Pizarro v. Home Depot, Inc.

634 F.Supp.3d 1260

Jaime H. PIZARRO, Craig Smith, Jerry Murphy, Randall Ideishi, Glenda Stone, Rachelle North, Marie Silver, and Garth Taylor, on behalf of themselves and all others similarly situated, Plaintiffs, v. The HOME DEPOT, INC.; The Administrative Committee of the Home Depot FutureBuilder 401(k) Plan; The Investment Committee of The Home Depot FutureBuilder 401(k) Plan; and Does 1-30, Defendants.

Civil Action No. 1:18-cv-01566-SDG

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

Signed September 30, 2022

Andrew Melzer, Pro Hac Vice, David H. Tracey, Pro Hac Vice, David Sanford, Pro Hac Vice, Sanford Heisler Sharp, LLP, New York, NY, Aparajit Bhowmik, Jeffrey Herman, Molly DeSario, Nicholas De Blouw, Norman Bernard Blumenthal, Pro Hac Vice, Blumenthal Nordrehaug Bhowmik De Blouw, LLP, San Diego, CA, Charles Henry Field, Edward Dewey Chapin, Sanford Heisler Sharp, San Diego, CA, Kevin Hunter Sharp, Pro Hac Vice, Leigh Anne St. Charles, Sanford Heisler Sharp, LLP, Nashville, TN, Sean Ouellette, Pro Hac Vice, Sanford, Heisler, Sharp, LLP, Washington, DC, T. Brandon Welch, Stillman Welch, LLC, Chamblee, GA, for Plaintiff Jaime H. Pizarro.

Andrew Melzer, Pro Hac Vice, David H. Tracey, Pro Hac Vice, David Sanford, Pro Hac Vice, Sanford Heisler Sharp, LLP, New York, NY, Charles Henry Field, Edward Dewey Chapin, Sanford Heisler Sharp, San Diego, CA, Kevin Hunter Sharp, Pro Hac Vice, Leigh Anne St. Charles, Sanford Heisler Sharp, LLP, Nashville, TN, Sean Ouellette, Pro Hac Vice, Sanford, Heisler, Sharp, LLP, Washington, DC, T. Brandon Welch, Stillman Welch, LLC, Chamblee, GA, for Plaintiff Craig Smith.

Andrew Melzer, Pro Hac Vice, David H. Tracey, Pro Hac Vice, David Sanford, Pro Hac Vice, Sanford Heisler Sharp, LLP, New York, NY, Charles Henry Field, Edward Dewey Chapin, Sanford Heisler Sharp, San Diego, CA, Norman Bernard Blumenthal, Blumenthal Nordrehaug Bhowmik De Blouw, LLP, San Diego, CA, Kevin Hunter Sharp, Pro Hac Vice, Leigh Anne St. Charles, Sanford Heisler Sharp, LLP, Nashville, TN, Sean Ouellette, Pro Hac Vice, Sanford, Heisler, Sharp, LLP, Washington, DC, T. Brandon Welch, Stillman Welch, LLC, Chamblee, GA, for Plaintiffs Jerry Murphy, Randall Ideishi, Glenda Stone, Rachelle North, Marie Silver.

Benjamin Bruce Watson, Danielle Chattin, Darren A. Shuler, David Tetrick, Jr., King & Spalding LLP, Atlanta, GA, for Defendants The Home Depot, Inc., The Administrative Committee of the Home Depot Futurebuilder 401(K) Plan, The Investment Committee of the Home Depot Futurebuilder 401(K) Plan.

Deanna M. Rice, Pro Hac Vice, Meaghan McLaine VerGow, Pro Hac Vice, O'Melveny & Myers LLP, Washington, DC, William Bard Brockman, Bryan Cave Leighton Paisner LLP, Atlanta, GA, for Amicus The Chamber of Commerce of the United States of America.

OPINION AND ORDER

Steven D. Grimberg, United States District Court Judge

This matter is before the Court on cross-motions for summary judgment [ECF 227; ECF 238] filed by Defendants The Home Depot, Inc.; The Administrative Committee of The Home Depot Future-Builder 401(k) Plan; and The Investment Committee of The Home Depot Future-Builder 401(k) Plan (collectively, Home Depot Defendants or Defendants)¹; and Plaintiffs Jaime H. Pizarro, Craig Smith, Jerry Murphy, Randall Ideishi, Glenda Stone, Rachelle North, Marie Silver, and Garth Taylor, on behalf of themselves and all others similarly situated (collectively, Plaintiffs). Also pending before the Court are Home Depot Defendants' motions to exclude the opinions and testimony of Plaintiffs' experts, Drs. Arthur B. Laffer and Gerald Buetow [ECF 234; ECF 236], and Plaintiffs' motion for recusal [ECF 333].

The Court has carefully considered the parties' extensive briefing,² the proposed orders they submitted,³ as well as the U.S. Chamber of Commerce's brief of amicus curiae and Plaintiffs' response thereto.⁴ Although it occurred before this case was reassigned to undersigned, the Court also carefully reviewed the transcript of the oral argument held on February 24, 2022.⁵ For the reasons set forth below, Plaintiffs' motion for recusal [ECF 333] is DENIED. Home Depot Defendants' summary judgment motion [ECF 227] is GRANTED and Plaintiffs' partial summary judgment motion [ECF 238] is DENIED. Home Depot Defendants' motions to exclude expert testimony [ECF 234; ECF 238] are DENIED as moot.

I. Background...1269

A. Factual Background...1270

1. The Plan and Its Committees, Advisors, and Delegees...1270

2. Professional Managed Account Services...1271

i. Merrill Lynch...1272

ii. The Transition to Financial Engines...1272

iii. Home Depot Defendants' Monitoring Efforts and Negotiations...1273

a. Monitoring Efforts...1273

b. Negotiations and Asset-Based Fee Pricing...1273

c. FE's Competitors...1275

3. Investment Options...1276 i. JPMorgan Fund...1276

a. Purpose...1276

b. Fiduciary Monitoring and Fund Performance...1276

ii. BlackRock TDFs...1277

a. Purpose...1277

b. Fiduciary Monitoring and Fund Performance...1277

iii. Small Cap Funds...1278

a. TS&W Fund...1278

1. Purpose...1278

2. Fiduciary Monitoring and Fund Performance...1279

b. Stephens...1279

1. Purpose Fund...1279

2. Fiduciary Monitoring and Fund Performance...1279

B. Procedural Background...1280

II. Motion for Recusal...1280

III. Summary Judgment...1281

A. Procedural Issues...1282

1. Home Depot Defendants' "Successive" Summary Judgment Motions...1282

2. The Burden to Prove Loss Causation...1283

3. Plaintiffs' "Failure to Recoup" Claim...1284

B. Plaintiffs' ERISA Claims...1285

1. The Excessive Fees Claim...1286

i. Home Depot Defendants' Monitoring of FE's and AFA's Fees...1287

ii. Loss Causation...1287

a. Professional Management Fees Relative to Other FE and AFA Clients...1288

b. The Plan's Other Options for Professional Managed Account Services...1289

2. The Challenged Funds Claims...1290

i. The BlackRock TDFs...1291

a. Home Depot Defendants' Monitoring...1291

1. Use of the BlackRock Custom Benchmarks and Consideration of Peer Funds...1292

2. BlackRock TDFs' Underperformance...1295

b. Loss Causation...1297

ii. JPMorgan Fund...1298

a. Home Depot Defendants' Monitoring...1298

b. Loss Causation...1299

iii. Small Cap Funds...1300

a. TS&W Fund...1300

1. Home Depot Defendants' Monitoring...1300

2. Loss Causation...1302

b. Stephens Fund...1303

1. Home Depot Defendants' Monitoring...1303

2. Loss Causation...1304

IV. Home Depot Defendants' Motions to Exclude...1304

V. Conclusion...1304

I. Background⁶

Unless otherwise noted, the following facts are undisputed or not subject to any genuine dispute.⁷

A. Factual Background

This matter arises under the Employee Retirement Income Security Act of 1974 (ERISA). Plaintiffs are current and former employees of The Home Depot, Inc. (Home Depot) who participated in the Home Depot FutureBuilder 401(k) plan (the Plan) from April 2012 until the time of judgment (the Class Period).⁸ Plaintiffs allege that Home Depot Defendants—the fiduciaries of the Plan—breached their fiduciary duties under ERISA in two principal ways.⁹ First, Plaintiffs allege that the Home Depot Defendants failed to prudently monitor the investment advisory services offered to Plan participants by third-party professional managed account services providers, resulting in "excessive" fees charged to the Plan (the Excessive Fees Claim). Second, Plaintiffs allege that Home Depot Defendants failed to prudently monitor and remove certain Plan investment options that performed poorly relative to other available investment options (the Challenged Funds Claims).¹⁰

1. The Plan and Its Committees, Advisors, and Delegees

The Plan is a defined contribution, individual account retirement plan governed by ERISA.¹¹ Plan participants invest a portion of their earnings by selecting from a menu of investment options, which the Home Depot Defendants have elected to offer; Home Depot also makes certain matching contributions.¹² The balance of each participant's account is the sum of their investments and certain matching contributions from Home Depot in light of any income, expenses, gains, and losses.¹³ The Plan is "one of the largest [401(k)] plans in America,"¹⁴ with approximately 193,000 participants and $4.1 billion in assets by year-end 2012, and 230,000 participants and $9 billion in assets by year-end 2019.¹⁵

Defendants the Administrative Committee (AC) and the Investment Committee (IC) of the Plan (together, the Plan Committees) are responsible for managing the Plan. The Plan Committees and their members—all of whom are Home Depot employees—are the Plan's named fiduciaries.¹⁶

During the Class Period the Plan Committees held individual committee meetings to discuss the Plan. The IC met quarterly¹⁷ and was responsible for adopting an updated written investment policy statement (IPS), which set out guidelines for selecting and monitoring Plan investments;¹⁸ evaluating, selecting, reviewing, and monitoring the Plan's investments; periodically reviewing each fund's performance results and fee structures; and monitoring the reasonableness of expenses paid from the Plan's assets.¹⁹ The AC met at least once a year and was responsible for the administration of the Plan.²⁰ Home Depot Defendants maintain that the Plan Committees also conducted business out-side of regularly scheduled meetings, though Plaintiffs dispute the extent to which that occurred.²¹

The Plan Committees were counseled by outside advisors at various points throughout the Class Period. For example, the Plan Committees relied on Aon Hewitt Investment Consultants (AHIC).²² AHIC routinely prepared materials (i.e., Discussion Guides) for the Plan Committees before meetings.²³ AHIC also prepared quarterly reports (Quarterly Investment Reviews or QIRs) for the Plan Committees' review.²⁴ The contents of the Discussion Guides and QIRs are discussed below where relevant. While the parties dispute whether, at various points during the Class Period, AHIC's Discussion Guides and QIRs contained adequate information for the Home Depot Defen...