Lorenz v. Safeway, Inc.

• Decision Date: 13 March 2017
• Docket Number: Case No. 16–cv–04903–JST
• Citation: 241 F.Supp.3d 1005
• Parties: Dennis M. LORENZ, Plaintiff, v. SAFEWAY, INC., et al., Defendants.
• Court: U.S. District Court — Northern District of California

241 F.Supp.3d 1005

Dennis M. LORENZ, Plaintiff,

v.SAFEWAY, INC., et al., Defendants.

Case No. 16–cv–04903–JST

United States District Court, N.D. California.

Signed March 13, 2017

Jason H. Kim, Kyle Geoffrey Bates, Todd M. Schneider, Schneider Wallace Cottrell Konecky Wotkyns LLP, Emeryville, CA, Garrett W. Wotkyns, John Joseph Nestico, Schneider Wallace Cottrell Konecky Wotkyns LLP, Scottsdale, AZ, for Plaintiff.

R. Bradford Huss, Angel Lin Garrett, Dylan Daniel Rudolph, Trucker Huss, APC, San Francisco, CA, Joseph Charles Faucher, Trucker Huss, APC, Los Angeles, CA, for Defendants.

ORDER GRANTING IN PART AND DENYING IN PART MOTIONS TO DISMISS

Re: ECF Nos. 36, 38

JON S. TIGAR, United States District Judge

Before the Court are Defendants' motions to dismiss. The Court will grant the motions in part and deny them in part.

I. BACKGROUND

For the purpose of deciding this motion, the Court accepts as true the following allegations from Plaintiff's Second Amended Complaint ("SAC"), ECF No. 31. See Navarro v. Block , 250 F.3d 729, 732 (9th Cir. 2001).

A. Parties

Plaintiff Dennis M. Lorenz participates in Safeway's 401(K) Plan ("the Plan"). ECF No. 31 ¶ 8. Defendant Safeway, Inc. sponsors the Plan, and Defendant Safeway Benefit Plans Committee administers the Plan (collectively "Safeway Defendants"). Id . ¶¶ 10–11. Defendant Great–West Financial RPS LLC d/b/a Empower Retirement ("Great–West") began providing record-keeping services for the Plan in September 2014 when it acquired the record-keeping business from JP Morgan Retirement Plan Services, and stopped providing recordkeeping services for the Plan in July 2016. Id . ¶¶ 12–14.

B. Master Services Agreement

On January 1, 2009, the Safeway Defendants entered into a master services agreement to compensate JP Morgan Retirement Plan Services for its provision of recordkeeping services. ECF No. 37–2. Great–West continued to operate under that agreement when it acquired JP Morgan Retirement Plan Services' record-keeping business in September 2014. SAC, ECF No. 31 ¶¶ 12–14, 25; ECF No. 37–6 at 2 (amendment to the master services agreement).

Pursuant to the master services agreement, the Plan agreed to compensate the record-keeper through a "Contingent Per Participant Fee" of $67 per year. ECF No. 37–2 at 22. This fee was lowered to $65 per year in 2011. ECF No. 37–4. Under this arrangement, the record-keeper would initially receive a percentage of the fees charged for each investment as a credit toward record-keeping services. ECF No. 37–2 at 22, 30.¹ If the service fees that the record-keeper received for a particular quarter fell below one-quarter of the annual per-participant fee, Safeway was required to "make a lump sum payment to [the record-keeper] ... in an amount equal to the difference between the foregoing amount and the amount of the actual annual service fees received by [the record-keeper]." Id . at 22. Conversely, "[i]n the event the annual service fees received by [the record-keeper] exceed $65.00 per Participant at the end of the Plan Year, [the record-keeper] shall accumulate accruals under the Plan Expense Arrangement ("PEA") in accordance with the terms and conditions of the PEA Addendum to the Agreement." ECF No. 37–4 at 2–3; see also ECF No. 37–2 at 42 ("Accruals will be calculated and attributed to the PEA at the end of each calendar quarter for all service fees received by [the record-keeper] related to ... investments in the Plan in excess of the applicable Contingent Per Participant Fee ..."). The excess funds in the PEA account could only be used at the direction of the Safeway Defendants to reasonably compensate third-party service providers, in accordance with ERISA. ECF No. 37–2 at 38, 39–40. Any accruals in the PEA account "expire at 3:00 p.m. Central Time on the last business day, as determined by JPMorgan RPS, of each subsequent Plan Year, or upon the termination of the Agreement or this Addendum." ECF No. 37–2 at 38.

On November 1, 2013, the Safeway Defendants and the record-keeper amended the master services agreement to replace the PEA with an "ERISA Spending Account." ECF No. 37–5 at 2, 4–6. Pursuant to that amendment, any service fees that exceeded the annual per participant fee at the end of the Plan year would be attributed to the Plan's ERISA Spending Account. Id . at 2. Unlike the PEA addendum that it replaced, the ERISA spending account addendum does not state that these excess accruals expire. See id . The ERISA spending account addendum also provides that, "[i]n the event Plan Sponsor does not exhaust the Account for a given calendar quarter, Plan Sponsor may allocate such eligible unused amounts, held in the Account to Participant accounts." Id . at 5.

C. JP Morgan Target Date Funds

Between 2011 and July 2016, the Plan offered several target date funds² managed by JP Morgan Chase Bank. SAC, ECF No. 31 ¶ 18. These funds, which are called "JPMCB Smartretire Passiveblend" funds, were offered in five-year intervals (e.g., "JPMCB Smartretire Passiveblend 2015" and "JPMCB Smartretire Passiveblend 2020"), where the target year corresponds with the participant's anticipated retirement age. Id . ¶¶ 16, 18. Lorenz chose to invest his retirement savings in the JPMCB Smartretire Passiveblend 2020 Fund. Id . ¶ 8.

D. Second Amended Class Action Complaint

In this putative class action, Lorenz asserts two claims against the Safeway 401(K) Plan's fiduciaries and parties in interest under the Employee Retirement Income Security Act ("ERISA"), 29 U.S.C. § 1001, et seq. SAC, ECF No. 31.³

First, Lorenz alleges that the Safeway Defendants breached their fiduciary duty of prudence by: (1) selecting funds that charged higher fees than comparable, readily-available funds, and which had no meaningful record of performance so as to indicate that higher performance would offset this difference in fees; and (2) entering into and maintaining a revenue-sharing agreement with the Plan's record-keepers (JP Morgan Retirement Planning Services and later Great–West) that resulted in excessive compensation to those entities. SAC, ECF No. 31 ¶¶ 66–73.

Second, Lorenz claims that the revenue-sharing agreement constituted a prohibited transaction under ERISA for which the Safeway Defendants (as fiduciaries) and Great–West (as a party in interest) are both liable. Id . ¶¶ 74–77.

As relief, Lorenz seeks reimbursement from the Safeway Defendants for all losses resulting from their breaches of fiduciary duty, as well as reimbursement from both the Safeway Defendants and Great–West for any compensation received as a result of transactions prohibited by ERISA. Id . at 18–19.

Lorenz seeks to certify a class of "[a]ll participants in any employee benefit plan governed by ERISA who invested in the JPM Smartretire Passiveblend Funds from 2011 to the present where JPMRPS/Great–West served as the recordkeeper for the plan and received an asset-based revenue sharing payment in connection with the JPM Smartretire Passiveblend Funds." Id . ¶ 53. He also proposes a Safeway Subclass, which would include "[a]ll participants in the Plan who invested in any of the JPM Smartretire Passiveblend Funds from the time these funds were first offered by the Plan in 2011 until they ceased to be offered in the Plan in July 2016." Id .

II. JURISDICTION

The Court has subject matter jurisdiction over Plaintiff's claims under 29 U.S.C. § 1132(e)(1) and 28 U.S.C. § 1331 because this action arises under the laws of the United States.

III. REQUESTS FOR JUDICIAL NOTICE

Pursuant to Federal Rule of Evidence 201(b), "[t]he court may judicially notice a fact that is not subject to reasonable dispute because it: (1) is generally known within the trial court's territorial jurisdiction; or (2) can be accurately and readily determined from sources whose accuracy cannot reasonably be questioned." The Court may also "consider materials incorporated into the complaint," where "the complaint necessarily relies upon a document or the contents of the document are alleged in a complaint, the document's authenticity is not in question and there are no disputed issues as to the document's relevance." Coto Settlement v. Eisenberg , 593 F.3d 1031, 1038 (9th Cir. 2010). This is true even if the plaintiff does not explicitly allege the contents of that document in the complaint. Knievel v. ESPN , 393 F.3d 1068, 1076 (9th Cir. 2005). The Court "must take judicial notice if a party requests it and the court is supplied with the necessary information." Fed. R. Evid. 201(c)(2).

The Safeway Defendants request that the Court take judicial notice of several Plan-related documents from the relevant time period, including the Safeway Plan itself, the summary plan descriptions, Form 5500 filings submitted to the Department of Labor, participant fee disclosure notices, the master services agreement between Safeway and JP Morgan Retirement Plan Services, and the 2011 amendment to that master services agreement. ECF No. 40. In addition, the Safeway Defendants request that the Court take judicial notice of the definition of a collective investment fund, which is publicly available on the Investopedia website. Id . Great–West also requests that the Court take judicial notice of the master services agreement between Safeway and JP Morgan Retirement Plan Services (later between Safeway and Great–West), as well as subsequent amendments to those documents. ECF No. 37.

The Court takes judicial notice of the Plan-related documents because the Plaintiff's complaint incorporates each of those documents by reference, the complaint necessarily relies on those documents, and neither party questions their authenticity or relevance. Courts routinely take judicial notice of ERISA plan documents like those at issue here. See , e.g. , Watkins v. Citigroup Ret. Sys. , No. 15-CV-731 DMS, 2015 WL 9581838, at *2 S.D. Cal. Dec. 30, 2015 (taking judicial notice of a pension plan); Almont Ambulatory Surgery Ctr., LLC v. UnitedHealth Grp., Inc. , 99 F.Supp.3d 1110, 1126 (C.D. Cal. 2015)...