Sacerdote et al v. New York University

Filing 101

OPINION & ORDER re: 81 MOTION for Reconsideration re; 79 Memorandum & Opinion: Pending before the Court is plaintiff's motion for reconsideration. (ECF No. 81.) Plaintiffs seek reconsideration of the Court's dismissal of (1) the ir prudence claim in Count V regarding mutual fund share classes, and (2) their failure to monitor claim in Count VII. For the foregoing reasons, the Court DENIES the motion for reconsideration. The Clerk of Court is directed to close the motion at ECF No. 81. (Signed by Judge Katherine B. Forrest on 10/19/2017) (jwh)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
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DR. ALAN SACERDOTE, et al.,
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Plaintiffs,
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-v:
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NEW YORK UNIVERSITY,
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Defendant.
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USDC SDNY
DOCUMENT
ELECTRONICALLY FILED
DOC #: _________________
DATE FILED: October 19, 2017

16-cv-6284 (KBF)
OPINION & ORDER

KATHERINE B. FORREST, District Judge:
Pending before the Court is plaintiff’s motion for reconsideration. (ECF No.
81.) Plaintiffs seek reconsideration of the Court’s dismissal of (1) their prudence
claim in Count V regarding mutual fund share classes, and (2) their failure to
monitor claim in Count VII. For the reasons discussed below, that motion is
DENIED.
I.

LEGAL STANDARD
The standard for granting reconsideration is strict. A motion for

reconsideration under Local Rule 6.3 “will generally be denied unless the moving
party can point to controlling decisions or data that the court overlooked—matters,
in other words, that might reasonably be expected to alter the conclusion reached by
the court.” See Shrader v. CSX Transp., Inc., 70 F.3d 255, 257 (2d Cir. 1995).
“Controlling authority means decisions of the Second Circuit Court of Appeals or
the U.S. Supreme Court . . . .” Ivan Visin Shipping, Ltd. v. Onego Shipping &

Chartering B.V., 543 F. Supp. 2d 338, 339 (S.D.N.Y. 2008) (citation omitted). The
Court should not revisit a prior order without “an intervening change of controlling
law, the availability of new evidence, or the need to correct a clear error or prevent
manifest injustice.” Virgin Atl. Airways, Ltd. v. Nat’l Mediation Bd., 956 F.2d 1245,
1255 (2d Cir. 1992) (quotation omitted). A motion for reconsideration should be
denied if the moving party “merely offers substantially the same arguments he
offered on the original motion . . . .” United States v. Kerik, 615 F. Supp. 2d 256,
276 n.27 (S.D.N.Y. 2009) (quotation omitted). Plaintiffs’ first claim is that this
Court committed manifest legal error in dismissing an allegation supporting Count
V of the Amended Complaint; their second is that they have discovered new
evidence supporting Count VII.
II.

RETAIL CLASS SHARES VERSUS INSTITUTIONAL CLASS SHARES
The first question before the Court is whether it manifestly erred when it

determined that, as a matter of law and as elaborated by the facts alleged in the
Amended Complaint, the inclusion of retail class shares in a plan despite the
alleged availability of identical institutional class does not, on its own, support a
cognizable prudence claim. Plaintiff asserts that the Court erred in its
interpretation of the caselaw on which it relied in deciding this question.
A. Legal Principles
As an initial matter, the Court notes that the Second Circuit has not
addressed this precise question and that no case on which plaintiffs, defendants, or

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this Court relied is binding precedent.1 However, in assessing the prudence of a
particular investment mix, the Second Circuit has held that the “prudence of each
investment is not assessed in isolation but, rather, as the investment relates to the
portfolio as a whole.” Pension Ben. Guar. Corp. v. Morgan Stanley Investment
Mgmt. Inc., 712 F.3d 705, 717 (2d Cir. 2013) (emphasis added). To comply with
ERISA and the duty of prudence, the fiduciary must “give ‘appropriate
consideration’ to whether an investment ‘is reasonably designed, as part of the
portfolio . . . to further the purposes of the plan, taking into consideration the risk of
loss and the opportunity for gain (or other return) associated with the investment.’”
Id. (quoting 29 C.F.R. § 2550.404a-1(b)(2)(i)); see also Hecker v. Deere & Co., 556
F.3d 575, 586 (7th Cir. 2009) (“We see nothing in [ERISA] that requires plan
fiduciaries to include any particular mix of investment vehicles in their plan.”).
Thus, to support a claim that defendant breached its duty of prudence in the Second

Additionally, the Court notes that its reliance on Tibble v. Edison Int’l (Tibble I), 729 F.3d 1110
(9th Cir. 2013), rev’d 135 S. Ct. 1823 (2015), was misplaced, though Tibble I was not necessary to
support its holding.
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Circuit, plaintiff must demonstrate that the mix of investments was unreasonable,
not just that the inclusion of any specific investment was imprudent.2
Plaintiffs maintain that this Court misread the caselaw on whether offering
retail class shares over institutional class shares is prudent. However, none of the
cases cited are directly on point; each decision necessarily focuses on the facts a
plaintiff alleges, the sufficiency of which differs from complaint to complaint.
Various appellate decisions that have addressed this or similar questions indicate a
trend supportive of this Court’s decision. Where plaintiffs allege that a defendant
breached its fiduciary duty by including retail class shares but do not sufficiently
allege an alteration of the total mix, the allegation does not survive a motion to
dismiss. See, e.g., Renfro v. Unisys Corp., 671 F.3d 314, 319 (3d Cir. 2011)
(dismissing an allegation when plaintiffs alleged only that the defendant “could
have selected investments having lower fees than mutual funds and/or used the size
of its plan as leverage to bargain for lower fee rates on mutual funds,” but did not
identify specific funds); Hecker v. Deere & Co., 556 F.3d 575, 586 (7th Cir. 2009)
(dismissing a claim that the defendant breached its fiduciary duty by including
retail mutual funds because “the undisputed facts [left] no room for doubt that the

Certainly, trustees have “a continuing duty to monitor trust investments and remove imprudent
ones.” Tibble v. Edison Int’l (Tibble II), 135 S. Ct. 1823, 1828 (2015). This standard does not,
however, speak to which investments are imprudent, nor does it require trustees to always choose
options based on fee structure alone. In fact, the standard may in some cases encourage trustees to
pick an option with higher fees, based on the other aspects of the fund in question or the other
options available in the plan.
It is, of course, possible that a single investment option could be so manifestly imprudent as
to support a prudence claim simply by virtue of its inclusion. Here, though, the claim is essentially
that including a particular share class is ipso facto imprudent. That claim is not sufficiently
supported.
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[plans] offered a sufficient mix of investments for their participants” and no trier of
fact could find that the defendant failed to satisfy its alleged duty to “furnish an
acceptable array of investment vehicles”).
In contrast, cases that maintain such claims, such as Braden v. Wal-Mart
Stores, Inc., 588 F.3d 585 (8th Cir. 2009), do not lack allegations supporting a total
mix argument. In Braden, the Eighth Circuit denied a motion to dismiss a
prudence claim based on an allegation that the defendant could have switched to
specific institutional class shares with identical features and lower costs. See 588
F.3d at 590. In that case, the decision focused on the mix as well, but there, the
plan offered only thirteen products (not 103 or 84 as here): ten mutual funds, one
common/collective trust, common stock in the defendant corporation, and a stable
value fund. Id. at 589. In addition, plaintiffs there alleged that all of the included
mutual funds were only available as retail class shares. Id. at 595. Here,
defendant’s Faculty Plan offers 103 options, and the Medical Plan offers 84
options—far more than the defendant in Braden—and there is no allegation that
every mutual fund option offered only retail class shares. (See Am. Compl. ¶ 223;
see also Faculty Plan Form 5500, ECF No. 47-5, at 13-15; Medical Plan Form 5500,
ECF No. 47-6, at 16-17.)
In Renfro, the Third Circuit illuminated the distinction between Hecker and
Braden, noting that both courts used a similar methodology in analyzing the
investment mix by “look[ing] first to the characteristics of the mix and range of
options and then evaluat[ing] the plausibility of claims challenging fund selection
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against the backdrop of the reasonableness of the mix and range of investment
option.” Renfro, 671 F.3d at 326. That methodology led to divergent results
because of the varied sufficiency of the plaintiffs’ allegations.
Plaintiffs’ motion also relies heavily on their reading of Loomis v. Exelon
Corp., 658 F.3d 667 (7th Cir. 2011), which dismissed a claim for breach of fiduciary
duty based on an allegation that defendant offered retail funds rather than
“arrang[ing] for access to ‘wholesale’ or ‘institutional’ investment vehicles . . . to
which the general public does not have access.” Id. at 671. Put simply, reliance on
Loomis is not necessary for this Court’s holding.3 That said, the Court still finds
persuasive the Seventh Circuit’s reasoning that the plaintiffs in Loomis were not
arguing that their fees were higher, as low-fee plans were available to plaintiffs
through the plan, or that the defendant “left participants adrift and apt to blunder
into the high-expense funds when they would be better off with the low-expense
funds.” Loomis, 658 F.3d at 671. Like plaintiffs here, the plaintiffs in Loomis had

Upon further reflection, the record on which the Loomis court relied included additional allegations
that were not made here. An amicus brief illuminated the difference between the expense ratios of
institutional share class and those of retail funds, which undermined the plaintiffs’ claim that
institutional shares are always more prudent. The record also included not just the point about
lower liquidity with which plaintiffs here take issue, but also arguments about the expenses tied to
funds with more small investors versus fewer large investors. The Seventh Circuit’s holding thus
relied on the factual record before it—the decision did not necessarily indicate that as a matter of
law, fiduciaries may offer retail class shares instead of institutional class shares consistent with
their duty of prudence.
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access to a mix of options, some of which were retail class shares and some of which
were not.
Finally, the Court is aware of Judge Castel’s opinion addressing similar
claims to those brought by plaintiffs here, in which he disagreed with this Court,
noting that Loomis “considered challenges to the overall range of investment
options offered by the plans rather than the prudence of including any particular
investment options.” Cunningham v. Cornell Univ., No. 16-cv-6525, 2017 WL
4358769, at *7 (S.D.N.Y. Sept. 29, 2017). Respectfully, this Court’s reading of
Second Circuit precedent indicates that it must consider the mix rather than the
prudence of any individual option when assessing a prudence claim.
B. Discussion
Against this backdrop, the Court has re-reviewed its decision of August 25,
2017. (ECF No. 79.) Having carefully considered the issue, the Court continues in
its view that plaintiffs’ Amended Complaint does not allege sufficient facts to
support a plausible claim that the inclusion of retail class shares (versus specific
institutional class shares) breached the duty of prudence. The allegations in the
Amended Complaint fall short of showing the inclusion of such shares rendered the
mix of options imprudent.
According to the Amended Complaint, defendant offers two retirement plans:
the New York University Retirement Plan for Members of the Faculty, Professional
Research Staff, and Administration (the “Faculty Plan”) and the New York
University School of Medicine Retirement Plan for Members of the Faculty,
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Professional Research Staff, and Administration (the “Medical Plan”) (collectively,
the “Plans”).4 (Am. Compl. ¶ 1.) The Faculty Plan consists of 103 investment
options and the Medical Plan offers 84 investment options. (Id. ¶ 18.) As relevant
here, plaintiffs claim the Plans offered only retail class shares in certain of the
investment options, though cheaper institutional class shares might have been
available to defendant because of its size. Plaintiffs allege:
The fees available to multi-billion dollar retirement plans are orders of
magnitude lower than the much higher retail fees available to small
investors. . . . Retail share classes are marketed to individuals with
small amounts to invest. Institutional share classes are offered to
investors with large amounts to invest, such as large retirement plans.
The different share classes of a given mutual fund have the identical
manager, are managed identically, and invest in the same portfolio of
securities. The only difference is that the retail shares charge
significantly higher fees, resulting in retail class investors receiving
lower returns. The share classes are otherwise identical in all
respects.5
(Id. ¶¶ 40, 50.) The Court accepts this as an allegation that defendant included
higher-cost classes of shares when it could have included lower-cost, “identical”
classes. (Id. ¶ 50.) The only other difference alleged is the minimum required
investment, which defines whether the class is retail or institutional. Plaintiffs also
list a number of funds that had retail class shares included in the Plans but not

On a motion to dismiss, the Court assumes the truth of the factual allegations in the Amended
Complaint.
5 For the purpose of this motion, the Court accepts as true that the share classes are identical, but
the Court is not currently aware of any situation in which this is truly the case. Plaintiffs admit, for
example, that the share classes require different minimum investment amounts; this on its own
might suggest that they are not, in fact, identical, as the size—and the corresponding number of
investors—may influence other aspects of the classes such their management and returns.
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institutional class shares.6 (Id. ¶ 144-45.) But plaintiffs do not allege that, taken as
a whole, the mixes of options in the Plans were imprudent because of the inclusion
of these retail class shares. In light of the large number of investment choices in
the Plans—including institutional class shares in certain funds—plaintiffs’
allegation that lower-cost, allegedly “identical” funds were available is not enough
to support a claim that defendants breached their duty of prudence. The retail class
shares would have to be so prevalent that an entire Plan was tainted. To hold
otherwise would result in an unreasonable level of micromanagement of investment
mixes by courts and unduly restrict fiduciaries.
For the foregoing reasons, the Court will not reinstate this claim.
III.

FAILURE TO MONITOR
Additionally, the Court will not reinstate Count VII. Plaintiffs claim that

through discovery, they have uncovered evidence of defendant’s failure to monitor.
However, the facts plaintiffs reference are not “new” as required by Virgin Atl.
Airways. 956 F.2d at 1255. Plaintiffs knew about the Retirement Plan Committee
and its membership since at least November 28, 2016—well in advance of its
briefing on defendant’s motion to dismiss, which was filed on January 9, 2017, and
the oral argument on the motion on February 16, 2017. (ECF Nos. 47, 55.) The
evidence now referenced is not “new” by any stretch of the imagination. In fact, in
support of this motion, plaintiffs cite their own memorandum in opposition to the

The precise proportion that retail class share funds comprise of the available options is unclear, as
the plaintiffs’ list includes options that are currently and were previously offered. (Id. ¶¶ 144-45.)
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motion to dismiss, which the Court considered in deciding that motion. And even if
the evidence were new, plaintiffs have not met their burden of demonstrating that it
“might reasonably be expected to alter the conclusion reached by the court.” Sulton,
2010 WL 1375188, at *1 (quotation omitted). As such, this claim will not be
reinstated.
IV.

CONCLUSION
For the foregoing reasons, the Court DENIES the motion for reconsideration.

The Clerk of Court is directed to close the motion at ECF No. 81.
SO ORDERED.
Dated:

New York, New York
October 19, 2017
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KATHERINE B. FORREST
United States District Judge

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