Albert v. Oshkosh Corp.

Citation47 F.4th 570
Decision Date29 August 2022
Docket Number21-2789
Parties Andrew ALBERT, Plaintiff-Appellant, v. OSHKOSH CORPORATION, et al., Defendants-Appellees.
CourtUnited States Courts of Appeals. United States Court of Appeals (7th Circuit)

47 F.4th 570

Andrew ALBERT, Plaintiff-Appellant,
v.
OSHKOSH CORPORATION, et al., Defendants-Appellees.

No. 21-2789

United States Court of Appeals, Seventh Circuit.

Argued June 2, 2022
Decided August 29, 2022


Paul M. Secunda, Attorney, Walcheske & Luzi, LLC, Brookfield, WI, for Plaintiff-Appellant.

Samuel Block, Deborah Shannon Davidson, Attorneys, Morgan, Lewis & Bockius LLP, Chicago, IL, Jeremy P. Blumenfeld, Attorney, Morgan, Lewis & Bockius LLP, Philadelphia, PA, Mark E. Schmidtke, Attorney, Ogletree, Deakins, Nash, Smoak & Stewart, P.C., Valparaiso, IN, Matthew J. Sharbaugh, Michael E. Kenneally, Attorneys, Morgan, Lewis & Bockius LLP, Washington, DC, Bernard Bobber, Kevin J. Kinney, Attorneys, Ogletree Deakins, Milwaukee, WI, for Defendants-Appellees.

Before Easterbrook, St. Eve, and Jackson-Akiwumi, Circuit Judges.

St. Eve, Circuit Judge.

Andrew Albert claims that his former employer, a subsidiary of Oshkosh Corporation, violated the Employee Retirement Income Security Act by mismanaging its retirement plan. Albert alleges, among other things, that Defendants breached their fiduciary duties by authorizing the Plan to pay unreasonably high fees for recordkeeping and administration, failing to adequately review the Plan's investment portfolio to ensure that each investment option was prudent, and unreasonably maintaining investment advisors and consultants for the Plan despite the availability of similar service providers with lower costs or better performance histories.

The district court granted Defendants' motion to dismiss the complaint and denied Albert's motion to reconsider. While this appeal was pending, the Supreme Court issued its opinion in Hughes v. Northwestern University , ––– U.S. ––––, 142 S. Ct. 737, 211 L.Ed.2d 558 (2022), vacating our decision in Divane v. Northwestern University , 953 F.3d 980 (7th Cir. 2020), and remanding for reevaluation of the operative complaint. The district court cited Divane repeatedly in its opinion, albeit not for the proposition that the Supreme Court rejected in Hughes . As explained below, we affirm the dismissal of all claims for failure to state a claim.

47 F.4th 574

I. Background

A. Statutory Context

The Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. § 1001 et seq. , provides a variety of remedies to ensure that employees receive benefits they earned through employer-provided benefit plans. Id. § 1132. Of relevance here, ERISA provides a private right of action for breach of a fiduciary duty. Id. § 1132(a)(2). Plan participants and beneficiaries may seek monetary relief from a plan fiduciary for failing to properly oversee a benefits plan. Id. § 1109; see also id. § 1002(7), (8), (21). The duty of prudence requires a plan fiduciary to discharge its duties "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 ...." Id. § 1104(a)(1)(B). The duty of loyalty requires a plan fiduciary to "discharge his duties with respect to a plan solely in the interest of the participants and beneficiaries." Id. § 1104(a)(1).

In a defined contribution plan like Albert's, "participants' retirement benefits are limited to the value of their own individual investment accounts, which is determined by the market performance of employee and employer contributions, less expenses." Tibble v. Edison Int'l , 575 U.S. 523, 525, 135 S.Ct. 1823, 191 L.Ed.2d 795 (2015) ; see 29 U.S.C. § 1002(34).1 Defined contribution plans often pay a variety of fees in exchange for services that third parties perform.2 Investment-management fees, for example, compensate a fund, such as a mutual fund or index fund, for designing and maintaining the fund's investment portfolio. Typically, investment-management fees are calculated as a percentage of the money a plan participant invests in a particular fund, which is known as an expense ratio. "Expense ratios tend to be higher for funds that are actively managed according to the funds' investment strategies, and lower for funds that passively track the makeup of a standardized index, such as the S&P 500." Hughes , 142 S. Ct. at 740. Recordkeeping fees compensate recordkeepers who "track the balances of individual accounts, provide regular account statements, and offer informational and accessibility services to participants." Id. Recordkeeping fees are assessed either as a flat fee per participant or via an expense ratio.

Sometimes, a portion of the investment-management fees collected through an expense ratio goes to the recordkeeper. This is known as "revenue sharing." We have explained that "expense ratios and revenue-sharing payments [generally] move in tandem: the higher a given share class's expense ratio, the more the fund pays [the recordkeeper] in revenue sharing." Leimkuehler v. Am. United Life Ins. Co. , 713 F.3d 905, 909 (7th Cir. 2013). A "share class" refers to groups of investors who invest in the same investment option. A "retail" share class pays the same fees as the general public, while an "institutional" share class pays a discounted rate.

47 F.4th 575

In Hughes , the Supreme Court vacated our decision in Divane , which dismissed an ERISA complaint alleging mismanagement of a defined contribution plan for failure to state a claim. The plaintiffs alleged, among other things, that the plan sponsor "breached its fiduciary duties by providing investment options that were too numerous, too expensive, or underperforming." Divane , 953 F.3d at 991. We held that this claim failed as a matter of law because the inclusion of low-cost investment options in the plan mitigated concerns that other investment options were imprudent. Id. ("[The availability of] the types of funds plaintiffs wanted ... eliminat[ed] any claim that plan participants were forced to stomach an unappetizing menu."). The Supreme Court rejected this portion of our analysis because "[s]uch a categorical rule is inconsistent with the context-specific inquiry that ERISA requires and fails to take into account respondents' duty to monitor all plan investments and remove any imprudent ones." Hughes , 142 S. Ct. at 740 (citing Tibble , 575 U.S. at 530, 135 S.Ct. 1823 ). In Tibble , the Court similarly explained that "[a] plaintiff may allege that a fiduciary breached the duty of prudence by failing to properly monitor investments and remove imprudent ones." Tibble , 575 U.S. at 530, 135 S.Ct. 1823. That is so even when participants choose their own investments in a defined contribution plan. Id. at 529–30, 135 S.Ct. 1823.

These principles meant that the categorical rule we applied in Divane was improper. Hughes , 142 S. Ct. at 742. The Court therefore vacated and remanded for us to reconsider whether the plaintiffs had plausibly alleged a violation of the duty of prudence in light of Tibble , Bell Atlantic Corp. v. Twombly , 550 U.S. 544, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007), and Ashcroft v. Iqbal , 556 U.S. 662, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009). The Court noted, however, that "the circumstances facing an ERISA fiduciary will implicate difficult tradeoffs, and courts must give due regard to the range of reasonable judgments a fiduciary may make based on her experience and expertise." Hughes , 142 S. Ct. at 742. The case is still pending before this court on remand.

Several of the questions presented in this appeal concern the ramifications of Hughes . According to Defendants, Hughes "did not radically reinvent this area of law or upend years of precedent"; it simply reinforced that "ERISA does not allow the soundness of investments A, B, and C to excuse the unsoundness of investments D, E, and F." Plaintiff, meanwhile, contends that Hughes renders reliance on any aspect of Divane improper.

B. Facts

Andrew Albert worked for a subsidiary of Oshkosh Corporation from January 2018 to April 2020. Oshkosh Corporation is a company based in Oshkosh, Wisconsin that manufactures specialty vehicles and trucks. Oshkosh Corporation is the plan sponsor of the Oshkosh Corporation and Affiliates Tax Deferred Investment Plan ("the Plan"). The plan administrator is the Administrative Committee, which oversees the day-to-day administration and operation of the Plan. Oshkosh selected Fidelity Management Trust Company ("Fidelity") as the Plan's recordkeeper and Strategic Advisors, Inc. ("SAI") as the Plan's investment advisor. SAI is a subsidiary of Fidelity, but neither SAI nor Fidelity are defendants here. According to Albert, the Plan has about $1.1 billion in assets and over 12,000 participants.

Albert filed this suit individually and as a representative of a putative class of Plan participants and beneficiaries. As a former employee, he participated in the Plan, but

47 F.4th 576

the amended complaint does not specify which investment options he holds in his individual account. The main thrust of his complaint is that Oshkosh Corporation, the Oshkosh Board of Directors, the Plan's Administrative Committee, and unknown officers and employees (collectively, "Oshkosh") breached their fiduciary duties under ERISA from June 15, 2014, through the date of judgment. At least twenty-nine of the Plan's investment options charge excessive fees because Oshkosh allegedly failed to engage in a prudent decision-making process.

Albert brings nine counts against Oshkosh, which can be sorted into three buckets: recordkeeping fees (Count I), investment-management fees (Count II), and ancillary claims (Count III to IX). Count III alleges that Oshkosh breached its fiduciary duty by paying too much to SAI in the form of investment-advisor fees. While Counts I to III allege breaches of the duties of prudence and loyalty, only Count III is arguably relevant to a breach of the duty of loyalty, as explained below. Counts IV to VI mirror Counts I to III but allege that Oshkosh failed to monitor other fiduciaries with respect to the Plan's fees. Counts VII to IX allege that payment of each category of...

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