Hagins v. Knight-Swift Transp. Holdings

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Robert Hagins, et al., Plaintiffs, v. Knight-Swift Transportation Holdings Incorporated, Defendant.

No. CV-22-01835-PHX-ROS

United States District Court, D. Arizona

May 24, 2023

ORDER

Roslyn O. Silver Senior United States District Judge

Plaintiffs filed a class action complaint alleging violations of the Employee Retirement Income Security Act, 29 U.S.C §§ 1001-1461 (“ERISA”). (Doc. 1). Plaintiffs allege Defendant breached its fiduciary duties and that it failed to monitor other fiduciaries, as required by ERISA. Defendant filed a Motion to Dismiss Plaintiffs' complaint. (Doc. 16). For the reasons below, the motion is denied.

BACKGROUND

I. Factual Background

Plaintiffs allege as follows, with some facts reserved for later discussion. Plaintiffs are participants of the Knight-Swift Transportation Holdings, Inc. Retirement Plan (“the Plan”). (Doc. 1 at ¶ 7). The Plan is a defined contribution retirement plan, in which “participants' retirement benefits are limited to the value of their own individual investment accounts, which is determined by the market performance of employee and employer contributions, less expenses.” (Id. at ¶ 2, quoting Tibble v. Edison Int'l, 575 U.S. 523 (2015)). Defendant is the Plan Sponsor and Plan Administrator and is thus a fiduciary of the Plan. (Id. at ¶ 26-27).

A. Breach of Fiduciary Duty

Plaintiffs' first claim alleges Defendant breached its fiduciary duty under ERISA by mismanaging the Plan. Plaintiffs allege two factual bases for this claim.

First, Plaintiffs allege Defendant failed to monitor or control the Plan's recordkeeping expenses paid to a third-party, Principal Life Insurance Company. (Id. at ¶¶ 45-81). Defendant allegedly paid direct and indirect recordkeeping expenses, both of which Plaintiffs allege were excessive. Part of these expenses were paid through a practice known as “revenue sharing,” where payments are derived from a percentage of participants' individual accounts. (Id. at ¶ 50). Thus, Plaintiffs allege the recordkeeping expenses bear no relation to services provided. (Id. at ¶ 53). “If asset-based fees are not monitored,” Plaintiffs allege, regardless of the work conducted by the recordkeeper, “the fees skyrocket as more money flows into the Plan.” (Id. at ¶ 55). Plaintiffs allege Defendant had an obligation to monitor and control recordkeeping fees to ensure that such fees remain reasonable. (Id. at ¶¶ 57-60). But Plaintiffs allege that while the Plan's assets have “exploded over the past six years,” Defendant has failed to reassess the recordkeeping fees, resulting in an “explosion” of payments via revenue sharing as well. (Id. at ¶¶ 61, 80).

Second, Plaintiffs allege Defendant breached its fiduciary duty by selecting more expensive share classes participants may choose to invest in instead of low-cost institutional shares of the same funds. (Id. at ¶¶ 87-88). Plaintiffs claim the Plan participants are invested in imprudent share classes that are about twice as expensive than other shares of the same funds. (Id. at ¶ 89).

B. Failure to Monitor Other Fiduciaries

Plaintiffs' second claim alleges Defendant, as Plan Sponsor, failed to monitor the fiduciaries in the Retirement/Deferred Compensation Plan Administrative Committee (“Committee”). Plaintiffs allege the Defendant failed to monitor the Committee's oversight of the Plan, resulting in significant losses. (Id. at ¶¶ 136-137).

ANALYSIS

I. Motions to Dismiss

A pleading must contain a “short and plain statement of the claim showing that the pleader is entitled to relief.” Fed.R.Civ.P. 8(a)(2). “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, 555 (2007) (internal citations omitted)). “[W]here the well-pleaded facts do not permit the court to infer more than the mere possibility of misconduct, the complaint” has not adequately shown the pleader is entitled to relief. Id. at 679. Although federal courts ruling on a motion to dismiss “must take all of the factual allegations in the complaint as true, [they] ‘are not bound to accept as true a legal conclusion couched as a factual allegation.'” Id. at 678 (quoting Twombly, 550 U.S. at 555).

II. ERISA Claims

“ERISA is a comprehensive statute designed to promote the interests of employees and their beneficiaries in employee benefit plans.” Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 90 (1983). ERISA plan fiduciaries must discharge their duties “with the care, skill, prudence, and diligence under the circumstances then prevailing that a 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.” Hughes v. Northwestern Univ., 142 S.Ct. 737, 739 (2022) (quoting 29 U.S.C. § 1104(a)(1)(B)). “[A] fiduciary normally has a continuing duty of some kind to monitor investments and remove imprudent ones.” Id. at 741 (quoting Tibble, 575 U.S. at 530). Plaintiffs' claims here arise out of Defendant's alleged breach of its fiduciary duty of prudence.

“In an ERISA case, ‘a complaint does not need to contain factual allegations that refer directly to the fiduciary's knowledge, methods, or investigations at the relevant times,' because ‘[t]hese facts will frequently be in the exclusive possession of the breaching fiduciary.'” Coppel v. SeaWorld Parks & Entertainment, Inc., No. 3:21-CV-01430-RSH-DDL, 2023 WL 2942462, at *7 (S.D. Cal. Mar. 22, 2023) (quoting Bouvy v. Analog Devices, Inc., No. 19-CV-881-DMS (BLM), 2020 WL 3448385, at *3 (S.D. Cal. June 24, 2020)). “Thus, ‘[e]ven when the alleged facts do not directly address[] the process by which the Plan was managed, a claim alleging a breach of fiduciary duty may still survive a motion to dismiss if the court, based on circumstantial factual allegations, may reasonably ‘infer from what is alleged that the process was flawed.'” Wehner v. Genentech, Inc., No. 20-CV-06894, 2021 WL 507599, at *4 (N.D. Cal. Feb. 9, 2021) (quoting Pension Ben. Guar. Corp. ex rel. St. Vincent Cath. Med. Ctr. Ret. Plan v. Morgan Stanley Inv. Mgmt. Inc., 712 F.3d 705, 718 (2d Cir. 2013)).

A. Judicial Notice and Motion to Strike

Together with its motion to dismiss, Defendant filed various documents as exhibits. Defendant asks the Court to take judicial notice of these documents. (Doc. 16 at 6-7). Defendant argues the Court may consider publicly filed documents, and the Court may consider documents referenced in Plaintiffs' complaint. (Id.) Plaintiffs, on the other hand, have moved to strike Exhibits 1-12 attached to Defendant's motion to dismiss. (Doc. 19). Plaintiffs argue the documents were not attached to or relied on in Plaintiffs' complaint. (Doc. 19 at 3). Plaintiffs further contest the accuracy of the information in the exhibits. (Doc. 19 at 5).

A court generally may not consider any material beyond the pleadings when ruling on a Rule 12(b)(6) motion. See Hal Roach Studios, Inc. v. Richard Feiner Co., 896 F.2d 1542, 1555 n.19 (9th Cir. 1990). “However, documents appended to the complaint, incorporated by reference in the complaint, or which properly are the subject of judicial notice may be considered along with the complaint when deciding a Rule 12(b)(6) motion.” In re LinkedIn ERISA Litig., No. 5:20-CV-05704-EJD, 2021 WL 5331448, at *3 (N.D. Cal. Nov. 16, 2021) (citing Khoja v. Orexigen Therapeutics, 899 F.3d 988, 998 (9th Cir. 2018)). But the Court “may not take judicial notice of disputed facts contained in such public records.” Id.

The Court agrees with Defendant that the 2021 Form 5500 is referenced numerous times in Plaintiff's complaint. (See Doc. 1 at ¶¶ 29, 68-69). Additionally, Plaintiffs do reference one comparator plan in the complaint. (Id. at ¶¶ 77-78). Accordingly, the Court will take judicial notice of those two Form 5500s (Exhibits 3 and 4).

However, the remaining forms are not specifically referenced in the complaint, and Plaintiffs object to the Court taking notice of them. Many of the cases Defendant cites to support its argument that the Court may take judicial notice of these documents are ones in which the plaintiffs did not oppose such notice. See, e.g., In re LinkedIn ERISA Litig., 2021 WL 5331448, at *5; Terraza v. Safeway, Inc., 241 F.Supp.3d 1057, 1066-67 (N.D. Cal. 2017); Coppel, 2023 WL 2942462, at *10; Kurtz v. Vail Corp., 511 F.Supp.3d 1185, 119192 (D. Colo. 2021); Johnson v. Providence Health & Servs., No. C17-1779-JCC, 2018 WL 1427421, at *3, n.5 (W.D. Wash. Mar. 22, 2018); White v. Chevron Corp., No. 16-CV-0793-PJH, 2017 WL 2352137, at *5 (N.D. Cal. May 31, 2017).

Since Plaintiffs object to the Court judicially noticing these additional documents, and since Defendant urges the Court to review the documents to address factual disputes, it is inappropriate for the Court to take notice of those documents. See, e.g., Urakhchin v. Allianz Asset Mgmt. of Am., L.P., No. SACV-15-1614-JLS, 2016 WL 4507117, at *4 (C.D. Cal. Aug. 5, 2016) (where Plaintiffs object, taking judicial notice only of the existence of the matters of public record, but not one party's interpretation of the record nor the truth of the matter asserted therein). Plaintiffs' motion to strike will be granted in part and denied in part.

B. Breach of Fiduciary Duty

Defendant argues Plaintiffs have failed to state a claim for breach of fiduciary duty.^[1]Plaintiffs' complaint alleges Defendant breached its fiduciary duty of prudence under ERISA in two ways. First, they allege Defendant failed to monitor or control the fees the Plan paid to Principal, its recordkeeper. Second, they allege Defendant failed to select prudent share...