District Court Grants Motion to Dismiss, Interpreting the Supreme Court’s Hughes v. Northwestern Decision

Key Takeaway: A district court granted the defendants’ motion to dismiss claims alleging excessive fees, and in so doing found that the Supreme Court’s recent decision in Hughes v. Northwestern did not affect the pleading standard for at least the claims at issue.

On April 7, 2022, the U.S. District Court for the Western District of Pennsylvania granted the defendants’ motion to dismiss in a case alleging that the defendants breached their fiduciary duty by failing to evaluate and reduce recordkeeping fees and investment management fees for Wesco Distribution’s 401(k) plan. Specifically, the plaintiffs alleged that the plan improperly paid its recordkeeper through asset-based revenue sharing, which they alleged grew to unreasonable levels based on the growth of plan assets. Along those same lines, the plaintiffs alleged that the plan should have used lower-cost share classes for certain of the mutual funds offered in the plan, instead of retail share classes with higher fees and which provided for revenue sharing payments. To demonstrate that the plan’s administrative and recordkeeping fees were excessive, the plaintiffs compared the plan’s fees with fees of purportedly similar plans, as reflected in a consultant’s survey.

The district court granted the defendants’ motion to dismiss with leave to amend, finding that the plaintiffs had insufficiently presented only a “price tag to price tag” comparison of recordkeeping fees without pleading the complete nature and scope of services provided to the plan or by the recordkeepers of other plans. Although the plaintiffs argued that they could not plead more details regarding recordkeeping fees because they did not have access to the plan’s recordkeeping agreement, the court did not find that argument persuasive, noting that ERISA requires defendants to provide a copy of the recordkeeping agreement upon request and that the plaintiffs did not make such a request. The Court also dismissed the plaintiffs’ share-class allegations, finding that merely alleging the use of retail share classes is insufficient to state a claim for fiduciary breach. For example, plaintiffs failed to address whether the retail share classes may have offered other benefits to the plan than did institutional share classes. In ruling on the motion to dismiss, the court found that the decision by the Supreme Court in Hughes v. Northwestern University did not “shift[] the pleading standards” for ERISA claims and so did not otherwise affect the court’s analysis of the plaintiffs’ complaint. This is one of the first decisions to interpret Hughes. Goodwin’s analysis of the Hughes decision can be found here.

The case is Mator v. Wesco Distrib., Inc., No. 21-00403, in the Western District of Pennsylvania. The decision is available here. The plaintiffs amended their complaint on April 1, 2022 and the defendants have again moved to dismiss.