IN RE QUEST DIAGNOSTICS ERISA LITIGATION
Filing
41
OPINION. Signed by Judge Susan D. Wigenton on 5/4/2021. (qa, )
NOT FOR PUBLICATION
UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW JERSEY
Civil Action No. 20-07936-SDW-LDW
OPINION
In re Quest Diagnostics Incorporated
ERISA Litigation
May 4, 2021
WIGENTON, District Judge.
Before this Court is Defendants Quest Diagnostics Incorporated, the Quest Benefits
Administration Committee, and the Quest Investment Committee’s (collectively, “Defendants”)
Motion to Dismiss (D.E. 20; D.E. 21 (“Br.”)) Plaintiffs Lawanda Lasha House Johnson, Rebecca
A. Rice, Shalamar Curtis, and Raquel Aziz’s (“Plaintiffs”) Consolidated Complaint (D.E. 10
(“Compl.”)) pursuant to Federal Rules of Civil Procedure (“Rule”) 12(b)(1) and 12(b)(6).
Jurisdiction is proper pursuant to 28 U.S.C. § 1331. Venue is proper pursuant to 29 U.S.C. §
1132(e). This opinion is issued without oral argument pursuant to Rule 78. For the reasons stated
herein, Defendants’ Motion is DENIED.
I.
BACKGROUND AND PROCEDURAL HISTORY
Plaintiffs are “participants and beneficiaries” in Quest Diagnostics Incorporated’s Profit
Sharing Plan, a qualified tax-deferred defined-contribution retirement plan (the “Plan”). (Compl.
¶¶ 1, 2.) As of December 31, 2018, the Plan had 40,488 participants and account balances/total
assets of $3.9 billion. (Id. ¶ 5.) The Plan is a multiple-employer 401(k) plan, in which participants
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direct their contributions to various investment options (the “Investment Menu”). 1 (Id. ¶¶ 4, 22,
55.) Plan participants were charged investment management fees and a $31 per-participant annual
fee for recordkeeping services. (Id. ¶¶ 33-40, 50.) At the relevant time, roughly thirteen of the
Investment Menu options were target date funds, which allow participants to anticipate a
retirement date and invest funds more conservatively as retirement approaches. (Id. ¶ 27.) Fidelity
Management & Research Company (“Fidelity”) is the “second largest target date fund provider by
total assets” in the investment industry, and the target date funds that it offered included the
Freedom funds (the “Active suite”) and the Freedom Index funds (the “Index suite”). 2 (Id. ¶ 28.)
The Investment Menu included the Active suite, rather than the Index suite. (Id. ¶¶ 28-31.)
On June 29, 2020, Plaintiffs filed a Complaint alleging (1) breach of fiduciary duties,
pursuant to the Employee Retirement Income Security Act of 1974, as amended 29 U.S.C. Section
1001, et seq. (“ERISA”), (2) failure to monitor, and, in the alternative to the ERISA claims, (3)
breach of trust for imprudent Plan management. (D.E. 1 ¶¶ 75-90.) On October 2, 2020, Plaintiffs
filed a Consolidated Class Action Complaint (“Consolidated Complaint”), which largely repeated
the same allegations regarding overall Plan mismanagement. (See generally Compl.) Defendants
moved to dismiss pursuant to Rules 12(b)(1) and 12(b)(6) on December 15, 2020. (Br.) On
Defendants have delegated the administration of the Plan to the Administrative Committee, which “exercises
discretionary authority and control to administer, construe, and interpret the Plan and its assets.” (Compl. ¶ 15.) “The
Investment Oversight Committee is established by the Administrative Committee to assist Quest with the selection of
investment funds offered for selection by Plan participants and is a fiduciary under ERISA ….” (Id. ¶¶ 15, 16.) In
addition, the Plan established a trust to hold Plan assets, which is managed by Fidelity Management Trust Company.
(Id. ¶ 25.)
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The Consolidated Complaint focuses on three specific funds’ performance issues to illustrate Defendants’ broader
alleged breaches: the target-date Freedom funds (the “Active Suite”), the non-target date DFA US Small Cap Value
Portfolio (“DFA Fund”), and the non-target date Invesco Global Real Estate Fund (“Invesco Fund”) (collectively, the
“Funds”). (Compl. ¶¶ 25-49.)
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January 14, 2021, Plaintiffs opposed. (D.E. 29.) On February 4, 2021, Defendants replied. (D.E.
30.) Since then, the parties have filed various supplemental letters. 3 (D.E. 31-32, 35-40.)
II.
LEGAL STANDARD
A. Federal Rule of Civil Procedure 12(b)(1)
Pursuant to Rule 12(b)(1), a party may move to dismiss for lack of subject matter
jurisdiction and this Court “must accept as true all material allegations set forth in the complaint,
and must construe those facts in favor of the nonmoving party.” Ballentine v. U.S., 486 F.3d 806,
810 (3d Cir. 2007); Fed. R. Civ. P. 12(b)(1). “[S]tanding is a jurisdictional matter,” id. (citations
omitted), and a motion to dismiss may present either a facial or factual attack to subject matter
jurisdiction. A facial attack contests the complaint’s sufficiency “‘because of a defect on its face,’
whereas a factual attack ‘asserts that the factual underpinnings of the basis for jurisdiction fail to
comport with the jurisdictional prerequisites.’” Halabi v. Fed. Nat’l Mortg. Ass’n, 2018 WL
706483, at *2 (D.N.J. Feb. 5, 2018) (citations omitted). In a factual attack, “the court may consider
and weigh evidence outside the pleadings to determine if it has jurisdiction.” Gould Elecs. Inc. v.
United States, 220 F.3d 169, 178 (3d Cir. 2000), holding modified by Simon v. United States, 341
F.3d 193 (3d Cir. 2003).
A. Federal Rule of Civil Procedure 12(b)(6)
When ruling on a motion to dismiss under Rule 12(b)(6), this Court’s inquiry is guided by
the standards of Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007) and Ashcroft v. Iqbal, 556
U.S. 662 (2009). An adequate complaint includes “a short and plain statement of the claim
showing that the pleader is entitled to relief.” Fed. R. Civ. P. 8(a)(2). Rule 8 “requires more than
labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do.
To the extent this Court has considered the cases provided in these letters or unauthorized sur-replies, it has not
considered superfluous argument.
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Factual allegations must … raise a right to relief above the speculative level[.]” Twombly, 550
U.S. at 555 (citations omitted). Pursuant to Rule 12(b)(6), a court must “accept all factual
allegations as true, construe the complaint in the light most favorable to the plaintiff, and determine
whether, under any reasonable reading of the complaint, the plaintiff may be entitled to relief.”
Phillips v. Cty. of Allegheny, 515 F.3d 224, 231 (3d Cir. 2008) (external citation omitted).
However, “the tenet that a court must accept as true all of the allegations contained in a complaint
is inapplicable to legal conclusions. Threadbare recitals of the elements of a cause of action,
supported by mere conclusory statements, do not suffice.” Iqbal, 556 U.S. at 678. Determining
whether allegations are “plausible” is “a context-specific task that requires the reviewing court to
draw on its judicial experience and common sense.” Id. at 679. If the “well-pleaded facts do not
permit the court to infer more than the mere possibility of misconduct,” the complaint should be
dismissed for failing to show “that the pleader is entitled to relief” as required by Rule 8(a)(2). Id.
III.
DISCUSSION
A. Rule 12(b)(1)
As a threshold matter, to the extent Defendants argue that Plaintiffs lack standing to
challenge the Plan’s inclusion of certain Funds, these arguments fail. (See Br. 4, 22-26.) To allege
standing, a plaintiff must demonstrate (1) “an injury in fact that is concrete, particularized, and
actual or imminent, (2) that the injury was caused by the defendant, and (3) that the injury would
likely be redressed by the requested judicial relief.” Thole v. U.S. Bank N.A., 140 S. Ct. 1615,
1618 (2020) (citing Lujan v. Defenders of Wildlife, 504 U.S. 555, 560-61 (1992)). Although
Plaintiffs bear the burden of establishing the elements of standing to withstand dismissal, FOCUS
v. Allegheny Cty. Court of Common Pleas, 75 F.3d 834, 838 (3d Cir. 1996), “[g]eneral factual
allegations of injury resulting from the defendant’s conduct may suffice,” Lujan, 504 U.S. at 561.
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Given the Consolidated Complaint’s pleaded injury—the general mismanagement of the
Plan—which “relates to the defendants’ management of the Plan as a whole,” Plaintiffs have
sufficiently alleged standing to maintain this suit. See Hay v. Gucci Am., Inc., Civ. No. 17-07148,
2018 WL 4815558, at *4 (D.N.J. Oct. 3, 2018) (citation omitted). In this context, it would be
inappropriate to determine standing based solely on the individual funds in which the Plaintiffs
invested. See id. Additionally, Defendants inappositely rely on defined-benefits cases, although
the Plan involves a defined-contribution structure. (Compare Br. 25-26 (citing Thole, 140 S. Ct.
at 1620) with Compl. ¶ 5.) While the Thole plaintiffs were guaranteed a fixed sum every month,
in this case, Plaintiffs will receive the value of their individual accounts upon retirement. See
Thole, 140 S. Ct. at 1616, 1620.
Thus, Defendants’ overarching investment strategies,
management choices, and general Plan oversight could reasonably inflict actual harm to Plaintiffs,
although defined-benefit participants may not necessarily have suffered similar repercussions. At
bottom, the fact that Plaintiffs had not individually invested in every imaginable fund does not
deprive them of their broader standing to “sue on behalf of the Plan and ‘[ ] seek relief under §
1132(a)(2) that sweeps beyond [their] own injury.’” McGowan v. Barnabas Health, Inc., Civ. No.
20-13119, 2021 WL 1399870 (D.N.J. Apr. 13, 2021) (citing Braden v. Wal-Mart Stores, Inc., 588
F.3d 585, 593 (8th Cir. 2009)); see also Leber v. Citigroup 401(k) Plan Inv. Comm., 323 F.R.D.
145, 156 (S.D.N.Y. 2017).
B. Rule 12(b)(6)
1. Breach of Fiduciary Duties (Count I)
ERISA fiduciaries are required to act according to duties of prudence and loyalty to Plan
participants. See 29 U.S.C. § 1104(a)(1)(A)-(B). According to these duties, fiduciaries must act
with the “care, skill, prudence, and diligence under the circumstances” that would be expected of
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a prudent man, and do so “in the interest of the participants and beneficiaries” and “for the
exclusive purpose” of “providing benefits to [them]” while “defraying reasonable expenses of
administering the plan.” Id. If the fiduciaries’ selection and monitoring of the Investment Menu
lacks the “marks of loyalty, skill, and diligence expected of an expert in the field,” this may be
evidence of fiduciary duty breaches. See Sweda v. Univ. of Pa., 923 F.3d 320, 329 (3d Cir. 2019).
Although “hindsight cannot play a role in determining whether a fiduciary’s actions were prudent,”
In re Unisys Sav. Plan Litig., Civ. No. 91-3067, 1997 WL 732473, at *23 (E.D. Pa. Nov. 24, 1997),
“[m]any allegations concerning fiduciary conduct” are factual questions not properly addressed at
the motion to dismiss stage, Sweda, 923 F.3d at 329; see also Fifth Third Bancorp v. Dudenhoeffer,
134 S. Ct. 2459, 2471 (2014) (citations omitted) (such a determination is “context specific” and
“turns on ‘the [prevailing] circumstances’” at the time).
Here, Plaintiffs plausibly allege that Defendants breached these duties when making and
monitoring the Plan’s investments. 4 The Complaint is replete with allegations that the Funds were
significantly trailing their respective benchmarks, participants were being further squeezed by
higher-than-necessary expenses, and cheaper and better-performing alternatives were available to
prudent fiduciaries. (See generally Compl.) As for the DFA Fund, Plaintiffs note that it
underperformed its chosen benchmark, a universe of all available US small cap value stocks, by
up to “427 basis points,” which Plaintiffs suggest could have been an indicator to both the fund
manager and the Plan administrator that a review of their stated strategy was merited. (Id. ¶ 46.)
The same is true for the Invesco Fund, which was allegedly a “persistent poor performer against
its benchmark, the Custom Invesco Global Real Estate Index,” for five of six calendar years from
2014-2019, underperforming in some years by up to “801 basis points.” (Id. ¶ 48.) As these
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Defendants do not dispute that the Plan falls within ERISA’s scope or that Defendants are its fiduciaries. (See Br.)
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benchmarks suggested to participants an aim to meet or exceed the relevant sets of indices after
accounting for fees, it could be inferred that the alleged level of repeat underperformance in excess
of higher-than-necessary management fees potentially reflects an insufficiently cautious choice.
As for the Active suite, Plaintiffs identify even more causes for concern, including:
comparable, less-expensive Index suite offerings that outperformed their Active suite counterparts
(id. ¶ 28); Defendants’ Active suite QDIA choice, which unduly exposed plan participants, who
may not have stated a clear preference for active management, to the risk of severely
underperforming the applicable benchmark (id. ¶¶ 30-31); the Plan’s retooled investment strategy,
which favored additional risk and glide-path deviations “in an effort to augment performance”
rather than invest safely (id. ¶¶ 36-37); the use of a higher-cost investor share class, despite the
existence of a lower-cost institutional share class (id. ¶¶ 38-39); various media reports expressing
skepticism at Fidelity’s choices (id. ¶ 36 n.6, 41); and the fact that almost every Index suite fund
“bears a higher star rating than the corresponding” Active suite fund (id. ¶ 42). Reasonably,
Plaintiffs maintain that a prudent fiduciary would have, over time, observed that Funds were
repeatedly trailing the market’s performance, while exceeding the comparable funds in costs, and
made corresponding adjustments to the Investment Menu or negotiated fee reductions. 5 (See, e.g.,
For similar reasons, the Consolidated Complaint is based on more than “hindsight” bias. Although Defendants pull
out every benchmark, rating, and underperformance statistics in the Consolidated Complaint and ask this Court to
assess them individually, it is plausible that, taken together, these allegations would amount to a real-time warning
that prudent fiduciaries must adjust the Plan’s Investment Menu, fee structure, or management. This is equally true
for Defendants’ other factual interpretations of Plaintiffs’ claims. (See, e.g., Br. at 3, 11-12, 16-22.)
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Further, to the extent Defendants attempt to characterize the Consolidated Complaint as “mandat[ing] the use of
passively-managed funds,” (Br. at 12, 19 n.10), this misinterprets Plaintiffs’ claims. Thus, Defendants’ reliance on
the out-of-circuit cases is misplaced. (See, e.g., Br. at 2, 5, 12 (citing Hecker v. Deere, 556 F.3d 575, 586 (7th Cir.
2009) and Loomis v. Exelon, 658 F.3d 667, 669-70 (7th Cir. 2011).) Both cases “generally assert[] that defendants
violated their fiduciary duty by not offering certain investment options and selecting investment options with excessive
fees.” See Bell v. Pension Comm. of ATH Holding Co., LLC, Civ. No. 15-02062, 2017 WL 1091248, at *4 (S.D. Ind.
Mar. 23, 2017). As noted previously, here, the Consolidated Complaint presents the Funds’ failures as symptoms of
systemic mismanagement and presents a litany of allegations that Defendants mismanaged the Plan as a whole. (See
Compl.; D.E. 29 at 12 (stating that Plaintiffs do not contend that ERISA mandates passively-managed funds).)
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¶ 53.) Throughout, these allegations are sufficiently plausible, specific, and measurable to survive
dismissal.
The same is true regarding Plaintiffs’ allegations of excessive fees, recordkeeping costs,
and Defendants’ failure to select the lowest cost funds. Although “fiduciaries have discretion in
plan management,” this discretion “must be reasonably supported in concept and must be
implemented with proper care, skill, and caution.” Sweda, 923 F.3d at 333, 328-29 (discussing
the plan’s ability to negotiate “favorable investment products”) (citation and quotation omitted);
Pinnell v. Teva Pharms. USA, Inc., Civ. No. 19-5738, 2020 WL 1531870, at *5 (E.D. Pa. Mar. 31,
2020) (denying dismissal where fiduciaries retained expensive class shares despite lower-cost
alternatives). Therefore, if Defendants had the means to materially reduce management fees and
monitor recordkeeping and share costs, but chose not to do so, this could potentially state a claim
for relief. 6 See Hay, 2018 WL 4815558, at *4; Terraza v. Safeway Inc., 241 F. Supp. 3d 1057,
1077 (N. D. Cal. Mar. 13, 2017) (denying dismissal where “relationship[s]” between defendants
and the trustee may have influenced the retention of higher-cost options).
In this case, Plaintiffs allege that Defendants overpaid management fees, the Plan failed to
use its size and presumed negotiating power to reduce costs, and Fidelity was incentivized to
promote its own high-fee investment products. (See, e.g., Compl. ¶¶ 40, 50-60.) Together, the
Consolidated Complaint’s allegations and cost comparisons are sufficient to state a claim.
(Compare Br. at 5, 30 (citing Renfro v. Unisys Corp., 671 F.3d 314, 327-28 (3d Cir. 2011) in
support of dismissing the excessive fee allegations) with McGowan, 2021 WL 1399870 at *6
(distinguishing Renfro, where the plaintiffs had asked the “Court to infer that the fiduciary had a
flawed process,” from Sweda, where the plaintiffs drew “straightforward” cost comparisons).)
Whether “the Plan’s recordkeeping fees exceed a prudent amount” may be a “question of fact,” that is sometimes
premature to determine at this stage. See Kruger v. Novant Health, Inc., 131 F. Supp. 3d 470, 479 (M.D. N.C. 2015).
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Finally, although Defendants dedicate a large amount of their briefing to whether the Index
suite can act as an Active suite benchmark, (see, e.g., Br. 2-3, 11-16), at this stage, the Third Circuit
requires a more “holistic” assessment. 7 Sweda, 923 F.3d at 331; Pinnell, 2020 WL 1531870, at
*5; Nicolas v. Trs. of Princeton Univ., Civ. No. 17-3695, 2017 WL 4455897, at *4–5 (D.N.J. Sept.
25, 2017) (giving plaintiffs “every favorable inference” and denying dismissal); see also
Cunningham v. Cornell Univ., Civ. No. 16-6525, 2017 WL 4358769, at *7 (S.D.N.Y. Sept. 29,
2017); In re MedStar ERISA Litig., 2021 WL 391701, at *6; Schapker v. Waddell & Reed Fin.,
Inc., Civ. No. 17-2365, 2018 WL 1033277, at *8 (D. Kan. Feb. 22, 2018). Taking the requisite
holistic view of Plaintiffs’ allegations regarding deficient Plan management, dismissal at this early
stage based on the Consolidated Complaint’s discussion of the Index suite would be inappropriate.
2. Failure to Monitor (Count II)
Under ERISA, a party that is authorized to appoint and remove plan fiduciaries has a
corresponding duty to monitor those appointees. See Graden v. Conexant Sys., Inc., 574 F. Supp.
2d 456, 466 (D.N.J. 2008) (collecting cases). To state a claim for failure to monitor, Plaintiffs
must demonstrate that Defendants failed to review the performance of trustees and fiduciaries at
reasonable intervals to ensure that their performance was complying with the Plan’s terms and
Defendants largely rely on authority from out-of-circuit for this allegation. (See, e.g., Br. at 2 (citing Davis v. Wash.
Univ. in St. Louis, 960 F.3d 478, 485 (8th Cir. 2020)); id. at 3 (citing Meiners v. Wells Fargo & Co., 898 F.3d 820, 823
(8th Cir. 2018)); id. at 12 (citing Davis v. Salesforce.com Inc., Civ. No. 20-1753, 2020 WL 5893405, at *3-4 (N.D.
Cal. Oct. 5, 2020).) Nonetheless, as noted by another district court assessing the Eighth Circuit’s Davis decision, “the
parties’ dispute over the propriety of comparing actively-managed funds to index funds raises questions of fact and
law that have not been addressed by [this] Circuit.” See Miller v. AutoZone, Inc., Civ. No. 19-02779, 2020 WL
6479564, at *4 (W.D. Tenn. Sept. 18, 2020).
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Further, as noted by multiple courts considering similar allegations, “this case is distinguishable from the California
court’s opinion in Davis as the Plaintiffs have based their claims for imprudence on numerous other grounds.” (D.E.
39-1 at 14); Blackmon v. Zachary Holdings, Inc., Civ. No. 20-988, D.E. 33 (W.D. Tex. Apr. 22, 2021) (quoting In re
MedStar Litigation, Civ. No. 20-1984, 2021 WL 391701, at *6 (D. Md. Feb. 4, 2021)).
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needs. See Scalia v. WPN Corp., 417 F. Supp. 3d 658, 669-70 (W.D. Pa. 2019). A duty to monitor
is “derivative in nature and is premised on an earlier breach of a fiduciary duty.” Id. at 669.
Count II adequately states a claim.
This Court has accepted that the Consolidated
Complaint adequately alleges an “underlying breach of [ERISA] duties. . . .” In re Allergan ERISA
Litig., Civ. No. 17-1554, 2018 WL 8415676, at *7 (D.N.J. July 2, 2018). The Consolidated
Complaint also allege that Defendants failed to “monitor,” “evaluate,” and “remove” appointees,
which allowed the Plan to “suffer[] enormous losses as a result” of those appointees’ “imprudent
actions.” (Compl. ¶ 90.) Plaintiffs further allege that Defendants failed to monitor the Plan’s
investments by “offering and maintaining” the Active suite, although the Index suite outperformed
it. (Id. ¶ 41); see N.J. Carpenters Health Fund v. Royal Bank of Scot. Grp., 709 F.3d 109, 121 (2d
Cir. 2013) (courts “may draw a reasonable inference of liability when the facts alleged are
suggestive of . . . a finding of misconduct”). Here, given the Consolidated Complaint’s allegations,
this Court can infer that Defendants’ actions may have also implicated their duty to monitor.
3. Breach of Trust (Count III)
Plaintiffs bring Count III in the alternative, should any parties be found not to qualify as
fiduciaries pursuant to ERISA. (See Compl. ¶ 95.) To state a claim for breach of trust, Plaintiffs
must allege that the Defendants had “actual or constructive knowledge of the circumstances that
rendered” the breach. Harris Trust & Sav. Bank v. Salomon Smith Barney, Inc., 530 U.S. 238, 251
(2000). Here, Plaintiffs allege the Defendants “possessed the requisite knowledge and information
to avoid the fiduciary breaches at issue” and knowingly “permitted the Plan to offer” a poor
Investment Menu. (Compl. ¶ 96.) Plaintiffs sufficiently state a claim that Defendants knew or
should have known about the nonfeasance or malfeasance of others. (Id. ¶¶ 15-17.)
CONCLUSION
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For the reasons set forth above, Defendant’s motion to dismiss is DENIED.
appropriate order follows.
____/s/ Susan D. Wigenton________
SUSAN D. WIGENTON, U.S.D.J.
Orig:
Cc:
Clerk
Leda D. Wettre
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