Boley v. Universal Health Servs., Inc.

498 F.Supp.3d 715

Mary K. BOLEY, et al.

v.UNIVERSAL HEALTH SERVICES, INC., et al.

CIVIL ACTION NO. 20-2644

United States District Court, E.D. Pennsylvania.

Filed October 30, 2020

Kolin Tang, Shepherd Finkelman Miller Shah LLP, Newport Beach, CA, Alec Berin, James C. Shah, Michael P. Ols, Shepherd Pinkelman Miller Shah LLP, Philadelphia, PA, James E. Miller, Shepherd Finkelman Miller & Shah, LLP, Chester, CT, Lisa W. Basial, Mark K. Gyandoh, Donald R. Reavey, Capozzi Adler, P.C., Harrisburg, PA, for Mary K. Boley, Kandie Sutter, Phyllis Johnson.

Brian T. Ortelere, Morgan Lewis & Bockius LLP, Philadelphia, PA, Deborah S. Davidson, Morgan Lewis & Bockius LLP, Chicago, IL, Sean K. McMahan, Stephen K. Dixon, Morgan, Lewis & Bockius LLP, Washington, DC, for Universal Health Services, Inc., The UHS Retirement Plans Investment Committee.

MEMORANDUM

KEARNEY, District Judge

Employers creating and monitoring an employee retirement plan offering a variety of investment funds which allow employees to choose their investments among those offered in the plan subject to market fluctuation must comply with fiduciary duties defined by Congress in the Employee Retirement Income Security Act of 1974. Congress permits the employees to sue if the employers and their designated retirement plan fiduciaries allow the retirement plan to pay inappropriate management fees or otherwise lose value for reasons arguably within their control. But employees typically cannot challenge losses in funds they did not invest in. But as our Court of Appeals recently instructed, the employees can challenge decisions which affect the value of the plan if they can allege specific extra costs affecting their funds and thus imposed upon them. We today address a plan fiduciaries’ motion to partially dismiss arguing the employees lack constitutional standing to recover for losses in investments they did not invest. Upon scrutiny, we deny the motion as the employees sufficiently allege constitutional standing to pursue claims based on fees and investment decisions affecting them directly. The plan fiduciaries’ arguments may be appropriate in limine for damages or in challenging the employees’ ability to serve as class representatives but do not warrant dismissal.

I. Alleged facts¹

Universal Health Services sponsors the Universal Health Services, Inc. Retirement Savings Plan, a defined contribution retirement plan under which qualified employees may invest a percentage of their income in one or more of over thirty available investment options and Universal Health will match a portion of their contributions.² As the Plan sponsor, Universal Health is a fiduciary of the Plan under the Employee Retirement Income Security Act of 1974 ("ERISA").³ Universal Health's Administrative Committee is responsible for selecting the Plan's various investment options in which participants may invest.⁴

As of 2018, the Plan included 41,872 participants with assets totaling over $1.9 billion, rendering the Plan among the largest defined contribution retirement plans in the country.⁵ The Plan's investment options consisted of mutual funds and a collective investment trust.⁶ The Plan's offerings included several actively managed funds, which charge higher fees than passively managed funds, and mutual funds, which charge higher fees than other investment vehicles like collective trusts.⁷ In 2018, at least nineteen of the Plan's funds cost the participants more money than comparable funds found in similarly-sized plans.⁸ Plan participants each paid annual recordkeeping fees of $44, although the Plan should have been able to obtain these services at much lower costs.⁹

Former Universal Health employees Mary Boley, Kandie Sutter, and Phyllis Johnson, on behalf of themselves and others similarly situated, sues Universal Health and its Investment Committee under ERISA, alleging they breached their fiduciary duties, including by:

• retaining a suite of thirteen expensive and underperforming actively managed target date funds despite the availability of lower cost, passively managed index funds;

• failing to monitor the excessive recordkeeping fees and administrative costs charged to Plan participants relative to other similarly large plans; and

• offering an excessively expensive menu of investment options by:

• failing to monitor average expense ratios of similarly sized plans;

• failing to identify and select collective trusts where available; and

• failing to monitor investment options to ensure they were in the least expensive available class share.¹⁰

They allege the Fiduciaries further breached their duties by failing to monitor the Committee's appointees.¹¹ These breaches lost the Plan millions of dollars.¹² They bring these claims on behalf of the Plan under section 1132(a)(2).¹³

II. Analysis

The Fiduciaries move to partially dismiss the Employees’ claims under Federal Rule 12(b)(1), arguing they lack constitutional standing to pursue claims relating to alleged losses in discrete investments they never selected.¹⁴ The Fiduciaries argue Ms. Boley, Ms. Sutter, and Ms. Johnson only invested in seven of the Plan's funds during the putative class period and therefore lack standing to bring claims about the remaining funds.¹⁵ They rely on the Supreme Court's recent analysis in Thole v. U.S. Bank, N.A.¹⁶ to argue the named participants cannot demonstrate injury with respect to the funds they did not invest in because "[w]in or lose, [p]laintiffs will receive ‘not a penny less’ (or more)."¹⁷ The Employees argue they have alleged injury with respect to each of their claims–which implicate "plan-level conduct" – and may therefore bring their claims on behalf of the Plan.¹⁸ We agree with the Employees and find they have standing.

To demonstrate Article III standing, each Employee must allege (1) she suffered an injury in fact, (2) fairly traceable to the Plan's challenged conduct, and (3) likely to be redressed by a favorable judicial decision.¹⁹ To establish injury in fact, a Employee must show she suffered "an invasion of a legally protected interest" that is "concrete and particularized" and "actual or imminent, not conjectural or hypothetical."²⁰ "Standing allegations need not be crafted with precise detail, nor must the plaintiff prove his allegations of injury."²¹

The Employees seeking relief under ERISA must demonstrate injury to one's own plan account to have Article III standing.²² She may show injury through "[d]iminished returns relative to available alternative investments and high fees ... regardless of whether the plaintiff suffered an actual loss on his investment or simply realized a more modest gain."²³ The Employee may also satisfy this requirement by alleging an injury to a plan's assets unrelated to specific funds, if plan participants are all assessed a portion of the injury.²⁴ Once an ERISA plaintiff has alleged injury to her own account, she "may seek relief under § 1132(a)(2) that sweeps beyond [her] own injury."²⁵ Whether an individual may bring ERISA claims in a representative capacity on behalf of all plan participants, however, is a question of class certification rather than standing.²⁶

The Supreme Court recently addressed Article III standing in the ERISA context in Thole .²⁷ Two participants in a defined-benefit plan, on behalf of a putative class of participants, brought an action under ERISA alleging plan fiduciaries breached their duties of loyalty and prudence for mismanaging the plan's assets.²⁸ The Court found the participants lacked constitutional standing to assert their claims because they lacked a concrete stake in the outcome out the lawsuit; due to the nature of defined-benefit plans, the participants would continue to receive the same fixed payments each month from the plan and could not demonstrate that a win or a loss in the litigation would affect these fixed payments.²⁹

Our Court of Appeals recently reversed the dismissal of similar ERISA claims under section 1132(a)(2) in Sweda v. University of Pennsylvania finding plan participants (1) plausibly alleged fiduciaries breached their duties and (2) had Article III standing to bring their claims.³⁰ The plan participants alleged the fiduciaries breached their duties by, among other things, "paying unreasonable investment fees, including and retaining high-cost investment options with historically poor performance compared to available alternatives, and retaining multiple options in the same asset class and investment style."³¹ Our Court of Appeals found the plan participants demonstrated individual injury to bring the breach of fiduciary duty claims by alleging "one or more of the named [p]laintiffs ... invested in underperforming options including the CREF Stock and TIAA Real Estate accounts"; this allegation sufficiently "link[ed] the named plaintiffs with the underperforming investment options" for standing.³²

We are reviewing the Fiduciaries’ partial Motion to dismiss based on standing as to specific funds Ms. Boley, Ms. Sutter, and Ms. Johnson did not personally invest in even though they allege a Plan-wide breach as to process. The Fiduciaries’ argument is akin to an in limine motion or possible typicality argument on class certification. Judge Edgardo Ramos recently evaluated – and denied – a similar argument in Falberg v. Goldman Sachs Group, Inc.³³ He declined to dismiss ERISA breach of fiduciary duty claims even though the plan participant only invested in three of the five proprietary funds at issue.³⁴ Judge Ramos found the plan participant had standing to bring his claims because he alleged "millions in losses to the Plan resulting from Defendants’ decision to maintain underperforming, high cost funds, which specifically affected him as a participant invested in several of them."³⁵ He further found the allegation the fiduciaries acted in their own interest by offering a category of proprietary, high-cost funds applied to all participants who invested in any one of those funds.³⁶

We can...