Parmer v. Land O'Lakes, Inc.

518 F.Supp.3d 1293

Craig PARMER and Mark A. Laurance, individually and on behalf of all others similarly situated, Plaintiffs,

v.LAND O'LAKES, INC. ; The Board of Directors of Land O'Lakes, Inc.; Land O'Lakes, Inc. Retirement Plan Committee; and John Does 1-30, Defendants.

Civil No. 20-1253(DSD/HB)

United States District Court, D. Minnesota.

Signed February 8, 2021

Filed February 9, 2021

Mark K. Gyandoh, Esq. and Capozzi Adler, 312 Old Lancaster Road, Merion Station, PA 19066 and Vernon J. Vander Weide, Esq. and Lockridge Grindal Nauen PLLP, 100 Washington Ave South, Suite 2200, Minneapolis, MN 55401, counsel for plaintiffs.

Christopher J. Boran, Esq. and Morgan, Lewis & Bockius LLP, 77 West Wacker Drive, Suite 500, Chicago, IL 60601 and Stephen P Lucke, Esq. and Dorsey & Whitney LLP, 50 South 6th Street, Suite 1500, Minneapolis, MN 55402, counsel for defendants.

ORDER

David S. Doty, Judge

This matter is before the court upon the motion of defendants Land O'Lakes, Inc. (Company), the Board of Directors of Land O'Lakes, Inc. (Board), Land O'Lakes, Inc. Retirement Plan Committee (Committee), and John Does 1-30 (collectively, defendants)¹ to dismiss for lack of jurisdiction and failure to state a plausible claim. Based on a review of the file, record, and proceedings herein, and for the following reasons, the motion to dismiss is granted in part and denied in part.

BACKGROUND

This Employee Retirement Income Security Act of 1974 (ERISA) dispute arises out of defendants’ administration and maintenance of the Land O'Lakes Employee Savings & Supplemental Retirement Plan (Plan). Plaintiffs Craig Parmer and Mark Laurance are former employees of Land O'Lakes who participated in the Plan during their employment and enrolled in three of the Plan's investment options. Compl. ¶¶ 13-15; Glenn Decl. ¶ 20. Defendants are the Plan's fiduciaries. Id. ¶¶ 1, 17, 18-21. The Board, in its fiduciary capacity, appointed members to the Committee and monitored the Committee's actions and Plan investments and exercised discretionary authority over Plan assets. Id. ¶¶ 22-23, 25-26.

I. The Plan

The Plan is a defined-contribution retirement plan under which participants can contribute a percentage of their eligible compensation each year, and the Company matches the contributions depending on each employee's start date. Id. ¶¶ 1, 30, 33-36. Plaintiffs allege that the Company enjoyed significant benefits, including tax and cost savings, given the size of the Plan. Id. ¶¶ 37-39.

In 2018, the Plan offered participants twenty-eight investment options, including twenty-two mutual funds, one collective trust, two Wells Fargo Short-Term investments, two stable value funds, and one separately managed account composed of several common stocks, including various T. Rowe Price (TRP) target date funds.² Id. ¶ 40. The Plan's assets for all funds at the end of 2018 were over $1.4 billion. Id. ¶ 42. Administrative expenses were charged to participant accounts on a monthly basis, which included expenses to pay for "the Plan's website and call center, producing and mailing quarterly statements, and complying with government regulations." Id. ¶ 43.

II. Breach of Fiduciary Duties

Plaintiffs allege that defendants breached their fiduciary duties by not acting in the best interests of the Plan participants as mandated by ERISA. Id. ¶¶ 51-59. Specifically, plaintiffs assert that defendants breached their fiduciary duties by (1) failing to investigate and select lower cost alternative funds, (2) failing to monitor or control the Plan's recordkeeping expenses, and (3) allowing their recordkeeping affiliates to directly benefit from the Plan at the expense of their participants. Id. ¶ 138.

A. Failure to Investigate and Select Lower Cost Alternative Funds

Plaintiffs allege that defendants imprudently selected and maintained funds that wasted Plan assets because of unnecessary costs. Id. ¶ 68. Plaintiffs use a combination of expense ratios, or the "measure of what it costs to operate a fund expressed as a percentage of its assets," and data from other available funds to support this allegation. Id. ¶ 71. Plaintiffs use four different benchmarks to plead that defendants breached their duty of prudence.

First, plaintiffs allege that defendants offered Plan funds with excessive fees even though there were "comparable" alternatives with lower fees. Id. ¶¶ 68-76. Plaintiffs compare eighteen of the Plan's investment options’ expense ratios to median expense ratios in "similar plan categories."³ All of the Plan's investment options were above the median expense ratio when compared within "the same category." Id. ¶¶ 74-76.

Second, plaintiffs allege that, because of the size of the Plan, defendants should have invested in the lowest cost share class available. Id. ¶¶ 77-80. Using 2020 expense ratios, plaintiffs allege that the Plan's funds are more expensive than their identical institutional class, or "I-Class," counterparts, without countervailing benefits. Id. ¶¶ 80, 85. Plaintiffs allege that defendants knew or should have known that cheaper share classes were available and should have transferred the Plan's funds into those investments. Id. ¶¶ 81-87.

Third, plaintiffs allege that defendants failed to investigate the availability of collective trusts, which are typically more cost effective. Id. ¶¶ 88-96.

Fourth, plaintiffs allege that defendants failed to offer lower cost "passively managed" and "actively managed" funds.⁴ Id. ¶¶ 97-109. Plaintiffs assert that the Plan's funds’ expense ratios were higher than comparable funds without a high risk/return. Id. ¶¶ 101-05. In other words, the Plan paid more in expenses but did not see higher returns in exchange. Additionally, plaintiffs allege that defendants cannot justify selecting actively managed funds over passively managed funds because actively managed funds do not perform as well long term, are less efficient, are more expensive, and have higher risk with lower returns. Id. ¶¶ 106-07, 109.

B. Failure to Monitor Recordkeeping/Administrative Expenses

Plaintiffs also allege that defendants failed to prudently monitor recordkeeping costs incurred by Alight Solutions, one of the Plan's recordkeepers, in breach of their fiduciary duty. Id. ¶¶ 114-31. Specifically, plaintiffs allege that defendants failed to: explore other providers to see if there was a more cost effective option, id. ¶ 122, monitor Alight's exorbitant fees, id. ¶¶ 122-27, and negotiate lower fees given the size of the Plan, id. ¶¶ 127-31.

C. Relationship with Financial Engines

Defendants "partner[ed]" with Financial Engines, which "provides independent, objective advice from unbiased experts, quarterly retirement updates, online account monitoring to help participants stay on track and a personalized plan." Id. ¶ 111. Between 2014 and 2018, participants paid $5.1 million dollars to Financial Engines in "advice fees" and "professional management fees," over half of which Financial Engines remitted to Alight and Hewitt Associates, the Plan's recordkeepers. Id. ¶¶ 112-13. Plaintiffs allege that defendants breached their duty of loyalty by entering into this arrangement with Financial Engines to the participants’ detriment. Id. ¶¶ 132-34.

III. This Lawsuit

On May 26, 2020, plaintiffs filed this putative class action alleging that defendants breached their fiduciary duties of loyalty and prudence under ERISA through the acts or inattention set forth above. Id. ¶¶ 135-41. Plaintiffs also assert that the Company and the Board failed to adequately monitor the Committee and other related fiduciaries. Id. ¶¶ 142-48. Plaintiffs seek class certification, declaratory relief, equitable relief, and damages. Id. ¶ 149. Defendants now move to dismiss the complaint for lack of subject matter jurisdiction and failure to state a plausible claim.

DISCUSSION

I. Standing

A. Standard of Review

A court must dismiss an action over which it lacks subject-matter jurisdiction. Fed. R. Civ. P. 12(h)(3). In a facial challenge under Rule 12(b)(1), the court accepts the factual allegations in the pleadings as true and views the facts in the light most favorable to the nonmoving party. See Hastings v. Wilson, 516 F.3d 1055, 1058 (8th Cir. 2008) ; see also Osborn v. United States, 918 F.2d 724, 729 n.6 (8th Cir. 1990) ("[T]he nonmoving party receives the same protections [for facial attacks under Rule 12(b)(1) ] as it would defending against a motion brought under Rule 12(b)(6).") (citation omitted). As a result, the court limits its inquiry to the pleadings, matters of public record and materials necessarily embraced by the pleadings. See Porous Media Corp. v. Pall Corp., 186 F.3d 1077, 1079 (8th Cir. 1999) (listing materials court may consider in a 12(b)(6) challenge); Osborn, 918 F.2d at 729 n.6. Accordingly, the court may consider the individual Plan retirement account statements for both named plaintiffs for the purposes of determining standing. See Glenn Decl. ¶ 20.

B. Analysis

Plaintiffs challenge eighteen of the Plan's twenty-five investment options, even though they only enrolled in three of those options. Defendants argue that plaintiffs lack standing to challenge investment options in which they were not enrolled because they do not have a particularized and concrete injury relating to those options. Plaintiffs respond that they need not personally invest in each fund to have standing because they suffered overall injury from defendants’ fiduciary breaches and are entitled to bring a class action suit in a representative capacity under 29 U.S.C. § 1132(a)(2).

The court finds that plaintiffs have standing to challenge the entire Plan. To establish standing, a plaintiff must show injury in fact. Lujan v. Defenders of Wildlife, 504 U.S. 555, 560, 112 S.Ct. 2130, 119 L.Ed.2d 351 (1992). A plaintiff must allege (1) an injury, (2) "fairly traceable to the defendant's alleged conduct," that is (3) "likely to be redressed by the requested relief." Allen v. Wright, 468 U.S. 737, 751, 104 S.Ct. 3315, 82 L.Ed.2d...