Patterson v. Morgan Stanley

fisossoae ON (ED STATES DISTRICT COURT OLIN OCERMTNY SOUTHERN DISTRICT OF NEW YORK JOLUIVERIN £ ELECTRONICALLY FILED i Dor He areata mementos _|| || DATE FILED: 10? | 19 || No. Torev-908 (RUS) ROBERT J. PATTERSON, TERRI LO SASSO, AND RALPH A. COLO, Plaintiffs, VERSUS MORGAN STANLEY, MORGAN STANLEY DOMESTIC HOLDINGS, INC., MORGAN STANLEY & Co., LLC, THE MORGAN STANLEY RETIREMENT PLAN INVESTMENT COMMITTEE, AND JOHN DOES 1-30, Defendants. OPINION AND ORDER October 7, 2019 RICHARD J. SULLIVAN, Circuit Judge: Plaintiffs Robert J. Patterson, Terri Lo Defendants in support of their motion to Sasso, and Ralph A. Colo bring this putative dismiss. For the reasons set forth below, class action against Morgan Stanley, Defendants’ motion is GRANTED, and Morgan Stanley Domestic Holdings, Inc., Plaintiffs’ motion is DENIED. Morgan Stanley & Co., LLC, the Morgan Stanley Retirement Plan Investment I. BACKGROUND Committee, and a group of unnamed John Doe defendants (collectively, A. Facts “Defendants”), raising various claims under Defend M Stanley “ the Employee Retirement Income Security een ant organ stanley operates Act of 1974 (“ERISA”), 29 U.S.C. § 1001 et various investment-related businesses, seg. Now before the Court are (1) ee investment hanlking,, hrakenags, Defendants’ motion to dismiss Plaintiffs’ aid Investment, Madnapenienl” SRENIEES: Second Amended Complaint, the operative pe pleading in this action; and (2) Plaintiffs’ ' The following facts are taken from the Second motion to strike extrinsic evidence and Amended Complaint (Doc. No. 88 (the “Complaint” factual assertions in exhibits filed by or “Compl.”)), documents incorporated therein by reference, and documents upon which Plaintiffs (Compl. 431.) Morgan Stanley offers its members of the investment committee and employees the opportunity to invest in the to amend and terminate the Plan.” (/d.) Morgan Stanley 401(k) Retirement Plan, which is an “individual account,” defined- Defendant Morgan Stanley Retirement contribution plan. (Doc. No. 94-1 (the Plan Investment Committee (the “Plan”).) Under the terms of the Plan, “Investment Committee”) “was established □ “Tijndividual accounts are maintained for to manage the assets of the Plan.” (Id. □□□□ each Plan participant” and are “credited with In that role, the Investment Committee the participant’s contributions, allocations of “controlled the menu of investments that [Morgan Stanley’s] contributions, and Plan were available to Plan participants,” earnings.” (Doc. No. 94-2 at 8.) Individual selecting various investment products from Plan participants select the investments which participants could choose. (/d. { 69.) made on their behalf from a set menu of Although Plaintiffs never allege the precise “investment options offered by the Plan.” set of investment options offered to Plan (id) The individual Plan participant’s participants, Plan offerings were fluid. For contributions and investment choices example, Plan documents reflect that as of determine the individual’s retirement the end of 2013, participants could select benefits — “[t]he benefit to which a from “12 mutual funds, 16 commingled or participant is entitled is the benefit that can collective trust funds, one employer stock be provided from the participant’s vested fund, and six separately managed accounts” account.” (id.; see also Compl. 4 6.) (Doc. No. 94-2 at 8), but that a year later, Approximately 60,000 current and former participants were offered “11 mutual funds, employees have invested in the Plan. 13 commingled or collective trust funds, one (Compl. §§ 1-2, 6.) employer stock fund, and eight separately managed accounts” (Doc. No. 94-3 at 7). Throughout the class period, Defendants Morgan Stanley Domestic Holdings, Inc. Plaintiffs focus on thirteen investment (“MSDH”) and Morgan Stanley & Co., LLC options — which represent 40% of the Plan’s (or its predecessor, Morgan Stanley & Co., assets and about a third of its investment Inc.) (“MSC”) served as the “sponsor” of the options — offered for all or substantially all Plan. (Compl. §] 33-34.) In that capacity, of the time period relevant to this suit. MSDH and MSC ~— and the boards of (Compl 4 65.) First, Plaintiffs challenge directors of those entities — “appointed Defendants’ decision to offer six proprietary members to the investment committee that Morgan Stanley mutual funds: (1) the was responsible for the management of the Morgan Stanley Institutional Small investment funds in the plan.” (d.) MSDH Company Growth Fund (the “Small Cap and MSC also “had the authority to remove Fund”), (2) the Morgan Stanley Institutional Mid Cap Growth Fund (the “Mid Cap Fund”), (3) the Morgan Stanley Institutional relied in bringing suit. See ATS] Comme’ns, Inc. v. Global Real Estate Fund (the “Global Real Shaar Fund, Litd., 493 F.3d 87, 98 (2d Cir. 2007). In Estate Fund”), (4) the Morgan Stanley ruling on the instant motion, the Court has also Institutional Emerging Markets Fund (the considered Defendants’ memorandum of law in : support of their motion to dismiss (Doc. No. 93 “Emerging Markets Fund”), (5) the Morgan (“Mem.”)), Plaintiffs’ opposition (Doc. No. 96 Stanley Institutional Growth Fund (the (“Opp’n”)), Defendants’ reply memorandum of law “Large Cap Fund”), and (6) the Morgan (Doc. No. 99 (“Reply”), and the declarations and Stanley Institutional International Equity Paints WEEE EEE Fund (the “International Equity Fund” and, together with the other five Morgan Stanley hand, “is a current participant in the Plan.” funds, the “MS Funds”). (Compl. § 221.) Ud. □ 28.) Plaintiffs allege that, during the Plaintiffs assert that all six MS Funds time period relevant to this suit, Colo charged fees that were improperly high (see, invested in the Global Real Estate Fund, the e.g., id. 76) and that three of the funds — Mid Cap Fund, the Large Cap Fund, the the Small Cap Fund, the Mid Cap Fund, and International Equity Fund, and the Emerging the Global Real Estate Fund — performed so Markets Fund. (/d.) poorly that any reasonable fiduciary would have removed them from the array of Plan B. Procedural History offerings (see, e.g., id. J§ 92, 97). Plaintiff Patterson filed this putative Second, Plaintiffs argue that Defendants class action on August 19, 2016 (Doc. No. improperly included seven poorly 1) and, on August 22, 2016, the case was performing target-date retirement funds assigned to Judge Abrams. The next day, offered by BlackRock, with target dates of however, it was reassigned to my docket. 2025, 2030, 2035, 2040, 2045, 2050, and Patterson amended his complaint on January 2055. (id. §[ 64-65.) Plaintiffs allege that 10, 2017, naming the defendants that are these seven target-date options (the currently parties to this action (Doc. No. 62), “BlackRock Trusts”) were either poorly and on February 9, 2017, Defendants moved performing or entirely untested when they to dismiss the amended complaint (Doc. No. were added to the array of Plan investment 63). options (id. 158-159), and that the BlackRock Trusts charged inordinate fees On April 7, 2017 — after Defendants’ and underperformed throughout the class motion was fully briefed — Patterson period (id. 161-162). Plaintiffs allege requested permission to move for leave to that Defendants nevertheless continued to amend his complaint a second time “and to offer the BlackRock Trusts because they add additional Plaintiffs’ (Lo Sasso and were being paid by BlackRock to do so. (/d. Colo). (Doc. No. 73.) The Court granted q 162.) Patterson’s request (Doc. No. 86), and Plaintiffs filed their Second Amended Plaintiffs Ralph J. Patterson and Terri Lo Complaint, the operative pleading, on Sasso. are former Plan participants. October 5, 2017 (Doc. No. 88). In Counts I, Patterson participated in the Plan between Il, IV, V, and VI, Plaintiffs charge “January 2011 [and] April 2014.” (Compl. Defendants with various violations of the { 27.) During his time as a Plan participant, fiduciary duties imposed by ERISA, In Patterson invested in the Global Real Estate Count III, Plaintiffs assert that Defendants Fund and the International Equity Fund. violated 29 U.S.C. § 1106 by engaging in (Id.) Plaintiffs do not allege when Plaintiff “prohibited transactions” — essentially, by Lo Sasso began to invest in the Plan, but self-dealing. allege that she “was a participant... through October 1, 2014.” (id. 429.) Defendants moved to dismiss the Second During her time as a Plan participant, Lo Amended Complaint pursuant to Federal Sasso invested in the Large Cap Fund, the Rules of Civil Procedure 12(b)(1) and International Equity Fund, the Emerging 12(b)(6) on November 22, 2017. (Doc. No. Markets Fund, and the BlackRock LifePath 92.) Defendants argue that (1) because they Index 2025 Non-Lendable Trust (the “2025 did not invest in all of the funds identified in Trust”). (Id) Plaintiff Colo, on the other the Complaint, Plaintiffs lack standing to bring many of the claims they now assert; relief must contain... a short and plain (2) Plaintiffs’ breach of fiduciary duty statement of the claim showing that the theories are not properly alleged under Rule pleader is entitled to relief... .”). To meet 8; (3) several of Plaintiffs’ breach of this standard, plaintiffs must allege “enough fiduciary duty claims are untimely; (4) facts to state a claim to relief that is Plaintiffs’ prohibited transaction claims are plausible on its face.” Bell Atl. Corp. y. barred by the ERISA statute of repose; (5) Twombly, 550 U.S. 544, 570 (2007). “A Plaintiffs’ prohibited transaction claims fail claim has facial plausibility when the as a matter of law; and (6) Plaintiffs’ duty to plaintiff pleads factual content that allows monitor claim must be dismissed for want of the court to draw the reasonable inference a properly alleged underlying violation. that the defendant is lable for the Plaintiffs subsequently moved to strike misconduct alleged.” Ashcroft v. Iqbal, 556 certain exhibits offered by Defendants in U.S. 662, 678 (2009). their motion. (Doc. No. 95.) Defendants’ motion was fully briefed on February 1, In reviewing a Rule 12(b)(6) motion to 2018 (Doc. No. 99), though Defendants filed dismiss, a court must accept as true all notices of supplemental authority on both factual allegations in the complaint and draw August 8, 2018 (Doc. No. 102) and February all reasonable inferences in favor of the 13, 2019 (Doc. No. 104). Plaintiffs plaintiff. ATSI Commce’ns, 493 F.3d at 98 . responded to each on August 9, 2018 (Doc. However, that tenet “is inapplicable to legal No. 103) and February 15, 2019 (Doc. No. conclusions.” Iqbal, 556 U.S. at 678. Thus, 105), respectively. Plaintiffs filed a notice a pleading that offers only “labels and of supplemental authority on October 3, conclusions” or “a formulaic recitation of 2019. (Doc. No. 108.) the elements of a cause of action will not do.” Twombly, 550 U.S. at 555 . If the I]. LEGAL STANDARD plaintiff “ha[s] not nudged [its] claims across the line from conceivable to On a motion to dismiss pursuant to plausible, [its] complaint must be Federal Rule of Civil Procedure 12(b)(1), dismissed.” Jd. at 570. the party seeking to invoke the Court’s jurisdiction bears the burden of proving that II. MOTION TO STRIKE subject matter jurisdiction exists. Robinson v. Overseas Military Sales Corp., 21 F.3d As a preliminary matter, Plaintiffs move 502, 507 (2d Cir. 1994). “A case is properly to “strike extrinsic evidence and factual dismissed for lack of subject matter assertions from Defendants’ papers in jurisdiction under Rule 12(b)(1) when the support of their [mlJotion to [d]ismiss.” district court lacks the statutory or (Doc. No. 95 at 1.) They argue that constitutional power to adjudicate it.” documents not cited or only “[t]angentially Makarova vy. United States, 201 F.3d 110 , [m]Jentioned” in the Complaint may not be 113 (2d Cir. 2000). considered by the Court at this stage. (/d. at 3.) But as Defendants point out (see Doc. To survive a motion to dismiss pursuant No. 97), the documents Plaintiffs challenge to Federal Rule of Civil Procedure 12(b)(6), are all either “referenced in the [C]omplaint, a complaint must “provide the grounds upon documents [Plaintiffs] relied on in bringing which [the] claim rests.” ATSI Commce’ns, suit... , or matters of which judicial notice Inc., 493 F.3d at 98 ; see also Fed. R. Civ. P. may be taken,” Winfield v. Citibank, N.A., 8(a)(2) (“A pleading that states a claim for 842 F. Supp. 2d 560, 564 (S.D.N.Y. 2012) — such as ilings, see Kramer v. Time invasion of a legally protected interest whic h SEC fili K Ti i ion of a legall di hich Warner Inc., 937 F.2d 767 , 774 (2d Cir. is (a) concrete and particularized and (b) 1991). Accordingly, Plaintiffs’ motion to actual or imminent, not conjectural or strike is denied. hypothetical.” Lujan v. Defs. of Wildlife, 504 U.S. 555, 560 (1992) (internal quotation IV. STANDING marks and citations omitted). “IT]o sees demonstrate a constitutionally justiciable Defendants initially challenge Plaintiffs injury under ERISA, plaintiffs must allege ne es ene to se that that they suffered specific losses as a result nds. specitically, Derendants note that of the alleged breach of fiduciary duty.” In Plaintiffs’ challenges relate to six Morgan re UBS ERISA Litig., No. 08-cv-6696 (RJS), Stanley proprietary funds (the MS Funds) 2014 WL 4812387 , at *6 (S.D.N.Y. Sept. and seven BlackRock target date trusts (the 29, 2014), aff'd sub nom. Taveras v. UBS BlackRock Trusts) that were included in the AG, 612 F. App’x 27 (2d Cir. 2015), set of investment options available to Plan Plaintiffs plainly have standing to bring participants. (Compl. { 65.) But Plaintiffs claims regarding the Selected Funds, and collectively invested in just of the Defendants do not challenge their ability to thirteen challenged funds (the “Selected do so. Rather, Defendants argue that Funds”): Plaintiffs lack standing to challenge the Non-Selected Funds because the poor e Global Real Estate Fund (Patterson performance of those funds did not have any and Colo); effect on the value of the assets in Plaintiffs’ ts. e International Equity Fund (Patterson, aso Colo, and Lo Sasso), The structure of the Plan supports Defendants’ argument. The Plan is a Mid Cap Fund (Colo); defined-contribution plan: “[i]ndividual accounts are maintained for each Plan ° wires Cap Fund (Colo and Lo participant,” with contributions credited to asso); those accounts, and “[p]articipants direct the . investment of their contributions into ° Lo Seen Memels Fant (Cole and various investment options offered by the oasso); Plan.” (Doc. No. 94-2 at 8.) The value of a « ‘The BlackRock 2025 Trust (Lo Plan participant S individual _tetirement Sasso) account is a function of his or her □ contributions and investment decisions; if a (Id. 927-29.) Defendants now argue that participant does not choose to invest in a Plaintiffs lack standing to bring claims particular offering, any change a the value related to the seven funds in which they did of that Hnanclal product has no impact on not invest (the “Non-Selected Funds”). the participant’s account. □ pe ae nt) eiemdaeis ane Indeed, Plaintiffs do not argue that the , value of their individual accounts was Article III of the United States impaired by the poor pecloumanes of the Constitution requires that a plaintiff have Non-Selected Funds. Instead, recognizing suffered an “injury in fact” — that is, San their burden to allege standing, see Spokeo, Inc. vy. Robins, 136 8. Ct. 1540, 1547 (2016), Plaintiffs advance several theories as to why The mere fact that Plaintiffs purport to they may continue this action as to the Non- bring this action in a derivative capacity Selected Funds. First, Plaintiffs argue that does not absolve them of the need to because they have styled this action as a establish a constitutional injury-in-fact on derivative suit under 29 U.S.C. § 1132 (a)@) the basis of the poor performance of the to recover for injuries to the Plan, they Non-Selected Funds. The Court therefore “need not allege an individualized injury.” disagrees with Judge Stein’s conclusion in (Opp’n at 4.) In support of this theory, Leber III that, when a plan participant sues Plaintiffs rely on the Second Circuit’s 2013 in a derivative capacity, “the fact that only decision in Long Island Head Start Child some . . . alleged losses manifested Development Services Economic themselves in the named plaintiffs’ Opportunity Commission of Nassau County, individual accounts does not deprive [them] which suggests that a plaintiff has properly of their standing to seek redress on behalf of alleged injury-in-fact when he or she brings the Plan for the broader injuries the Plan a suit in a derivative capacity and alleges incurred.” 323 F.R.D. at 156; see also that the defendant caused an injury to the Beach v. JPMorgan Chase Bank, Nat’l plan as a whole. 710 F.3d 57 , 67 n.5 (2d Ass’n, No. 17-cv-563 (JMF), 2019 WL Cir. 2013); see also Leber v. Citigroup 2428631, at *4 (S.D.N.Y. June 11, 2019). 401(k) Plan Inv. Comm. (Leber II], 323 To hold otherwise would essentially exempt F.R.D. 145, 155 (S.D.N.Y. 2017). But Long derivative suits from Article □□□□□ Island Head Start involved a plan in which requirement that plaintiffs suffer an the fiduciary managed the entirety of the individual harm. It bears noting that, in the plan’s assets on behalf of the participants. quintessential derivative action, a plaintiffSee UBS, 2014 WL 4812387 , at *7. Under shareholder may sue on behalf of a such a plan, “each participant would corporation precisely because he or she has necessarily be harmed by any losses been harmed by the diminution in the sustained by the plan as a result of a breach company’s value caused by a defendant’s of fiduciary duty.” Jd. breach. See, e.g., SC Note Acquisitions, LLC y. Wells Fargo Bank, N.A., 934 F. The plan here, by contrast, offered Supp. 2d 516, 528 (E.D.N.Y. 2013), aff'd, Plaintiffs a range of investment options, 548 F. App’x 741 (2d Cir. 2014). The same which they could invest in — or not — as they is true of the plaintiff plan participants in saw fit. (Doc. No. 94-2 at 8.) Losses Long Island Head Start, since the nature of incurred by funds in which Plaintiffs did not the plan in that case resulted in each invest cannot have impaired the value of participant being harmed by the losses to the Plaintiffs’ individual accounts. See UBS, plan. But Plaintiffs here never invested in 2014 WL 4812387 , at *7. Therefore, the Non-Selected Funds and consequently Plaintiffs have not been injured as to those suffered no losses as a result of the funds. See Zaveras, 612 F. App’x at 29 underperformance of those funds. As Judge (“An ERISA plan participant lacks standing Castel recognized in Forte v. U.S. Pension to sue for ERISA violations that cause injury Committee, plan participants suing in a to a plan but not individualized injury to the derivative capacity must still satisfy Article plan participant.”); see also Marshall vy. III’s individualized-injury requirement. No. Northrop Grumman Corp., No. 16-cv-06794 15-cv-4936 (PKC), 2016 WL 5922653 , at *7 (AB), 2017 WL 2930839 , at *8 (C.D. Cal. (S.D.N.Y. Sept. 30, 2016) (agreeing with the Jan. 30, 2017) (dismissing claims as to a court in UBS that “in a situation . . . where fund in which plaintiffs did not invest). the plan participants make their own the same cannot be said with respect to the investment decisions based on options Non-Selected Funds, NECA’s first prong selected by the plan fiduciaries, ... a seemingly requires only that plaintiffs suffer plaintiff must still show an individualized some injury. See NECA-IBEW Health & harm in order to establish standing”). As to Welfare Fund, 693 F.3d at 162; see also the Non-Selected Funds, Plaintiffs have not Moreno v. Deutsche Bank Ams. Holding done so here. Corp. (Moreno II), No. 15-cv-9936 (LGS), 2017 WL 3868803 , at *10 (S.D.N.Y. Sept. Plaintiffs next argue that they have 5, 2017) (concluding that, where “Plaintiffs standing to raise claims as to the Non- allege that Defendants’ process for Selected Funds because they bring this suit managing the Plan caused them actual as a putative class action. Generally, a injury,” the first prong is generally satisfied plaintiff may sue on behalf of a putative even if the prospective class “include[es] class — including those members of the those who invested in proprietary or nonputative class who did not suffer the exact proprietary funds offered by the Plan in same injury as the plaintiff — where he which none of [Plaintiffs] invested”). “plausibly alleges (1) that he personally has suffered some actual injury as a result of the Nevertheless, it is with NECA’s second putatively illegal conduct of the defendant, prong — whether Defendants’ alleged and (2) that such conduct implicates the conduct with regard to the Non-Selected same set of concerns as the conduct alleged Funds “implicates the same set of concerns” to have caused injury to other members of as the conduct alleged in connection with the putative class by the same defendants.” the Selected Funds — that Plaintiffs’ claim NECA-IBEW Health & Welfare Fund vy. falters. “The ‘same set of concerns’ are Goldman Sachs & Co., 693 F.3d 145 , 162 implicated and the named plaintiff[s] ha[ve] (2d Cir. 2012) (internal quotation marks, class standing where the claims of absent citations, and brackets omitted); see id. at class members and the named plaintiff[s] 159 (recognizing that the concept of class require similar inquiries and _ proof.” standing allowed the plaintiff to “assert Moreno II, 2017 WL 3868803 , at *10 claims on behalf of purchasers of (quoting NECA-IBEW Health & Welfare Certificates from other Offerings, or from Fund, 693 F.3d at 162 ). Viewed at a high different tranches of the same Offering”). level, Plaintiffs’ challenges to the Selected “When this standard is satisfied, the named Funds and Non-Selected Funds raise similar plaintiffs litigation incentives are questions — for example, whether the fees sufficiently aligned with those of the absent paid to Morgan Stanley were inappropriately class members that the named plaintiff may high, whether the funds were improperly properly assert claims on their behalf.” Rez. retained, and whether Defendants’ desire to Bd. of the Policemen’s Annuity & Benefit develop a _ business. relationship with Fund of the City of Chi. v. Bank of N.Y. BlackRock motivated Defendants to keep Mellon, 775 F.3d 154, 161 (2d Cir. 2014). the BlackRock Trusts in the Plan. But the evidence that Plaintiffs will have to put Here, Plaintiffs arguably satisfy the first forward to establish liability will vary from prong of the NECA class standing test in that fund to fund, and Plaintiffs’ ability to they allege they were injured by Defendants’ establish liability as to decisions made in inclusion of the Selected Funds in the menu connection with one fund will do little to of Plan options and their investments in advance their case for liability as to other those funds. (Compl. {{] 27-29.) Although funds. See Ret. Bd. of the Policemen’s Annuity & Benefit Fund of the City of Chi., establish standing under ERISA. Although 775 F.3d at 161-62 ; see also DiMuro vy. not offered by Plaintiffs as supplemental Clinique Labs., LLC, 572 F. App’x 27 , 29 authority, the Court is aware of only one (2d Cir. 2014) (rejecting class standing case to recognize anything even approaching where “[e|ntirely unique evidence” would this “right.” See Sacerdote v. N.Y. Univ. be required to prove the various claims); cf (Sacerdote IT), No. 16-cv-6284 (KBF), 2018 Leber III, 323 F.R.D. at 157 (finding class WL 840364, at *7 (S.D.N.Y. Feb. 13, 2018). standing where “plaintiffs do have a clear In that case, Judge Forrest concluded that path forward to demonstrating defendants’ “the alleged foregone opportunities from misconduct without undertaking .. . [a] funds that were not included and the alleged fund-by-fund analysis”). For example, reduction in choice that resulted is an Plaintiffs will need to prove an entirely alleged injury in fact.” Jd. But that case is separate set of facts to establish that the fees neither controlling nor persuasive authority charged for the Small Cap Fund were since its sole source of support comes from inappropriately high than they will to prove Ross v. Bank of America, N.A., 524 F.3d that the fees for the Mid Cap Fund were 217, 223 (2d Cir. 2008), which is not even improper. Similarly, as Plaintiffs’ an ERISA case. Rather, Ross held that the allegations reveal, the facts underlying harm resulting from reduced choices was an Plaintiffs’ assertion that Defendants adequate injury for an antitrust claim — a improperly continued to offer the Small Cap context in which the “right” to make a Fund despite its poor performance are choice in any given market is clearly a almost entirely distinct from the facts principal purpose of the statute. The same is Plaintiffs will need in order to prove that not true of ERISA, which is aimed at Defendants improperly continued to offer providing employees with secure pensions, the Mid Cap Fund. In short, Plaintiffs’ not necessarily broad investment choices. claims will undoubtedly require a fund-by- See Gobeille v. Liberty Mut. Ins. Co., 1368. fund analysis for all thirteen funds identified Ct. 936, 943 (2016) (“ERISA does not in Plaintiffs’ Complaint. Thus, the mere fact guarantee substantive benefits .. . [but] that Plaintiffs have brought this suit as a instead[] seeks to make the benefits putative class action is insufficient to promised by an employer more secure by provide them with Article III standing to mandating certain oversight systems and bring claims regarding the Non-Selected other standard procedures.”). Thus, to the Funds. extent that Plaintiffs’ alleged injury is premised on the deprivation of their right to Finally, in a last-ditch effort to assert choose from superior investment options, Article III standing as to the Non-Selected the Court finds this theory insufficient to Funds, Plaintiffs contend that they were in form a basis for standing. fact individually harmed because the inclusion of the Non-Selected Funds ane “undermined the plan as a whole” by robbing Plaintiffs of their “right to choose For all these reasons, the Court finds that from superior investment options.” (Opp’n. Plaintiffs lack standing to bring this suit as at 4 (quoting Compl. §65).) Plaintiffs cite to the Non-Selected Funds, and that their no source in the statute for such a “right,” or claims regarding those funds must therefore any other basis for concluding that the be dismissed. deprivation of the “right to choose from superior investment options” is enough to V. PLAINTIFFS’ REMAINING CLAIMS MS Funds, which paid fees to Morgan Stanley and charged Plan participants higher A. Breach of Fiduciary Duty fees than it charged other investors (Count II, Compl. 219-229); (2) continuing to With respect to the Selected Funds, offer the Mid Cap Fund and Global Real Plaintiffs claim that Defendants violated the Estate Fund despite their poor performance duty of loyalty, the duty of prudence, and (Count IV, Compl. §§ 236-243); and (3) the duty to monitor imposed by ERISA.’ “selecting and then failing to timely . : remove” the poorly performing BlackRock The duty of lo yalty 1s based in 29 U.S c Trusts “as Plan investment options” (Count § 1104(a)(1), which provides that a fiduciary V, Compl. 244-251). must act “solely in the interest of the , participants and beneficiaries” of the plan, The duty to monitor, although not and 29 U.S.C § 1104(a)(1)(A), which explicitly imposed by statute, flows from the provides that a fiduciary shall act “for the other duties set out in Section 1104(a) and exclusive purpose of . . . providing benefits “require[s] those fiduciaries with the power to participants and their beneficiaries [and] to appoint and remove plan fiduciaries to defraying reasonable — expenses_— of monitor the performance of those administering the plan.” “The Second appointees.” In re Morgan Stanley ERISA Circuit has described the duty as one Litig., 696 F. Supp. 2d 345, 366 (S.D.N.Y. requiring a fiduciary to act . . . with an ‘eye 2009). In Count VI, Plaintiffs assert that single to the interests of the participants and Defendants breached this duty by entirely beneficiaries.’” = In re Sunkdison, Inc. failing to oversee the operation of the Plan. ERISA Litig., 331 F. Supp. 3d 101, 114 (Count VI, Compl. 4] 252-260.) (S.D.N.Y. 2018) (quoting State St. Bank & Trust Co. v. Salovaara, 326 F.3d 130 , 136 “To state a claim for breach of fiduciary (2d Cir. 2003)), aff'd sub nom. O'Day v. duty under ERISA, Plaintiffs must Chatila, 774 ¥. App’x 708 (2d Cir, 2019). adequately allege that (1) Defendants were The duty of prudence is grounded in 29 fiduciaries of the plan who, (2) while acting U.S.C. § 1104(a)(1)(B), and requires a within their capacities as plan fiduciaries, fiduciary to act “with the care, skill, (3) engaged in conduct constituting a breach prudence, and diligence under the of an ERISA fiduciary duty.” Gearren y. circumstances then prevailing that a prudent McGraw-Hill Cos., Inc., 690 F. Supp. 2d [person] acting in a like capacity and 254, 261 (S.D.N.Y. 2010). For purposes of familiar with such matters would use in the this motion, Defendants concede that the conduct of an enterprise with a like Complaint appropriately pleads the first and character and like aims.” 29 U.S.C. second elements as to Counts II, IV, V, and § 1104(a)(1)(B). ‘Plaintiffs assert that VI. Instead, Defendants argue that Plaintiffs Defendants breached these duties by (1) have not properly alleged violations of the including in the menu of Plan options the fiduciary duties imposed by ERISA. The Court will address each of Plaintiffs’ counts 2 Throughout their Complaint, Plaintiffs treat all in turn.’ Defendants as fiduciaries within the meaning of ERISA. (See, e.g., Compl. J 1.) Defendants do not OO SX dispute this characterization, and thus the Court 3 In Count I, Plaintiffs raise a generalized claim that assumes for purposes of this motion that all unspecified breaches of Defendants’ fiduciary duties Defendants are in fact ERISA fiduciaries. caused the Plan — as a whole — to underperform. Neither party addresses this count in their briefs, 1. Count IT — Fees Associated “similar investment strategies” as Morgan with the MS Funds Stanley’s mutual funds, but were charged lower fees. (Compl. 912.) Therefore, Plaintiffs first allege that Defendants Plaintiffs’ theory boils down to an allegation breached their duty of loyalty by offering that Defendants either did not (1) offer Plan the MS Funds to Plan participants and participants the opportunity to invest in charging higher advisory and administrative “separate accounts” that replicated the fees to the Plan than it charged to “separate strategies of the MS Funds, but with reduced account clients” with similar assets and fees (see Opp’n at 9 (“Morgan Stanley investment strategies “for performing should have selected _ better-priced substantially the same services.” (Compl. investments that were sitting under its own q 225; see also id. q 76.) It bears noting that nose — its own variety of financial Plaintiffs do not assert that Defendants solutions.”)), or (2) unilaterally discount the breached their duty of loyalty by simply fees associated with the MS Funds to equal including the proprietary MS Funds in the those charged to its separate account clients set of investment options available to Plan (Compl. 4 88 (“The total fees that Morgan participants.* (See Opp’n at 7-8.) Nor do Stanley charges participants should at least Plaintiffs argue that Plan participants who be no worse than what it charges its separate allocated portions of their retirement account clients with similar amounts of investments to the MS Funds were charged | assets under management and_ identical higher fees than other — ie., outside — investment strategies.”)). | Under either investors in the MS Funds. Rather, framing, Plaintiffs’ theory must be Plaintiffs allege that outside investors (such dismissed. as the New York State Employee Retirement System) that hired Morgan Stanley to To the extent Plaintiffs argue that manage their “separate accounts” (the Defendants should have provided Plan outside investors’ portfolios) often made participants the opportunity to participate in “the same investments” and pursued separate accounts replicating the strategies of the various MS Funds, Plaintiffs fail to AK allege precisely how that scenario would not which focus entirely on the sufficiency of the factual itself be barred by ERISA. ERISA allegations that underlie Counts Il, IV, V, and VI. fiduciaries are forbidden from “deal[ing] The Court finds that it is duplicative of Counts IL, IV, : : and V, and therefore rises and falls with those claims. with the assets of the plan in [their] own interest or for [their] own account.” 29 “In the Complaint, Plaintiffs assert that Defendants’ U.S.C. § 1106(b). In fact, in Count IIL, Goliduel tn-eomheetion sith the Tess chateed bythe Plaintiffs allege that Defendants engaged in MS Funds violated both the duties of loyalty and os ce . prudence. (Compl. 219-229.) However, in their a similar prohibited transaction when opposition to Defendants’ motion to dismiss, “Morgan Stanley dealt with the assets of the Plaintiffs address only the duty of loyalty and make Plan in their own interest and for their own oy a pene Tetepenee to “tg Pe ee account when they caused the Plan to pay rudence. nha ; see id at 7-10.) ‘Accordingly, the en fide thet unreasonable investment management and Plaintiffs have abandoned any separate duty of administrative fees to Morgan Stanley.” prudence claim as to the fees charged in connection (Compl. § 233.) To be sure, many with the MS Funds. In any event, as stated infra at exemptions to this rule exist. For instance, 15-16, Plaintiffs have failed to plead facts sufficient ERISA fiduciaries may offer a “common or that Defendants breached the duty of collective trust or pooled investment fund maintained by a party in interest who is a — 10 — bank or trust company supervised” by a those funds are included in an ERISA plan. government agency, or “a pooled investment Of course, nothing in ERISA prevents fund of an insurance company.” 29 U.S.C. Defendants from offering a discount for Plan § 1108(b)(8). Federal regulations also set participants. But “[w]hen unrelated plans forth exemptions from Section 1106(b), can invest in a pooled account... at a fee including, as relevant here, Prohibited that the unrelated plans’ fiduciaries .. . have Transaction Exemption 77-3 (“PTE 77-3”), determined is reasonable, there is a which exempts certain transactions reasonable basis for allowing the [plan involving mutual funds from the restrictions sponsor’s] own plan to make an identical of Section 1106(b). See Prohibited investment in the same account at the same Transaction Exemption 77-3, 42 Fed. Reg. fee.” Dupree v. Prudential Ins. Co. of Am., 18,734, 18,735 (Apr. 8, 1977); see also No. 99-cv-8337 (JJ), 2007 WL 2263892 , at supra Section V Part B. But the Court is not *4] (S.D. Fla. Aug. 10, 2007); see also aware of an exemption which permits Hecker y. Deere & Co., 556 F.3d 575 , 586 fiduciaries to invest plan assets in single- (7th Cir. 2009) (approving the inclusion of client “separate accounts” in which the fund options where “th[e] funds were also fiduciary has an interest or receives fees. offered to investors in the general public, And even if some exemption did apply, and so the expense ratios necessarily were certainly nothing in ERISA requires a Plan set against the backdrop of market to offer separate accounts in lieu of competition”). Defendants therefore did not reasonably-priced mutual funds. See Taylor violate their duty of loyalty by offering Plan v. United Techs. Corp., No. 3:06-cv-1494 participants the opportunity to invest in the (WWE), 2009 WL 535779 , at *10 (D. Conn. MS Funds subject to the same fees Mar. 3, 2009), aff'd, 354 F. App’x 525 (2d applicable to non-Plan investors. Count II Cir, 2009) (“ERISA does not require a must therefore be dismissed. fiduciary to take any particular course so long as the fiduciary’s decision meets the 2. Count IV — Continuing to Offer the Mid prudent person standard.” (internal quotation Cap Fund and Global Real Estate Fund marks and citations omitted)). For these reasons, the Court is not persuaded that Plaintiffs next assert that Defendants Plaintiffs have stated a claim for breach of breached their duties of prudence and the duty of loyalty based on the fees loyalty by offering, and not removing from associated with the MS Funds. the menu of Plan investment options, the Mid Cap Fund and the Global Real Estate To the extent Plaintiffs allege that Fund.” (Compl. {{ 236-243.) The Court Defendants breached their duty of loyalty by will address each of Plaintiffs’ assertions in either charging Plan participants the same turn. fees as other participants in the MS Funds, or by not unilaterally reducing the fees to equal those charged to separate account clients, Plaintiffs’ theory is likewise untenable. Nothing in ERISA requires ge Morgan Stanley to unilaterally offer Plan > Plaintiffs make similar allegations about the Small participants a discounted fee as to the MS Cap Fund. However, as noted above, Plaintiffs did Funds, or to reduce the market-based fees of not invest in the Small Cap Fund, and therefore lack the MS Funds to equal those charged to standing to challenge its offering and continued : inclusion in the Plan. separate account clients simply because — 11 — a. Duty of Prudence the Mid Cap Fund underperformed relative to its benchmark, the Russell Midcap As noted above, the duty of prudence Growth Index, on a one-, five-, and ten-year requires an ERISA fiduciary to exercise “the basis as measured in January 2016 (Compl. care, skill, prudence, and diligence under the 4 125); (2) the Mid Cap Fund’s cumulative circumstances . . . that a prudent [person] performance over the class period was worse acting in a like capacity... would use.” 29 than both its benchmark (the Russell Midcap U.S.C, § 1104(a)(1)(B). To that end, “[t]he Growth Index) and two alleged comparators, duty of prudence standard focuses ‘on a the T. Rowe Price Institutional Mid Cap fiduciary’s conduct in artiving at an Equity Growth Fund and the Vanguard Midinvestment decision, not on its results.’” Cap Growth Fund (id. J 130); (3) the Mid Leber HI, 323 F.R.D. at 157 (emphasis Cap Fund underperformed vis-a-vis its added) (quoting Pension Benefit Guar. benchmark and two alleged comparator Corp. ex rel. St. Vincent Catholic Med. Ctrs. funds in 2011, 2012, and 2014 (id. 129); Ret. Plan v. Morgan Stanley Inv. Mgmt. (4) the Mid Cap Fund had lower ratings (“PBGC”), 712 F.3d 705, 716 (2d Cir. from Morningstar — a ratings agency upon 2013)). That said, “a claim for breach of which both parties rely — than other fiduciary duty under ERISA may survive a comparable investment options (id. 4 123); motion to dismiss — even absent any well- and (5) the Mid Cap Fund sustained “mass pleaded factual allegations relating directly redemptions” in 2012 and 2014 (id. JJ 127to the methods employed by the ERISA 128). fiduciary — if the complaint allege[s] facts that, if proved, would show that an adequate Plaintiffs’ assertions that the Mid Cap investigation would have revealed to a Fund performed worse than the Russell reasonable fiduciary that the investment at Midcap Growth Index — the relevant issue was improvident.” PBGC, 712 F.3d at benchmark for “the mid-cap growth segment 718 (internal quotation marks omitted). In of the U.S. equity universe” (id. § 120) — on so alleging, “plaintiffs ‘cannot rely, after the a one-, five-, and ten-year basis as measured fact, on the magnitude of the decrease in the in a prospectus dated January 28, 2016 do [relevant investment’s] price,’” and it is not not plausibly establish that Defendants acted “necessarily sufficient to show that better imprudently at any particular point during investment opportunities were available at the class period. “To state a claim for a the time of the relevant decisions.” Jd. breach of the fiduciary duty of prudence, the (alterations in original) (quoting Jn re plaintiff must allege non-conclusory factual Citigroup ERISA Litig., 662 F.3d 128 , 140 content raising a plausible inference of (2d Cir. 2011)). Instead, to survive a motion misconduct and may not rely on the vantage to dismiss pursuant to Rule 12(b)(6), point of hindsight.” Leber v. Citigroup Plaintiffs must allege facts sufficient to raise 401(K) Plan Inv. Comm. (Leber ID), 129 F. the plausible inference that Defendants Supp. 3d 4, 14 (S.D.N.Y. 2015) (internal breached their duty of prudence in view of quotation marks, citations, and brackets the facts available at the time they made the omitted). challenged decisions. Jd. at 716. Plaintiffs do not meet this threshold. Here, Plaintiffs point to average annual returns articulated in a 2016 prospectus to Plaintiffs assert that Defendants’ allege that the Mid Cap Fund’s performance inclusion of the Mid Cap Fund among the was so deficient that it was imprudent for Plan offerings was imprudent because (1) Defendants to retain it. (Compl. J 125.) But — 12 — this allegation relies on a prospectus and compared to its benchmark, the Russell data unavailable to the fiduciaries Midcap Growth Index, which returned throughout much of the class period. The 8.16% over the same ten-year period. same is true of Plaintiffs’ comparison of the (Compl. 7 125.) This difference of less than “cumulative performance” of the Mid Cap one percentage point is certainly Fund to its benchmark and the two alleged insubstantial compared to the nine-point comparator funds, which relies on numbers differential in Jacobs. Even assuming the not alleged to have been available to truth of these allegations, such a small Defendants as early as August 2010, when disparity in performance relative to its the class period began. (/d. § 198.) In fact, benchmark does not support the inference just after the 2016 prospectus was made that Defendants were imprudent to retain the public, Defendants removed the Mid Cap Mid Cap Fund in the set of Plan offerings. Fund from the Plan’s menu of investment options. Ud. 4 130.) Plaintiffs cannot rely Plaintiffs’ yearly comparisons of the on data accumulated in 2016 — when the Mid Cap Fund to its benchmark and to the Mid Cap Fund was removed — to two alleged comparators fare no better. demonstrate imprudence with regard to Although the Mid Cap Fund lagged behind breaches alleged to have occurred earlier. its alleged comparators in 2011, 2012, and 2014, it outperformed all of Plaintiffs’ Even assuming these allegations are not suggested alternative investments in 2013. improperly based on hindsight, “Plaintiffs? (Compl. 9129.) Though Plaintiffs might allegations of the Fund[’s] alleged now wish that Defendants had removed the underperformance in average annual returns Mid Cap Fund from the array of Plan as compared to certain benchmark indices or options in 2011 or 2012, the mere fact that alleged insufficient performance history .. . the Mid Cap Fund did not do as well as do not raise a plausible inference that a other options does not give rise to the prudent fiduciary would have found [the] inference that Defendants’ decision to retain Fund[] to be ‘so plainly risky’ as to render that investment offering was imprudent. See the investments in them imprudent.” Leber PBGC, 712 F.3d at 718 ; see also White v. I, 129 F. Supp. 3d at 14 (quoting PBGC, Chevron Corp. (White I, No. 16-cv-0793 712 F.3d at 719 ). Although courts in this (PJH), 2016 WL 4502808 , at *17 (N.D. Cal. district have recognized that allegations of Aug. 29, 2016) (“Indeed, a fiduciary may — consistent, ten-year underperformance may and often does — retain investments through support a duty of prudence claim, see a period of underperformance as part of a Sacerdote v. New York Univ. (Sacerdote 1), long-range investment strategy.”); White v. No. 16-cv-6284 (KBF), 2017 WL 3701482 , Chevron Corp. (White ID), 752 F. App’x at *10 (S.D.N.Y. Aug. 25, 2017), the 453, 455 (9th Cir. 2018) (affirming underperformance must be substantial, see dismissal of amended complaint because Jacobs yv. Verizon Comme’ns, Inc., No. 16- “allegations ... that [the defendant] could cv-1082 (PGG), 2017 WL 8809714 , at *9 have chosen’ different vehicles for (S.D.N.Y. Sept. 28, 2017) (denying motion investment that performed better during the to dismiss prudence claim because the “fund relevant period, or sought lower fees for had an average annual return of 1.74% administration of the fund” were insufficient compared to its benchmark, which returned to state a claim); Dorman v. Charles Schwab 10.37% over that same ten-year period”). Corp., No. 17-cv-00285 (CW), 2019 WL Here, Plaintiffs allege that the Mid Cap 580785, at *6 (N.D. Cal. Feb. 8, 2019) Fund had an average annual return of 7.42% (observing that “three to five years . . . [is] — 13 — considered [a] relatively short period[] of light of Plaintiffs’ other allegations, underperformance” that does not imply Plaintiffs’ conclusory assertion that the Mid imprudence). Put simply, the duty of Cap Fund faced “mass redemptions” in 2012 prudence does not compel ERISA and 2014 (Compl. 9] 127, 128) — without fiduciaries to reflexively jettison investment more context as to the nature or options in favor of the prior year’s top circumstances surrounding those performers. If that were the case, Plan redemptions — is insufficient to push sponsors would be duty-bound to merely Plaintiffs’ duty of prudence claim across the follow the industry rankings for the past line of plausibility. year’s results, even though past performance is no guarantee of future success. Clearly, Plaintiffs’ duty of prudence claim based no court has ever suggested the existence of on Defendants’ supposedly improper such a duty. retention of the Global Real Estate Fund in the menu of Plan offerings is also deficient. To the contrary, whether an ERISA Plaintiffs allege that the Global Real Estate fiduciary acted prudently is measured in Fund (1) underperformed relative to its light of all the circumstances at the time the benchmark — the FTSE EPRA/NAREIT challenged decision was made. See PBGC, Developed Real Estate Index — on a one- 712 F.3d at 716-17 . Here, the 2013 Fee and five-year basis in the period, as Disclosure for the Plan — upon which measured in 2016 (Compl. { 140), and (2) Plaintiffs rely in their Complaint (Compl. { performed worse than a _ supposed 23) and which the Court may therefore comparator fund, the Prudential Global Real consider, Chambers v. Time Warner, Inc., Estate Fund, throughout the class period (id. 282 F.3d 147 , 153 (2d Cir. 2002) — shows q{ 143-144). As with Plaintiffs’ allegations that in 2013 the Mid Cap Fund was still regarding the Mid Cap Fund, these outperforming its benchmark on a five- and allegations are impermissibly hindsightten-year trailing basis. (Doc. No. 94-12 at based. Data compiled in 2016 would not 8.) The Plan’s fiduciaries clearly adjusted to have been known to the fiduciaries earlier in changing information, as they removed the the class period, and beyond that, the Mid Cap Fund from the menu of Plan difference in performance — the Global Real offerings in early 2016. (Compl. 130.) Estate Fund’s average annual return over Viewed with all the information available at five years was 6.59% compared to the the time at which they decided to retain the benchmark’s 7.73% — is relatively small and investment, the underperformance upon certainly not enough to support a claim for which Plaintiffs now rely is not sufficient to breach of the duty of prudence. support their duty of prudence claim. See White I, 2016 WL 4502808 , at *17. Plaintiffs further contend that the Global Real Estate Fund (1) performed worse than Similarly, that the Mid Cap Fund fell the benchmark in 2011, 2013, 2014, and below other investment products in the 2015 (id. 141), and (2) lagged behind the Morningstar rankings (Compl. 4 123) does Prudential Global Real Estate Fund in 2011, not lead to the conclusion that the Mid Cap 2013, 2014, and 2015 (id 49145). But Fund was an imprudent investment. See Plaintiffs’ conclusory assertion that the Meiners v. Wells Fargo & Co., 898 F.3d Global Real Estate Fund did not perform as 820, 823 (8th Cir. 2018) (“No authority well as a supposedly comparable investment requires a fiduciary to pick the best opportunity lacks any detail as to the extent performing fund.”). And even viewed in of the investment’s shortcomings or why the — 14 — Global Real Estate Fund is a comparable passively-managed (Mem. at 11), and the investment. And even assuming the funds 2013 Fee Disclosure notified plan are comparable, Plaintiffs have provided no participants that these funds “usually have details or facts — such as specific yearly lower fees than actively managed [f]unds numbers — reflecting the comparable and track the performance and performance. Plaintiffs therefore have characteristics of specified market indices, provided no basis upon which the Court can foregoing the opportunity for assess the prudence of the Plan fiduciaries’ outperformance but reducing the risk of decision to retain the Global Real Estate underperformance relative to the applicable Fund. Such conclusory assertions are index” (Doc. No. 94-12 at 12). Therefore, insufficient to state a claim. Plaintiffs’ conclusory assertion that the funds were similar is belied by the facts Finally, Plaintiffs argue that the Mid Cap actually set forth in and incorporated into Fund and the Global Real Estate Fund the Complaint, which suggest that the charged fees that were higher than those Vanguard Mid-Cap Fund’s fees cannot be charged by the T. Rowe Price Mid Cap meaningfully compared to Morgan Stanley’s Growth Fund and the Vanguard Mid-Cap Mid Cap Fund’s fees. In any event, the Growth Fund. (/d. 131.) But the facts conclusory assertion that the Vanguard Midalleged in the Complaint do not give rise to Cap Fund is a lower-cost comparator is not a plausible inference that the Mid Cap enough to state a claim of imprudence. See Fund’s fees were so excessive as to reflect a Bekker v. Neuberger Berman Grp. LLC, No. breach of fiduciary duty. For starters, the T. 16-cv-6123 (LTS) (BCM), 2018 WL Rowe Price Mid Cap Fund charged exactly 4636841, at *7 (S.D.N.Y. Sept. 27, 2018) the same rate — 0.61% — as the Mid Cap (dismissing ERISA breach of fiduciary duty Fund, which contradicts the claim that the complaint in part because the complaint cost of the Mid Cap Fund was too high. As “did] not allege that the [actively-managed for the Vanguard Mid-Cap Fund, which did fund and index fund] employed similar indeed charge lower fees (0.08% compared operations or investment strategies”); to 0.61%), Plaintiffs assert in a conclusory Meiners, 898 F.3d at 823-24 (“[T]he manner that the Vanguard Mid-Cap Growth existence of a cheaper fund does not mean Fund was “comparable” to the Mid Cap that a particular fund is too expensive in the Fund (see, ¢.g., id 4 96), without ever market generally or that it is otherwise an explaining how or why the funds were imprudent choice... . An ERISA plaintiff comparable. Significantly, Plaintiffs must offer more than ‘labels and acknowledge that both the Mid Cap Fund conclusions’ about the fees before a and the Global Real Estate Fund are complaint states a claim.’”); see also “actively-managed” (Compl. {| 93), and the Dorman, 2019 WL 580785 , at *5 2013 Fee Disclosure warned participants (concluding that the fact that fees charged that “[a]ctively[-]managed Funds typically by the relevant fund were three times higher have higher expenses [than passively- than fees charged by a comparable fund was managed funds] because the Fund manager insufficient on its own to state a claim for is trying to outperform a benchmark and is imprudence). therefore more actively involved in the Fund’s management.” (Doc. No. 94-12 at If anything, Plaintiffs’ claims regarding 3.) But Defendants point out — and the Global Real Estate Fund’s fees are even Plaintiffs apparently concede (Opp’n at 14 more sparse than their (deficient) assertions n.20) — that the Vanguard Mid-Cap Fund is about the Mid Cap Fund. Specifically, — 15 — Plaintiffs assert that the fund charged a involve or create a conflict between the 0.93% fee in 2014 (id $76), but do not trustee’s fiduciary duties and personal explain how that fee fit into the marketplace interests.” Vellali v. Yale Univ., 308 F. or whether any comparable fund charged a Supp. 3d 673, 688 (D. Conn. 2018) (internal lower rate. Without more detail, Plaintiffs quotation marks and brackets omitted). have failed to allege that the Global Real However, a plan fiduciary does not breach Estate Fund was inappropriately priced or its duty of loyalty simply by offering the that Defendants acted imprudently by plan sponsor’s financial products; rather “a retaining it. plaintiff must allege plausible facts supporting an inference that the defendant For these reasons, Plaintiffs’ allegations acted for the purpose of providing benefits that Defendants breached their duty of to itself or someone else.” Sacerdote I, 2017 prudence by continuing to offer the Mid Cap WL 3701482, at *5; see also id. at *6 (“[A]n Fund and Global Real Estate Fund are act which has the effect of furthering the insufficient to state a claim.® Plaintiffs’ duty interests of a third party is fundamentally of prudence claim as to those funds must different from an act taken with that as a therefore be dismissed. goal.”). b. Duty of Loyalty A duty of loyalty claim may lie where a . plaintiff alleges that “the defendants who Plaintiffs also argue that Defendants were Plan fiduciaries” offered “proprietary “disloyally retained” the “poorly-performing index funds... [that] charged fees that were proprietary funds . . . to collect fees from excessive compared with similar investment Plan participants.” (Opp’n at 10; see also products” and where the defendants stood to Compl. ff 120-149.) “To state a claim for gain from those fees. Moreno v. Deutsche breach of loyalty, a plaintiff must allege Bank Americas Holding Corp. (Moreno J), facts that permit a plausible inference that No. 15-cv-9936 (LGS), 2016 WL 5957307 , the defendant engaged in transactions at *6 (S.D.N.Y. Oct. 13, 2016) involving self-dealing or [that] otherwise (“Specifically, the Complaint alleges that SSS one proprietary index fund charged fees that ® The two cases provided by Plaintiffs in their were more than eleven times higher than a October 3, 2019 notice of supplemental authority . (Doc. No. 108) do not change this conclusion. In comparable Vanguard index fund, and this Karg v. Transamerica Corp, No. 18-cv-134 (CM), fee differential increased each year as did 2019 WL 3938471 , at *7 (N.D. Iowa Aug. 20, 2019), the Plan’s investment in the proprietary the district court concluded with little analysis that fund.”); see also Braden y. Wal-Mart Stores, allegations of underperformance relative to both Inc., 588 F.3d 585, 596 (8th Cir. 2009) comparable funds and the relevant benchmark were ee : sufficient to state a claim for imprudence. The (The complaint alleges, moreover, that district court in Pizarro v. The Home Depot, No. 18- these options were chosen to benefit the cv-1566, Doc. No. 74, at 8-9 (N.D. Ga. Sept. 20, trustee at the expense of the participants.”’). 2019), did the same, despite acknowledging that the However, as described in connection with plaintiffs failed to plead actual performance data or the duty of prudence claims, Plaintiffs have meaningful benchmarks. To the extent these cases stand for the proposition that conclusory allegations not properly alleged that the fees charged by of underperformance are enough to state a claim for the Mid Cap Fund or the Global Real Estate breach of fiduciary duties under ERISA, the Court Fund were excessive. See Meiners, 898 disagrees. F.3d at 824 (“[The Court cannot reasonably infer [the defendants] acted out of a motive to seed underperforming or inordinately — 16 — expensive funds if [the plaintiff] has not fiduciary duty claim in Count IV must be plausibly pled that those funds were, in fact, dismissed.’ underperforming or inordinately expensive.”). Here, the fee differential 3. Count V — BlackRock Trusts between the Mid Cap Fund (0.61%) and the Vanguard Mid-Cap Fund (0.08%) is not Plaintiffs further allege that Defendants insignificant. However, as discussed with breached their fiduciary duties of prudence respect to the duty of prudence claims, and loyalty by “selecting and then failing to Plaintiffs have failed to properly allege that timely the BlackRock Trusts as the passively-managed Vanguard Mid-Cap investment options offered to Plan Fund was in fact comparable to the actively- participants. (/d. /245.) As noted above, managed Mid Cap Fund. And even Plaintiffs only invested in — and thus only assuming the funds were comparable, the have standing to challenge — one BlackRock fee differential alone is insufficient to Trust offered by the Plan: the 2025 Trust, in demonstrate disloyalty without allegations which Plaintiff Lo Sasso invested. that Defendants acted “for the purpose” of Accordingly, the Court will consider providing themselves or others a benefit. Defendants’ challenges to the Complaint in See Cunningham v. Cornell Univ., No. 16- the context of that Trust only. cv-6525 (PKC), 2017 WL 4358769 , at *4 Prad (S.D.N.Y. Sept. 29, 2017) (dismissing duty a. Duty of Prudence nee aims Dlseanae Sate oe co Plaintiffs first contend that Defendants Oe een one age breached the duty of prudence by offering actions were for the purpose of providing d ffer the 2025 Tr benefits to themselves or someone else and and continuing to offer © >_Tust as th did not simply have that incidental effect”). wince ait vie thems Ot eae on Here, Plaintiffs offer no facts to suggest PP llecati h y ° such an improper purpose. In fact, factual a eee Nh to ‘hea out Plaintiffs’ duty of loyalty allegations largely = ae ‘= fig n aie overlap with their failed duty of prudence Prudence Claim. peerica'y aint 8 claims. See Sacerdote I. 2017 WL 3701482 contend that the decision to offer and retain at *6 (refusing to allow a duty of loyalty and re azo Trust nie mnprudent Denauae □ duty of prudence claim “collapse into a : Sates Crist eriderpenonned eomiparet! □□ claim, Absent other evidence its benchmark (the S&P Target Date 2025 demonstrating some improper motivation, eete ee eee ons” te Plaintiffs have failed to plead sufficient facts V aT Reti a 5T h demonstrating the fiduciaries acted anguatc target Surenielt fcsh □□ disiovall State Street Target Retirement 2025 Trust mroyany: NL, and the Voya Target Solution 2025 de ie & Trust) over the class period (id. 4179); (2) the 2025 Trust fared worse than the State Because Plaintiffs fail to allege facts Street Target Retirement 2025 Trust NL in supporting their duty of prudence and duty of loyalty theories, Plaintiffs’ breach of 7 Because the Court concludes that Plaintiffs here failed to plead sufficient facts to support their breach of fiduciary duty claim, the Court need not address Defendants’ statute of limitations argument with respect to Count IV. (Mem. at 16.) — 17 — 2011, and worse than all three investment charged by the 2025 Trust with the fees of alternatives and the benchmark in 2012, the Vanguard Target Retirement 2025 Trust. 2013, and 2014 (id 4178); (3) the fees Once again, Plaintiffs make only a associated with the Vanguard Target conclusory allegation that the Vanguard Retirement 2025 Trust were lower than Target Retirement 2025 Trust is a proper those charged by the 2025 Trust (id. ¥ 161); comparator for the 2025 Trust, stating that (4) the 2025 Trust carried a lower “t]he most readily-apparent alternative on Morningstar rating than the Vanguard the market was Vanguard.” (Compl. 157.) Target Retirement 2025 Trust (id. 157); Moreover, the fees charged by the 2025 and (5) the 2025 Trust was a relatively new Trust (0.12%) are only marginally higher financial product at the time it was included than the Vanguard product (0.07%) that in the Plan (id. § 158). Plaintiffs cite (id. 4 161) — nowhere near the situation in Moreno I, where the funds at As with the prior claims, Plaintiffs’ issue charged fees “eleven times higher than conclusory allegations of cumulative a comparable Vanguard index fund.” 2016 underperformance are insufficient to state a WL 5957307, at *6. claim, since backward-looking contentions regarding overall underperformance are Plaintiffs’ reliance on the Morningstar improperly grounded in hindsight. See ratings of the Vanguard offering is similarly Leber I, 129 F. Supp. 3d at 14. Putting deficient, and in any event, the mere fact aside the fact that Plaintiffs have again that Vanguard’s 2025 Retirement Trust had failed to allege that the 2025 Trust may a higher rating than the 2025 Trust in no properly be compared to the three allegedly way tends to show that the 2025 Trust was superior trusts, see Meiners, 898 F.3d at not a suitable investment. See Meiners, 898 823-24, Plaintiffs comparison of the trusts’ F.3d at 823 (“No authority requires a yearly performance numbers demonstrates fiduciary to pick the best performing only intermittent underperformance by the fund.”). That the 2025 Trust was untested is 2025 Trust. For instance, although Plaintiffs also insufficient to establish imprudence in allege that the Vanguard Target Retirement the selection and retention of the fund. See 2025 Trust, the State Street Target Vellali, 308 F. Supp. 3d at 682 (observing Retirement 2025 Trust NL, the Voya Target that prudence is determined by a totality of Solution 2025 Trust, and the benchmark the circumstances). Moreover, the fact that outperformed the 2025 Trust in some years, Defendants ultimately removed the 2025 they concede that the 2025 Trust beat three Trust from the set of Plan offerings (Compl. of the four comparators in 2011 (including { 179) supports an inference that Defendants beating the Voya Target Solution 2025 Trust acted within the bounds of their duties to the by 2.74 percentage points in 2011), beat the Plan. On the whole, Plaintiffs have failed to benchmark in 2014, and lagged closely plausibly allege that Defendants breached behind the comparator trusts in 2012, 2013, their duty of prudence in connection with and 2014. (Compl. 9178.) See White J, the decision to offer, and to continue to 2016 WL 4502808 , at *17. In short, this offer, the 2025 Trust. Accordingly, this mixed performance is insufficient to state a claim must be dismissed. claim that Defendants abdicated their duties by including the 2025 Trust in the Plan. b. Duty of Loyalty Plaintiffs attempt to bolster their Plaintiffs next argue that Defendants imprudence claim by comparing the fees breached their duty of loyalty to the Plan — 18 — because their decision to offer the 2025 disloyalty claims above the bar set by Trust was motivated by a desire to foster a Twombly, 550 U.S. at 570 . More is needed. business relationship with Blackrock (id. 150-153), even though the 2025 Trust mer carried a higher fee (0.12%) than the Vanguard Target Retirement 2025 Trust Accordingly, Plaintiffs’ Complaint fails (0.07%) (id. | 161). But Plaintiffs’ duty of to state a claim as to the remaining breach of loyalty claim based on the 2025 Trust fiduciary duty claims relating to the suffers from the same deficiencies that BlackRock 2025 Trust and must be plagued its claim based on the retention of dismissed. the Mid Cap Fund and the Global Real . Estate Fund. As stated above, Plaintiffs 4. Count VI— Duty to Monitor pave ot ames we a = As noted above, ERISA fiduciaries with unreasonable, in part because Plaintiffs oe ayes eee a ere make only conclusory allegations that the aivenaae those > Aiarase™ te □□ Vanguard Target Retirement 2025 Trust is a a ae PPX ; - organ Stanley ERISA Litig., 696 F. Supp. proper comparator to the 2025 Trust, see 2d at 366; see also Cunningham, 2017 □□ Meiners, 898 F.3d at 823, but also because 4358769 at *1] (notin that while “It}he the disparity between the fees (0.05 ; Be percentage points) is relatively small. text of ee cous mck seplicidy Hpose On Moreover, the mere fact that Morgan plan. fdoelanes' # duty to inGLa, □□ Stanley might incidentally benefit from its SEVETAl GOS nave that there is aguly te ; to monitor appointed fiduciaries under relationship with BlackRock is not enough ERISA”). Nevertheless, a duty to monitor to raise an inference of disloyalty by lai ‘ wh ‘ Aatie? Defendants See Cunningham, 2017 WL claim cannot survive without an mngenymne 4358769, at *6, Despite their attempts to breach of a fiduciary duty. See Reinhart v. ° : Lehman Bros. Holdings Inc., 817 ¥.3d 56, imply some quid pro quo from a common 68 (2d Cir. 2016) Thus, “[bJecause business relationship, Plaintiffs do not Plaintiffs h fail dt flac au □□□□□ actually allege any facts to suggest that b each . ie. dae 0 alee it ying Defendants’ business relationship with Ramtec d tr oe ‘heel Teo Meche BlackRock was contingent on Defendants Corp 305 F Suop. 34 538. 546 □□ offering BlackRock’s trusts in the Plan. In (S DN Y.201 6) , fact, Plaintiffs acknowledge that Defendants a disclosed to Plan participants its relationship GB. Pechibited Transactions with BlackRock. (Comp. § 151.) And the fact that Defendants ultimately removed the In addition to imposing general fiduciary 2025 Trust from the Plan on February 19, duties of prudence and loyalty, ERISA (id. If a ae contradicts ihe categorically bars plan fiduciaries from conclusory —_ assertion a erendants engagin in certain “prohibited intended to benefit BlackRock at the etctone® See 29 U.S.C. § 1106 : see expense of the Plan. Put simply, the mere also Harris Tr. & Sav. Bank v. Salmon existence of a business relationship between Smith Barney, Inc., 530 U.S. 238 , 241 two large financial institutions is not enough (2000) (Section 1106 “supplements the to lift Plaintiffs’ otherwise deficient fiduciary’s general duty of loyalty to the plan’s beneficiaries . . . by categorically — 19 — barring certain transactions deemed ‘likely Defendants next assert that Plaintiffs fail to injure the pension plan.’” (quoting to state a claim because the conduct at issue Comm’r v. Keystone Consol. Indus., Inc., falls within the regulatory exception 508 U.S. 152, 160 (1993))). Specifically, allowing plan fiduciaries to invest in certain Section 1106 prohibits an ERISA fiduciary affiliated mutual funds. See PTE 77-3, 42 from transferring plan assets to itself or the Fed. Reg. at 18,734, 18,735; Wildman v. Am. employer whose members are covered by Century Servs., LLC, 237 F. Supp. 3d 902 , the plan, 29 U.S.C. § 1106 (a)(1)(D), and 913 (W.D. Mo. 2017) (noting that the from “deal[ing| with the assets of the plan in exception “allows plans sponsored by his own interest or for his own account,” id. mutual fund advisors to invest in affiliated § 1106(b)(1). In Count II, Plaintiffs allege mutual funds,” but that it “is specific to that Defendants violated Section 1106 by prohibited transaction claims under 29 investing Plan assets in the MS Funds and U.S.C. § 1106” and “does not relieve a permitting the MS Funds to deduct annual fiduciary from its duties of loyalty and fees from the Plan assets invested in the prudence to a plan”). To be entitled to fund. (Compl. □□ 230-235.) protection under PTE 77-3, Defendants must prove that four factors are met: (1) the plan Defendants first argue that Plaintiffs’ must not pay any “investment management, claims are barred by the statute of repose set investment advisory, or similar fee’ to the out in 29 U.S.C. § 1113 (1), which provides mutual fund, although the mutual fund may that “[nJo action may be commenced” more pay such fees to its managers;” (2) “the plan than “six years after . . . the date of the last must not pay a ‘redemption fee’ when action which constituted a part of the breach selling its shares;” (3) “the plan must not or violation.” Defendants argue that the last pay a sales commission in connection with “transaction” attributable to the Plan the sale or acquisition” of shares in the fiduciaries was the initial selection of the mutual fund; and (4) “all other dealings MS Funds, which they assert occurred between the plan and the affiliated fund before 2010. (Mem. at 16-17.) Plaintiffs, must be ‘on a basis no less favorable to the relying on Moreno J, counter that the fees plan than such dealings are with other assessed by the MS Funds, which were paid shareholders.’” Leber I, 2010 WL 935442 , from Plan assets, constitute prohibited at *10 (quoting PTE 77-3, 42 Fed. Reg. at transactions that continued into the 18,735). limitations period. (Opp’n at 24—25.) The Court need not resolve the parties’ dispute at Because the application of PTE 77-3 is this time since the Complaint is silent as to an affirmative defense, Plaintiffs have no when the “relevant breaches occurred,” obligation to plead around it. See, e.g., BPP Leber v. Citigroup, Inc. (Leber I), No. 07- Ill, LLC vy. Royal Bank of Scotland Grp. cv-9329 (SHS), 2010 WL 935442 , at *7 PLC, 603 F. App’x 57, 59 (2d Cir. 2015) (S.D.N.Y. Mar. 16, 2010), and a motion to (“[A] plaintiff is not required to plead, in a dismiss on statute of limitations grounds complaint, facts sufficient to overcome an “may be granted only if it is clear on the affirmative defense.” (quoting Schmidt v. face of the complaint that the statute of Skolas, 770 F.3d 241, 251 (3d Cir. 2014)). limitations has run,” Fargas v. Cincinnati But see Mehling y. N.Y. Life Ins. Co., 163 F. Mach. LLC, 986 F. Supp. 2d 420 , 427 Supp. 2d 502, 510 (E.D. Pa. 2001) (S.D.N.Y. 2013). Accordingly, Defendants (dismissing plaintiffs’ prohibited may not prevail on their statute of transactions claims because plaintiffs “d[id] limitations argument at this time. not allege that the fees paid by the Plans are — 20 — not in compliance with the requirements of less favorable to the [P]lan than such PTE 77-3”). But even though Plaintiffs are dealings [were] with other shareholders.” under no affirmative burden to plead that PTE 77-3, 42 Fed. Reg. at 18,735. PTE 77-3 is inapplicable, “[a] complaint Consequently, Plaintiffs’ allegations must allege conduct that is plausibly establish that Plan investments in the MS actionable under the relevant statute and Funds were treated in parity with outside must go beyond creating a ‘sheer possibility investors’ contributions to the MS Funds as that a defendant has acted unlawfully.’” required by PTE 77-3. See Leber I, 2010 Leber I, 2010 WL 935442 , at *10 (quoting WL 935442, at *10 (“The complaint alleges Iqbal, 556 U.S. at 678). Therefore, where the very type of activity that the exemption an affirmative defense “appears on the face expressly allows to occur — the investment of the complaint,” the Court may apply the by a plan in its affiliated mutual funds on the defense to dismiss a claim. Séaehr v. terms generally available to other Hartford Fin. Servs. Grp., 547 F.3d 406 , investors.”). 425 (2d Cir. 2008) (internal quotations marks and citations omitted). Nevertheless, citing Krueger v. Ameriprise Fin, Inc., No. 11-cv-02781 Here, the Complaint makes clear that, as (SRN) (JSM), 2012 WL 5873825 , at *17 (D. permitted by PTE 77-3, the MS Funds pay Minn. Nov. 20, 2012), Plaintiffs argue that, “set fees for . . . investment advisory to satisfy PTE 77-3, Defendants must also services” to its managers at Morgan Stanley prove that the fees charged to the MS Funds (Compl. 473), thus establishing the first were “reasonable.” (Opp’n at 20-21.) But element of PTE 77-3. Nothing in Plaintiffs’ this argument is based on a single case not Complaint or in Plaintiffs’ opposition binding on this Court, and in any event, is suggests that the MS Funds were subject to unpersuasive. Plaintiffs’ assertion that the redemption fees or sales commissions — the payments must be “reasonable” is grounded second and third elements — and the table in in 29 U.S.C. § 1108 (b)(8)(B), which applies the Complaint comparing the MS Funds’ to transactions between a plan and “a fees to the separate account fees indicates common or collective trust fund or pooled that the fees were predictable. (Ud. {76 & investment fund.” Plaintiffs here do not nn.3—8). See Patterson v. Capital Grp. Cos., assert that the MS Funds fall into any of the Inc., No. 17-cv-4399 (DSF) (PJW), 2018 three categories enumerated __ there. WL 748104, at *5 (C.D. Cal. Jan. 23, 2018) Moreover, even if the MS Funds did qualify (dismissing a prohibited transaction claim as “a common or collective trust fund or based on PTE 77-3 where “Plaintiff [did] pooled investment fund” within the meaning not allege that the Plan pays management or of ERISA, Plaintiffs’ argument would still advisory fees, except for Defendants’ fail because, as the Court has already standard fees or that the plan pays concluded, Plaintiffs have not adequately redemption fees or sales commissions’). alleged that the fees associated with any of Indeed, as Defendants point out, Plaintiffs’ the funds at issue in this suit were central complaint regarding the fees charged improperly high or otherwise unreasonable. on the Plan’s investments in the MS Funds Id. The Court therefore finds that PTE 77-3 is that “the MS Funds’ advisor ... did not is applicable, and Count III must be depart from the generally applicable mutual dismissed. fund fee structure’ (Mem. at 18), thus demonstrating that dealings between Defendants and the Plan were “on a basis no 2] VI. CONCLUSION Stanley & Co., LLC, and Morgan Stanley Retirement Plan Investment Committee are Contrary to Plaintiffs’ claims, ERISA represented by Brian D. Boyle, Meaghan does not require clairvoyance on the part of VerGow, and Shannon M. Barrett of plan fiduciaries, nor does it countenance O’Melveny & Myers LLP, 1625 I Street opportunistic Monday-morning quarter- NW, Washington, District of Columbia backing on the part of lawyers and plan 20006, and Pamela A. Miller of O’Melveny participants who, with the benefit of & Myers LLP, 7 Times Square, New York, hindsight, have zeroed in on_ the New York 10036. underperformance of certain investment options. More is required, and Plaintiffs come nowhere close to alleging such a case in their Complaint. Accordingly, because Plaintiffs lack standing as to the NonSelected Funds, and because their Second Amended Complaint fails to state a claim under ERISA as to the Selected Funds, Defendants’ motion to dismiss is GRANTED. The Clerk of the Court is respectfully directed to terminate the motion pending at document number 92 and to close this case. SO ORDERED. RICHARD J. SULLIVAN ~J United States Circuit Judge Sitting by Designation Dated: October 7, 2019 New York, New York * * *# Plaintiffs Robert J, Patterson, Terri Lo Sasso, and Ralph Colo are represented by David H. Tracey, Charles Field, David W. Sanford, and Kevin Sharp of Sanford Heisler Sharp, LLP, 1350 Avenue of the Americas, 31st Floor, New York, New York 10019. Defendants Morgan Stanley, Morgan Stanley Domestic Holdings Inc., Morgan — 22 —