Feinberg v. T. Rowe Price Group, Inc. et al

Filing 58

MEMORANDUM. Signed by Chief Judge James K. Bredar on 8/20/18. (krs, Deputy Clerk)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MARYLAND
DAVID G. FEINBERG, and all
others similarly situated

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Plaintiffs
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vs.

CIVIL ACTION NO. MJG-17-0427
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T. ROWE PRICE GROUP, INC. et al.
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Defendants
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MEMORANDUM
The Court has before it Defendants T. Rowe Price Group, Inc. et al’s Motion to Dismiss
Plaintiffs’ First Amended Complaint [ECF No. 35], Plaintiffs’ Motion to Exclude Exhibits 1 to
15 Attached to Defendants’ Motion to Dismiss [ECF No. 38], and the materials relating thereto
submitted by the parties. The Court has also reviewed a recording of a hearing held before the
Honorable Marvin J. Garbis on April 5, 2018, just before he retired from judicial service, and
just before the matter was transferred to the undersigned.

I.

BACKGROUND1
Defendant T. Rowe Price Group, Inc. (“T. Rowe Price”) is a large mutual fund and

financial services organization that provides a broad range of services to consumers and
corporate customers.

1

The “facts” herein are as alleged by Plaintiff and are not necessarily agreed upon by
Defendants.

Plaintiffs2 are, or were during the relevant time period,3 employees of Defendant T. Rowe
Price and participated in the T. Rowe Price U.S. Retirement Program (“401(k) Plan” or “Plan”),
which is a defined contribution 401(k) Plan. Plaintiffs have filed this purported class action
pursuant to the Employee Retirement Income Security Act of 1974, as amended, (“ERISA”), 29
U.S.C. §§ 1132(a)(2) and (a)(3), for violations of ERISA’s fiduciary duty and prohibited
transaction provisions.
T. Rowe Price is the sponsor, a fiduciary of the 401(k) Plan, and a party-in-interest to the
Plan under 29 U.S.C. § 1002(14). Defendant T. Rowe Price Associates, Inc. (“T. Rowe Price
Associates”) is a wholly-owned subsidiary of T. Rowe Price and provides investment advisory
services to all of T. Rowe Price’s in-house mutual funds. Defendant T. Rowe Price Trust
Company (“T. Rowe Price Trust”) is also a wholly-owned subsidiary of T. Rowe Price. It offers
trustee services and is the investment manager of the T. Rowe Price Collective Investment Trust
funds in the 401(k) Plan. Plaintiffs refer to T. Rowe Price Associates and T. Rowe Price Trust
collectively as T. Rowe Price Investment Affiliates.
Plaintiffs also name as Defendants T. Rowe Price U.S. Retirement Program Trustee Does
1-40 (“Trustees”).4

The Trustees are named Plan fiduciaries and had the authority and

responsibility to select, monitor, and remove or replace investments offered in the 401(k) Plan.
Plaintiffs name two committees as responsible for appointing and removing Trustees: T. Rowe
Price Management Committee (“Management Committee”) and T. Rowe Price Management

2

David G. Feinberg, Regina Widderich, Jitesh Jani, Sital Jani, James Collins, Farrah
Qureshi, Daniel Newman, Maria Stanton, Daniel Fialkoff, Michelle Bourque, and Thomas
Henry, on behalf of themselves, individually and on behalf of all others similarly situated.
3
The relevant time period alleged is February 14, 2011 to time of judgment.
4
Plaintiffs do not currently know the names of the individual Trustees.

2

Compensation Committee (“Management Compensation Committee”).5 At some point during
the relevant time period, the Management Compensation Committee assumed the responsibility
from the Management Committee for appointing and removing Trustees. Plaintiffs refer to the
“Appointing Fiduciary Defendants” as the group of Defendants T. Rowe Price, the Management
Committee and its individual members, and the Management Compensation Committee and its
individual members.
By the First Amended Complaint (“FAC”) [ECF No. 32], Plaintiffs allege violations of
ERISA’s fiduciary duties and prohibited transactions in seven Counts:


Count I - Breach of Duties of Loyalty and Prudence for Imprudent and Disloyal
Monitoring and Selection of 401(k) Plan Investments during the Class Period,
which Caused Losses to the 401(k) Plan (Violation of ERISA, 29 U.S.C. § 1104)
o Against Trustees (Does 1-40)



Count II - Breached of ERISA Fiduciary Duties by Failing to Remove and
Prudently Monitor the 401(k) Plan Trustees
o Against the Appointing Fiduciary Defendants (T. Rowe Price, the
Management Committee and its individual named members, the
Management Compensation Committee and its unknown individual
members Defendant Does 1-40)



Count III - Breach of Duties of Loyalty and Prudence by Providing Imprudent and
Self-Interested Investment Advice to [Plan Trustees]6 (Violation of ERISA, 29
U.S.C. § 1104)
o Against T. Rowe Price Investment Affiliates (T. Rowe Price Associates
and T. Rowe Price Trust)

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Plaintiffs have named the following individual members of the Management Committee:
Christopher D. Alderson, Edward C. Bernard, Michael C. Gitlin, James A.C. Kennedy, John D.
Linehan, Brian C. Rogers, William J. Stromberg, Eric L. Veiel, and Edward A. Weise. Plaintiffs
do not currently know the names of the individual members of the Management Compensation
Committee. Plaintiffs have identified Defendant Does 1-40 to include the individual members of
the Management Compensation Committee as well as any other unknown Plan fiduciaries.
6
See Opp’n 6 n. 2, ECF No. 37 (“Due to typographical error, this Count’s heading refers
to the provision of investment advice to ‘Committee Defendants,’ when it should refer to the
Plan Trustees.”).

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

Count IV - Liability for Breach of Co-Fiduciary (Pursuant to ERISA, 29 U.S.C. §
1105)
o Against the Appointing Fiduciary Defendants (T. Rowe Price, the
Management Committee and its individual named members, the
Management Compensation Committee and its unknown individual
members Defendant Does 1-40), and T. Rowe Price Investment Affiliates
(T. Rowe Price Associates and T. Rowe Price Trust)



Count V - Liability for Failing to Remedy Breach of Predecessor Fiduciaries
o Against Trustees (Does 1-40)



Count VI - Liability for Committing Prohibited Transactions (Violation of
ERISA, 29 U.S.C. § 1106)
o Against Trustees (Does 1-40) and T. Rowe Price Investment Affiliates (T.
Rowe Price Associates and T. Rowe Price Trust)



Count VII - Other Equitable Relief Based on Ill-Gotten Proceeds (Violation of
ERISA, 29 U.S.C. § 1132(a)(3))
o Against T. Rowe Price and T. Rowe Price Investment Affiliates (T. Rowe
Price Associates and T. Rowe Price Trust)

For reference, the following summarizes which Counts are asserted against each
Defendant:


T. Rowe Price – Counts II, IV, and VII



T. Rowe Price Investment Affiliates (T. Rowe Price Associates and T. Rowe
Price Trust) – Counts III, IV, VI, and VII



Trustees (Does 1-40) – Counts I, V, and VI



The Management Committee and its individual named members, and the
Management Compensation Committee and its unknown individual members
Defendant Does 1-40 – Counts II and IV

Generally, Plaintiffs allege that Defendants favored the economic interests of T. Rowe
Price and its affiliates over the interests of their employees and the 401(k) Plan. Defendants
offered only their own in-house investment funds in the 401(k) Plan, thereby collecting windfall
profits through excessive fees. Additionally, the funds performed poorly in comparison to other

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non-proprietary investment funds that a prudent investor, who was acting on behalf of the Plan’s
participants’ interests, would have selected. In other words, Plaintiffs allege that Defendants
chose their own funds for the 401(k) Plan because of the financial benefit to the company
regardless of the detriment to the Plan’s participants. Plaintiffs allege that in some cases,
Defendants selected the retail versions of in-house funds that charged higher fees to the Plan than
identical in-house funds (those offered to higher net worth investors such as retirement funds)
that would have been less expensive.
By the instant motion, Defendants seek dismissal of all Counts in Plaintiffs’ FAC for
failure to allege plausible claims pursuant to Rule7 12(b)(6) of the Federal Rules of Civil
Procedure. Defendants also assert that Count VI is substantially time-barred by ERISA’s sixyear limitations period.

II.

DISMISSAL STANDARD
A motion to dismiss filed pursuant to Rule 12(b)(6) tests the legal sufficiency of a

complaint. A complaint need only contain “‘a short and plain statement of the claim showing
that the pleader is entitled to relief,’ in order to ‘give the defendant fair notice of what the . . .
claim is and the grounds upon which it rests.’” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555
(2007) (alteration in original) (citations omitted). When evaluating a 12(b)(6) motion to dismiss,
a plaintiff’s well-pleaded allegations are accepted as true and the complaint is viewed in the light
most favorable to the plaintiff. However, conclusory statements or “a formulaic recitation of the
elements of a cause of action will not [suffice].” Id. A complaint must allege sufficient facts “to

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All Rule references herein refer to the Federal Rules of Civil Procedure.

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cross ‘the line between possibility and plausibility of entitlement to relief.’”

Francis v.

Giacomelli, 588 F.3d 186, 193 (4th Cir. 2009) (quoting Twombly, 550 U.S. at 557)).
Inquiry into whether a complaint states a plausible claim is “‘a context-specific task that
requires the reviewing court to draw on its judicial experience and common sense.’” Id. (quoting
Ashcroft v. Iqbal, 556 U.S. 662, 679 (2009)). Thus, if “the well-pleaded facts [contained within
a complaint] do not permit the court to infer more than the mere possibility of misconduct, the
complaint has alleged – but it has not ‘show[n]’ – ‘that the pleader is entitled to relief.’” Id.
(quoting Iqbal, 556 U.S. at 679 (alteration in original)).

III.

MOTION TO EXCLUDE
In its Memorandum in support of the instant motion, Defendants requested that the Court

take judicial notice of various documents that were attached as exhibits. Mot. Mem. 4 n. 1, ECF
No. 35-1. Plaintiffs take no issue with certain exhibits that related to the 401(k) Plan, i.e.,
Declaration of Clay Bowers, Exs. A-O [ECF Nos. 35-4 to 35-18]. However, Plaintiffs move to
exclude exhibits consisting of various Securities and Exchange filings, excerpts of Department of
Labor Form 5500 filings, and a T. Rowe Price-drafted “Financial Services Fund Fact Sheet,” i.e.,
Declaration of Deanna M. Rice, Exs. 1-15 [ECF Nos. 35-20 to 35-34]. Plaintiffs assert that the
Rice exhibits are inappropriate for the Court’s consideration under a Rule 12(b)(6) motion,
because they were not relied upon nor referenced in the FAC (except generally), and they are
being offered for the truth of their contents in order to contradict factual assertions advanced in
the FAC.
In considering a Rule 12(b)(6) motion, the court may take judicial notice of public
records, including statutes, and “may also ‘consider documents incorporated into the complaint

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by reference,’ ‘as well as those attached to the motion to dismiss, so long as they are integral to
the complaint and authentic.’”

United States ex rel. Oberg v. Pennsylvania Higher Educ.

Assistance Agency, 745 F.3d 131, 136 (4th Cir. 2014) (citations omitted).
Accordingly, the Court will take judicial notice of the Plan documents and statements
attached to the Declaration of Clay Bowers, Exs. A-O [ECF Nos. 35-4 to 35-18]. The Court will
also take judicial notice, to the limited extent relevant,8 of public documents filed with the
Securities and Exchange Commission and the Department of Labor, Declaration of Deanna M.
Rice, Exs. 1-11, 13-15 [ECF Nos. 35-20 to 35-30, 35-32 to 35-34]. The Court does not take
judicial notice of the truth of the underlying facts in such public documents, and shall not
consider the content of the documents to the extent that Defendants seek to use them to provide
factual evidence of, for example, T. Rowe Price’s contributions to participants’ accounts, or to
contradict Plaintiffs’ allegations regarding performance.
The Court will not take judicial notice of the T. Rowe Price Fact Sheet, Declaration of
Deanna M. Rice, Ex. 12 [ECF No. 35-31]. This document is not referenced in the Complaint and
is offered only for the purpose of contradicting Plaintiffs’ allegations. Of course, at this stage of
the proceedings all facts will be viewed in a light most favorable to Plaintiffs.

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“Judicial notice is appropriate of the content of S.E.C. filings, to the extent that this
establishes that the statements therein were made, and the fact that these documents were filed
with the agency. . . . The Court does not take judicial notice of the truth of the underlying facts in
such public documents.” In re Mun. Mortg. & Equity, LLC, Sec. & Derivative Litig., 876 F.
Supp. 2d 616, 653 n.7 (D. Md. 2012).

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IV.

DISCUSSION
A.

General Principles

The parties agree that the 401(k) Plan at issue herein was, at all relevant times, an
“employee pension benefit plan” within the meaning of ERISA, 29 U.S.C. § 1002(2)(A), and
was established to provide retirement income to T. Rowe Price employees. T. Rowe Price is the
sponsor of the Plan and is an ERISA fiduciary.
ERISA imposes certain duties upon plan fiduciaries, breaches of which are actionable by
any plan participant. 29 U.S.C. §§ 1104, 1109(a), 1132(a)(2).
A review of cases discussing the policies and purposes of
the ERISA statutory scheme reveals several recurring themes.
ERISA was enacted, first and foremost, to protect employees and
to secure promised benefits. ERISA aspires to preserve the
financial integrity of plan funds for the benefit of equitable
distribution to all plan participants; it favors a uniform body of
federal law applicable to all employee benefits plans; it seeks to
avoid confusion over the terms of benefits plans by compelling
fiduciaries to establish and maintain plans pursuant to one official
written document; it endorses full disclosure to plan participants;
and it holds plan fiduciaries to the highest standards of care in the
management of employee benefits plans.
Elmore v. Cone Mills Corp., 6 F.3d 1028, 1046 (4th Cir. 1993), reh’g granted and opinion
vacated (Dec. 13, 1993), on reh’g en banc sub nom. Elmore v. Cone Mills Corp, 23 F.3d 855
(4th Cir. 1994)(citations omitted).
“ERISA imposes high standards of fiduciary duty on those responsible for the
administration of employee benefit plans and the investment and disposal of plan assets.” Tatum
v. RJR Pension Inv. Comm., 761 F.3d 346, 355 (4th Cir. 2014). Section 1104(a)(1) requires a
fiduciary to act “solely in the interest of the participants and . . . 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

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character and with like aims.” 29 U.S.C. § 1104 (a).

Fiduciaries must “diversify[ ] the

investments of the plan so as to minimize the risk of large losses, unless under the circumstances
it is clearly prudent not to do so.” Id. Finally, fiduciaries are required to discharge their duties
“in accordance with the documents and instruments governing the plan insofar as such
documents and instruments are consistent with [other provisions of ERISA].” Id.

B.

Count I – Trustees’ Breach of Duties

Plaintiffs allege that the Trustees breached their duties of loyalty and prudence in their
selection and monitoring of investments for the 401(k) Plan, which is a violation of 29 U.S.C. §
1104.
A claim alleging a breach of fiduciary duty may 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.” Braden v. Wal–Mart Stores, Inc., 588 F.3d 585, 596 (8th Cir. 2009).
Alleged facts need not “directly address[ ] the process by which the Plan was managed.” Id.
Indeed, “ERISA plaintiffs generally lack the inside information necessary to make out their
claims in detail unless and until discovery commences.” Id. at 598. However, a plaintiff cannot
avoid a motion to dismiss by simply alleging that better or cheaper investment opportunities
were available at the time of the relevant decisions. See id. at 596 n.7. Further, in order to state
a claim for breach of fiduciary duty, a plaintiff must plausibly allege that the breach caused a loss
to the Plan. See Pegram v. Herdrich, 530 U.S. 211, 225-26 (2000); 29 U.S.C. § 1109(a). Also,
“participants suing under ERISA have the burden of showing that they personally suffered some

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actual or threatened injury as a result of the allegedly unlawful conduct complained of.” David v.
Alphin, 817 F. Supp. 2d 764, 781 (W.D.N.C. 2011), aff’d, 704 F.3d 327 (4th Cir. 2013).9
Plaintiffs allege that the Plan Trustees breached their duties of prudence and loyalty by
giving “preferential treatment to the in-house funds because maintaining those funds in the
401(k) Plan financially benefited T. Rowe Price and its subsidiaries.” FAC ¶ 121; § IV.B.
Plaintiffs provide detailed examples of comparable funds showing that the Plan’s funds’10
expense ratios ranged from 16% to 2,500% higher than the comparable funds. FAC ¶ 50.
Several of the examples showed expense ratios more than 1,000% higher than comparable funds.
Id.
Plaintiffs also allege that the Trustees breached their duties by “selecting and/or failing to
replace higher cost retail versions of the in-house funds, when lower-cost versions, specifically
either institutional share classes or collective trusts, were available.” FAC ¶ 122, § IV.C.
Plaintiffs cite several examples of retail-class versions of in-house mutual funds being offered
despite there being less expensive versions of the same funds available to T. Rowe Price’s
commercial customers. FAC ¶¶ 52-68. Plaintiffs add that Plan assets were used to seed T. Rowe
Price’s newly created funds, and Plan assets were only moved to the less expensive, identical
versions once the new funds achieved marketability to attract outside investors. FAC ¶ 71, §
IV.E.

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Note that Defendants make a standing argument based on examples of individual
Plaintiffs not alleging personal harm. For example, in some cases, the examples of funds with
poor performance were funds that the individual(s) had not selected for his/her portfolio. In
David, the plaintiffs had statutory standing to assert claims on behalf of the defined-benefit plan,
but they did not have constitutional standing because their interest was in fixed future payments
only, not the assets of the plan. 704 F.3d at 333-38. The Plan at issue herein is not a definedbenefit plan but a defined contribution 401(k) plan.
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As at the end of 2016.

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Plaintiffs add specific examples of investments that the Trustees retained in the Plan
despite chronic underperformance, including examples of two funds that were retained in the
Plan until the funds themselves were forced to close. FAC ¶¶ 73-84.
Additionally, Plaintiffs allege that the Plan suffered losses as a result of the Trustees’
breach of fiduciary duty. FAC ¶¶ 72, 88, 123. Plaintiffs also allege that they, and other Plan
participants, suffered losses indirectly as a result of the Plan losses. FAC ¶ 123. Plaintiffs’
claims are brought on behalf of the Plan and liability is determined based on Defendants’
decisions. See Moreno v. Deutsche Bank Americas Holding Corp., No. 15 CIV. 9936 (LGS),
2017 WL 3868803, at *5 (S.D.N.Y. Sept. 5, 2017) (“Whether a certain proprietary fund was
imprudently retained or whether the recordkeeping expenses were excessive will be resolved
with respect to the Plan as a whole.”), leave to appeal denied, No. 17-2911, 2017 WL 6506349
(2d Cir. Dec. 19, 2017)).
Defendants argue that the Plan document required the Plan Trustees to select an exclusive
line-up of T. Rowe Price funds. It was T. Rowe Price’s decision as Plan sponsor to structure the
Plan in this manner, and such a decision is a settlor function not subject to ERISA’s fiduciary
provisions. Mot. Mem. 9, ECF No, 35-1 (citing Hughes Aircraft Co. v. Jacobsen, 525 U.S. 432,
443-44 (1999).11 ERISA permits financial services companies to offer employees proprietary
funds for their 401(k) plans. See, e.g., Hecker v. Deere & Co., 556 F.3d 575, 586 (7th Cir.
2009)(“[W]e find no statute or regulation prohibiting a fiduciary from selecting funds from one
management company.”).

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See also Elmore, 23 F.3d at 862 (“The fiduciary duty under 29 U.S.C.A. § 1104(a)(1) to
discharge duties with respect to a plan solely in the interest of the participants and beneficiaries
only applies to actions taken by a plan fiduciary in accordance with his duty to administer the
employee benefit plan; it does not apply to actions taken by an employer in creating the
plan.”(citations omitted)).

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In a New York case, the court stated that
the fact that the Plan required investments in [the corporation’s
own] stock does not ipso facto relieve [Defendants] of their
fiduciary obligations. All Defendants had discretionary authority
over Plan investments. By force of statute, Defendants had the
fiduciary responsibility to disregard the Plan and eliminate Plan
investments in [the corporation’s own] stock if the circumstances
warranted. As such, to the extent [that the corporation’s own] stock
was an imprudent investment, Defendants possessed the authority
as a matter of law to exclude []stock from the ESOP or as a 401(k)
investment alternative, regardless of the Plan’s dictates.
In re Polaroid ERISA Litig., 362 F. Supp. 2d 461, 474–75 (S.D.N.Y. 2005).
Regardless of the reasons that T. Rowe Price may have chosen to restrict the Trustees to
investing only in in-house funds, it does not provide a blanket defense for the Plan Trustees.
Plaintiffs’ allegations that related to the use of the more expensive retail funds rather than
commercial funds, the allegations that related to retaining chronic underperforming funds, and
the allegations that related to seeding, remain plausible. Plaintiffs provide specific examples, not
merely conclusory statements, and the Court is required to accept those factual allegations as true
at this stage of the proceedings. Defendants argue with regard to each one of Plaintiffs’ theories,
that the allegations, standing alone, are insufficient. But Plaintiffs have alleged multiple grounds
to support their claim; the allegations related to any one theory do not stand alone but must also
be reviewed as a combined set.
The Court finds that Plaintiffs have produced sufficient allegations to raise a plausible
inference that the Trustees breached their duties of loyalty and prudence in their selection and
monitoring of investments for the 401(k) Plan.

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C.

Count II – Failure to Remove and Monitor Trustees

Plaintiffs allege that the Appointing Fiduciary Defendants (T. Rowe Price, the
Management Committee and its individual named members, the Management Compensation
Committee and its unknown individual members Defendant Does 1-40) breached their ERISA
fiduciary duties by failing to remove and prudently monitor the 401(k) Plan Trustees.
This cause of action is a derivative claim, which is dependent upon a finding that the
Trustees breached their fiduciary duties. “[C]laims for failure to . . . monitor fiduciaries do not
provide independent grounds for relief, but rather depend upon the establishment of an
underlying breach of fiduciary duty cognizable under ERISA.” In re Constellation Energy Grp.,
Inc., 738 F. Supp. 2d 602, 614 (D. Md. 2010)(citations omitted).
The Fourth Circuit has recognized a viable duty to monitor claim. See Coyne & Delany
Co. v. Selman, 98 F.3d 1457, 1466 n.10 (4th Cir. 1996). The court cited an Interpretive Bulletin
issued by the Department of Labor stating:
At reasonable intervals the performance of trustees and other
fiduciaries should be reviewed by the appointing fiduciary in such
manner as may be reasonably expected to ensure that their
performance has been in compliance with the terms of the plan and
statutory standards, and satisfies the needs of the plan.
Id. at 1465-66 (quoting 29 C.F.R. § 2509.75–8).
Plaintiffs have plausibly stated a claim for breach of the duties of loyalty and prudence by
the Trustees. Plaintiffs have also alleged that the Appointing Fiduciary Defendants had the
authority to appoint and remove the Trustees. FAC ¶ 126. Plaintiffs allege that the Appointing
Fiduciary Defendants knew or should have known that the Trustees were failing to fulfill their
ERISA fiduciary obligations. FAC ¶ 127. Plaintiffs allege loss to the Plan as a result of the
breaches. FAC ¶ 128. And there is also a bare allegation of failure to monitor. FAC ¶ 127.

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The Court finds that the failure to monitor claim is plausible. See Wildman v. Am.
Century Servs., LLC, 237 F. Supp. 3d 902, 915 (W.D. Mo. 2017)(denying the dismissal of a
claim for failure to monitor when plaintiffs had sufficiently stated a claim for breach of fiduciary
duty); Krueger v. Ameriprise Fin., Inc., No. 11-CV-02781 SRN/JSM, 2012 WL 5873825, at *18
(D. Minn. Nov. 20, 2012) (“To state a claim for failure to monitor under ERISA, a plaintiff must
allege facts that the (1) entity charged with the breach was responsible for appointing and
removing fiduciaries responsible for [sic] fiduciary conduct in question; and (2) entity charged
with this duty to monitor also had knowledge of or participated in fiduciary breaches by the
appointees. ‘[C]ourts have been unwilling to delineate and probe the scope of defendants’
monitoring duties on motions to dismiss, and have permitted such claims to proceed forward to
discovery.’” (quoting In re ADC Telecommunications, Inc., ERISA Litig., No. 03-2989
ADM/FLN, 2004 WL 1683144, at *7 (D. Minn. July 26, 2004))).

D.

Count III – Imprudent Investment Advice

Plaintiffs allege that T. Rowe Price Investment Affiliates (T. Rowe Price Associates and
T. Rowe Price Trust) breached their duties of loyalty and prudence by providing imprudent and
self-interested investment advice to the Plan Trustees.
This cause of action requires alleging the same elements as in Count I but against
different defendants. Here, Plaintiffs allege that T. Rowe Price Affiliates were fiduciaries of the
plan by providing investment advice to the Plan Trustees. FAC ¶ 130. Plaintiffs allege that the
investment advice provided was self-interested because it benefited their own investment
management business both financially and in terms of reputation. FAC ¶ 132. Plaintiffs also
allege that the breach caused losses to the Plan. FAC ¶ 133. The specifics of these allegations

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are the same as identified for the Plan Trustees on the basis that these Defendants provided the
investment advice to the Plan Trustees. Since the specific allegations are adequate to support the
cause of action against the Trustees, the Court finds they are also adequate to support the same
claim against the investment advisors to the Trustees.

E.

Count IV – Co-fiduciary Liability

Plaintiffs allege that the Appointing Fiduciary Defendants (T. Rowe Price, the
Management Committee and its individual named members, the Management Compensation
Committee and its unknown individual members Defendant Does 1-40), and T. Rowe Price
Investment Affiliates (T. Rowe Price Associates and T. Rowe Price Trust) are liable for the
Trustees’ breach of fiduciary duties pursuant to 29 U.S.C. § 1105.
29 U.S.C. § 1105 states, in pertinent part:
In addition to any liability which he may have under any
other provisions of this part, a fiduciary with respect to a plan shall
be liable for a breach of fiduciary responsibility of another
fiduciary with respect to the same plan in the following
circumstances:
(1) if he participates knowingly in, or knowingly undertakes to
conceal, an act or omission of such other fiduciary, knowing such
act or omission is a breach;
(2) if, by his failure to comply with section 1104(a)(1) of this title
in the administration of his specific responsibilities which give rise
to his status as a fiduciary, he has enabled such other fiduciary to
commit a breach; or
(3) if he has knowledge of a breach by such other fiduciary, unless
he makes reasonable efforts under the circumstances to remedy the
breach.

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29 U.S.C. § 1105(a). A “claim of co-fiduciary liability . . . must co-exist with some breach by a
fiduciary of their duties under ERISA.” In re Bausch & Lomb Inc. ERISA Litig., No. 06–CV–
6297, 2008 WL 5234281, *11 (W.D.N.Y. Dec. 12, 2008)).
Plaintiffs have alleged that these Defendants knowingly participated in or concealed
another fiduciary’s breach of duty, or failed to remedy known breaches, and benefited
financially, causing losses to the Plan. FAC ¶¶ 136-139. Plaintiffs have cited authority that
states that specific facts are not required here in order to survive a motion to dismiss. See In re
Polaroid ERISA Litig., 362 F. Supp. 2d at 479–80 (“Defendants argue that the Complaint does
not sufficiently allege knowledge of co-fiduciary actions. However, the Complaint closely tracks
the statutory language, which is sufficient. The Complaint need not allege specific facts
buttressing those claims of knowledge to survive a motion to dismiss.” (citations omitted))
The allegations on this Count are minimal, but they are sufficient because Plaintiffs have
sufficiently pleaded Count I. Accordingly, the Court finds that Plaintiffs have stated a claim for
co-fiduciary liability that is sufficient to survive this motion to dismiss.

F.

Count V – Failure to Remedy Predecessor Breaches

Plaintiffs allege that the current Trustees failed to remedy the fiduciary breaches of the
predecessor fiduciaries.

FAC ¶¶ 141-147. Plaintiffs assert that discovery is required to provide

the names of these Trustees and any further specific details.
Plaintiffs’ claim finds support in an opinion of the Department of Labor:
Section 409(b) [29 U.S.C. § 1109(b)] provides that no fiduciary
shall be liable with respect to a breach of fiduciary duty under Title
I of the Act, if such breach was committed before he became a
fiduciary or after he ceased to be a fiduciary. Section 409(b) does
not, however, exempt a fiduciary from carrying out his
responsibilities to a plan imposed by various provisions of Part 4

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of Title I of the Act. For example, although a fiduciary may not be
liable under section 409 of the Act for the acts of predecessor
fiduciaries, if he knows of a breach of fiduciary responsibility
committed by a predecessor fiduciary, he would be obligated to
take whatever action is reasonable and appropriate under the
circumstances to remedy such breach. Failure to take such action
would constitute a separate breach of fiduciary responsibility by
the successor fiduciary.
DOL Opinion No. 76–95 (Sept. 30, 1976). This view, coming from the agency charged with
enforcing ERISA, is “entitled to respect” to the extent that the agency’s interpretation has the
“power to persuade.” See Christensen v. Harris County, 529 U.S. 576, 587 (2000). Also, this
interpretation is consistent with the common law of trusts, “which imposes a duty on a successor
trustee to remedy the breach of a prior trustee, and imposes liability for breach of this duty ‘to
the extent to which a loss results from [the successor trustee’s] failure to take such [remedial]
steps.’” Silverman v. Mutual Ben. Life Ins. Co., 138 F.3d 98, 104 (2d Cir. 1998)(quoting
Restatement (Second) of Trusts § 223(2) and cmts. c. and d. (1959)).
Defendants argue primarily that Plaintiffs fail to state a failure-to-remedy claim because
they failed to plead a plausible prior fiduciary breach, but they also argue that Plaintiffs failed to
allege that the Trustees had actual knowledge. However, Plaintiffs have sufficiently alleged a
prior fiduciary breach. Plaintiffs also allege that the “Successor Fiduciary Defendants were
aware that their predecessor fiduciaries had breached their duties in selecting the in-house
funds.” FAC ¶ 145. The Court finds these allegations sufficient to survive this dismissal motion.

G.

Count VI – Prohibited Transactions
1.

Adequacy of Allegations

Plaintiffs allege that the Plan Trustees and T. Rowe Price Investment Affiliates (T. Rowe
Price Associates and T. Rowe Price Trust) committed prohibited transactions. ERISA strictly

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prohibits a number of transactions between a plan and a party in interest12 with respect to the
plan. 29 U.S.C. § 1106. ERISA prohibits a fiduciary with respect to a plan from acting in any
transaction involving the plan on behalf of a party, or represent a party, whose interests are
adverse to the interests of the plan or of its participants and beneficiaries. Id. It protects
beneficiaries by prohibiting transactions tainted by a conflict of interest and thus highly
susceptible to self-dealing.
To state a claim under this statute, a plaintiff must allege that (1)
the defendant is a fiduciary, (2) the defendant caused the plan to
engage in one of the prohibited transactions, (3) the transaction
was between the plan and a party-in-interest or involved plan
assets, and (4) the defendant knew or should have known that the
transaction was prohibited.
Cassell v. Vanderbilt Univ., 285 F. Supp. 3d 1056, 1062 (M.D. Tenn. 2018)(citing Sacerdote v.
New York Univ., No. 16-CV-6284 (KBF), 2017 WL 3701482, at *4 (S.D.N.Y. Aug. 25, 2017)).
Plaintiffs allege that the Trustees and T. Rowe Price Investment Affiliates were
fiduciaries as well as parties-in-interest, and they engaged in self-dealing by acting together to
cause the Plan to be invested in T. Rowe Price funds, knowing that this would result in the Plan
paying investment management and other fees to T. Rowe Price Investment Affiliates on a
monthly basis for more than reasonable compensation. FAC ¶¶ 149-51. Plaintiffs further allege
that as a result of the prohibited transactions, the Plan paid millions of dollars in prohibited fees
and suffered losses. FAC ¶¶ 152-53.
Defendants argue that there are statutory exemptions that allow such transactions. A
defendant bears the burden of showing that an exemption to § 1106 applies because the
12

The term “party in interest” is defined in 29 U.S.C. § 1002(14). ERISA also prohibits
self-dealing in the form of acting on behalf of or representing a party whose interests are adverse
to that of the trust, its participants, or beneficiaries. The term “adverse party” is defined broadly
in cases such as Sandoval v. Simmons, which held that the term does not require that the
interests be antithetical, but only that they be different. 622 F. Supp. 1174 (C.D. Ill. 1985).

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exemptions are treated as an affirmative defense. See Braden, 588 F.3d at 601.13 The merits of
an affirmative defense are not considered on a motion to dismiss unless all the facts necessary to
establish the defense “clearly appear[] on the face of the complaint.” Goodman v. Praxair, Inc.,
494 F.3d 458, 464 (4th Cir. 2007)(citations omitted). See also Elmore, 23 F.3d at 864 (“[I]n
order to avoid liability for a prohibited transaction under § 406, [Defendant] bears the burden of
proving the transaction was for adequate consideration in compliance with § 408(e).”).
Defendants contend that Plaintiffs must plead facts showing that the transactions fell
outside ERISA’s exemptions because the T. Rowe Price investment products were compelled by
the Plan document. Mot. Mem. 31-33, ECF No. 35-1. Defendants specifically point to 29
U.S.C. § 1108(b)(8), which includes a statutory exemption allowing financial services companies
to offer affiliated collective trust investments to their in-house plans, provided that the plan
document allows for such investments and the compensation paid to the trust company is “not
more than reasonable.”

Plaintiffs’ allegations, however, are challenging the payment of

unreasonable fees. FAC ¶¶ 50, 151-52. Further, Plaintiffs include allegations under § 1106(b)
regarding transactions between the Plan and the fiduciary, which are not exempted under § 1108.
FAC ¶ 151.

2.

Limitations

Defendants assert that Plaintiffs’ Count VI claim for violation of 29 U.S.C. § 1106,
related to the Trustees and T. Rowe Price Investment Affiliates committing prohibited
13

Defendants note that there is a split of authority on this point. Mot. Mem. 32-33, ECF
No. 35-1; Reply 17, ECF No. 42. However, their point appears to be that all of the cases
holding that exemptions are affirmative defenses differ from this case because in this case, the
Plan document requires Trustees to select in-house funds exclusively, thus Plaintiffs have not
adequately pleaded a prohibited transaction. Defendants also argue that the use of affiliated
investment products is a “normal business practice” that is acceptable.

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transactions, is substantially barred by the statute of repose. ERISA’s limitations statute requires
suit to be filed within six years of the date of the prohibited transaction violation. 29 U.S.C. §
1113(1). Defendants argue that the only transaction attributable to the Trustees is the initial
inclusion of a fund in the Plan. Therefore, any funds initially offered to Plan participants more
than six years before the initial Complaint was filed (Feb. 14, 2017) are time-barred.
In response, Plaintiffs argue that the Supreme Court held that a plan fiduciary “has a
continuing duty to monitor trust investments and remove imprudent ones. This continuing duty
exists separate and apart from the trustee’s duty to exercise prudence in selecting investments at
the outset.” Tibble v. Edison Int’l, 135 S. Ct. 1823, 1828 (2015). However, Tibble relates to §
1104’s duty of prudence, not § 1106’s prohibited transactions. And “[c]ourts have held that a
decision to continue certain investments, or a defendant’s failure to act, cannot constitute a
“transaction” for purposes of section [1106].” David v. Alphin, 704 F.3d 327, 340 (4th Cir.
2013).
Plaintiffs note, however, that the prohibited transactions at issue are the monthly fees
being paid to T. Rowe Price Investment Affiliates by the Trustees—not the initial selection of the
investment for the Plan—and therefore, there are occurrences of the prohibited transactions
within the past six years.
Defendants contend that the Trustees are not causing the monthly fee transactions to be
paid from the Plan, but rather, the T. Rowe Price Investment Affiliates are charging the monthly
fees to the assets of the mutual fund, so there is no direct transaction between the Plan or
Trustees and the T. Rowe Price Investment Affiliates. However, Plaintiffs have alleged that the
“Plan, directly or indirectly, paid millions of dollars in investment management and other fees . .
. .” FAC ¶ 152 (emphasis added). Section 1106 covers transactions that constitute an “indirect .

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. . furnishing of . . . services” or “indirect . . . transfer[s] to . . . a party in interest, of any assets of
the plan.” 29 U.S.C. § 1106(a)(1)(C),(D).
Accordingly, while Defendants may have viable defenses, they do not warrant dismissal
at this time. The Court can infer a plausible claim of prohibited transactions that are not barred
by limitations.

H.

Count VII – Other Equitable Relief

Plaintiffs seek other equitable relief based on ill-gotten proceeds by T. Rowe Price and T.
Rowe Price Investment Affiliates (T. Rowe Price Associates and T. Rowe Price Trust). This
cause of action is based on a violation of 29 U.S.C. § 1132(a)(3), which states that a civil action
may be brought
by a participant, beneficiary, or fiduciary (A) to enjoin any act or
practice which violates any provision of this subchapter or the
terms of the plan, or (B) to obtain other appropriate equitable relief
(i) to redress such violations or (ii) to enforce any provisions of
this subchapter or the terms of the plan.
Plaintiffs seek disgorgement from Defendants of monies received from the Plan’s
investments during the relevant period. Defendants make no arguments related to Count VII. If
Plaintiffs are successful with this action, equitable relief is an available remedy, and this claim
shall not be dismissed.
DATED this 20th day of August, 2018.

BY THE COURT:

___________/s/_______________________
James K. Bredar
Chief Judge

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