Schissler v. Janus Henderson U.S. (Holdings) Inc.
| Docket Number | Civil Action 1:22-cv-02326-RM-SBP |
| Decision Date | 07 September 2023 |
| Parties | SANDRA SCHISSLER, KARLY SISSEL, and DERRICK HITTSON, individually and as a representative of a class of similarly situated persons, and on behalf of the Janus 401k and Employee Stock Ownership Plan, Plaintiffs, v. JANUS HENDERSON U.S. (HOLDINGS) INC., JANUS HENDERSON ADVISORY COMMITTEE, and JOHN and JANE DOES 1-30, Defendants. |
| Court | U.S. District Court — District of Colorado |
RECOMMENDATION TO GRANT IN PART AND DENY IN PART DEFENDANTS' MOTION TO DISMISS
This matter is before this court on the motion to dismiss of Defendants Janus Henderson U.S. (Holdings) Inc (“Janus”) and Janus Henderson Advisory Committee (the “Committee”). ECF No. 39 (“Motion to Dismiss” or “Motion”). Janus and the Committee move to dismiss the amended putative class action complaint of Plaintiffs Sandra Schissler, Karly Sissel, and Derrick Hittson. ECF No. 31 (Am. Complt.). The motion is referred to this court for a recommendation under 28 U.S.C § 636(b)(1)(B). ECF No. 4 (Order Referring Case), ECF No. 41 (Memorandum). As explained below, this court concludes that nearly all of Plaintiffs' claims are plausible. The court accordingly RECOMMENDS largely denying the motion to dismiss and granting it only with respect to part of the breach of fiduciary duty claim against Janus.
Plaintiffs bring claims on behalf of themselves, a putative class of similarly situated persons, and the Janus 401(k) and Employee Stock Ownership Plan (the “Plan”) under the Employee Retirement Income Security Act of 1974, as amended, 29 U.S.C. § 1001, et seq. (“ERISA”). Plaintiffs sue Defendants Janus, the Committee, and John and Jane Does 1-30 (“Doe Defendants”) as fiduciaries of the Plan.[1] This court takes the following fact allegations from the Amended Complaint.
The Plan is a defined contribution plan. “A defined contribution plan ‘provides for an individual account for each participant and for benefits based solely upon the amount contributed to the participant's account.'” Hughes Aircraft Co. v. Jacobson, 525 U.S. 432, 439 (1999) (quoting 29 U.S.C. § 1002(34)). Defendants attach excerpts of the Plan to the Declaration of Sara Bussiere in support of their motion. ECF No. 40-1.[2]
Plaintiffs have each participated in the Plan during the time period at issue. They allege that Am. Complt. ¶ 1. They further allege that “Defendants' disloyalty and imprudence [in doing so] has cost plan participants millions of dollars over the putative class period,” which begins on September 9, 2016 Id. ¶ 1 n.1. Plaintiffs each invested in several of the JH Funds during the putative class period. Am. Complt. ¶¶ 11-13.
Plaintiffs further allege that “[f]or investment management companies (like Janus Henderson), the potential for disloyal and imprudent conduct is especially high because the plan's fiduciaries can benefit the company by stocking the plan's investment menu with proprietary funds that a non-conflicted and objective fiduciary would not choose.” Id. ¶ 4.
Plaintiffs allege that is what happened here: instead of acting in the participants' interest, as ERISA requires for actions taken in the role of a fiduciary, Defendants allegedly “used the Plan to promote Janus Henderson's proprietary investments and earn profits for Janus Henderson.” Id. ¶ 6.
Plaintiffs allege that Defendants acted in the interest of Janus and not in the interest of the Plan's beneficiaries in several ways. First, Defendants included all JH Funds in the Plan without analyzing those funds' relative strength or weakness as investment options, and they did not voluntarily remove any of them during the putative class period:
[f]rom 2016 until 2021, certain [JH] Funds were eliminated from the Plan's menu due to liquidations or mergers. But Defendants did not choose to remove a single proprietary Janus Henderson investment from the Plan's menu during that time. In fact, they often added new proprietary [JH] Funds shortly after each fund's creation. So, by the end of 2021, the Plan's menu consisted of 50 investments, including 40 proprietary [JH] Funds.
Am. Complt. ¶ 18 ().[3] In fact, by Janus's design, the written Plan itself expressly provides that “the Janus [Henderson] Funds may be removed as investment options under the Plan only by amendment of the Plan by [Janus].” Id. ¶ 19 (emphasis added).
“The Plan's terms also provide Janus Henderson with (1) the ‘right at any time to amend' the Plan; and (2) the right to remove the [JH] Funds from the Plan's menu.” Id. ¶ 25. Janus did not amend the Plan to remove any JH Funds during the class period.
Second, Plaintiffs allege the JH Funds were the only actively managed, non-money market or non-inflation protected investment options throughout the putative class period.[4] Id. ¶ 43. They allege that no other ERISA plan offers exclusively JH Funds for this category of investment option. Id.
Third, Plaintiffs allege the JH Funds had above-average expenses (fees to the participants) compared to their benchmarks and did not have commensurate, above-average performance. See, e.g., Am. Complt. ¶¶ 1, 6, 44. Plaintiffs allege that even small differences in expense ratios generate significant differences in performance over time for participants. Id. ¶ 40 n.8. They allege the high expense ratios combined with the average (or below average) performance of the JH Funds has cost Plaintiffs in earning less on their investments than they would have if Defendants had properly exercised their fiduciary duties. Id. ¶ 6. Specifically, Plaintiffs allege that “[a]n objective and prudent review of comparable investments in the marketplace would have revealed numerous available investments that were less costly and superior to the [JH] Funds that Defendants selected and retained in the Plan.” Id.
Meanwhile, the Plan had significant assets under management during the putative class period-approximately $246 million to $512 million in assets. Id. ¶ 17. This size allowed Janus to “seed” the new proprietary mutual funds that it developed during the class period, and otherwise to support Janus's ongoing mutual funds. Id. ¶ 65. “While Defendants' disloyal and imprudent conduct generated significant profits for Janus Henderson, it has cost participants millions of dollars in excessive fees and lost investment returns since the start of the putative class period.” Id. ¶ 6.
After the above overview of their claims, Plaintiffs allege fourteen pages of facts to state more specifically how and why they believe Defendants' “process for selecting and monitoring investments was disloyal and imprudent.” Am. Complt. at 13. Plaintiffs begin this section by noting they are not asserting that “including proprietary funds in a plan's investment menu” is a breach of fiduciary duty in itself. Id. ¶ 42. Rather, Plaintiffs allege Defendants failed to exercise loyalty and prudence in (1) automatically including all JH Funds in the Plan's menu by the express terms of the Plan, such that (2) the JH Funds were the only actively managed investment options in the Plan (other than a mutual fund focused on inflation-protected securities), (3) several of the JH Funds were added to the menu soon after their inceptions and therefore with no performance history by which to assess their likely future performance, and (4) the JH Funds had higher fees than their benchmarks without commensurate outperformance thereof.
Plaintiffs allege that Defendants failed to analyze the JH Funds when they were introduced in the Plan and failed to monitor them for these issues thereafter. Am. Complt. ¶¶ 4266. Plaintiffs include several tables comparing various JH Funds' expense ratios and performance against benchmarks and averages. Plaintiffs include several footnotes alleging further details of the benchmarks and performance data on which Plaintiffs rely. They allege that a loyal fiduciary (i.e., one who was focused solely on the participants' interests) would not have included all JH Funds in the investment menu because of the high fees without commensurate performance. They further allege that a prudent fiduciary likewise would not have done so.
Based on these allegations, Plaintiffs assert claims (on their own behalf, that of the Plan, and a putative class of similarly situated persons elsewhere defined in the Amended Complaint): Count One, against all Defendants for a breach of the fiduciary duties of loyalty and prudence under 29 U.S.C. §§ 1104(a)(1)(A)-(B), Am. Complt. ¶¶ 77-82; and Count Two, against Janus for failure to monitor the Committee, id. ¶¶ 83-87. They further claim that each Defendant is “also subject to co-fiduciary liability under 29 U.S.C. § 1105(a)(1)-(3) because they enabled other fiduciaries to commit breaches of fiduciary duties, failed to comply with 29 U.S.C. § 1104(a)(1) in the administration of their duties, and/or failed to remedy other fiduciaries' breaches of their duties, despite having knowledge of the breaches.” Am. Complt. ¶ 34.[5]
Defendants move to dismiss the Amended Complaint for lack of subject matter jurisdiction pursuant to Federal Rule of Civil Procedure 12(b)(1), arguing that Plaintiffs lack standing to challenge the inclusion in the Plan of JH Funds in which they did not personally invest. Motion at 7-8. Defendants further argue that the Amended...
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