Schave v. CentraCare Health Sys.

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Angi Schave, Plaintiff, v. CentraCare Health System, The Board of Directors of CentraCare Health System, and John Does 1 to 40, Defendants.

No. 22-cv-1555 (WMW/LIB)

United States District Court, D. Minnesota

January 27, 2023

ORDER

Wilhelmina M. Wright United States District Judge

Before the Court is Defendants' motion to dismiss Plaintiff's complaint for lack of subject-matter jurisdiction, Fed.R.Civ.P. 12(b)(1), and failure to state a claim on which relief can be granted, Fed.R.Civ.P. 12(b)(6). (Dkt. 8.) For the reasons addressed below, Defendants' motion is granted in part and denied in part.

BACKGROUND

Plaintiff Angi Schave is a Minnesota resident who participated in two retirement benefits plans, a 403(b) plan and a 401(k) plan (collectively, the Plans), sponsored by Defendant CentraCare Health System (CentraCare), which provides health care to people living in central Minnesota. Defendant Board of Directors of CentraCare Health System (Board) acts on behalf of CentraCare to determine the appropriateness of the Plans' investment offerings and monitor investment performance. Defendants John Does 1-40 are unnamed members of the Board and additional officers, employees or contractors of CentraCare who serve as fiduciaries of the Plans.

CentraCare operates the Plans to provide retirement income benefits to its employees. The Plans are “defined contribution” or “individual account” plans as defined by the Employee Retirement Income Security Act (ERISA), 29 U.S.C. §1002(34). Consequently, retirement benefits provided by the Plans are based solely on the amounts allocated to each individual's account. Employees of CentraCare who are 21 years of age or older are eligible to participate in the Plans after their first year of employment. Schave and other participants in the Plans have individual accounts into which they may contribute a portion of their salary. CentraCare contributes to participants' retirement savings by matching a portion of participants' contributions. Defendants are responsible for determining the appropriateness of the Plans' investment offerings and monitoring investment performance.

Schave commenced this action on June 13, 2022, alleging that, in the preceding six years (Class Period), Defendants breached their fiduciary duties when selecting and maintaining investments under the Plans. During the Class Period, Schave alleges Defendants wasted the assets of the Plans and failed to prudently monitor the Plans' funds in several ways. Specifically, Schave alleges that Defendants failed to invest in less expensive share classes available to the Plans invested in funds that charged excessive management fees, and failed to replace high-cost and underperforming funds with nearly identical lower cost and higher performing alternatives. As a result of these alleged breaches of fiduciary duties, Schave maintains, Defendants are liable under ERISA, 29 U.S.C. §§ 1105(a), 1109(a) and 1132(a)(2). Defendants move to dismiss Schave's complaint for lack of subject-matter jurisdiction and failure to state a claim on which relief can be granted. See Fed.R.Civ.P. 12(b)(6).

ANALYSIS

I. Subject-Matter Jurisdiction

Defendants argue that Schave lacks Article III standing to the extent that she asserts claims arising from investments in which she did not invest during the class period.

If a federal district court determines at any time that it lacks subject-matter jurisdiction, the court must dismiss the action. Fed.R.Civ.P. 12(h)(3). Article III of the United States Constitution limits federal jurisdiction to actual cases or controversies. U.S. Const. art. III, § 2, cl. 1; Lujan v. Defenders of Wildlife, 504 U.S. 555, 560 (1992); Hargis v. Access Capital Funding, LLC, 674 F.3d 783, 790 (8th Cir. 2012). As a jurisdictional prerequisite, standing must be established before reaching the merits of a lawsuit. City of Clarkson Valley v. Mineta, 495 F.3d 567, 569 (8th Cir. 2007). To satisfy the requirements of standing, a plaintiff must (1) have suffered an injury in fact, (2) establish a causal relationship between the defendant's conduct and the alleged injury, and (3) show that the injury would be redressed by a favorable decision. Lujan, 504 U.S. at 560-61.

A defendant may challenge a plaintiff's complaint for lack of subject-matter jurisdiction either on its face or on the factual truthfulness of its averments. See Fed.R.Civ.P. 12(b)(1); Titus v. Sullivan, 4 F.3d 590, 593 (8th Cir. 1993). In a facial challenge, as presented here, the nonmoving party “receives the same protections as it would defending against a motion brought under Rule 12(b)(6).” Osborn v. United States, 918 F.2d 724, 729 n.6 (8th Cir. 1990). Under Rule 12(b)(6), a complaint must allege sufficient facts that, when accepted as true, state a facially plausible claim to relief. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). When determining whether the complaint states such a claim, a district court accepts as true all factual allegations in the complaint and draws all reasonable inferences in the plaintiff's favor. Blankenship v. USA Truck, Inc., 601 F.3d 852, 853 (8th Cir. 2010). A district court also may consider exhibits attached to the complaint and documents that are necessarily embraced by the complaint. Mattes v. ABC Plastics, Inc., 323 F.3d 695, 697 n.4 (8th Cir. 2003).

Defendants argue that Schave lacks standing to challenge investment options in which she was not enrolled because she does not have a particularized and concrete injury pertaining to those investment options. But the United States Court of Appeals for the Eighth Circuit has held that an ERISA plaintiff has standing to challenge an entire retirement plan, even if the plaintiff did not enroll in all of the challenged investment options. See Braden v. Wal-Mart Stores, Inc., 588 F.3d 585, 593 (8th Cir. 2009). In Braden, the court concluded that the plaintiff had adequately alleged that his retirement account suffered because of the defendants' alleged breach of their fiduciary duties. Id. at 592. Consequently, the plaintiff could proceed “on behalf of the plan or other participants” even though the relief sought “sweeps beyond [plaintiff's] own injury.” Id. at 593; see also Parmer v. Land O'Lakes, Inc., 518 F.Supp.3d 1293, 1301 (D. Minn. 2021); Larson v. Allina Health Sys., 350 F.Supp.3d 780, 792 (D. Minn. 2018). Under the reasoning in Braden, Schave has Article III standing to pursue the claims in this case.

Defendants seek to avoid this result by relying on Thole v. U.S. Bank N.A., in which the Supreme Court of the United States held that the plaintiffs lacked standing to challenge a defined-benefit retirement plan. 140 S.Ct. 1615, 1619 (2020). But the Supreme Court, in Thole, observed that “[o]f decisive importance to this case, the plaintiff's retirement plan is a defined-benefit plan, not a defined-contribution plan.” Id. at 1618. Whereas participants in a defined-benefit plan will receive fixed payments each month that do not fluctuate with the plan's value or investment decisions, participants in a defined-contribution plan receive payments “tied to the value of their accounts, and the benefits can turn on the plan fiduciaries' particular investment decisions.” Id. Here, Schave challenges decisions pertaining to defined-contribution plans. Thole, therefore, is inapposite. Consistent with Braden, Schave has Article III standing to challenge the investment options under the Plans in this case.^[1]

Accordingly, the Defendants' motion to dismiss for lack of subject-matter jurisdiction is denied.

II. Adequacy of the Complaint

Defendants also move to dismiss Schave's complaint for failure to state a claim on which relief can be granted. See Fed.R.Civ.P. 12(b)(6).

A complaint 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). A plaintiff need not prove her case at the pleading stage, nor do the pleadings require detailed factual allegations to survive a motion to dismiss. Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007); L.L. Nelson Enters., Inc. v. County of St. Louis, 673 F.3d 799, 805 (8th Cir. 2012) (observing that “specific facts are not necessary” and pleadings “need only give the [opposing party] fair notice of what the claim is and the grounds upon which it rests” (internal quotation marks omitted)). To survive a motion to dismiss, a complaint must allege sufficient facts to state a facially plausible claim to relief. Iqbal, 556 U.S. at 678. Factual allegations that raise only a speculative right to relief are insufficient. Twombly, 550 U.S. at 555. A district court accepts as true all of the plaintiff's factual allegations and views them in the light most favorable to the plaintiff. Stodghill v. Wellston Sch. Dist., 512 F.3d 472, 476 (8th Cir. 2008). But legal conclusions couched as factual allegations are not accepted as true. Twombly, 550 U.S. at 555. And mere “labels and conclusions” or a “formulaic recitation of the elements of a cause of action” fail to state a claim for relief. Id.

Under ERISA, “a fiduciary with respect to a plan who breaches any of the responsibilities, obligations, or duties imposed upon fiduciaries by this subchapter shall be personally liable to make good to such plan any losses to the plan resulting from each such breach,” together with other enumerated relief. 29 U.S.C. § 1109(a). In some circumstances, a fiduciary also must be held liable for a co-fiduciary's breach of fiduciary duty. 29 U.S.C. § 1105(a). ERISA authorizes a plan participant to bring a civil action for appropriate relief based on an alleged breach fiduciary duties under Section 1109. 29 U.S.C. § 1132(a)(2).

To state a claim for breach of fiduciary duty under ERISA “a plaintiff...