Turner v. Schneider Elec. Holdings

• Court: U.S. District Court — District of Massachusetts
• Writing for the Court: Nathaniel M. Gorton United States District Judge
• Decision Date: 24 January 2023
• Docket Number: Civil Action 20-11006-NMG
• Citation: Turner v. Schneider Elec. Holdings, Civil Action 20-11006-NMG (D. Mass. Jan 24, 2023)
• Parties: David Turner, et al., Plaintiffs, v. Schneider Electric Holdings, Inc., et al., Defendants.

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David Turner, et al., Plaintiffs, v. Schneider Electric Holdings, Inc., et al., Defendants.

Civil Action No. 20-11006-NMG

United States District Court, D. Massachusetts

January 24, 2023

MEMORANDUM & ORDER

Nathaniel M. Gorton United States District Judge

Plaintiffs are seven former employees of Schneider Electric Holdings Inc. (“Schneider Electric”) who participated in the Schneider Electric 401(k) Plan (“the Plan”). They filed the instant action on behalf of the Plan against Schneider Electric, the two committees that oversee the Plan (collectively with Schneider Electric “Schneider”) and Aon Hewitt Investment Consulting, Inc. (“AHIC”), the Plan's investment manager (collectively, “defendants”).

In their complaint, plaintiffs bring a variety of claims under the Employee Retirement Income Security Act of 1974 (“ERISA”), 29 U.S.C. §§ 1001 et seq. arising out of alleged improper investment decisions which resulted in losses to participants' retirement savings and excessive administrative fees.

Pending before the Court are six motions, one or more filed by Schneider, AHIC and plaintiffs.

I. Background

A. Factual History

Schneider Electric is a North American subsidiary of a multinational energy technology company. It maintains a pension plan as part of its employee benefits package, whereby its employees and former employees may contribute toward their retirement through 401(k) contributions. The Plan holds over $4.5 billion in assets across all investments. The Plan offers a range of investment options, including target-date funds and other stock and bond investment choices. The Schneider Electric Holdings, Inc. Benefits Committee (“Benefits Committee”) operates and administers the Plan, while the Schneider Electric Holdings, Inc. Investment Committee (“Investment Committee”) manages the assets and selects investments for the Plan.

Since the inception of the Plan in 2010, Schneider has contracted with Vanguard Group, Inc. (“Vanguard”) to provide recordkeeping and managed account services. Schneider also retained AHIC to provide investment consulting services on behalf of the Plan until January, 2016, at which point AHIC became the Plan's discretionary investment manager. In its new role, AHIC is permitted to select and divest of Plan investments but Schneider retains the right to select additional investment options not recommended or administered by AHIC.

In February, 2017, AHIC replaced several existing Plan investment options, namely Vanguard target date funds, with its own collective investment trusts. Those trusts included the Aon Hewitt Index Retirement Solution passively-managed target date funds (“the Aon target date funds”) as well as the actively-managed Aon Hewitt Growth, Income and Inflation Strategy Funds (“the Aon actively-managed funds”) (collectively, “the Aon Trusts”). In September, 2017, Schneider exercised its right to add additional investment options to the Plan by including five new Vanguard index funds.

Plaintiffs allege that the defendants replaced well-performing funds with the Aon Trusts for their own financial gain rather than to benefit Plan participants. According to plaintiffs' damages expert, Dr. Edward O'Neal, investments in the Aon Trusts have cost the Plan participants $111,213,865 in retirement savings between February 1, 2017 and June 30, 2020.

Defendants respond, however, that 1) Plan-level returns data indicate that by through November 30, 2021, the Plan assets actually increased in value by $1,435,464 and 2) as of April, 2022, the Plan in fact netted $27 million more in returns for the participants than it would have hypothetically earned in comparator funds.

B. Procedural History

In May, 2020, plaintiffs filed a seven-count complaint against Schneider and AHIC, seeking to represent a putative class of all participants and beneficiaries of the Plan who had participated since May, 2014.

The complaint alleges that defendants breached their fiduciary duties and violated ERISA's prohibition of certain transactions by causing the Plan to invest in proprietary Aon Hewitt collective investment trusts (Counts I, VI and VII). Plaintiffs also contend that Schneider, specifically, failed to monitor the Plan's other fiduciaries (Count V) and caused the Plan to pay unreasonable investment management fees (Count II), recordkeeping fees (Count III) and managed account fees (Count IV).

Defendants Schneider and AHIC filed separate motions to dismiss, which the Court allowed, in part, and denied, in part, in March, 2021. The Court dismissed the prohibited transactions claims in Counts VI and VII, as well as the duty of loyalty claims in Counts I-IV against Schneider. As a result, the imprudence claims against Schneider in Counts I-IV and Count V remained viable, as well as Count I against AHIC. Defendant Schneider contends in its motion for partial summary judgment that plaintiffs are no longer pursuing Counts III and IV and, because plaintiffs do not dispute that contention in their opposition, the Court will dismiss those counts.

Therefore, the only remaining claims at this juncture are: Count I (alleging imprudence and disloyalty as to AHIC, but only imprudence as to Schneider) and Counts II and V against Schneider.

The Court will address the parties' six pending motions in the order they were filed.

II. Motions for Summary Judgment

A. Legal Standard

The role of summary judgment is “to pierce the pleadings and to assess the proof in order to see whether there is a genuine need for trial.” Mesnick v. Gen. Elec. Co., 950 F.2d 816, 822 (1st Cir. 1991) (quoting Garside v. Osco Drug, Inc., 895 F.2d 46, 50 (1st Cir. 1990)). The burden is on the moving party to show, through the pleadings, discovery and affidavits, “that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a).

A fact is material if it “might affect the outcome of the suit under the governing law . . . .” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). A genuine issue of material fact exists where the evidence with respect to the material fact in dispute “is such that a reasonable jury could return a verdict for the nonmoving party.” Id.

Once the moving party has satisfied its burden, the burden shifts to the non-moving party to set forth specific facts showing that there is a genuine, triable issue. Celotex Corp. v. Catrett, 477 U.S. 317, 324 (1986). The Court must view the entire record in the light most hospitable to the non-moving party and make all reasonable inferences in that party's favor. O'Connor v. Steeves, 994 F.2d 905, 907 (1st Cir. 1993). If, after viewing the record in the non-moving party's favor, the Court determines that no genuine issue of material fact exists and that the moving party is entitled to judgment as a matter of law, then summary judgment is warranted. Celotex Corp., 477 U.S. at 322-23.

B. ERISA's Duties of Prudence and Loyalty

Under ERISA, a fiduciary owes plan participants duties of prudence and loyalty. The duty of prudence mandates that a fiduciary act

with the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent man acting in a like capacity . . . would use in the conduct of an enterprise of a like character.

29 U.S.C. § 1104(a)(1)(B).

To prevail on a breach of the duty of prudence claim in the First Circuit, a plaintiff must first establish that the fiduciary failed to employ appropriate procedures and as a result the retirement plan suffered losses, then the “burden shifts to the fiduciary to prove that such a loss was not caused by its breach.” Brotherston v. Putnam Invs., LLC, 907 F.3d 17, 39 (1st Cir. 2018).

ERISA also establishes a duty of loyalty, requiring that a fiduciary

discharge his duties with respect to a plan solely in the interest of the participants and beneficiaries and for the exclusive purpose of: providing benefits to participants and their beneficiaries; and defraying reasonable expenses of administering the plan.

29 U.S.C. § 1104(a)(1)(A). Plaintiffs who claim disloyalty must show that defendants failed to act in the best interests of plan participants and

[i]t is not enough for a plaintiff to identify a potential conflict of interest from the defendant's investment in its own proprietary funds.

Moitoso v. FMR LLC, 451 F.Supp.3d 189, 204 (D. Mass. 2020). Instead, plaintiffs must demonstrate that “the fiduciary's subjective motivation” was improper. Id.

C. Application

1. Breach of fiduciary duty arising from the selection of the Aon Trusts (Count I)

Plaintiffs allege that defendants breached their fiduciary duties of loyalty and prudence by removing Vanguard funds from the Plan's investment portfolio and replacing them with Aon funds that had insufficient or nonexistent performance histories. Although Count I is asserted against Schneider and AHIC together, defendants have filed separate motions for summary judgment. Plaintiffs' oppositions to the motions are, however, largely duplicative. In the interest of brevity and efficiency, to the extent the parties' arguments overlap, they will be addressed together.

a. Schneider defendants

Defendants Schneider and AHIC move for summary judgment on plaintiffs' claims for breach of the duty of prudence relating to the selection of Aon Trusts, asserting that plaintiffs failed to prove that the retirement plans suffered any losses. They submit that the Plan, in fact, accrued a gain of $27 million on assets invested in the Aon Trusts as compared to a hypothetical investment in the comparator funds through the close of fact discovery. Defendants stress that plaintiffs' decision to calculate alleged losses as of June 30, 2020 was arbitrary and contrives the...