Tibble v. Edison Intern.
| Decision Date | 16 July 2009 |
| Docket Number | No. CV 07-5359 SVW (AGRx).,CV 07-5359 SVW (AGRx). |
| Citation | 639 F.Supp.2d 1074 |
| Court | U.S. District Court — Central District of California |
| Parties | Glenn TIBBLE, et al., Plaintiffs, v. EDISON INTERNATIONAL, et al., Defendants. |
G. Cresswell Templeton, III, William A. White, Hill Farrer and Burrill LLP, Los Angeles, CA, Jason P. Kelly, Jerome J. Schlichter, Mark Aloysius Kistler, Nelson G. Wolff, Sean E. Soyars, Thomas E. Clark, Troy A. Doles, Schlichter Bogard and Denton LLP, St Louis, MO, for Plaintiffs.
Brian D. Boyle, Christopher D. Catalano, Gary S. Tell, Matthew P. Eastus, Robert N. Eccles, O'Melveny & Myers LLP, Washington, DC, Abby Claire Schwartz, Amy J. Longo, O'Melveny and Myers, Los Angeles, CA, for Defendants.
ORDER DENYING PLAINTIFFS' MOTION FOR SUMMARY JUDGMENT; ORDER GRANTING DEFENDANTS' MOTION FOR SUMMARY JUDGMENT IN PART [143][145][146][147][156][186][188]
Plaintiffs filed this Motion for Partial Summary Judgment seeking a judgment in their favor with regard to certain alleged prohibited transactions and alleged violations of the Plan documents. In response, Defendants have moved for Summary Judgment as to all of Plaintiffs' claims. For the reasons stated below, Plaintiffs' Motion is DENIED, and Defendants' Motion is GRANTED with regard to several claims. The Court finds that triable issues remain with regard to whether certain fiduciaries breached their duty of loyalty by choosing mutual funds in order to maximize the amount of revenue sharing for SCE's benefit, instead of for the benefit of the Plan participants. In addition, because Plaintiffs have not adequately described their prohibited transaction claims arising out of State Street's retention of float, the Court ORDERS further briefing on those issues.
Plaintiffs Glenn Tibble, William Bauer, William Izral, Henry Runowiecki, Frederick Sohadolc, and Hugh Tinman, Jr. ("Plaintiffs") are current or former employees and participants in the Edison 401(k) Savings Plan (the "Plan"). The Plan is a "defined contribution plan" within the meaning of 29 U.S.C. § 1002(34). (Def.'s Statement of Uncontroverted Facts ("SUF") ¶ 1.) As of 2007, the Plan held $3.8 billion in assets for the benefit of approximately 20,000 participants. (Pl.'s Statement of Uncontroverted Facts ("PSUF") ¶ 7.)
Plaintiffs have named as defendants in this action several different entities and individuals, all of whom are alleged to have been Plan fiduciaries during the relevant time period. Defendant Edison International ("Edison") is the parent corporation of Defendant Southern California Edison ("SCE"). (SUF ¶ 5.) Plaintiffs allege that Edison and SCE are the Plan sponsors. (Second Am. Compl. ("SAC") ¶ 12.) Another Defendant is the SCE Benefits Committee ("Benefits Committee"), which is a named fiduciary under the Plan, the Plan Administrator, and comprised of individuals appointed by SCE's Chief Executive Officer ("CEO"). (Id. ¶ 15.) Also named as a Defendant is the Edison International Trust Investment Committee ("TIC"), which is a named fiduciary under the Plan and is comprised of individuals also appointed by SCE's CEO. (Id. ¶ 16.) The Secretary of the Benefits Committee, who as of 2005 was Aaron Whitely, is a named defendant. (Id. ¶ 17.) Plaintiffs also name SCE's Vice President of Human Resources as a defendant. (Id. ¶ 18.) Finally, Plaintiffs name SCE's Manager of the Human Resource Service Center as a defendant given her position as a named fiduciary of the Plan. (Id. ¶ 19.)
In 1998, SCE and the unions representing SCE employees began collective bargaining negotiations. (SUF ¶ 10.) As a result of these negotiations, the investment options included in the Plan were altered significantly. (Id. ¶ 12.) Before these changes occurred, the Plan offered employees the following six investment options: (1) Bond Fund, (2) Balanced Fund, (3) Global Stock Fund, (4) Money Market Fund, (5) Common Stock Fund, and (6) the Edison Stock Fund. (Id. ¶ 6.) After the negotiations were completed, however, and changes were made to the Plan, it offered a much broader array of up to fifty investment options including the following: (1) Edison Stock Fund; (2) Conservative Growth Fund; (3) Balanced Moderate Growth Fund; (4) Aggressive Growth Fund; (5) Money Market Fund; (6) Bond Fund; (7) U.S. Stock Index Fund; (8) U.S. Large Company Stock Fund; (9) International Stock Fund; and (10) the Mutual Fund Menu, which included approximately forty "retail" mutual funds. (Decker Decl., Ex. N.)
The Conservative Growth Fund, the Balanced Moderate Growth Fund, and the Aggressive Growth Fund were "pre-mixed" portfolios consisting of a combination of stocks and bonds, which allow the participants to diversify within one investment option. (SUF ¶ 24.) The U.S. Stock Index Fund, U.S. Large Company Stock Fund, and International Stock Fund were low-cost index funds provided by the Frank Russell Trust Company ("Russell"). (See Niden Rep., Ex. C.) The Mutual Fund Menu consisted of so-called "retail" mutual funds—that is, mutual funds that were also available to the general public—such as Vanguard, T. Rowe Price, and Fidelity. (Id.)
In February 2000, as a result of the collective bargaining process, the Plan was amended to reflect the agreement reached between the parties. (Decker Decl., Ex. K.) One component of this amendment was that SCE agreed to provide a "[b]roader range of investment options," including "a mutual fund window with access to 40 additional funds." (Id.) The amendment also provided that SCE would allow for "[m]ore frequent and timely transactions," including the ability to make daily fund transfers. (Id.)
The Benefits Committee and TIC perform defined roles with respect to the Plan. The Benefits Committee is responsible for overseeing how the Plan is operated and administered, and is responsible for adopting Plan amendments. (SUF ¶¶ 41-42.) The TIC is responsible for establishing investment guidelines and for making other investment decisions for the Plan. (Id. ¶ 45.) The TIC has also delegated certain investment responsibilities to the TIC Chairman's Subcommittee ("Sub-TIC"), which focuses on the selection of specific investment options. (Id. ¶ 47.) The Sub-TIC also receives advice on investment options and their performance from the Investments Staff. (Id. ¶ 49.)
Even before the changes to the Plan in 1999, the Plan's recordkeeping services had been provided by Hewitt Associates LLC ("Hewitt"). (PSUF ¶ 14.) Beginning in at least 1997, the Plan stated that SCE would pay "the cost of the administration of the Plan." (See Pl.'s, Ex. 1, at 48.) This language remained in the Plan until 2006, when the Plan was amended to state that SCE would pay "the cost of the administration of the Plan, net of any adjustments by service providers." (Decker Decl., Ex. MM, at 33 (emphasis added).)
Before the addition of the mutual funds in 1999, SCE paid the entire cost of Hewitt's recordkeeping services. With the addition of the retail mutual funds to the Plan, however, certain "revenue sharing" was made available that could be used in order to pay for part of Hewitt's record-keeping expenses. Revenue sharing is a general term that refers to the practice by which mutual funds collect fees from mutual fund assets and distribute them to service providers, such as recordkeepers and trustees—services that the mutual funds would otherwise provide themselves. (See Niden Rep. ¶ 18.)1 Revenue sharing comes from so-called "12b-1" fees, which are fees that mutual fund investment managers charge to investors in order to pay for distribution expenses and shareholder service expenses. See Meyer v. Oppenheimer Mgmt. Corp., 895 F.2d 861, 863 (2d Cir.1990). 12b-1 fees receive their name from SEC Rule 12b-1, which was promulgated pursuant to the Investment Company Act of 1940 ("ICA"). See 17 C.F.R. § 270.12b-1(b). The ICA generally bans the use of fund assets to pay the costs of fund distribution. In 1980, however, the SEC adopted Rule 12b-1 which specifies certain conditions that must be met in order for mutual fund advisers to be able to make payments from fund assets for the costs of marketing and distributing fund shares. See Meyer, 895 F.2d at 863. Other fees included under the umbrella of revenue sharing are "sub-transfer agency" fees. These fees are similar in many respects to 12b-1 fees but are paid to third parties in order to track the accounts of individual participants. (Niden Rep. ¶ 18.)
Each type of fee is collected out of the mutual fund assets, and is included as a part of the mutual fund's overall expense ratio. (See Pomerantz Rep. ¶ 2.) The expense ratio is the overall fee that the mutual fund charges to investors for investing in that particular fund.2 The expense ratio is essentially a flat fee, which has a component for 12b-1 or sub-transfer agency fees, as well as other aspects such as a management fee, which is essentially the fee investors pay for the manager's expertise. (Pomerantz Rep. ¶ 2.) These fees are deducted from the mutual fund assets before any returns are paid out to the investors.
In 1999, when retail mutual funds were added to the Plan, Hewitt already had contracts with certain mutual fund companies, whereby Hewitt received a portion of the revenue sharing to pay for Hewitt's recordkeeping services. As a result, when the retail mutual funds were added to the Plan, some of the revenue sharing was used to pay for Hewitt's recordkeeping costs. (SUF ¶ 30.) Hewitt then billed SCE for Hewitt's services after having deducted the amount received from the mutual funds from revenue sharing. (See Pl.'s Ex. BB.) Hewitt did not have preexisting relationships with certain mutual funds, however, and as a result, contracts were entered into so that the revenue sharing could be captured from the mutual funds and be...
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