Meiners v. Wells Fargo & Company et al

Filing 55

ORDER granting 32 Motion to Dismiss (Written Opinion) Signed by Senior Judge David S. Doty on 5/25/2017. (DLO)

UNITED STATES DISTRICT COURT
DISTRICT OF MINNESOTA
Civil No. 16-3981(DSD/FLN)
John Meiners,
Plaintiff,
v.

ORDER

Wells Fargo & Company, et al.,
Defendants.
Goeffrey A. Graber, Esq. and Cohen Milstein Sellers & Toll
PLLC, 1100 New York Avenue, N.W., Suite 500, Washington, DC
20005; Greg G. Gutzler, Esq. and Elias Gutzler Spicer LLC,
1924 Chouteau Avenue, Suite W, St. Louis, MO 63101; Robert K.
Shelquist, Esq. and Lockridge Grindal Nauen PLLP, 100
Washington Avenue South, Suite 2200, Minneapolis, MN 55401,
counsel for plaintiff.
Stephen P. Lucke, Esq., Andrew J. Holly, Esq. and Dorsey &
Whitney LLP, 50 South 6th Street, Suite 1500, Minneapolis, MN
55402; Russell Laurence Hirschhorn, Esq. and Proskauer Rose
LLP, Eleven Times Square, Suite 18-26, New York, NY 10036,
counsel for defendants.

This matter is before the court upon the motion to dismiss by
defendants Wells Fargo & Company, Human Resources Committee of the
Wells Fargo Board of Directors, the Human Resources Committee
members, Wells Fargo Employee Benefits Review Committee, and the
Benefits Review Committee members.1

Based on a review of the file,

record, and proceedings herein, and for the following reasons, the

1

The Human Resources Committee members are defendants Lloyd
Dean, John Chen, Susan Engel, Donald James, and Stephen Sanger.
The Benefit Committee members are defendants Hope Hardison, Justin
Thornton, Patricia Callahan, Timothy Sloan, and Michael Heid.
Unless otherwise noted, the court will refer to defendants
collectively as Wells Fargo.

court grants the motion.

BACKGROUND
This ERISA dispute arises out of plaintiff John Meiners’s
participation in Wells Fargo’s 401(k) retirement plan (Plan).

The

Plan is a defined-contribution plan in which employees may invest
a certain percentage of their earnings on a pre-tax basis.
¶

10.

Compl.

During the class period, the Plan offered 26 to 27

investment options.

Id. ¶ 19.

Twelve of the options are Wells

Fargo Dow Jones Target Date Funds, which are proprietary funds
managed by a Wells Fargo subsidiary.2

Id.

Meiners, on behalf of

a putative class, alleges that these funds both underperformed
comparable Vanguard funds and were more expensive than comparable
Vanguard and Fidelity funds.

Id. ¶¶ 27-32.

Meiners claims that by

continuing to keep these funds in the Plan, Wells Fargo breached
its fiduciary duties.
effort

to

generate

Id. ¶¶ 38-40.
fees

and

seed

Further, Wells Fargo, in an
the

underperforming

funds,

allegedly breached its fiduciary duties by designating the Wells
Fargo funds as the default for participants who enrolled in the
Plan but did not select an investment option.

2

Id. ¶¶ 33-36, 39-40.

A target date fund is an investment in which the allocation
of equity, bonds, and cash is automatically shifted as the target
date approaches. Usually, as the target date approaches, the fund
will shift its investment allocation from primarily equity to
primarily bonds. Id. ¶ 20.
2

On November 22, 2016, Meiners filed this class action lawsuit
under ERISA alleging (1) breach of the duties of loyalty and
prudence under 29 U.S.C. § 1104 against the Benefit Committee; (2)
breach of co-fiduciary duty under 29 U.S.C. § 1105 against the
Human Resources Committee, Hardison, and Thornton; and (3) knowing
participation

in

a

breach

of

fiduciary

§ 1132(a)(3) against Wells Fargo & Company.

duty

under

29

U.S.C.

Wells Fargo now moves

to dismiss the complaint.

DISCUSSION
I.

Standard of Review
In order 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.” Braden v. Wal-Mart
Stores, Inc., 588 F.3d 585, 594 (8th Cir. 2009) (citations and
internal quotation marks omitted). “A claim has facial plausibility
when the plaintiff [has pleaded] factual content that allows the
court to draw the reasonable inference that the defendant is liable
for the misconduct alleged.”

Ashcroft v. Iqbal, 556 U.S. 662, 678

(2009) (citing Bell Atl. Corp v. Twombly, 550 U.S. 544, 556
(2007)).

Although a complaint need not contain detailed factual

allegations, it must raise a right of relief above the speculative
level. See Twombly, 550 U.S. at 555. “[L]abels and conclusions or
a formulaic recitation of the elements of a cause of action” are
3

not sufficient to state a claim. Iqbal, 556 U.S. at 678 (citations
and internal quotation marks omitted).
The court does not consider matters outside the pleadings
under Rule 12(c).
consider

Fed. R. Civ. P. 12(d).

matters

of

public

record

The court may, however,

and

“necessarily embraced by the pleadings.”

materials

that

are

Porous Media Corp. v.

Pall Corp., 186 F.3d 1077, 1079 (8th Cir. 1999) (citation and
internal

quotation

marks

omitted).

Here,

because

Meiners’s

complaint references returns data for the Wells Fargo and Vanguard
funds, the court properly considers the Wells Fargo and Vanguard
prospectuses.
II.

Motion to Dismiss

A.

Breach of Fiduciary Duty
To plead a breach of fiduciary duty under ERISA, a plaintiff

must allege that the defendant (1) was a fiduciary of the plan, (2)
was acting in that capacity, and (3) breached a fiduciary duty.
See 29 U.S.C. § 1109. The principal duties owed by fiduciaries are
loyalty and prudence.

Braden, 588 F.3d at 595.

The duty of

loyalty requires that the fiduciary discharge his duties “solely in
the interests of the participants and beneficiaries....” 29 U.S.C.
§ 1104(a)(1). The duty of prudence requires that the fiduciary act
“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 ....” 29 U.S.C.
4

§ 1104(a)(1)(B).

ERISA’s “prudent person standard is an objective

standard ... that focuses on the fiduciary’s conduct preceding the
challenged decision.

Roth v. Sawyer–Cleator Lumber Co., 16 F.3d

915, 917–18 (8th Cir. 1994).

“Because the content of the duty of

prudence turns on the circumstances ... prevailing at the time the
fiduciary acts ... the appropriate inquiry will necessarily be
context specific.” Fifth Third Bancorp v. Dudenhoeffer, 134 S. Ct.
2459, 2471 (2014).

A fiduciary breaches its duty when it “fail[s]

to properly monitor investments and remove imprudent ones.” Tibble
v. Edison Int’l, 135 S. Ct. 1823, 1829 (2015).
Meiners alleges that Wells Fargo breached its fiduciary duty
by continuing to invest in its own target date funds when betterperforming funds were available at a lower cost.

Wells Fargo

argues that these allegations are insufficient to plausibly allege
a breach of fiduciary duty.
1.

The court agrees.

Underperforming Funds

Central to Meiners’s complaint is the allegation that the
Wells Fargo funds consistently underperformed Vanguard funds.

The

rate of return for the Wells Fargo and Vanguard funds are only
relevant insofar as they suggest that Wells Fargo’s decision making
process was flawed.

Braden, 588 F.3d at 595.

In order to

plausibly allege a fund is underperforming, Meiners must provide
some benchmark against which the Wells Fargo funds can meaningfully
be compared.

See Krueger v. Ameriprise Fin., Inc., No. 11-2781,

5

2012 WL 5873825, at *3 (D. Minn. Nov. 20, 2012) (alleging that the
“funds

underperformed

their

benchmarks

each

year”);

Leber

v.

Citigroup, Inc., No. 07-9389, 2010 WL 935442, at *14 (S.D.N.Y. Mar.
16,

2010)

(“Plaintiffs

...

[fail

to]

provide

any

basis

for

evaluating or comparing [the fund’s] performance.”).
The only benchmark that Meiners provides is the Vanguard
funds’ performance.

But a comparison of the returns for two

different funds is insufficient because “funds ... designed for
different purposes ... choose their investments differently, so
there is no reason to expect them to make similar returns over any
given span of time.”

Tussey v. ABB, Inc., 850 F.3d 951, 960 (8th

Cir. 2017); see also id. at 960 n.8 (“Making [a] comparison
[between

two

funds]

would

...

imply

a

(mistaken)

view

that

whichever fund earned more over the relevant time frame ‘should’
have been offered to the participates, or even that it performed
‘better’ in a meaningful sense.”).
Here, one would expect the Wells Fargo and Vanguard funds to
perform differently because the Wells Fargo funds have a different
investment strategy than the Vanguard funds.

Specifically, Wells

Fargo funds have a higher allocation of bond than Vanguard funds.
See Holland Decl. Ex. 6, at 77; Bullard Decl. Ex. C at 3-4.
Therefore, it does not necessarily follow that the Wells Fargo
funds were substandard compared to the Vanguard funds, nor does it
follow that Wells Fargo’s decision making process was flawed.

6

2.

Fees

Meiners likewise fails to provide a meaningful benchmark
against which the Wells Fargo fund’s fees can be compared.3
like

performance,

cannot

be

analyzed

in

a

Fees,

vacuum.

See

Dudenhoeffer, 134 S. Ct. at 2471 (“[T]he appropriate inquiry will
necessarily be context specific.”). Moreover, failure to invest in
the cheapest fund available does not necessarily suggest a breach
of fiduciary duty.

See Hecker v. Deere & Co., 556 F.3d 575, 586

(7th Cir. 2009) (“The fact that ... some other funds might have had
[lower fees] is beside the point; nothing in ERISA requires every
fiduciary to scour the market to find and offer the cheapest
possible fund ....”).
Wells Fargo argues that Meiners’s complaint merely alleges
that it failed to invest in the cheapest fund available.

Meiners

disagrees and argues that he has alleged that Wells Fargo acted in
self-interest by choosing higher-cost affiliated funds over lowercost non-affiliated funds.

But Meiners’s only support of this

interpretation of his complaint is that two funds, Fidelity and
Vanguard, are less expensive.

This, in effect, attempts to hold

Wells Fargo liable for failing to choose the cheapest fund.

3

If

The court notes that the complaint does not allege that the
Wells Fargo funds’ fees were excessive or unreasonable; it merely
alleges that the fees were 2.5 times higher than Fidelity and
Vanguard. Meiners insists that the complaint should be construed
as alleging unreasonable or excessive fees. For purposes of this
motion, the court will do so.
7

such allegations were sufficient to survive a motion to dismiss, it
would render fiduciaries liable to suit for failing to choose the
cheapest, non-affiliated fund - even if that fund is “plagued by
other problems.” Id. Therefore, Meiners must plead something more
to make his excessive fees claim plausible.

See Wildman v. Am.

Century Servs., LLC, No. 4:16-737, 2017 WL 839795, at *4 (W.D. Mo.
Feb. 27, 2017) (alleging that fees were excessive as compared to
the average cost of similar sized plans); Krueger, 2012 WL 5873825,
at *3 (alleging that fees were higher than the median fees for
comparable funds as reported by two investment agencies).
Nothing

in

the

complaint

suggests

that

the

Vanguard

and

Fidelity funds are reliable comparators, offer similar services, or
are of similar size, nor does it contain facts showing that the
Wells Fargo funds are more expensive when compared to the market as
a whole.

Without a meaningful comparison, the mere fact that the

Wells Fargo funds are more expensive than two other funds does not
give rise to a plausible breach of fiduciary duty claim.4
3.

Default Option and Seeding

Lastly, Meiners claims that Wells Fargo set its target date
funds as the default for participants in order to seed its own

4

Indeed, any value that Meiners’s comparison does have is
lessened by the fact that Vanguard is a low-cost fund. See Amron
v. Morgan Stanley Inv. Advisors Inc., 464 F.3d 338, 345 (“That a
mutual fund has an expense ratio higher than Vanguard, a firm known
for its emphasis on keeping costs low, raises little suspicion
....”).
8

funds.

This, too, is insufficient to give rise a breach of

fiduciary duty claim.

First, it is not uncommon for plans to

provide default investment options for participants who fail to make
an investment election; indeed, Congress specifically anticipated
this scenario.

See 29 U.S.C. 1104(c)(5) (providing guidelines for

default investment options).

Second, the fact that Wells Fargo

chose affiliated funds as the default option is, without more,
insufficient to show a breach of its fiduciary duty.

Although a

fiduciary’s choice of affiliated funds is relevant in showing that
the fiduciary may have acted in its financial self-interest, Meiners
must plead additional facts showing that the fiduciary’s decision
was

based

on

consideration.

financial

interest

rather

than

a

legitimate

See, e.g., Wildman, 2017 WL 839795, at *8 (viewing

other allegations of flawed decision making “in conjunction” with
allegations of self-interest); Urakhchin v. Allianz Asset Mgmt. of
Am., L.P., No. 15-1614, 2016 WL 4507117, at *6-7 (C.D. Cal. Aug. 5,
2016) (same); Kruger, 2012 WL 5873825, at *10 (same).

Other than

the unsupported allegations of excessive fees and under-performance
discussed above, Meiners pleads no facts suggesting that the choice
of affiliated funds was the result of flawed decision-making.
Taken as a whole, the complaint merely supports an inference
that Wells Fargo continued to invest in affiliated target date funds
when its rate of return was lower than Vanguard, which had a
different investment strategy, and that was more expensive than

9

Vanguard and Fidelity funds.

These allegations do not give rise to

an inference of a breach of fiduciary duty, and as a result, that
claim must be dismissed.
B.

Breach of Co-Fiduciary Duty and Knowing Participation in a
Breach of Fiduciary Duty
Because Meiners has not adequately pleaded an underlying breach

of fiduciary duty, his breach of co-fiduciary duty and knowing
participation in a breach of fiduciary duty claims must also be
dismissed.

See In re Pfizer Inc. ERSIA Litig., No. 04-10071, 2013

WL 1285175, at *10 (S.D.N.Y. Mar. 29, 2013) (dismissing co-fiduciary
breach and knowing participation in breach claims because there was
no underlying breach).

CONCLUSION
Accordingly, based on the above, IT IS HEREBY ORDERED that:
1.

Defendants’ motion to dismiss [ECF No. 32] is granted; and

2.

The case is dismissed with prejudice.

LET JUDGMENT BE ENTERED ACCORDINGLY.
Dated: May 25, 2017
s/David S. Doty
David S. Doty, Judge
United States District Court

10