In re Fid. Erisa Fee Litig.

• Decision Date: 14 February 2020
• Docket Number: Civil No. 19-10335-LTS
• Parties: IN RE FIDELITY ERISA FEE LITIGATION
• Court: U.S. District Court — District of Massachusetts

IN RE FIDELITY ERISA FEE LITIGATION

Civil No. 19-10335-LTS

UNITED STATES DISTRICT COURT DISTRICT OF MASSACHUSETTS

February 14, 2020

MEMORANDUM AND ORDER ON MOTION TO DISMISS (DOC. NO. 45)

SOROKIN, J.

Plaintiffs in this putative class action allege various violations of the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. §§ 1001 et seq. Doc. No. 38¹ (Amended Consolidated Class Action Complaint, "Complaint").² Plaintiffs are suing Defendants for alleged breach of fiduciary duty on several theories of liability and seek, among other things, to recover the "infrastructure fees" Defendants received from third-party fund managers in what Plaintiffs claim to be a contravention of Defendants' duties under ERISA.

Pending before the Court is Defendants' motion to dismiss for failure to state a claim. Doc. No. 45. The motion is fully briefed and the Court heard argument on February 7, 2020. For the reasons that follow, Defendants' motion to dismiss (Doc. No. 45) is ALLOWED.

I. BACKGROUND³

Plaintiffs are individual participants in 401(k) retirement plans (the "Plans") offered by their employers (the "Plan Sponsors"). Doc. No. 38 ¶¶ 20-30.⁴ The Plans are employee pension benefit plans with the meaning of ERISA Section 3(2)(A), 29 U.S.C. § 1002(2)(A). Id. Defendants (or "Fidelity")⁵ provide the Plans with access to FundsNetwork, an investment platform of thousands of mutual funds and other investment vehicles.⁶ Id. ¶ 4 (citing https://www.fidelity.com/mutual-funds/overview).

The Plans engage Fidelity for plan administration services, which include, among other things, recordkeeping, allocation of participant contributions, distribution of account proceeds to departing participants, IRS tax withholding and reporting, and maintenance of the menu of investment options available to the Plans. Id. ¶ 53. Defendants manage and administer the retirement plan assets of the Plans pursuant to the terms of Basic Plan Documents and AdoptionAgreements, as well as Service Agreements and Trust Agreements they have with the Plans (collectively, the "Contracts"). Id. ¶ 54. Defendants enter into these standard form agreements with virtually all the Plans. Id.

A. The Fiduciary Duty Allegations

1. The FundsNetwork

Pursuant to the Contracts, the Plans' trustees or participants may choose the mutual funds in which their contributions and any matching contributions are invested, and Fidelity allocates those contributions to particular accounts that correspond to the chosen mutual funds and the interests of the Plans and their participants in these mutual funds. Id. ¶ 59. Fidelity maintains complete discretion to substitute, eliminate and add mutual funds offered through its FundsNetwork, without providing: (a) adequate notice of such addition, deletion or substitution of the mutual funds available to the Plans for investment, (b) adequate notice and opportunity to accept or reject the addition, deletion or substitution of such mutual funds from the menus of investments available to the Plans, or (c) complete information regarding the nature of the fees and expenses paid by the mutual funds, including disclosure of the amount of the infrastructure fee payments received from the mutual funds. Id. ¶ 69. Fidelity also controls the menu of available mutual funds offered in its FundsNetwork and retains the discretion to change its fund menus and to not offer certain investment options to the Plans based upon contract pricing and other considerations. Id. ¶ 71.

2. Infrastructure Fees

In January 2017, Fidelity began charging mutual funds "infrastructure fees." Id. ¶ 5. These "infrastructure fees" are calculated based on the assets of the Plans invested in the mutual funds. Id. ¶ 7. Fidelity negotiates these fees with mutual fund managers. Id. ¶¶ 8, 106. Fidelity hastripled the amount of the infrastructure fees charged to mutual funds since January 1, 2017, by doubling them effective January 1, 2018, and then increasing them by another fifty percent effective January 1, 2019. Id. ¶ 13. The mutual fund companies pass on the additional costs of the infrastructure fees to the Plans through their investment fees, with the result that the Plans and their participants ultimately pay more (via higher expense ratios) than they agreed to pay in the Contracts. Id. ¶ 99.

3. The Omnibus Accounts

Pursuant to the terms of the Contracts, the assets of the Plans are held in omnibus accounts owned and controlled in trust by Fidelity ("Omnibus Accounts"). Id. ¶¶ 54-57. The Omnibus Accounts "constitute assets of the Plans." Id. ¶ 61. Through these Omnibus Accounts, Fidelity processes all trades and maintains all the investment positions of the Plans in their respective mutual funds. Id. ¶ 80. Defendants use the Omnibus Accounts as leverage in negotiating their fees with mutual fund managers who want their mutual funds to be made available to potential investors on Defendants' FundsNetwork. Id. ¶ 68 ("Fidelity is able to influence and control its own compensation derived from the Omnibus Accounts by, among other things, negotiating the terms of the payments that it will receive from the mutual funds in return for being offered to the Plans through the FundsNetwork, including the amount of the [infrastructure fee] payments at issue that are calculated, in part, based on the assets invested in the Omnibus Accounts.").

B. The Non-Fiduciary Allegations

Plaintiffs contend in the alternative that "to the extent that any of the Defendants is not deemed a fiduciary or co-fiduciary under ERISA, and since each of the Defendants operated under common control with knowledge of all Defendants imputed to the other Defendants, any of the Defendants that is not deemed liable as a fiduciary or co-fiduciary is liable to the Class underERISA for all recoverable losses and relief as a party-in-interest or other non-fiduciary that knowingly participated in prohibited transactions and breaches of fiduciary duty in violation of ERISA, as well as in knowing breaches of trust." Doc. No. 38 ¶ 148.

C. The Contracts at Issue

Plaintiffs contend that "Fidelity is a fiduciary with respect to its compensation both because it has the contractual authority to determine its own compensation and because it acted outside of its contractual authority when doing so." Doc. No. 48 at 17 (emphasis added).

In support of their motion to dismiss, Defendants rely on excerpted portions of the plan documents ("Excerpts") of one of the Plans represented in this action—the T-Mobile USA, Inc. 401(k) Retirement Savings Plan and Trust (the "T-Mobile Plan")—which they say are an "exemplary set of Service Agreements between Fidelity and one of plaintiffs' Plans." Doc. No. 46 at 9 n.3; Doc. No. 47-1; Doc. No. 47-2. Counsel for Defendants attests that these are "true and correct cop[ies] of excerpts from the Basic Plan Document for the T-Mobile USA, Inc. 401(k) Retirement Savings Plan & Trust" and "from the Fidelity Investments Retirement Plan Service Agreement between T-Mobile USA, Inc., the T-Mobile Retirement Plans Committee, and Fidelity Management Trust Company." Doc. No. 47 ¶¶ 3-4; see also Doc. No. 53 (Decl. of S. Nick, VP of Contracts, Fidelity Investments, stating that the Excerpts are true and correct copies of excerpts of the original documents governing the administration of the T-Mobile Plan). Defendants' counsel also attests that he "produced to lead counsel for plaintiffs a true and correct copy of the complete set of the agreements governing the T-Mobile USA, Inc. 401(k) Retirement Savings Plan & Trust ("T-Mobile Plan") that were in effect as of January 1, 2017 and all subsequent amendments, and the Basic Plan Document for the T-Mobile Plan in effect as of January 1, 2017." Doc. No. 54 ¶ 3.

Plaintiffs dispute the authenticity of the Excerpts of the T-Mobile agreements, question their representativeness of the Contracts at issue in this action, and contend that the Court may not take the Excerpts into consideration on a motion to dismiss on the grounds that they are not "central" to Plaintiffs' claims as the Complaint "does not quote from or rely on any specific language contained in the Excerpts." Doc. No. 48 at 13. "As such," Plaintiffs argue, "the [Complaint's] factual allegations are not 'expressly linked to—[or] admittedly dependent upon'—those Excerpts." Id. (quoting Alt. Energy, Inc. v. St. Paul Fire and Marine Ins. Co., 267 F.3d 30, 34 (1st Cir. 2001)).

In deciding a Rule 12(b)(6) motion, a court may "consider documents the authenticity of which [is] not disputed by the parties; . . . documents central to plaintiffs' claim; [and] documents sufficiently referred to in the complaint . . . even when the documents are incorporated into the movant's pleadings." Lambert v. Fiorentini, No. 19-1406, 2020 U.S. App. LEXIS 2287, at *3 (1st Cir. Jan. 24, 2020) (internal quotation marks and citations omitted). The Court held a hearing on January 7, 2020 to address this threshold issue.

After considering the parties' arguments, the Court finds that the Excerpts are authentic and are representative of the Contracts at issue in this case, which Plaintiffs themselves characterize as "standard form agreements." Doc. No. 38 ¶ 54; see also id. ¶ 111 (alleging in support of class action status that "Plaintiffs, who are representatives of the Plans, have claims that are typical of all of the members of the Class" and that "Plaintiffs' claims and all of the Class members' claims arise out of the same uniform course of conduct by Defendants and arise under the same legal theories that are applicable as to all other members of the Class."). Plaintiffs offer no evidence that the Excerpts are anything but what they purport to be—examples of the relevant provisions of the Contracts at issue in this action.

Based on a review of the Complaint, the Court also finds that the Contracts are central to Plaintiffs' allegations. See, e.g., id. ¶ 59 ("Pursuant to the Contracts, participants, or the Plans' trustees, may...