Fleming v. Rollins, Inc.

655 F.Supp.3d 1243

Marcia G. FLEMING, Casey Freeman, David Guyon, Anthony Loscalzo, Patrick Roseberry, and Julio Samaniego, individually, on behalf of the Rollins, Inc. 401(k) Savings Plan, and on behalf of all similarly situated participants and beneficiaries of the Plan, Plaintiffs, v. ROLLINS, INC., et al., Defendants.

1:21-CV-05343-ELR

United States District Court, N.D. Georgia, Atlanta Division

Signed January 30, 2023

Jon D. Pels, Katerina M. Newell, The Pels Law Firm, Bethesda, MD, Paul Joseph Sharman, The Sharman Law Firm, LLC, Alpharetta, GA, for Plaintiffs.

Jeffrey S. Russell, Pro Hac Vice, Bryan Cave Leighton Paisner LLP, St. Louis, MO, Ann Wrege Ferebee, Michael Peter Carey, William Bard Brockman, Bryan

Cave Leighton Paisner LLP, Atlanta, GA, for Defendants Rollins, Inc., The Administrative Committee of The Rollins, Inc. 401(k) Savings Plan, Paul E. Northen, John Wilson, Jerry Gahlhoff, James Benton, A. Keith Payne.

Alexandra Belzley, Pro Hac Vice, Christopher J. Boran, Pro Hac Vice, Kevin F. Gaffney, Pro Hac Vice, Morgan, Lewis & Bockius LLP, Chicago, IL, Cameron Blaine Roberts, Michael A. Caplan, Julia Blackburn Stone, Caplan Cobb LLP, Atlanta, GA, for Defendants Alliant Insurance Services, Inc., Alliant Retirement Services, LLC.

Caroline Anna Wong, Pro Hac Vice, Mark Bruce Blocker, Sidley Austin LLP, Chicago, IL, Fredric Joseph Bold, Jr., Jeffrey W. Chen, Bondurant Mixson & Elmore, LLP, Atlanta, GA, Kamal Ghali, Chaiken Ghali LLP, Atlanta, GA, for Defendants Empower Retirement, LLC, Prudential Bank & Trust, FBS.

ORDER

Eleanor L. Ross, United States District Judge

There are several matters presently before the Court. The Court sets forth its reasoning and conclusions below.

I. Background¹

Plaintiffs Marcia G. Fleming, Casey Freeman, David Guyon, Anthony Loscalzo, Patrick Roseberry, and Julio Samaniego bring this putative class action pursuant to the Employee Retirement Income Security Act of 1974, 29 U.S.C. § 1001, et seq. ("ERISA"). See Am. Compl. p. 5 [Doc. 53]. Plaintiffs are former and current participants in the Rollins, Inc. 401(k) Savings Plan (the "Plan"). Id. ¶ 1. Plaintiffs allege that Defendants Rollins, Inc., the Rollins Administrative Committee of the Plan and its individual members (Paul E. Northern, John Wilson, Jerry Gahlhoff, James Benton, and A. Keith Payne) (collectively, the "Rollins Defendants"); Empower Retirement, LLC f/k/a Prudential Insurance and Annuity Company ("PRIAC") and Prudential Bank & Trust, FSB ("PB & T") (together, the "Prudential Defendants"); LPL Financial LLC ("LPL"); and Alliant Insurance Services, LLC and Alliant Retirement Services, Inc. (together, the "Alliant Defendants") violated ERISA throughout their administration of and involvement with the Plan. See generally id.

A. The Plan

The Plan is an ERISA "defined contribution, individual account, employee benefit plan[.]"²Id. ¶ 1. Plan participants such as Plaintiffs pay retirement funds into the Plan which are held in a trust administered by their employer and an advisory committee: the Rollins Defendants. See id. ¶¶ 28-29; [Doc. 53-1 at 61]. The Rollins Defendants hold "complete control of the administration of the Plan," including the authority to choose the funds in which to invest Plan participants' contributions, monitor expenses, and employ various entities to service the Plan. See Am. Compl. ¶¶ 45-47; [see also generally Doc. 53-1 at 61-62]; 29 U.S.C. § 1002.

Several entities serviced the Plan at issue, including Defendant LPL and the Alliant Defendants (as investment advisors and managers), PRIAC (as the Plan's record-keeper), and PB & T (as the Plan's directed trustee).³See Am. Compl. ¶¶ 28-29, 53-56.

Plan participants "bear not only the investment risk of the Plan administrators' decisions but also the costs of any excessive investment and administrative expenses as well." Am. Compl. ¶ 3. Indeed, "[a] fiduciary's mismanagement of plan assets leading to an investment lineup filled with poor-performing investments and excessive fees" can significantly diminish participants' expected return. See id. ¶ 7.

B. Plan Investments and Expenses

Plan participants can choose to invest their contributions in one or more of "a menu of investment options ... [that] were selected and maintained by [the Rollins Defendants] with input ... and advice" from the Prudential Defendants, LPL, and the Alliant Defendants. See id. ¶ 87. If a Plan participant does not make specific investment choices, their contributions are automatically invested in GoalMaker, a default asset allocation program that purportedly invests funds based on a participant's age and risk tolerance and that was allegedly "provided" to the Plan and the Rollins Defendants by PRIAC. See id. ¶¶ 90-94. Plaintiffs allege that since January 1, 2009, more than seventy percent (70%) of Plan participants have been enrolled in GoalMaker. See id. ¶ 92. Once enrolled in GoalMaker, Plan participants are not able to "change the recommended allocations without being disenrolled in the service." See id. ¶ 95. Plaintiffs allege that GoalMaker was populated with only actively managed mutual funds which seek to "beat the market" and achieve higher returns by engaging in frequent purchases and sales. See id. ¶ 96. These funds offer a riskier investment management strategy and charge higher fees (such as distribution and transaction fees) compared to passively managed funds such as index funds. See id. ¶¶ 97-98. Within these mutual funds, investors may also choose between different classes of funds (such as retail and institutional funds) that charge different fees, offer different services, and result in varying expense ratios and revenue sharing amounts.⁴ See id. ¶¶ 152-54.

The largest fund in GoalMaker throughout the Class Period was PRIAC's Guaranteed Income Contract (the "GIC"). See id. ¶ 174. The GIC is a "stable value fund," which is a "conservative, capital preservation investment product typically composed of high quality, low risk investments" and is "designed to provide steady, positive returns and pay a contractually guaranteed return known as a crediting rate." Id. ¶ 175. PRIAC allegedly received a "spread fee" representing the difference between this crediting rate and the generated GIC fund returns. See id. ¶¶ 177-78. According to Plaintiffs, PRIAC had the "sole discretion" to set this crediting rate. See, e.g., id.

Additionally, the Plan pays recordkeeping and investment advisory fees to LPL, the Alliant Defendants, and the Prudential Defendants for their various services. See id. ¶ 205. Each of these Defendants are compensated through revenue sharing agreements as well as other indirect compensation generated by the Plan's investments. See id. ¶¶ 208, 219, 241, 246, 263, 346. Revenue sharing agreements generally pay service providers such as LPL, the Alliant Defendants, and the Prudential Defendants through revenue generated by the mutual funds that the Plan is invested in rather than by billing the Plan administrators directly. See id. ¶¶ 208-14. According to Plaintiffs, these fee arrangements are preferred by service providers because "they readily can obtain an increase in revenue without having to ask their plan clients to take affirmative steps to pay a higher fee[.]" Id. ¶ 213.

The gravamen of Plaintiffs' claims is their allegation that the Rollins Defendants, with the assistance of all other Defendants, caused the Plan to imprudently invest in high-expense, poorly performing funds, including those offered by the Prudential Defendants through GoalMaker. See generally id. Plaintiffs contend that these funds paid excessive revenue sharing fees and other indirect compensation and benefits to LPL, the Alliant Defendants, and the Prudential Defendants at the expense of the Plan's participants. See generally id. They assert that the Rollins Defendants engaged the Plan in this arrangement because they failed to implement a prudent process for making investment decisions and had a self-serving interest in keeping the Plan from being directly billed for fees so they could conceal the high costs that were passed off to Plan participants and "taken out of revenue generated by the investment funds" rather than billing the Rollins Defendants directly for the recordkeeping and investment advisor services offered by LPL, the Alliant Defendants, and the Prudential Defendants. See id. ¶¶ 245-50.

II. Procedural History

On December 10, 2020, pursuant to Section 11.7 of the Plan, Plaintiffs submitted pre-suit claims based on alleged violations and breaches of ERISA and the Plan to the Administrative Committee for review. See id. ¶ 80; [Doc. 53-1 at 56-59]. Following the Administrative Committee's denial of their claims, Plaintiffs filed the instant suit on December 30, 2021. See Am. Compl. ¶¶ 80-83; see also generally Compl. [Doc. 1].

In their Amended Complaint, Plaintiffs bring seven (7) Counts for various purported violations of ERISA based on Defendants' alleged breaches of fiduciary duties and engagement in prohibited transactions. See Am. Compl. ¶¶ 390-501. In response to Plaintiffs' Amended Complaint, the Rollins Defendants, LPL, the Alliant Defendants, and the Prudential Defendants filed separate motions to dismiss. [Docs. 75, 76, 77, 78]. Plaintiffs oppose each of these motions.⁵ [Docs. 79, 80, 81, 82]. Having been fully briefed, Defendants' motions are now ripe for the Court's review. The Court first sets forth the relevant legal standard before turning to Defendants' motions.

III. Legal Standard

To survive a Rule 12(b)(6) 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.'" See Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (citing Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007)). Put differently, a plaintiff must plead "factual content that allows the court to draw the reasonable...