Cunningham v. Cornell University

21-88-cv (L)
Cunningham v. Cornell University
UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT
August Term 2022
(Argued: October 19, 2022 Decided: November 14, 2023)
Nos. 21-88-cv; 21-96-cv; 21-114-cv
––––––––––––––––––––––––––––––––––––
CASEY CUNNINGHAM, CHARLES E. LANCE, STANLEY T. MARCUS, LYDIA PETTIS, AND
JOY VERONNEAU, individually and as representatives of a class of participants
and beneficiaries on behalf of the Cornell University Retirement Plan for the
Employees of the Endowed Colleges at Ithaca and the Cornell University Tax
Deferred Annuity Plan
Plaintiffs-Appellants-Cross-Appellees,
-v.-
CORNELL UNIVERSITY, THE RETIREMENT PLAN OVERSIGHT COMMITTEE, MARY G.
OPPERMAN, AND CAPFINANCIAL PARTNERS, LLC D/B/A CAPTRUST FINANCIAL
ADVISORS
Defendants-Appellees-Cross-Appellants. ∗
––––––––––––––––––––––––––––––––––––
Before: LIVINGSTON, Chief Judge, and KEARSE and PARK, Circuit Judges.
The plaintiff-appellant class participates in “403(b)” retirement plans
administered by Cornell University (“Cornell”). Plaintiffs brought this suit
∗
The Clerk of Court is respectfully directed to amend the caption accordingly.
1
against Cornell and its appointed fiduciaries alleging a number of breaches of their
fiduciary duties under the Employee Retirement Income Security Act of 1974
(“ERISA”). Following motion practice in the United States District Court for the
Southern District of New York (Castel, J.), plaintiffs appeal from entry of judgment
in defendants’ favor on all but one claim, which was settled by the parties. On
appeal, plaintiffs challenge: (1) the dismissal of their claim that Cornell entered
into a “prohibited transaction,” pursuant to 29 U.S.C. § 1106(a)(1)(C), by paying
the plans’ recordkeepers unreasonable compensation, (2) the “parsing” of a single
count alleging a breach of fiduciary duty into separate sub-claims at the motion to
dismiss stage, (3) the award of summary judgment against plaintiffs for failure to
show loss on their claim that defendants breached their duty of prudence by
failing to monitor and control recordkeeping costs, and (4) the award of summary
judgment to defendants on plaintiffs’ claims that Cornell breached its duty of
prudence by failing to remove underperforming investment options and by
offering higher-cost retail share classes of mutual funds, rather than lower-cost
institutional shares. Because we agree with the ultimate disposition of each of
these claims, we AFFIRM the district court’s judgment.
Defendants-appellees conditionally cross-appeal, in the event that the
judgment is not affirmed, to challenge the district court’s ruling that plaintiffs were
entitled to a jury trial rather than a bench trial. As the judgment is affirmed, we
dismiss the cross-appeals as moot.
FOR PLAINTIFFS-APPELLANTS- SEAN E. SOYARS (Jerome J. Schlichter,
CROSS-APPELLEES: Heather Lea, and Joel D. Rohlf, on the brief),
Schlichter Bogard & Denton LLP, St. Louis,
MO.
FOR DEFENDANTS-APPELLEES- MICHAEL A. SCODRO (Nancy G. Ross,
CROSS-APPELLANTS: Samuel P. Myler, and Jed W. Glickstein, on
the brief), Mayer Brown LLP, Chicago, IL;
Michelle N. Webster, on the brief, Mayer
Brown LLP, Washington, DC, for Cornell
University, The Retirement Plan Oversight
Committee, and Mary G. Opperman.
2
CAROLINE A. WONG (Eric S. Mattson, Joseph
R. Dosch, and Meredith R. Aska McBride, on
the brief), Sidley Austin LLP, Chicago, IL, for
CapFinancial Partners, LLC.
Jaime A. Santos and William M. Jay,
Goodwin Procter LLP, Washington, DC;
James O. Fleckner and Alison V. Douglass,
Goodwin Procter LLP, Boston, MA;
Stephanie A. Maloney, U.S. Chamber
Litigation Center, Washington, DC, for
Chamber of Commerce of the United States of
America and American Benefits Council, amici
curiae in support of Defendants-Appellees-
Cross-Appellants.
DEBRA ANN LIVINGSTON, Chief Judge:
This case is one of a number of similar actions filed in federal courts across
the country alleging that university pension plans, known as “403(b) plans,” have
been improperly managed in violation of the Employee Retirement Income
Security Act of 1974 (“ERISA”), as amended, 29 U.S.C. § 1001 et seq. Plaintiffs-
Appellants-Cross-Appellees Casey Cunningham, Charles E. Lance, Stanley T.
Marcus, Lydia Pettis, and Joy Veronneau (“Plaintiffs”) are participants in and
beneficiaries of the Cornell University Retirement Plan for Employees of the
Endowed Colleges at Ithaca (“Retirement Plan”) or the Cornell University Tax
Deferred Annuity Plan (“TDA Plan”) (together, the “Plans”).
3
Plaintiffs, individually and as representatives of a class of beneficiaries to
the Plans, brought this action in the Southern District of New York (Castel, J.)
against Cornell University (“Cornell”) and its appointed fiduciaries (together,
“Defendants”), alleging that they, among other things, failed to employ adequate
processes for monitoring the Plans in violation of 29 U.S.C. § 1104, resulting in the
retention of underperforming investment options and the payment of excessive
fees, and engaged in transactions prohibited under 29 U.S.C. § 1106. Following
motion practice, the district court dismissed or granted summary judgment to
Defendants on all but one of Plaintiffs’ claims. After a settlement was reached on
the remaining claim, the district court entered judgment on December 22, 2020.
Plaintiffs challenge the district court’s award of summary judgment on two
counts alleging that Defendants breached their duty of prudence. In addition,
Plaintiffs argue that the district court erred in dismissing one of their prohibited
transactions claims for failure to state a claim and in parsing one of their claims for
a breach of the duty of prudence at the motion-to-dismiss stage. Should the case
be remanded to the district court, Plaintiffs also argue that the end date of the class
period should be vacated. Defendants conditionally cross-appeal, in the event
4
that the judgment is not affirmed, from the district court’s denial of their motion
to strike the jury demand.
We conclude that the district court correctly dismissed Plaintiffs’ prohibited
transactions claim and certain duty-of-prudence allegations for failure to state a
claim and did not err in granting partial summary judgment to Defendants on the
remaining duty-of-prudence claims. In so doing, we hold as a matter of first
impression that to state a claim for a prohibited transaction pursuant 29 U.S.C.
§ 1106(a)(1)(C), it is not enough to allege that a fiduciary caused the plan to
compensate a service provider for its services; rather, the complaint must plausibly
allege that the services were unnecessary or involved unreasonable compensation,
see id. § 1108(b)(2)(A), thus supporting an inference of disloyalty. Because we
affirm the district court’s judgment, we do not reach the issues related to the end
date of the class period, and we dismiss Defendants’ conditional cross-appeals as
moot.
BACKGROUND
I. Factual Background
Plaintiffs represent a class of current and former Cornell employees who
participated in Cornell’s two retirement plans, the Retirement Plan and the TDA
5
Plan, from August 17, 2010 to August 17, 2016 (the “class period”). As of 2016,
the Retirement Plan had over 19,000 participants and nearly $2 billion in net assets
and the TDA Plan had over 11,000 participants and $1.34 billion in net assets.
Both Plans are defined-contribution savings plans that are tax-deferred under 26
U.S.C. § 403(b), which applies to certain tax-exempt organizations. In a defined-
contribution plan (of which the more familiar “401(k)” plans are another type)
participants maintain individual investment accounts, the value of which “is
determined by the market performance of employee and employer contributions,
less expenses.” Tibble v. Edison Int’l, 575 U.S. 523, 525 (2015); see 29 U.S.C.
§ 1002(34). 1 The administrators of defined-contribution plans are responsible for
choosing a menu of investment options, and plan participants then choose their
investments from that menu.
A. Administration of the Plans
Cornell University is the named administrator for the Plans. Cornell
delegated administrative responsibilities to Mary G. Opperman, Cornell
University’s Vice President for Human Resources, who in turn delegated certain
1Participants’ accounts in the Retirement Plan are funded by a combination of
employer and participant contributions, while the TDA Plan is funded entirely by
employee contributions.
6
responsibilities to Paul Bursic, Senior Director of Benefits Services and
Administration (the “Benefits Department”), and employees under his direction.
Opperman chaired the Retirement Plan Oversight Committee (“RPOC,” and,
together with Opperman and Cornell, the “Cornell Defendants”). The RPOC
was established in 2010, in response to Internal Revenue Service regulations, to
oversee the Plans. In 2011, the RPOC issued a Request for Proposal for a third-
party consultant to assist the RPOC with selecting investment options and
recordkeeping. After reviewing bids, the RPOC selected CapFinancial Partners,
LLC Financial Advisors (“CAPTRUST”) as the Plans’ investment advisor and plan
administration consultant. As part of its agreement with Cornell, CAPTRUST
agreed to serve as a fiduciary under ERISA with regard to the selection of mutual
funds available to the Plans.
B. Recordkeeping Fees and Investment Options
In any defined-contribution plan, participants incur certain fees and
expenses. Two kinds of fees are at issue in this case: investment management
fees and recordkeeping fees. Investment management fees are charged by the
investment providers and are associated with the services of buying, selling, and
managing investments. Investment fees are typically expressed as an “expense
7
ratio,” that is, a percentage of the assets under management. For mutual funds,
some providers offer different share classes of the same fund: a “retail” share class
available to all investors at one expense ratio and “institutional” share classes with
lower expense ratios available only to investors that satisfy certain minimum
investment amounts—typically institutional investors.
Recordkeeping fees cover necessary administrative expenses such as
tracking account balances and providing regular account statements.
Recordkeeping fees are charged either as a flat fee, with each fund participant
paying a set amount, or by “revenue sharing,” in which the fund pays the
recordkeeper a set portion of the fund’s expense ratio. Recordkeeping services
may be provided by the investment providers themselves or by third parties.
Throughout the class period, Cornell retained two investment providers who also
both served as the Plans’ recordkeepers: Teachers Insurance and Annuity
Association of America-College Retirement Equities Fund (“TIAA-CREF” or
“TIAA”) and Fidelity Investments Inc. (“Fidelity”). Both TIAA and Fidelity
received recordkeeping fees through a revenue sharing model.
The Plans offered approximately 300 investment options throughout the
class period, including fixed annuities (in which the investment returns a
8
contractually specified minimum interest rate), variable annuities (in which the
investment returns a variable interest rate), and mutual funds.
II. Procedural History
Plaintiffs filed their Corrected Amended Complaint (the “Complaint”) on
February 24, 2017, and named as defendants Cornell, the RPOC, Opperman, and
CAPTRUST. The Complaint alleged that Defendants violated their fiduciary
duties under ERISA by failing to monitor and control the recordkeeping fees paid
to TIAA and Fidelity, by failing to review the fees and performances associated
with the Plans’ investment options, and by entering into certain prohibited
transactions.
A. The Alleged ERISA Violations
ERISA imposes various duties on fiduciaries, two of which are relevant here.
The first is the duty of loyalty, which requires that the fiduciary act “solely in the
interest of the participants and beneficiaries . . . for the exclusive purpose of . . .
providing benefits to participants and their beneficiaries[] and . . . defraying
reasonable expenses of administering the plan.” 29 U.S.C. § 1104(a)(1)(A)(i)–(ii).
The second is the duty of prudence, which requires that the fiduciary act “with the
care, skill, prudence, and diligence under the circumstances then prevailing that a
9
prudent man acting in a like capacity and familiar with such matters would use in
the conduct of an enterprise of a like character and with like aims.” Id.§ 1104(a)(1)(B); see also Pension Benefit Guar. Corp. ex rel. St. Vincent Cath. Med. Ctrs.
Ret. Plan v. Morgan Stanley Inv. Mgmt. Inc. (“PBGC”), 712 F.3d 705, 715–17 (2d Cir.
2013) (discussing the “prudent man” standard of care).
Another section of ERISA, 29 U.S.C. § 1106, “codif[ies],” Lowen v. Tower Asset
Mgmt., Inc., 829 F.2d 1209, 1213 (2d Cir. 1987), and “supplements the fiduciary’s
general duty of loyalty to the plan’s beneficiaries, [29 U.S.C. § 1104(a)(1)], by
categorically barring certain transactions deemed ‘likely to injure the [retirement]
plan,’” Harris Trust & Savings Bank v. Salomon Smith Barney Inc., 530 U.S. 238, 241–
42 (2000) (citation omitted). These barred transactions are known as “prohibited
transactions.” 29 U.S.C. § 1106. Though “[t]he standards for fiduciary conduct
in §§ 1104 and 1106 may overlap,” breaching one of these provisions “does not
necessarily” imply that the other has been violated as well. Sweda v. Univ. of Pa.,
923 F.3d 320, 327 (3d Cir. 2019).
The Complaint alleged that Cornell and its appointed fiduciaries violated
their duties of prudence and loyalty under ERISA by: (1) offering certain
products—namely, the CREF Stock Account and Money Market Account, as well
10
as the TIAA Traditional Annuity (“Count I”); (2) failing to monitor and control
recordkeeping fees (“Count III”); and (3) failing to monitor and offer appropriate
investment options (“Count V”). Plaintiffs also brought prohibited transactions
claims on each of these three theories (“Counts II, IV, and VI,” respectively). And
in Count VII, Plaintiffs brought a claim premised on Cornell’s and Opperman’s
general failure to monitor the appointed fiduciaries. 2
As noted by the district court, Count V spans a number of allegations that
Defendants breached their fiduciary duty, specifically that they breached by:
(1) continuing to offer the CREF Stock Account and TIAA Real Estate
Account despite their high fees and poor performance;
(2) selecting and retaining investment options, including actively
managed funds, with high fees and poor performance relative to
other investment options that were readily available to the Plans;
(3) selecting and retaining high-cost retail [class shares of] mutual
funds instead of materially identical lower[-]cost institutional
mutual funds [(i.e., the “share-class claim”)];
(4) selecting and retaining investment options with unnecessary
layers of fees;
(5) failing to consolidate the Plans’ investment options into a “core
lineup,” depriving the Plans of their ability to qualify for lower
cost share classes of certain investments and causing confusion
among plan participants; [and]
2 Plaintiffs’ failure to monitor claim is the seventh claim for relief though it is
incorrectly labeled in the Complaint as “Count VIII.”
11
(6) failing to monitor any of the Plans’ options until October 1, 2014,
and monitoring only “core” investment options after that date.
Cunningham v. Cornell Univ., No. 16-CV-6525 (PKC), 2017 WL 4358769, at *6
(S.D.N.Y. Sept. 29, 2017). 3
B. Defendants’ Motion to Dismiss
On September 29, 2017, the district court granted Defendants’ motion to
dismiss in part as to several claims, but it held that Plaintiffs plausibly alleged that
Defendants failed to monitor recordkeeping fees and underperforming funds.
The court dismissed the duty of loyalty claims in Counts I, III, and V, as well as
the duty of prudence claim in Count I. The court also dismissed the prohibited
transactions claims in Counts II, IV, and VI. In addition, the court dismissed
Count III as to CAPTRUST. Within Count V, the district court found that certain
allegations encompassed by the count (allegations 4, 5, and 6, as identified above)
failed plausibly to allege a breach of the duty of prudence and accordingly
dismissed them. This left within Count V only the claim premised on the
Citations in the form “A. ___,” “S.A. ___,” and “D.J.A. ___” are to Appellants’
3
Appendix, Appellants’ Special Appendix, and Defendants-Appellees-Cross-Appellants’
Appendix, respectively.
12
retention of certain investments (allegations 1 and 2) and the share-class claim
(allegation 3).
Thus, at that stage, the surviving claims were the duty of prudence claim in
Count III as to the Cornell Defendants, the duty of prudence claim in Count V as
to both the Cornell Defendants and CAPTRUST, and the duty to monitor claim in
Count VII as to Cornell and Opperman. With regard to Count VII, the district
court noted, however, that “the duty to monitor claim is only as broad as the
surviving prudence claims and is otherwise dismissed.” S.A. 77.
C. Defendants’ Motion for Summary Judgment
On September 27, 2019, the district court granted summary judgment for
Defendants on nearly all the remaining claims. On the duty of prudence claim in
Count III, relating to the recordkeeping fees, the district court found that material
issues of fact remained as to whether the Cornell Defendants breached their duty
of prudence. However, because Plaintiffs did not present evidence of loss and
abandoned any request for equitable relief, the district court granted summary
judgment to the Cornell Defendants on Count III.
On the duty of prudence claim in Count V, the district court awarded
summary judgment to the Cornell Defendants and CAPTRUST for the retention-
13
of-certain-investments claim. The court also awarded summary judgment to
CAPTRUST on the share-class claim in its entirety and to Cornell on the share-
class claim with the exception of Plaintiffs’ claim that Cornell breached the duty
of prudence by failing to swap out the retail TIAA-CREF Lifecycle target date
funds for their identical institutional share-class funds. By awarding summary
judgment to Defendants on most of Counts III and V, the district court also
disposed of what remained of Count VII, which the district court had deemed to
be derivative of the other claims. Thus, following the district court’s summary
judgment decision, all that remained was the duty of prudence claim against
Cornell relating to the failure to adopt a lower-cost share class of the TIAA-CREF
Lifecycle target date funds.
On December 22, 2020, the district court approved the parties’ settlement of
that remaining portion of the case. This appeal followed.
DISCUSSION
On appeal, Plaintiffs contend that the district court erred in granting in part
both Defendants’ motion to dismiss and Defendants’ motion for summary
judgment. Regarding the dismissed claims, Plaintiffs argue that Count IV of the
14
Complaint stated a plausible claim that Cornell 4 caused the Plans to enter into
prohibited transactions involving the Plans’ recordkeepers, and that the district
court erred in dismissing portions of Count V. 5 In addition, Plaintiffs challenge
the district court’s grant of summary judgment to Defendants on Counts III and
V. In particular, as to Count III, Plaintiffs argue that the district court erred in
holding that Plaintiffs had the burden of proving loss resulting from the alleged
fiduciary breach. We first address the dismissed claims, and then turn to the
district court’s grant of partial summary judgment.
I. Dismissed Claims
We review a district court’s grant of a motion to dismiss under Federal Rule
of Civil Procedure 12(b)(6) de novo. Bacon v. Phelps, 961 F.3d 533, 540 (2d Cir. 2020).
“To survive a motion to dismiss, a complaint must contain sufficient factual matter,
accepted as true, to ‘state a claim to relief that is plausible on its face.’” Ashcroft
v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544,
4 Throughout their briefs, the parties refer to “Cornell” without distinguishing
between Cornell University as an individual party and the collective “Cornell
Defendants.” Because the distinction does not affect our analysis, we do the same
except where explicitly noted.
5Plaintiffs do not appeal the dismissal of Counts I, II, VI, and VII. Accordingly,
we do not address these claims.
15
570 (2007)). “A claim has facial plausibility when the plaintiff pleads factual
content that allows the court to draw the reasonable inference that the defendant
is liable for the misconduct alleged.” Id.Plaintiffs contend on appeal that the district court erred in dismissing their
prohibited transactions claim for failure to state a claim and in parsing Count V by
dismissing certain allegations that Defendants breached their duty of prudence.
We address each of Plaintiffs’ claims in turn.
A. Dismissal of Prohibited Transactions Claim (Count IV)
Plaintiffs challenge the district court’s dismissal of their allegation, in Count
IV, that Cornell violated 29 U.S.C. § 1106(a)(1)(C) by causing the Plans to engage
in prohibited transactions with its recordkeepers, TIAA-CREF and Fidelity.
Section 1106, entitled “Prohibited Transactions,” consists of three provisions
restricting the set of transactions in which plan fiduciaries may engage, two of
which are relevant here: § 1106(b) “codifie[s]” certain core tenets of the duty of
loyalty “by prohibiting [a plan’s fiduciary from engaging in] transactions tainted
by a conflict of interest and thus highly susceptible to self-dealing,” Lowen, 829
F.2d at 1213, while § 1106(a) “supplements the fiduciary’s general duty of
16
loyalty . . . by categorically barring certain transactions” involving a “party in
interest,” Harris Trust, 530 U.S. at 241–42 (quoting 29 U.S.C. § 1106(a)).
Plaintiffs’ claim is premised on this supplementary provision, § 1106(a),
entitled “[t]ransactions between plan and party in interest,” which provides, in
relevant part:
Except as provided in section 1108 of this title:
(1) A fiduciary with respect to a plan shall not cause the plan to
engage in a transaction, if he knows or should know that such
transaction constitutes a direct or indirect—
(A) sale or exchange, or leasing, of any property between the
plan and a party in interest;
(B) lending of money or other extension of credit between
the plan and a party in interest;
(C) furnishing of goods, services, or facilities between the plan and
a party in interest;
(D) transfer to, or use by or for the benefit of a party in
interest, of any assets of the plan; or
(E) acquisition, on behalf of the plan, of any employer
security or employer real property in violation of section
1107(a) of this title.
29 U.S.C. § 1106(a)(1) (emphasis added). In turn, ERISA defines a “party in
interest” of an employee benefit plan to include “a person providing services to
such plan.” Id. § 1002(14)(B).
17
Section 1108, which, as reflected above, is expressly referenced in the text of
§ 1106(a), then provides certain “[e]xemptions from prohibited transactions,”
including, as relevant here, § 1108(b)(2)(A), which permits “[c]ontracting or
making reasonable arrangements with a party in interest for office space, or legal,
accounting, or other services necessary for the establishment or operation of the
plan, if no more than reasonable compensation is paid therefor.” Id.
§ 1108(b)(2)(A).
Reading § 1106(a)(1)(C) in isolation of the exemptions in § 1108, ERISA
would appear to prohibit payments by a plan to any entity providing it with any
services. Invoking the precept that “[a] statute should be interpreted in a way
that avoids absurd results,” United States v. Venturella, 391 F.3d 120, 126 (2d Cir.
2004) (quoting United States v. Dauray, 215 F.3d 257, 264 (2d Cir. 2000)), “[s]everal
courts,” including the Third, Tenth, and Seventh Circuits, “have declined to read
ERISA [in this manner] because it would prohibit fiduciaries from paying third
parties to perform essential services in support of a plan,” including
“recordkeeping and administrative services,” Albert v. Oshkosh Corp., 47 F.4th 570,
584–85 (7th Cir. 2022). The courts to follow this tact have adopted different
means of narrowing the statute. The Third Circuit, in Sweda v. University of
18
Pennsylvania, read the provision to require allegation of “an element of intent to
benefit a party in interest.” 923 F.3d at 338. The Tenth Circuit, in Ramos v.
Banner Health, limited the statute’s apparent scope by holding that “some prior
relationship must exist between the fiduciary and the service provider to make the
provider a party in interest under § 1106.” 1 F.4th 769, 787 (10th Cir. 2021). And
the Seventh Circuit, in Albert, held that, to state a claim, the alleged transaction
must “look[] like self-dealing,” as opposed to “routine payments for plan services.”
47 F.4th at 585.
Two circuits, on the other hand, have embraced the expansive reading of the
statute that these other circuits have rejected as absurd. See Braden v. Wal-Mart
Stores, Inc., 588 F.3d 585, 601 (8th Cir. 2009); Bugielski v. AT&T Servs., Inc., No. 21-
56196, 2023 WL 4986499, at *9–10 (9th Cir. Aug. 4, 2023). In Braden, the Eighth
Circuit held that the plaintiffs had stated a claim under § 1106(a)(1)(C) by alleging
that a plan sponsor caused the plan to enter into an agreement with a party in
interest in which it received “undisclosed amounts of revenue sharing payments
in exchange for services rendered to the [p]lan.” 588 F.3d at 601. Notably, in
reaching this conclusion, the court rejected the defendant’s argument that
§ 1106(a)(1)(C) should be read to require an allegation that the compensation paid
19
was unreasonable, explaining that the exemption for “reasonable compensation”
paid for “necessary” services, reflected in § 1108(b)(2)(A) is an affirmative defense
that need not be addressed in order for a complaint to survive a motion to dismiss.
Id. Though acknowledging that this would require “ERISA fiduciaries . . . to
defend the reasonableness of every service provider transaction,” the court
reasoned that this result was justified by the language of the statute and traditional
principles of trust law. Id. at 601–02. 6 Similarly, in Bugielski, the Ninth Circuit
embraced what it characterized as a “literal reading” of § 1106(a)(1)(C), though—
because the appeal arose from a grant of summary judgment—it did so without
addressing whether the § 1108 exemptions are treated as affirmative defenses at
the pleading stage. 2023 WL 4986499, at *10 (quoting Albert, 47 F.4th at 584).
Following reasoning similar to that embraced by the Third, Tenth, and
Seventh Circuits, the district court here declined to read § 1106(a)(1)(C)
expansively and instead concluded that to state a claim under this provision a
complaint must allege that the challenged transaction involved “self-dealing or
6 The Seventh Circuit, in Allen v. GreatBanc Tr. Co., 835 F.3d 670, 676 (7th Cir. 2016),
later joined the Eighth Circuit in treating the § 1108 exemptions as affirmative defenses
to § 1106(a), though, as discussed above, the court’s subsequent opinion in Albert
narrowed the scope of § 1106(a) to avoid what it characterized as the “absurd results” of
this reading, 47 F.4th at 585.
20
disloyal conduct.” Cunningham, 2017 WL 4358769, at *10 (internal quotation
marks omitted). Holding that Plaintiffs’ Complaint failed to make such
allegations adequately, the district court dismissed the prohibited transaction
claims, including Count IV. On appeal, Plaintiffs urge this Court to reject the
district court’s interpretation of the statute and instead adopt the Eighth and Ninth
Circuits’ more expansive reading. 7
We agree—but only in part. While we agree that the language of
§ 1106(a)(1) cannot be read to demand explicit allegations of “self-dealing or
disloyal conduct,” we do not agree with the Eighth Circuit that, at the pleadings
stage, the § 1108 exemptions should be understood merely as affirmative defenses
to the conduct proscribed in § 1106(a). To the contrary, we conclude that at least
some of those exemptions—particularly, the exemption for reasonable and
necessary transactions codified by § 1108(b)(2)(A)—are incorporated into
§ 1106(a)’s prohibitions. And, accordingly, we hold that to plead a violation of
7 In support of their argument, Plaintiffs cite the preamble of a regulation not
implicated here which broadly summarizes the structure of §§ 1106 and 1108. See
Reasonable Contract or Arrangement Under Section 408(b)(2)—Fee Disclosure, 77 Fed.
Reg. 5632, 5632 (Feb. 3, 2012). Because this prefatory text does not, in our view, bear on
the issue of what conduct is prohibited by § 1106(a)(1)(C), we need not address what, if
any, deference ought to be accorded to the agency’s interpretation. In any case, to the
extent this regulatory language is relevant, it supports our conclusion that § 1106(a)(1)(C)
does not require explicit allegations of self-dealing.
21
§ 1106(a)(1)(C), a complaint must plausibly allege that a fiduciary has caused the
plan to engage in a transaction that constitutes the “furnishing of . . . services . . .
between the plan and a party in interest” where that transaction was unnecessary or
involved unreasonable compensation. 29 U.S.C. §§ 1106(a)(1)(C), 1108(b)(2)(A).
Our reading flows directly from the text and structure of the statute. The
text of § 1106(a) begins with the carveout: “Except as provided in section 1108 of
this title . . . .” 29 U.S.C. § 1106(a). Thus, the exemptions set out in § 1108—
including, most pertinently, the exemption for “reasonable compensation” paid
for “necessary” services, § 1108(b)(2)(A)—are incorporated directly into
§ 1106(a)’s definition of prohibited transactions. This is in contrast to the
language of § 1106(b), governing “[t]ransactions between plan and fiduciary,”
which makes no direct reference to the § 1108 exemptions in setting out the scope
of the transactions it prohibits. See id. § 1106(b). Thus, while § 1106(a) explicitly
incorporates the § 1108 exemptions, that those exemptions also extend to § 1106(b),
to the extent they do, is signaled only by the text of § 1108. See id. § 1108(b) (“[T]he
prohibitions provided in section 1106 of this title shall not apply to any of the
following transactions . . . .”); see also Mendez v. Barr, 960 F.3d 80, 87 (2d Cir. 2020)
(“[W]hen Congress uses certain language in one part of the statute and different
22
language in another, the court assumes different meanings were intended.”
(internal quotation marks omitted)).
This difference is significant in light of the “familiar principle[s]” that guide
our interpretation of statutory text. Meacham v. Knolls Atomic Power Lab’y, 554 U.S.
84, 91 (2008). Typically, when a statute is drafted “with exemptions laid out apart
from the prohibitions,” the exemptions are understood to serve as defenses that
must be raised affirmatively by the defendant. Id. However, that presumption
does not apply when the exemptions are incorporated directly into the text of the
relevant provision. See United States v. Vuitch, 402 U.S. 62, 70 (1971) (“[W]hen an
exception is incorporated in the enacting clause of a statute, the burden is on the
prosecution to plead and prove that the defendant is not within the exception.”);
see also Roth v. CitiMortgage Inc., 756 F.3d 178, 183 (2d Cir. 2014) (holding that a
plaintiff alleging a violation of the Fair Debt Collection Practices Act must plead
that an exception to the definition of a debt collector does not apply). Thus, the
fact that Congress drafted § 1106(a)—but not § 1106(b)—to reference the § 1108
exemptions supports the view that the burden of raising those exemptions lies, at
least in part, with the plaintiff.
23
Further support for this view arises from the role the exceptions play in
articulating the nature of the prohibited conduct. Typically, when “a statutory
prohibition is broad and an exception is quite narrow, it is more probable that the
exception constitutes an affirmative defense.” United States v. Durrani, 835 F.2d
410, 421 (2d Cir. 1987). However, when “the exception [is] not narrow,” such that
it can be “presumed in most cases” that the exemption will ultimately remove the
challenged conduct from the prohibition’s scope, the logical inference cuts in the
opposite direction. United States v. Carey, 929 F.3d 1092, 1103 (9th Cir. 2019). In
such cases, the exception is so “integral . . . to the offense” that it is “part of the
offense’s ‘ingredients.’” Id. at 1101. As the Supreme Court articulated in the
criminal context long ago, “[w]here a statute defining an offense contains an
exception,” the pleadings must allege that the conduct at issue does not fall within
the exception whenever the exception “is so incorporated with the language
defining the offense that the ingredients of the offense cannot be accurately and
clearly described if the exception is omitted.” United States v. Cook, 84 U.S. (17
Wall.) 168, 173 (1872). In other words, when one cannot articulate what the
statute seeks to prohibit without reference to the exception, then the exception
24
should be understood as part of the definition of the prohibited conduct—and thus
its inapplicability must be pled.
In our view, this is such a statute. Section § 1106(a) seeks to prohibit
transactions that “involve uses of plan assets that are potentially harmful to the
plan.” Lockheed Corp. v. Spink, 517 U.S. 882, 893 (1996). And yet, when read in
isolation from its exemptions, § 1106(a) would encompass a vast array of routine
transactions the prohibition of which cannot be consistent with that statutory
purpose. 8 To the contrary, if all payments by plan fiduciaries to third parties in
exchange for plan services were presumptively prohibited, then the plan would
be severely compromised: “Employee benefit plans would no longer be able to
outsource tasks like recordkeeping, investment management, or investment
8 Relatedly, when read in such an expansive manner, § 1106(a) would pull within
its scope various transactions that would not ultimately be deemed prohibited once the
exemptions are considered, thus creating tension with the section’s heading: “Prohibited
Transactions.” See 29. U.S.C. § 1106. As the Supreme Court recently remarked, “[t]he
title of a statute and the heading of a section” have “long [been] considered” to be “tools
available for the resolution of a doubt about the meaning of a statute.” Dubin v. United
States, 143 S. Ct. 1557, 1567 (2023) (internal quotation marks omitted). Reliance on a
section heading is particularly appropriate where, as is the case here, the text of the
heading was enacted along with the statutory text, see ERISA, Pub. L. 93-406, § 406, 88
Stat. 829, 879 (codified as 29. U.S.C. § 1106), as opposed to added later during the
codification process, see Daniel B. Listwa, Comment, Uncovering the Codifier’s Canon: How
Codification Informs Interpretation, 127 YALE L.J. 464, 475–76 (2017) (explaining this
distinction).
25
advising, which in all likelihood would result in lower returns for employees and
higher costs for plan administration.” Albert, 47 F.4th at 586. 9 Such a result
would be inconsistent with the Supreme Court’s “recogni[tion] that ERISA
represents a careful balancing” intended to “induce[] employers to offer benefits
by assuring a predictable set of liabilities.” Conkright v. Frommert, 559 U.S. 506,
517 (2010) (internal quotation marks omitted).
The broad scope of § 1106(a) thus places greater weight on the § 1108
exemptions, in particular § 1108(b)(2)(A), to limit the scope of the statute’s
prohibitions to only those transactions that actually present a risk of harm to the
plan and raise the sort of concerns implicated by the duty of loyalty—the duty
§ 1106(a) has been held to “supplement[].” Harris Trust, 530 U.S. at 241–42. This
is because, while it is true that a fee “so disproportionately large that it bears no
reasonable relationship to the services rendered” raises an inference that it was not
“the product of arm’s length bargaining,” Jones v. Harris Assocs. L.P., 559 U.S. 335,
9 A prohibition on such outsourcing would also create tension with other
provisions in ERISA. For example, under § 1104(a)(1)(A), a fiduciary must discharge his
duties solely in the interests of the participants and their beneficiaries and for the
exclusive purpose of “providing benefits to participants and their beneficiaries” and
“defraying reasonable expenses of administering the plan,” thus seemingly
contemplating that there would be expenses associated with plan administration. 29
U.S.C. § 1104(a)(1)(A).
26
346 (2010) (discussing an analogous provision of the Investment Company Act of
1940, 15 U.S.C. § 80a-35(b)), the same cannot be said of routine payments made to
service providers. Cf. In re Walt Disney Co. Derivative Litig., 907 A.2d 693, 748–49
(Del. Ch. 2005) (explaining that an inference of “bad faith”—and thus of breach of
the duty of loyalty—is permissible when the transaction is one in which “no
business person of ordinary, sound judgment could conclude that the corporation
has received adequate consideration”), aff’d, 906 A.2d 27 (Del. 2006). By contrast,
§ 1106(b) on its face is restricted only to transactions carrying indicia of a conflict
of interest—and, as already noted, does not directly incorporate the § 1108
exemptions. See 29 U.S.C. § 1106(b).
Put simply, when read on its own, § 1106(a)—and in particular,
§ 1106(a)(1)(C), which addresses the “furnishing of goods, services, or facilities
between the plan and a party in interest”—is missing an “ingredient[] of the
offense.” Cook, 84 U.S. (17 Wall.) at 173. That ingredient is the exemption for
“reasonable compensation” paid for “necessary” services, reflected in
§ 1108(b)(2)(A). It is only by incorporating that exemption into the prohibition
set out in § 1106(a)(1)(C), and thus limiting its reach to unnecessary or
27
unreasonable compensation, that the offensive conduct the statute discourages can
“be accurately and clearly described.” Cook, 84 U.S. (17 Wall.) at 174.
In reaching this decision, we leave undisturbed our prior decisions holding
that it is ultimately the defendant fiduciary that bears the burden of persuasion
with regard to the applicability of the § 1108 exemptions. See Lowen, 829 F.2d at
1215 (“We believe that a fiduciary charged with a violation of Section 406(b)(3) . . .
must prove by a preponderance of the evidence that the transaction in question
fell within an exemption.”); Henry v. Champlain Enters., Inc., 445 F.3d 610, 618–19
(2d Cir. 2006) (“Under ERISA, the fiduciary bears the burden of proving by a
preponderance of the evidence that the [plan] received ‘adequate consideration’
[pursuant to 29 U.S.C. § 1108(e)] for its purchase of company stock” where the
seller was a “party in interest.”)
As we explained in Lowen, when construing ERISA’s provisions, we look to
“common law rules regarding trustees” for guidance, and, under such rules, it is
typically the fiduciary—with better access to “information concerning the
transaction in question” and thus “in the best position to demonstrate the absence
of self-dealing”—who ultimately bears the burden of proving the fairness of the
transaction. 829 F.2d at 1215; see also Marshall v. Snyder, 572 F.2d 894, 900 (2d Cir.
28
1978) (“The settled law is that in such situations the burden of proof is always on
the party to the self-dealing transaction to justify its fairness.”). But, “[i]n the law
of trusts,” before the burden shifts to the defendant, it falls on the “beneficiaries
[to] establish[] their prima facie case by demonstrating the trustees’ breach of
fiduciary duty.” N.Y. State Teamsters Council Health & Hosp. Fund v. Est. of
DePerno, 18 F.3d 179, 182 (2d Cir. 1994). In the present case, where Congress has
“supplement[ed] the fiduciary’s general duty of loyalty” with enumerated
prohibitions on certain types of transactions, Harris Trust, 530 U.S. at 241–42, it
follows that while the fiduciary retains the ultimate burden of proving the
appropriateness of the transaction pursuant to § 1108(b)(2)(A), it falls on the
plaintiff in the first instance to allege—and, at the summary judgment stage, to
produce evidence of—facts calling into question the fiduciary’s loyalty by
challenging the necessity of the transaction or the reasonableness of the
compensation provided. 10
Turning to the allegations of Count IV, Plaintiffs allege simply that
“[b]ecause TIAA and Fidelity are service providers and hence ‘part[ies] in interest,’
10 Accordingly, this case presents an example of the fact that, particularly with
regard to statutory regimes where the “exceptions . . . are numerous,” “[t]he burden[] of
proof will not always follow the burden of pleading.” 2 MCCORMICK ON EVID. § 337 (8th
ed.).
29
their ‘furnishing of’ recordkeeping and administrative services to the Plans is a
prohibited transaction unless Cornell proves an exemption.” Appellants’ Br. at
61 (quoting 29 U.S.C. §§ 1106(a)(1), 1108(b)(2)(A)). But, as we have explained, it
falls on Plaintiffs—not Cornell—to allege in the first instance that the transactions
were unnecessary or that the compensation was unreasonable. Plaintiffs have
done neither.
Our conclusion is unchanged when we look—as Plaintiffs ask us to do in
the alternative—beyond the allegations of Count IV and to those of Count III,
which asserts a claim that Cornell breached the duty of prudence by allowing the
Plans to pay unreasonable administrative fees. While Plaintiffs have alleged
several forms of procedural deficiencies with regard to recordkeeping, their
complaint does not plausibly allege that the compensation was itself unreasonable.
For example, Plaintiffs claim that Cornell failed to seek bids from other
recordkeepers and neglected to monitor the amount of revenue sharing received
by TIAA-CREF and Fidelity. Such process-oriented allegations may well be
sufficient to state claim for a breach of the duty of prudence, as the district court
here found, but they cannot sustain a claim pursuant to § 1106(a)(1)(C) and
§ 1108(b)(2)(A).
30
Closer, yet still insufficient, are Plaintiffs’ allegations that the Plans paid
substantially more than what the Complaint identified as a “reasonable
recordkeeping fee.” A. 111. According to the Complaint, “a reasonable
recordkeeping fee for the Plans would have been $1,050,000 in the aggregate for
both Plans combined,” calculated using “a flat fee based on $35 per participant.”
Id. The Plans allegedly paid many times more than that: Plaintiffs alleged that
“the Retirement Plan paid between $2.9 and $3.4 million (or approximately $115
to $183 per participant) per year from 2010 to 2014” and “the TDA Plan paid
between $1.8 and $2.2 million (or approximately $145 to $200 per participant) per
year from 2010 to 2014.” A. 111–12. But it is not enough to allege that the fees
were higher than some theoretical alternative service. Whether fees are excessive
or not is relative “to the services rendered,” Jones, 559 U.S. at 346, and it is not
unreasonable to pay more for superior services. Yet, here, Plaintiffs have failed
to allege any facts going to the relative quality of the recordkeeping services
provided, let alone facts that would suggest the fees were “so disproportionately
large” that they “could not have been the product of arm’s-length bargaining.”
Id. Consequently, we affirm the district court’s dismissal of Count IV.
31
B. “Parsing” of Count V
Plaintiffs also argue that the district court improperly parsed Count V at the
motion-to-dismiss stage by separately addressing each of the six categories of
allegations made in connection with the count and holding that only two—those
relating to the retention of certain high-cost investment options and those relating
to the share-class claim—succeeded in stating claims, while dismissing the others.
When a “complaint relies on circumstantial factual allegations to show a breach of
fiduciary duties under ERISA,” the question on a motion to dismiss is whether
those particular allegations “give rise to a ‘reasonable inference’ that the defendant
committed the alleged misconduct.” PBGC, 712 F.3d at 718–19 (quoting Iqbal, 556
U.S. at 678) (emphasis omitted). This evaluation “requires assessing ‘the
allegations of the complaint as a whole’” and drawing all “reasonable inference[s]”
in the plaintiff’s favor. Id. at 719 (quoting Matrixx Initiatives Inc. v. Siracusano, 563
U.S. 27, 47 (2011)). Where, as here, a plaintiff’s claim of breach depends on a
fiduciary’s process in managing a plan, a court may appropriately find that the
32
allegations “considered as a whole” state a claim for relief even if no single
allegation “directly addresses the process.” Braden, 588 F.3d at 596.
But the imperative that a court consider the complaint “as a whole” does not
mean that in all cases the entirety of any particular count must stand or fall as one.
Far from it. Under the Federal Rules of Civil Procedure, “a plaintiff may plead
two or more statements of a claim, even within the same count, regardless of
consistency.” Henry v. Daytop Vill., Inc., 42 F.3d 89, 95 (2d Cir. 1994) (citing Fed.
R. Civ. P. 8(e)(2) (1987) (current version at Fed. R. Civ. P. 8(d)(2))); see Fed. R. Civ.
P. 8(d)(2) (“A party may set out 2 or more statements of a claim or defense
alternatively or hypothetically, either in a single count or defense or in separate
ones.”). Thus, in a single count, a plaintiff may plead multiple—sometimes
contradictory—theories of liability. When that is the case, it is incumbent on the
court to address each theory on its own merit, separating out as necessary the
allegations underlying the various claims. See, e.g., Rinehart v. Lehman Bros.
Holdings Inc., 817 F.3d 56, 66–67 (2d Cir. 2016) (noting that “[p]laintiffs allege in
Count II” two different “theor[ies]” of imprudence and assessing each theory
separately). That is precisely what the district court did in this case when it
assessed individually each of the categories of allegations included in Count V to
33
determine whether any supported an inference that there were flaws in
Defendants’ processes that could, in turn, give rise to a cause of action for fiduciary
breach.
In challenging the district court’s evaluation, Plaintiffs misunderstand the
limited nature of the district court’s dismissal order. Central to Plaintiffs’
contention of error is their argument that by dismissing the allegations relating to
Cornell’s alleged failure to streamline the investment menus and to engage in
adequate monitoring (the fifth and sixth categories of allegations in Count V,
respectively), the district court precluded consideration of relevant pieces of
“circumstantial evidence supporting the overall claim in Count V that Defendants
had a flawed investment-review process.” Appellants’ Br. at 23. But that is not
what the district court did. The district court’s summary judgment decision, as
well as its Rule 37 order denying Defendants’ motion to exclude evidence
purportedly unrelated to the non-dismissed allegations, made clear that the
court’s determination at the motion-to-dismiss stage was essentially limited to
rejecting claims that breaches of “a procedural duty” could support a claim for
relief even in the absence of allegations of harm resulting to the plan and its
participants. Cunningham v. Cornell Univ., No. 16-CV-6525 (PKC), 2019 WL
344735876, at *11 (S.D.N.Y. Sept. 27, 2019) (quoting In re SunEdison, Inc. ERISA Litig.,
331 F. Supp. 3d 101, 114 (S.D.N.Y. 2018), aff’d sub nom. O’Day v. Chatila, 774 F. App’x
708 (2d Cir. 2019)); see also Cunningham, 2017 WL 4358769, at *6 (“[W]hile plaintiffs
claim that the Plans offered too many options to participants, they do not allege
that any plan participant was actually harmed by defendants’ failure to reduce the
number of options available.”).
Significantly, the district court did not preclude Plaintiffs from relying on
evidence related to those alleged procedural errors to support its theory of breach
and loss premised on the retention of imprudent investment options. To the
contrary, in ruling on summary judgment, the district court extensively discussed
the evidence of Defendants’ putative deficiencies in monitoring the Plans’ options
and their retention of numerous investment options in addressing whether
Defendants had acted imprudently in not removing various underperforming
funds. Cunningham, 2019 WL 4735876, at *11–16. In this context, it is clear that
the district court’s decision on the motion to dismiss was not an improper
“parsing” of Count V, but rather a refining of it so as to identify clearly the theories
upon which Plaintiffs had stated a claim. We accordingly find no merit in
35
Plaintiffs’ objections to the district court’s evaluation of Count V at the motion-to-
dismiss stage.
II. Grant of Summary Judgment
“We review a grant of summary judgment de novo and may affirm on any
basis that finds support in the record.” Tolbert v. Smith, 790 F.3d 427, 434 (2d Cir.
2015) (internal citations omitted). Summary judgment is appropriate “only when
no genuine issue of material fact exists and the movant is entitled to judgment as
a matter of law.” Riegel v. Medtronic, Inc., 451 F.3d 104, 108 (2d Cir. 2006), aff'd,
552 U.S. 312 (2008); see also Fed. R. Civ. P. 56(a). A fact is material if it “might
affect the outcome of the suit under the governing law.” Anderson v. Liberty Lobby,
Inc., 477 U.S. 242, 248 (1986). An issue of material fact is “genuine” if “the
evidence is such that a reasonable jury could return a verdict for the nonmoving
party.” Id. In determining whether summary judgment is appropriate, we
must “construe the facts in the light most favorable to the non-moving party and
must resolve all ambiguities and draw all reasonable inferences against the
movant.” Aulicino v. N.Y.C. Dep’t of Homeless Servs., 580 F.3d 73, 79–80 (2d Cir.
2009) (internal quotation marks omitted).
36
Plaintiffs contend on appeal that the district court erred in granting
summary judgment to Defendants on the duty of prudence claim in Count III,
premised on recordkeeping fees, and those duty of prudence claims in Count V
that survived the motion to dismiss, premised on the retention of
underperforming investment options and on the failure to transition to lower-cost
institutional shares. 11 We address each of Plaintiffs’ claims in turn.
A. Recordkeeping Fees Claim (Count III)
Plaintiffs argue that the district court erred in awarding summary judgment
to the Cornell Defendants on Plaintiffs’ claim that they breached their duty of
prudence by failing to monitor and control the recordkeeping fees paid to TIAA
and Fidelity. In particular, Plaintiffs argue that the Cornell Defendants acted
imprudently by failing (1) to determine whether the amount of revenue sharing
with the recordkeepers was competitive or reasonable; (2) to solicit bids from
competing recordkeepers on a flat fee or per participant basis; and (3) to engage in
a reasoned decision-making process to determine whether the Plans should move
to a single recordkeeper. The district court concluded that genuine issues of
11As discussed supra, the district court granted only partial summary judgment
on Count V.
37
material fact remained with respect to whether the Cornell Defendants breached
the duty of prudence, but nevertheless granted summary judgment in favor of the
Cornell Defendants because Plaintiffs failed to establish that any breach resulted
in loss. Cunningham, 2019 WL 4735876, at *5–7. Because we agree that Plaintiffs
failed to meet their burden as to loss, we affirm. 12
To obtain damages for a fiduciary breach pursuant to 29 U.S.C. § 1104(a), it
is not enough to show that the defendant’s conduct failed to meet the high
standard erected by the duty of prudence; the plaintiff must also prove that a “loss
resulted from that failure.” Silverman v. Mut. Benefit Life Ins. Co., 138 F.3d 98, 104
(2d Cir. 1998); see 29 U.S.C. § 1109(a) (“Any person who is a fiduciary . . . shall be
personally liable to make good to [the] plan any losses to the plan resulting from
[a] breach.”). “Losses are measured by the difference between the plan’s actual
performance and how the plan would have performed if the funds had been
[operated] like other funds being [properly operated] during the same period.”
Trs. of Upstate N.Y. Eng’rs Pension Fund v. Ivy Asset Mgmt., 843 F.3d 561, 567 (2d Cir.
2016) (internal quotation marks and citation omitted). However, in recognition
12Having concluded that Plaintiffs did not meet their burden regarding loss, we
do not address the district court’s determination that genuine issues of material fact
precluded summary judgment on whether the Cornell Defendants breached the duty of
prudence.
38
of the “superior access to information” the fiduciary commonly has, when a
plaintiff alleges excessive fees, we do not require that the plaintiff prove that the
“alternative fee ranges” established by the plaintiff are “the only plausible or
prudent ones.” Sacerdote v. New York Univ., 9 F.4th 95, 113 (2d Cir. 2021) (citation
omitted). Instead, once the plaintiff has “prove[n] that the charged fees were
imprudent,” in the sense that the charges were the result of the fiduciary’s
imprudent actions, and “shown a prudent alternative,” “the burden under ERISA
shifts to the defendant[] to disprove any portion of potential damages by showing
that the loss was not caused by the breach of fiduciary duty”—that is, by showing
that some or all of the loss would have still occurred had “the fiduciary . . . not
breached its duty.” Id. 13
On appeal, Plaintiffs contend that, having advocated a genuine dispute
regarding the Cornell Defendants’ breach of duty, they need only “show an
expenditure for recordkeeping fees” to “establish a genuine dispute regarding
13 Though some of our sister circuits have described this burden-shifting regime
in terms of the distinction between the elements of “loss” and “causation,” see, e.g.,
Brotherston v. Putnam Invs., LLC, 907 F.3d 17, 33 (1st Cir. 2018), we have generally
refrained from doing so because of the confusion such terminology may generate in cases
concerning one fiduciary’s liability for losses relating to another fiduciary’s actions, see
Silverman, 138 F.3d at 106 (Jacobs, J., with Meskill, J., concurring) (noting that requiring
the plaintiff to prove causation served as a check on the “broadly sweeping liability” of a
new fiduciary for plan losses caused by a prior fiduciary’s breaches).
39
loss.” Appellants’ Br. at 51. Mere proof that “the Plans paid TIAA and Fidelity
recordkeeping fees (though the exact amount is disputed)” is all Plaintiffs argue
they must show to make out their prima facie claim. Id. This misunderstands
our precedent. While it is true that Defendants ultimately bear the burden of
proof as to the objective reasonableness of improvidently paid fees, Plaintiffs must
do more than establish only that some payment was made; they must also show,
at a minimum, that there was a “prudent alternative” to the allegedly imprudent
fees paid. Sacerdote, 9 F.4th at 113. That is, Plaintiffs must provide evidence of
a “suitable benchmark[]” against which loss could be measured. Brotherston v.
Putnam Invs., LLC, 907 F.3d 17, 34 (1st Cir. 2018). This they have not done.
At the summary judgment stage, Plaintiffs sought to establish loss primarily
through the testimony of two putative experts on the subject of the market for
contribution plan recordkeeping, Al Otto and Ty Minnich. Both declared that, in
their “experience,” a reasonable recordkeeping rate for the Plans would have been
$35 to $40 per participant. Cunningham, 2019 WL 4735876, at *9–10. But neither
offered any cognizable methodology in support of their conclusions, instead
simply referencing their knowledge of the relevant industry and a few examples
of other university plans that paid lower fees, though without explaining how
40
these putative comparators were selected. Given these deficiencies, the district
court did not abuse its discretion in excluding Otto’s and Minnich’s testimony on
the recordkeeping fees. See In re Pfizer Inc. Sec. Litig., 819 F.3d 642, 665 (2d Cir.
2016) (“If the opinion is based on data, a methodology, or studies that are simply
inadequate to support the conclusions reached, Daubert [v. Merrell Dow
Pharmaceuticals, Inc., 509 U.S. 579 (1993)] and Rule 702 [of the Federal Rules of
Evidence] mandate the exclusion of that unreliable opinion testimony.” (internal
quotation marks omitted)).
After the exclusion of Plaintiffs’ expert testimony, what remains are
numerical data from TIAA and CAPTRUST—scattered numbers of plan
participants, assets, and recordkeeping fees for certain plans—which are
insufficient standing alone to show loss. In particular, Plaintiffs cite (1) TIAA’s
pricing data showing the Plans paid fees higher than the 25th percentile of TIAA’s
“200 largest clients,” A. 2167, 2301–02, and (2) CAPTRUST’s data identifying a
handful of plans with over 10,000 participants that paid lower recordkeeping fees
than the Plans based on certain measures, A. 2303, 2496. But a district court is not
required to “scour the record” to find losses. CILP Assocs., L.P. v. PriceWaterhouse
Coopers LLP, 735 F.3d 114, 125 (2d Cir. 2013) (internal quotation marks omitted).
41
And, as the district court explained, absent admissible “expert testimony opining
on why [these data are] based upon relevant comparators or would lead a
reasonable juror to conclude that Cornell could have achieved lower fees,”
Cunningham, 2019 WL 4735876, at *6, such data are not enough, on their own, to
establish a “prudent alternative” fee, Sacerdote, 9 F.4th at 113, or otherwise prove
loss.
Accordingly, having concluded that Plaintiffs’ evidence was insufficient to
demonstrate a genuine dispute of material fact as to whether the Plans suffered
loss, we affirm the award of summary judgment to the Cornell Defendants on
Count III. 14
B. Retention of Certain Investment Options Claim (Count V)
Next, Plaintiffs challenge the district court’s grant of summary judgment to
Defendants on the claim, found in Count V, that Cornell and CAPTRUST
14In the alternative, Plaintiffs argue that it was improper for the district court to
grant summary judgment on Count III based on the failure to show loss because, in
addition to seeking damages, Plaintiffs sought equitable relief, including reformation of
the Plans to require bids for recordkeeping. See Brock v. Robbins, 830 F.2d 640, 647 (7th
Cir. 1987). However, as the district court noted, Plaintiffs failed to make this argument
below and thus can be inferred to have abandoned it. See Jackson v. Fed. Express, 766 F.3d
189, 198 (2d Cir. 2014) (“[A] court may . . . infer from a party’s partial opposition that
relevant claims or defenses that are not defended have been abandoned”); Katel Ltd. Liab.
Co. v. AT & T Corp., 607 F.3d 60, 68 (2d Cir. 2010) (“An argument raised for the first time
on appeal is typically forfeited.”).
42
employed a flawed process in reviewing the set of investment options made
available through the Plans and, as a result, failed to remove underperforming
options. Plaintiffs’ theory of liability separates the class period into two parts,
with the dividing line being July 2013, when CAPTRUST presented the RPOC with
a quantitative assessment of the Plans’ investment options.
As to the pre-July 2013 period, Plaintiffs argue that Cornell lacked a
sufficient process for reviewing the performance of the investment options,
instead relying on the “opinions of conflicted non-fiduciary third parties (TIAA
and Fidelity) as to whether their proprietary investments complied with ERISA.”
Appellants’ Br. at 33. As to the post-July 2013 period, Plaintiffs largely take issue
with what they characterize as a five-year delay on the part of the RPOC to act on
CAPTRUST’s identification of underperforming funds. They also argue that
CAPTRUST breached its duties by “fail[ing] to review the Plans’ investments for
the first 19 months of its tenure” and then conducting a review that “was of
generally lower quality than its work for other clients.” Id. at 34–35. Because
we conclude that a review of the record fails to reveal sufficient evidence for a
rational trier of fact to find in Plaintiffs’ favor on any of these theories, we affirm
the district court’s grant of summary judgment to Defendants on this claim.
43
To establish a breach of the duty of prudence, a plaintiff must, as discussed
above, show that the fiduciary’s conduct fell below the “[p]rudent man standard
of care.” 29 U.S.C. § 1104(a). An ERISA fiduciary acts imprudently “by failing
to properly monitor investments and remove imprudent ones.” Tibble, 575 U.S.
at 530. Accordingly, “plan fiduciaries are required to conduct their own
independent evaluation to determine which investments may be prudently
included in the plan’s menu of options” and they must “remove [any] imprudent
investment from the plan within a reasonable time.” Hughes v. Nw. Univ., 142 S.
Ct. 737, 742 (2022).
That said, “[b]ecause the content of the duty of prudence turns on ‘the
circumstances . . . prevailing’ at the time the fiduciary acts, the appropriate inquiry
will necessarily be context specific.” Fifth Third Bancorp v. Dudenhoeffer, 573 U.S.
409, 425 (2014) (quoting 29 U.S.C. § 1104(a)(1)(B)). Moreover, “[a]t times, the
circumstances facing an ERISA fiduciary will implicate difficult tradeoffs, and
courts must give due regard to the range of reasonable judgments a fiduciary may
make based on her experience and expertise.” Hughes, 142 S. Ct. at 742. So,
when we ask “whether a fiduciary employed the appropriate methods to
investigate and determine the merits of a particular investment,” we do so “based
44
upon information available to the fiduciary at the time of each investment decision
and not from the vantage point of hindsight.” PBGC, 712 F.3d at 716 (internal
quotation marks and citations omitted).
Given this context-sensitive inquiry, we conclude that no reasonable trier of
fact could determine that Cornell’s process was flawed such that Cornell violated
its duty of prudence. Turning first to the pre-July 2013 period, Plaintiffs have
failed to put forward any evidence suggesting that Cornell’s process for evaluating
the performance of its investment line-up fell below the then-prevailing fiduciary
standard. While Cornell’s oversight did improve with time, it had processes to
review the Plan’s investment options at all points during the class period. As
Paul Bursic, the Senior Director of the Benefits Department, testified, Cornell’s
Benefits Department regularly “received and reviewed detailed performance and
investment disclosures for all the plans’ investment options”—prior to the RPOC’s
formation—which were prepared by TIAA and Fidelity and included
“performance benchmarking information.” D.J.A. 283. In addition to
distributing these disclosures to plan participants, id., the Benefits Department
used them to identify “potential problems,” such as “funds that may be in
trouble,” D.J.A. 194. Though Bursic acknowledged that this level of monitoring
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may fall below the expectations for plan fiduciaries today, he testified that it was
consistent with then-prevailing standards, see D.J.A. 193—a point that Plaintiffs’
evidence does not refute. 15
After the Internal Revenue Service updated its regulations on 403(b) plans,
Cornell formed the RPOC for the purpose of enhancing oversight of the plans.
Cornell then engaged CAPTRUST as an outside consultant and launched a multi-
year process focused on redesigning and streamlining the investment menu. The
process, unsurprisingly, took time to implement. Initially, there was a “set-up
period” during which Cornell “continued to do [its] work as [it] had for years
before through the Benefits [Department],” while also developing an Investment
Policy Statement (“IPS”) with CAPTRUST to guide the evaluation of investment
options going forward. A. 1007, 1056–60. Once the IPS was approved in late
2012, Cornell initiated a much more systematized and in-depth review of the
investment options, beginning in earnest with CAPTRUST’s presentation of its
performance analysis in July 2013.
15 Indeed, though we do not rely on it, we observe that the fact that Plaintiffs’
counsel have brought claims premised on similar purported process failures against
numerous other university plan fiduciaries, see Petition for Writ of Certiorari at 8, Hughes,
142 S. Ct. 737 (No. 19-1401) (noting that the actions against various university 403(b) plans
have all involved “substantively identical” allegations), tends to undermine the
argument that such processes fell below the then-prevailing fiduciary standard.
46
In this context, Cornell considered not only CAPTRUST’s bottom-line
recommendations, but also the quantitative and qualitative criteria described in
the IPS, the availability of options among peer institutions, and the popularity of
options among plan participants in developing a revised menu of investment
options. With regard to the post-July 2013 period, Plaintiffs accuse Cornell of
merely “passively accept[ing]” CAPTRUST’s proposal without engaging more
deeply in the monitoring process. Appellants’ Br. at 37. But, as the district court
explained, such an accusation is inconsistent with the record. The undisputed
evidence shows that the RPOC engaged critically with CAPTRUST’s presentation,
asking questions and, at times, expressing concerns about CAPTRUST’s
methodologies for evaluating particular investments.
Cornell’s review of the Plans ultimately led to the rollout of a new
investment menu beginning in 2017. Plaintiffs argue that this delay in removing
the underperforming investment options fell below the fiduciary standard. But,
given ERISA’s command to evaluate a fiduciary’s actions “based upon
information available to the fiduciary at the time of” the decision, PBGC, 712 F.3d
at 716, we conclude there is no genuine dispute at to whether Cornell acted to
streamline the investment menu “within a reasonable time,” Hughes, 142 S. Ct. at
47
742. As Plaintiffs acknowledge, the delay in rolling out the streamlined
investment menu was largely due to the time the RPOC took to assess the risk of
disruption to participants associated with a drastic change to the investment line-
up and to ensure that alternative investment options would still remain available
to participants.
Though Plaintiffs dismiss these concerns as “nonpecuniary goals” that an
ERISA fiduciary should not be permitted to rely on, Appellants’ Reply Br. at 24,
we disagree. “An ERISA defined[-]contribution plan is designed to offer
participants meaningful choices about how to invest their retirement savings.”
Renfro v. Unisys Corp., 671 F.3d 314, 327 (3d Cir. 2011). Accordingly, in the context
of a defined-contribution plan, one “component of the duty of prudence” is “a
fiduciary’s obligation to assemble a diverse menu of options” for participants.
Hughes, 142 S. Ct. at 741–42. It is thus consistent with the fiduciary’s duty to take
steps to ensure that participants’ ability to make selections among “a broad range
of investment alternatives,” 29 C.F.R. § 2550.404c-(b)(3)(i), is not merely illusory.
We also conclude that no reasonable jury could find that CAPTRUST was
imprudent in its conduct. Plaintiffs’ allegations of delayed and deficient
performance do not find support in the record. As discussed above, upon
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retention, CAPTRUST began working with Cornell to develop its process for
reviewing investment-option performance, helping to create and then effectuate
the IPS. Plaintiffs offer no evidence that it carried out these tasks in a subpar way,
instead merely pointing out differences in the amount of detail between
CAPTRUST’s July 2013 presentation and an analysis provided to a different
university. But Plaintiffs offer no reason to assign to this difference the
significance they suggest. Accordingly, we affirm the district court’s award of
summary judgment to Defendants on this claim.
C. Share Class Claim (Count V)
Finally, Plaintiffs argue that the district court erred in awarding partial
summary judgment to the Cornell Defendants on the share-class claim. With
regard to this claim, the district court concluded that issues of material fact
precluded summary judgment as to whether Cornell violated its fiduciary duty by
failing to swap out the higher-cost retail shares offered through the Plans for
lower-cost, but otherwise identical, institutional shares. Nevertheless, the
district court held that for all the funds other than one in particular—the TIAA-
CREF Lifecycle fund—Plaintiffs had not come forward with evidence that the
funds in question met the eligibility threshold for the lower-cost share classes, thus
49
precluding any finding of loss attributable to Cornell’s purported deficiencies.
Accordingly, the court granted summary judgment to the Cornell Defendants
except with regard to the Lifecycle fund. On appeal, Plaintiffs challenge the
district court’s conclusions regarding loss. In opposition, Cornell Defendants, in
addition to defending the district court’s loss holding, urge us to affirm on the
alternative ground that Plaintiffs’ evidence was insufficient to create a genuine
issue as to whether Cornell acted imprudently. Because we agree that Plaintiffs
failed to produce evidence of imprudence, we affirm.
In its summary judgment decision, the district court explained that Plaintiffs
had presented evidence that, although TIAA began offering identical institutional
share classes for its mutual funds to certain defined contribution plans in 2009,
Cornell did not transition any of its funds to institutional shares with TIAA until
early 2012. The district court held that this was sufficient evidence of imprudence,
relying on its determination that “[t]here is no evidence in the form of affidavits
or otherwise that anyone at Cornell attempted to transition to the institutional
share class funds before February 22, 2012.” Cunningham, 2019 WL 4735876, at
*17. But this analysis overlooked that Cornell did, in fact, present evidence that
it had tried to effectuate such a transition but was rebuffed.
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Specifically, according to his deposition testimony, prior to 2011, Bursic had
“lobbied the president of TIAA” on numerous occasions to allow Cornell’s Plans
to transition to institutional shares, arguing that it was not appropriate for large
plans like Cornell’s to be paying the same fees as the much less sizable plans
associated with small liberal arts colleges like nearby Ithaca College. D.J.A. 189.
Bursic testified that although TIAA “very clearly and very firmly” denied the
requests, he continued to “tr[y] very hard” to push for this change, even as Fidelity
began to permit Cornell to transition to lower-cost share classes in 2010. D.J.A.
130, 136, 189–90. These efforts remained unsuccessful until 2012, when
CAPTRUST became involved and helped Cornell negotiate a new contract with
TIAA that capped the total revenue TIAA could collect from the Plans and had
TIAA refund excess revenue to the Plans. 16
16 Additionally, though it was undisputed that TIAA began offering institutional
share classes for its mutual funds in 2009 and that some non-Cornell 403(b) clients
transitioned to using those share classes around that time, Plaintiffs did not identify any
evidence supporting its contention that TIAA would have then considered the Plans to
be eligible categorically for these types of shares. In particular, although Plaintiffs’ Local
Rule 56.1 statement asserted that all defined contribution plans were eligible for
institutional share classes if they had over $2 million invested in most of the funds, the
record evidence cited therein does not support this claim. See A. 954–60, 2303, 2377–78.
On appeal, Plaintiffs have identified no alternative support for this proposition and, in
any case, “[a] court is permitted to rely solely upon Local Rule 56.1 statements [and the
materials cited therein] in deciding motions for summary judgment” and may do so “to
the exclusion of other facts in the record.” Tompkins v. Metro-N. Commuter R.R. Co., 983
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Given this evidence, a reasonable finder of fact could not conclude that
Cornell could have forced, or should have tried harder to force, TIAA to offer the
Plans the lower-cost share funds at an earlier date. Accordingly, we affirm the
grant of summary judgment for Defendants on this claim.
CONCLUSION
We have considered all of Plaintiffs’ contentions on appeal and have found
in them no basis for reversal. For the foregoing reasons, we AFFIRM the
judgment of the district court. 17 Defendants’ conditional cross-appeals are
dismissed as moot.
F.3d 74, 81 n.26 (2d Cir. 2020).
17Because we do not remand any claims to the district court, Plaintiffs’ arguments
regarding the class period end date and Defendants’ appeal of the district court’s denial
of Cornell’s motion to strike Plaintiffs’ jury demand are moot.
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