interactions are prohibited, notwithstanding its allegations regarding 18 unreasonable fees, which are covered under Count II. Accordingly, the Court finds 19 Plaintiff fails to state a claim under Count IV for prohibited transactions. 20 3. Disloyalty Claims under Count I and II 21 Next, Defendants contend Plaintiff’s disloyalty claims in Counts I and II should be 22 dismissed because they are “duplicative of his imprudence claims” and the FAC “does not 23 plausibly allege that Defendants took any actions for the purpose of benefiting themselves 24 or Transamerica at the expense of Plan participants.” (Mot. at 22.) 25 In accordance with the duty of loyalty, “a fiduciary shall discharge his duties with 26 respect to a plan solely in the interest of the participants and beneficiaries and … for the 27 exclusive purpose of … providing benefits to participants and their beneficiaries[] and 28 defraying reasonable expenses of administering the plan.” White II, 2017 WL 2352137, at 1 *14 (quoting 29 U.S.C. § 1104(a)(1)(A)). The duty of loyalty also “prohibits trustees from 2 ‘engaging in transactions that involve self-dealing or that otherwise involve or create a 3 conflict between the trustee’s fiduciary duties and personal interests.’” Id. (quoting Rest. 4 (Third) of Trusts § 78 (2007)). 5 Defendants contend disloyalty allegations must “articulate a specific disloyal action” 6 and fiduciaries do not breach their duty of loyalty because of a potential for a conflict of 7 interest.” (Mot. at 22) (citing In re McKesson HBOC, Inc. ERISA Litig., 391 F. Supp. 2d 8 812, 834–35 (N.D. Cal. 2005)). Moreover, Defendants contend disloyalty claims require 9 “separate allegations regarding any loyalty breach,” and cannot simply “hinge” on 10 prudence-based allegations.” (Id.) (citing Romero v. Nokia, Inc., 2013 WL 5692324 at *5 11 (N.D. Cal Oct. 15, 2013)). Plaintiff fails to dispute these arguments. In addition, Plaintiff’s 12 claims under Count I and II fail to identify a separate breach of fiduciary duty of loyalty. 13 In Count I, Plaintiff claims that because of Defendants’ alleged violations of the duty of 14 imprudence, and the benefits to Transamerica, they “failed to make Plan investment 15 decisions based solely on the merits of the investment funds and what was in the interests 16 of the participants and beneficiaries of the Plan.” (FAC ¶ 181.) Similarly, under Count II 17 Plaintiff alleges Defendants paid excessive fees to Transamerica and failed to solicit 18 alternative bids. (FAC ¶¶ 185-193.) But Plaintiff fails to specify a separate disloyal action. 19 Accordingly, Plaintiff’s disloyalty claims under Counts I and II are dismissed. 20 4. Count III 21 In Count III, Plaintiff alleges Defendants breached their fiduciary duties by failing 22 to provide disclosures to participants regarding fees, as required by 29 U.S.C. § 23 1104(a)(1)(A)-(B) and 29 C.F.R. § 2550.404a-5. (FAC ¶¶ 194-198). Plan fiduciaries must 24 disclose material information to plan participants, consistent with their fiduciary duty of 25 loyalty. Washington v. Bert Bell/Pete Rozelle NFL Ret. Plan, 505 F.3d 818, 823–24 (9th 26 Cir. 2007). The Department of Labor issued a regulation outlining the scope of these 27 disclosure requirements. See 29 C.F.R. § 2550.404a–5. Under these regulations, the Plan 28 administrator “must take steps to ensure … that such participants and beneficiaries, on a 1 regular and periodic basis, are made aware of their rights and responsibilities with respect 2 to the investment of assets held in, or contributed to, their accounts and are provided 3 sufficient information regarding the plan, including fees and expenses attendant thereto, to 4 make informed decisions with regard to the management of their individual accounts.” Id. 5 § 2550.404a–5(a). This information must be “complete and accurate,” id. § 2550.404a– 6 5(a), and must include “an explanation of any fees and expenses for general plan 7 administrative services (e.g., legal, accounting, recordkeeping), which may be charged 8 against the individual accounts of participants and beneficiaries.” Id. § 2550.404a– 9 5(c)(2)(i)(A). Investment-related information must also be disclosed, including 10 performance data, benchmarks, and fee and expense information. Id. § 2550.404a–5(d). 11 Plaintiff contends Defendants failed to meet their duties under these regulations by 12 “(a) failing to adequately disclose the nature of the fees and expenses charged to individual 13 accounts in the Plan in participants’ quarterly statements, (b) misrepresenting the actual 14 cost of the administrative services incurred by the Plan on a per-participant basis, and (c) 15 failing to adequately disclose the total amount of compensation paid to Transamerica.” 16 (FAC ¶ 196.) Defendants argue the plan properly disclosed the fees charged to participants 17 because it complied with ERISA’s investment fee and administrative fee disclosure 18 regulation. (Mot. at 23.) 19 First, Defendants contend they adequately complied with the regulations for 20 investment fee disclosures because they disclosed annual operating expenses. Though 21 Plaintiff alleges Defendants have a duty to disclose the magnitude of revenue sharing, 22 (FAC ¶ 165), Defendants contend they only needed to disclose the expense ratio. (Mot. at 23 23.) Indeed, plan administrators are not “required to disclose the ‘breakdown’ of the gross 24 expense ratio associated with each investment option—e.g., the percentage of the total fee 25 that ultimately goes to the trustee as the record-keeper.” Terraza, 241 F. Supp. 3d at 1073. 26 Accordingly, Plaintiff’s claim for improper disclosure of investment fees is dismissed. 27 Next, Defendants contend they complied with regulations for administrative fee 28 disclosures because the fees were provided to participants in the Plan in the 2015 Fee 1 Disclosure and reported to Plaintiff on quarterly statements. (Mot. at 23-24) (citing FAC, 2 Exs. 2-5.) The Plan’s disclosure stated: 3 “The administrative costs include services such as plan administration, recordkeeping, and call center staffing. The administrative fees to cover these 4 costs will remain the same ($125.00 per year), but the plan administrative 5 expenses will be charged differently. On a quarterly basis, $31.25 will be deducted as a fixed dollar amount from your account … The actual amounts 6 deducted from your account, as well as a description of the services to which 7 the fees relate will be reported on your quarterly benefit statements.” 8 (FAC, Ex. 2 at 4.) 9 Plaintiff contends the quarterly benefit statements withheld “information necessary 10 for participants to understand and protect their interests in the Plan,” (FAC ¶ 165), and as 11 such, fail to include “complete and accurate” information and “a description of the services 12 to which the charges relate.” See 29 C.F.R. § 2550.404a-5(b)(1); § 2550.404a- 13 5(c)(2)(ii)(A). Plaintiff notes his quarterly statement from April to June 2016 included the 14 following information: $81,480.56 invested in Transamerica Partners Institutional Core 15 Bond Funds with a net expense ratio of 0.65% (FAC ¶ 124), a “plan service credit” of .50% 16 (FAC, Ex. 2), a charge of $18.45 in “Administrative Fee-Per Account,” and $23.06 in “plan 17 credits.” (FAC ¶ 161, Ex. 5.) Plaintiff contends the disclosures do not define the 18 “Administrative Fee-Per Account.” (Opp’n at 22) (citing FAC, Ex. 2 at 4.) Defendants 19 acknowledge the “Administrative Fee-Per Account” did not sufficiently describe what the 20 fees entailed. (Mot. at 24, n. 19.) The regulations require “an explanation of any fees and 21 expenses for general plan administrative services.” 29 C.F.R. § 2550.404a–5(c)(2)(i)(A). 22 Because Defendants did not adequately describe the “Administrative Fee-Per Account” 23 listed in the quarterly statements in their fee disclosures, Plaintiff has adequately stated a 24 claim for failure to provide complete and accurate administrative disclosures under § 25 2550.404a–5(c)(2)(i)(A). 26 5. Count V 27 Finally, Plaintiff alleges in Count V “that certain Defendants breached their fiduciary 28 duties by failing to adequately monitor other persons to whom management/administration 1 of the Plan’s assets was delegated, despite the fact that such Defendants knew or should 2 have known that other fiduciaries were failing to manage the Plan in a prudent and loyal 3 manner.” (FAC ¶ 7.) Defendants contend Plaintiff’s claims under this count must be 4 dismissed because they are derivative of the other claims. (Mot. at 24.) Accordingly, the 5 claims under this count are dismissed to the extent they rely on Plaintiff’s disloyalty claims 6 under Count I and II, claims under Count III related to investment fee disclosures, and 7 claims under Count IV. 8 Defendants also contend Plaintiff’s claims under Count V must be dismissed even if 9 the other claims survive. To that end, Defendant notes “Plaintiff must allege that the 10 monitoring fiduciary failed to ‘review the performance of its appointees at reasonable 11 intervals … to ensure compliance with the terms of the plan and statutory standards’” in 12 order to state a claim. (Mot. at 24) (quoting In re Calpine Corp., 2005 WL 1431506, at *6 13 (N.D. Cal. Mar. 31, 2005)). Because Plaintiff “does not allege any deficiencies in the 14 monitoring process,” Defendants contend the remaining claims under Count V must be 15 dismissed. (Id. at 25) (emphasis in original.) 16 In response, Plaintiff notes the FAC alleges that Defendants ADI and LT LLC “are 17 successors to LT, which had a duty to monitor the appointed fiduciaries that managed the 18 Plan’s investment options.” (Opp’n at 24) (citing FAC ¶¶ 211-15.) Plaintiff contends that 19 the failure to monitor and replace failing fiduciaries “led to the retention of investment 20 options that charged excessive fees and underperformed cheaper alternatives,” and thus the 21 allegations “create a reasonable inference that the corporate Defendants failed to monitor 22 those fiduciaries.” (Id.) (citing FAC ¶ 214.) The Court agrees with Plaintiff. “Implicit 23 within the duty to select and retain fiduciaries is a duty to monitor their performance.” 24 Solis v. Webb, 931 F. Supp. 2d 936, 952–53 (N.D. Cal. 2012) (emphasis in original). 25 Because Plaintiff plausibly alleges claims for breach of duty of prudence under Counts I 26 and II and Count III related to administrative fee disclosures, he alleges plausible claims 27 under Count V. 28 E. Leave to Amend 1 Generally, leave to amend is granted “even if no request to amend the pleading was 2 ||made, unless [the court] determines that the pleading could not possibly be cured by the 3 || allegation of other facts.” Lopez v. Smith, 203 F.3d 1122, 1127 (9th Cir. 2000) (en banc) A ||(internal citation omitted). Here, the deficiencies in Plaintiff's disloyalty claims under 5 ||Count I and II, claims under Count III related to investment fee disclosures, and claims 6 |}under Count IV could be cured. Accordingly, the Court grants Plaintiff leave to amend. 7 IV. 8 CONCLUSION AND ORDER 9 For these reasons, the Court grants Defendants’ motion to dismiss Plaintiffs 10 |/disloyalty claims under Count I and II, Plaintiff's claims under Count II related to 11 |/investment fee disclosures, and Plaintiff's claims under Count IV. The balance of the 12 motion is denied. Plaintiff may file a Second Amended Complaint within 30 days of the 13 |/issuance of this order. 14 IT IS SO ORDERED. 15 16 || Dated: June 23, 2020 J ] 17 Arn Yn « Hon. Dana M. Sabraw 18 United States District Judge 19 20 21 22 23 24 25 26 27 28