Garthwait v. Eversource Energy Co.
| Docket Number | CIVIL 3:20-CV-00902 (JCH) |
| Decision Date | 29 July 2022 |
| Parties | KIMBERLY GARTHWAIT, ET AL. Plaintiffs, v. EVERSOURCE ENERGY COMPANY, ET AL., Defendants. |
| Court | U.S. District Court — District of Connecticut |
RULING ON MOTION FOR SUMMARY JUDGMENT (DOC. NO. 120) AND MOTIONS TO PRECLUDE (DOC. NOS. 119, 121, & 122)
A class of former and current participants in the Eversource 401(k) Plan (“the Plan”) brings this action against Eversource Energy Company (“Eversource”) and other defendants under section 1132(a)(2) of the Employee Retirement Income Security Act of 1974 (“ERISA”), section 1001 of title 29, et seq., of the U.S. Code. Four named plaintiffs, Kimberly Garthwait (“Garthwait”), Cumal T. Gray (“Gray”), Kristine T. Torrance (“Torrance”) and Michael J. Hushion (“Hushion”), represent a class of all participants and beneficiaries in the Plan from June 30, 2014 to the present (“Class Period”). They assert their claims against the following defendants: Eversource; Eversource's Board of Directors (“the Board”); the Eversource Plan Administrative Committee (“Plan Administrative Committee”); the Eversource Investment Management Committee (“Investment Management Committee”); and Christine M. Carmody, Robert J. DeAngelo, Richard J. Morrison, and Michael P. Synan, Gregory B. Butler, Christine M. Carmody, James J. Judge, Philip J. Lembo, Thomas J. May, David R. McHale, and John M. Moriera, who were members of the Board, the Administrative Committee, or the Investment Management Committee.
The defendants have filed a Motion for Summary Judgment (Doc. No. 120), which the plaintiffs oppose. See Pls.' Opp'n to Mot. for Summ. J. (Doc. No. 133). Both parties have also filed Motions to Preclude expert testimony, seeking to disqualify the following witnesses: plaintiffs' expert Michael Geist (Doc. No. 119); defendants' expert Kathleen Mann (Doc. No. 122); and defendants' expert Dr. Russell Wermers (Doc. No. 121). For the reasons discussed below, all four Motions are denied in full.
Eversource sponsors the Plan, a defined-contribution, individual account retirement plan for the company's employees. See Pls.' L.R. 56(a)2 Stmt. at ¶ 1 ( ) (Doc. No. 132).[1] The Plan served 11,484 participants as of December 31, 2018, and offered eighteen investment options. Id. at ¶ 2.
The defendants play varying roles in managing and monitoring the Plan. These duties are laid out in the Plan's Investment Policy Statement, which “describes the roles and responsibilities of committee members, staff, and consultants . . . and sets forth broad guidelines regarding how the Investment Management Committee . . . selects and monitors the Plan's investment options.” Id. at ¶ 3.
The first of the two committees, the Plan Administrative Committee, is a named fiduciary responsible for “day-to-day operations of the Plan”, including hiring or replacing the Plan's recordkeeper. Id. at ¶ 6.
The second committee, the Investment Management Committee, is a named co-fiduciary which “select[s] and review[s] the Plan's investment options.” Id. at ¶ 4. Committee members include Eversource's CEO, CFO, General Counsel, Senior Vice President for Human Resources, and Treasurer. Id. at ¶ 5. An in-house team of four to five investment management staff,[2] led by director Robert DeAngelo, assists the Investment Management Committee in the day-to-day oversight of the plan. Such oversight includes: “the establishment and maintenance of employee records, administrative matters, and the computation and processing of benefits.” Id. at ¶ 7. While the staff carries out much of the everyday work related to the Plan, the Investment Policy Statement specifies that committee staff have no fiduciary responsibility in connection with the Plan. Pls.' L.R. 56(a)2 Stmt. of Additional Material Facts at ¶ 68 ( ).
Since March 2016, Eversource and the Committees have also relied on NEPC, LLC, an independent fiduciary which advises the Plan as to due diligence, performance monitoring, and fund searches. Pls.' SOF at ¶ 8. The defendants engaged NEPC as an investment advisor without soliciting competitive bids, and their selection was not the result of a determination that NEPC was better suited to the Plan than other providers. Pls.' AMF at ¶ 69. As a part of its services, NEPC provided the investment management staff with a quarterly Plan Performance Review. These review materials were provided to the staff and were not distributed directly to the Investment Management Committee. See id. at ¶ 70.
Ultimately, the investment management staff prepared its own presentation materials for the Investment Management Committee's quarterly meetings. Pls.' SOF at ¶ 11. NEPC representatives and investment management staff also met with Investment Management Committee members before each of the Committee's quarterly meetings. Id. at ¶ 10. However, the record contains no minutes from any of these “pre-meetings.”
At the quarterly meetings, the staff presented an “Investment Market Update” to Committee members. Id. at ¶ 12. Each update included a review of the Plan's investments and their performance, returns relative to benchmarks, and ranks relative to their peer groups. Id. At least one NEPC representative and several staff members attended every meeting of the Investment Management Committee, although NEPC's involvement in the meetings was limited. Id. at ¶ 13.
The plaintiffs emphasize that several members of the Investment Management Committee were unfamiliar with basic concepts necessary to monitor the Plan's investments, such as the concept of target date glide path, whether certain funds charged expenses, and whether the underlying investments in the Plan's funds were actively or passively managed. See Pls.' AMF at ¶ 72. Moreover, the fact that the materials and recommendations of NEPC were distributed to Committee staff rather than to Committee members themselves led to disconnects. In one instance, NEPC recommended that the Investment Management Committee consider a lower-fee replacement for a series of funds in the Plan. However, the staff failed to relay this recommendation to the Investment Management Committee. See id. at ¶ 77. These dynamics left important decisions in the hands of the staff rather than Committee members. Id. at ¶ 78. This issue was further exacerbated by the fact that the Plan's Investment Policy Statement did not establish a watchlist-a list of funds to monitor for underperformance-or other fund replacement procedures. Id. Indeed, the Investment Policy Statement itself was drafted by staff and NEPC, not by the Investment Management Committee or its members. Id. at ¶ 79.
The parties dispute how well the Plan's investment options performed over the class period. The disagreements stem, in part, from fundamental differences as to the appropriate performance metrics for each fund. The Investment Policy Statement establishes that, for any given fund:
Historical performance should generally be equal to or greater than the median return for an appropriate, style-specific benchmark and peer group over one-, three- and/or five-year periods and/or other period determined by the Committee in its sole discretion.
Investment Policy Statement at 4 (Doc. No. 132-3). In their Statements of Facts, the parties focus primarily on four investments or suites of investments: the Morgan Stanley Inception Small Company Growth Fund (“Inception Fund”), the Freedom Funds, the Morgan Stanley Institutional Emerging Markets Fund, and the Frank Russell Small Cap Fund.
The plaintiffs' and defendants' polarized perspectives as to the performance of the Inception Fund derives, in part from the difference in the fund's long- and short-term returns. While the defendants point to short term spikes in performance, see, e.g., Pls' SOF at ¶...
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