Cunningham v. Cornell Univ.

• Decision Date: 27 September 2019
• Docket Number: 16-cv-6525 (PKC)
• Parties: CASEY CUNNINGHAM, CHARLES E. LANCE, STANLEY T. MARCUS, LYDIA PETTIS, and JOY VERONNEAU, individually and as representatives of a class of participants and beneficiaries on behalf of the Cornell University Retirement Plan for the Employees of the Endowed Colleges at Ithaca and the Cornell University Tax Deferred Annuity Plan, Plaintiffs, v. CORNELL UNIVERSITY, THE RETIREMENT PLAN OVERSIGHT COMMITTEE, MARY G. OPPERMAN, and CAPFINANCIAL PARTNERS, LLC d/b/a/ CAPTRUST FINANCIAL ADVISORS, Defendants.
• Court: U.S. District Court — Southern District of New York

CASEY CUNNINGHAM, CHARLES E. LANCE,

STANLEY T. MARCUS, LYDIA PETTIS,

and JOY VERONNEAU, individually

and as representatives of a class of participants

and beneficiaries on behalf of the Cornell University Retirement Plan

for the Employees of the Endowed Colleges at Ithacaand the Cornell University Tax Deferred Annuity Plan, Plaintiffs, v. CORNELL UNIVERSITY,THE RETIREMENT PLAN OVERSIGHT COMMITTEE,MARY G. OPPERMAN, and CAPFINANCIAL PARTNERS, LLCd/b/a/ CAPTRUST FINANCIAL ADVISORS, Defendants.

16-cv-6525 (PKC)

UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK

September 27, 2019

OPINION AND ORDER

CASTEL, U.S.D.J.

Plaintiffs are a certified class of participants and beneficiaries of certain benefit plans associated with Cornell University ("Cornell"). In broad terms they allege that fiduciaries of the plans have not managed the plans prudently and have allowed the plans to underperform and accrue excessive administrative fees. The plans at issue are the defined-contribution Cornell University Retirement Plan for the Employees of the Endowed Colleges at Ithaca (the "Retirement Plan") and the Cornell University Tax Deferred Annuity Plan (the "TDA Plan") (together, the "Plans.") Plaintiffs assert that defendants Cornell, the Retirement Plan Oversight Committee (the "Committee"), the Committee's head Mary G. Opperman (collectively, "Cornell Defendants"), and the investment advisory firm Capfinancial Partners, LLC d/b/a CAPTRUST Financial Advisors ("CAPTRUST"), have breached their duties as fiduciaries of the Plans.

In September 2017, the Court granted in part defendants' motions to dismiss claims in the Amended Complaint and determined that plaintiffs had plausibly alleged claims under the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. §§1104, 1106 for breach of ERISA's fiduciary duty of prudence based on failure to monitor recordkeeping fees and underperforming funds. Cunningham v. Cornell Univ., 16 cv 6525 (PKC), 2017 WL 4358769, at *13 (S.D.N.Y. Sept. 29, 2017), upheld in part Counts III, V, and VII of the Amended Complaint.¹ Defendants now move for summary judgment on these remaining claims. (Docs 221, 233.) Both sides also move for exclusion of certain expert testimony. (Docs 225, 228, 278.) For the following reasons, the Court grants in part and denies in part defendants' motions for summary judgment and motions to exclude.²

BACKGROUND

The Court assumes familiarity with the facts of the case as discussed in the Court's previous decisions. See Cunningham v. Cornell Univ., 16 cv 6525, 2019 WL 275827 (S.D.N.Y. Jan. 22, 2019) (class certification opinion); Cunningham v. Cornell Univ., 16 cv 6525, 2018 WL 4279466 (S.D.N.Y. Sept. 6, 2018) (partial denial of motion to strike jury demand); Cunningham, 2017 WL 4358769 (partial denial of motion to dismiss). A brief overview is provided below. The following facts are either undisputed or described in the light most favorable to plaintiffs as the non-moving party. See Costello v. City of Burlington, 632 F.3d 41, 45 (2d Cir. 2011).³

I. The Parties

Plaintiffs are members of a certified class of employees or former employees of Cornell from August 17, 2010 through August 17, 2016 who were participants in the Plans. (Pls.' 56.1 ¶1; Doc 287; Cornell Defs.' 56.1 ¶1; Doc 232.) The Plans are organized under Section 403(b) of the Internal Revenue Code, 26 U.S.C. § 403(b). (Pls.' 56.1 ¶4; Cornell Defs.' 56.1 ¶4.) The Retirement Plan is funded through employer contributions of up to 10% of each participant's base pay up to $275,000. As of December 31, 2016, the Retirement Plan had over 19,000 participants and nearly $2 billion in net assets. (Pls.' 56.1 ¶8; Cornell Defs.' 56.1 ¶8.) The TDA Plan is funded entirely through employee contributions. As of December 31, 2016, the TDA plan had over 11,000 participants and $1.34 billion in net assets. (Pls.' 56.1 ¶9; Cornell Defs.' 56.1 ¶9.) Cornell is the named administrator for the Plans. (Pls.' 56.1 ¶13; Cornell Defs.' 56.1 ¶13.)

Prior to the formation of the Committee and the retention of CAPTRUST, review of the Plans fell to Cornell's Benefits Services and Administration Department. (Pls.' 56.1 ¶¶36-37; Defs' 56.1 ¶¶36-37.) In July 2007, the Internal Revenue Service published updated regulations governing plans organized under section 403(b), effective January 1, 2009. See Revised Regulations Concerning Section 403(b) Tax-Sheltered Annuity Contracts, 72 Fed. Reg. 41128, 41128-59 (July 26, 2007). In November 2010 the Committee had its first meeting. It was explained that the new committee was "needed [] to establish a formal committee with fiduciary responsibility for overseeing the retirement plans as required by the recent IRC Section 403(b) regulations." (Meeting Minutes November 29, 2010 at 1; Doc 250-19.) The Committee was formally chartered in April 2011 and listed as its primary duties "policy oversight for the selection of investment options for the Plans by means of [a to-be-created Investment Policy Statement], and establish[ment of] criteria to review and monitor the investment performance of the investment options." (Pls.' 56.1 ¶15; Cornell Defs.' 56.1 ¶15; Charter at 2; Doc 250-17.)

The Committee and Cornell solicited a Request for Proposal ("RFP") in April 2011 for outside consulting services. The RFP noted Cornell sought "professional assistance to determine the proper investment vehicles" and help with "recordkeeping." (RFP at 1; Doc 246-1.) Cornell retained CAPTRUST in December 2011 as its outside consultant. (Pls.' 56.1 ¶¶40, 73; Cornell Defs.' 56.1 ¶¶40, 73; CAPTRUST Services Agreement of December 8, 2011; Doc 246-2.) CAPTRUST agreed to serve as a fiduciary under ERISA "with regard to the selection of . . . mutual fund(s) available to the Plans within the platform provided by the Plan's Administrator." (See Doc 246-2.) CAPTRUST is an investment advisory firm that has "developed an expertise in working with colleges and universities . . . as well as the providers of 403(b) administrative services." (Doc 224-2 at 9). CAPTRUST gave its first presentation to the Committee regarding Cornell's investment lineup in January 2012. (Pls.' 56.1 ¶41; Cornell Defs.' 56.1 ¶41).

II. Review of the Plans' Recordkeeping Fees

The Plans used two outside vendors for recordkeeping and administrative services: Teachers Insurance and Annuity Association of America-College Retirement Equities Fund ("TIAA-CREF" or "TIAA") and Fidelity Investments Inc. ("Fidelity"). (Pls.' 56.1 ¶¶10, 19-20; Cornell Defs.' 56.1 ¶¶10, 19-20.) The parties dispute whether it was common for section 403(b) plans to employ more than one recordkeeper and the feasibility of consolidating to a single recordkeeper for plans that have historically employed multiple recordkeepers. (E.g., Pls.' 56.1 ¶¶26-27; Cornell Defs.' 56.1 ¶¶26-27.)

Recordkeepers may be compensated for their services with fees charged as a percent of assets in funds (a "revenue sharing" model)⁴ or with fees charged on a per participant basis. (Pls.' 56.1 ¶¶28, 30; Cornell Defs.' 56.1 ¶¶28, 30.) In revenue sharing arrangements, fund managers collect asset-based fees known as an "expense ratio" and pass a portion of those fees on to vendors as compensation for administrative and recordkeeping services. (Pls.' 56.1 ¶28; Cornell Defs.' 56.1 ¶28.) Some investment managers will introduce different "share classes" of the same investment option that will have different revenue sharing percentages owed. (Pls.' 56.1 ¶29; Cornell Defs.' 56.1 ¶29.) During the relevant period, TIAA and Fidelity received fees based on a revenue sharing model. (Pls.' 56.1 ¶28; Cornell Defs.' 56.1 ¶28.)

At the January 2012 Committee meeting, CAPTRUST presented information regarding possible recordkeeper consolidation. (Pls.' 56.1 ¶41; Cornell Defs.' 56.1 ¶41; see January 2012 Meeting Materials at 38-39; Doc 248-3.) CAPTRUST presented to the Committee advantages and disadvantages of four possible recordkeeping approaches, including a single recordkeeper scenario. (Id.) Minutes from the July 2012 Committee meeting state that the Committee chose to "validate[] the current multi-vendor arrangement" and instead transition to a tiered approach to their investment lineup to "provide[] symmetry among the three vendors." (Id.; July 2012 Meeting Minutes at 3; Doc 248-9.)⁵

In addition to considering recordkeeper consolidation, CAPTRUST requested and received fee reductions of 0.05% from TIAA and 0.10% from Fidelity in 2012. (Pls.' 56.1 ¶50; Cornell Defs.' 56.1 ¶50.) TIAA and Fidelity agreed to retroactively refund $1.2 million in fees paid for 2011 as one-time revenue credits. (Id.) CAPTRUST asked for and received fee reductions from TIAA or Fidelity eight additional times between 2012 and January 2018. (Pls.' 56.1 ¶51; Cornell Defs.' 56.1 ¶51.) The annual recordkeeping fee paid by the Plans to TIAA and Fidelity over the period of 2010-2016, whether measured in basis points or per participant, is disputed. (E.g., Pls.' 56.1 ¶¶50-51, 62-63; Defs.' 56.1 ¶¶50-51, 62-63.)

In 2016, the issue of possible recordkeeper consolidation briefly arose again. Some Committee members emailed CAPTRUST to evaluate alternative recordkeeping arrangements and place the issue on the Committee's agenda. (See Doc 247-2.) The issue was not placed on the agenda for the March 2016 meeting and was not discussed at subsequent Committee meetings. (See, e.g., Docs 238-9 (March 31, 2016 meeting minutes); 290-19 (June 29, 2016 meeting minutes); 290-20 (September 28, 2016 meeting minutes).)

III. Review of the Plans' Investment Lineups

Prior to January 2012, Benefits Services was charged with reviewing the investment lineup and monitoring fund performance. (Pls.' 56.1 ¶¶36-37; Defs' 56.1 ¶¶36-37.) Benefits Services sent performance summaries developed by vendors to participants, developed a two-tier preferred fund lineup, and grouped funds into asset classes to help participants more easily make fund choices. (Bursic Dep. at 70-77; Doc 248-1.) Benefits...