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Adidas Kicks Excessive Fee Suit

Fiduciary Rules and Practices

A federal judge has dismissed an excessive fee suit that “contains no factual allegations surrounding defendant’s process for selecting and monitoring investments.”

More precisely, Judge Karin J. Immergut of the U.S. District Court for the District of Oregon granted the Adidas fiduciary defendants’ motion to dismiss the case (Enos v. Adidas Am., Inc., 2021 BL 456529, D. Or., No. 3:19-cv-01073, 11/30/21), based on a report by Magistrate Judge Youlee Yim You with that recommendation, as no party had filed an objection asking her to do otherwise.

In that report, Magistrate Judge You said the case should be dismissed because the Adidas plan participants filing the suit failed to show how the company’s process for managing their retirement plan led them to pay higher fees or receive suboptimal investment returns. She noted that the complaint “contains no factual allegations surrounding defendant’s process for selecting and monitoring investments,” and that it “merely recites concerns on how certain investments either resulted in unreasonably high administrative expenses or produced suboptimal results when compared to non-Plan investments.”

Original Claims

That suit—notable for the fact that it had been filed against a much smaller plan than had been common—had claimed that for every year between 2013 and 2017, the administrative fees charged to plan participants was “greater than a minimum of approximately 75 percent of its comparator fees when fees are calculated as cost per participant,” and that during that same period, “the administrative fees charged to Plan participants is greater than 80 percent of its comparator fees when fees are calculated as a percent of total assets.” 

Indeed, the plaintiffs alleged[1] that the total difference from 2013 to 2017 between Adidas’ fees and the average of its comparators based on plan asset size is $6,078,234. As for the source of that comparison, the plaintiffs refer to “commercially available programs commonly used by financial advisors and plan fiduciaries to analyze plans’ performance, comparative costs and so on,” and that the program used for their analysis “…contains validated financial information from more than 55,000 financial plans of all types.” The suit had also challenged the lack of passively managed fund options in the $500 million, 7,478 participant plan. 

But those allegations weren’t sufficient to sustain a claim for fiduciary breach under ERISA, in accordance with the standards outlined by the U.S. Court of Appeals for the Ninth Circuit’s 2018 decision in White v. Chevron Corp., You concluded.

That said, Judge Immergut, noting that “under the Federal Magistrates Act (‘Act’), as amended, the court may “accept, reject, or modify, in whole or in part, the findings or recommendations made by the magistrate judge,” and ”acknowledging that “if a party objects to a magistrate judge’s F&R, “the court shall make a de novo determination of those portions of the report or specified proposed findings or recommendations to which objection is made” (but noting that the court was not required to review those findings). Here, “No party having filed objections, this Court has reviewed the F&R and accepts Judge You’s conclusions.” 
And granted the fiduciary defendants’ motion to dismiss.

What This Means

The decision here was the latest in what seems to be a growing trend among the courts to want more than mere allegations based on fee comparisons to ostensibly comparable plans to sustain the suit. 

It’s a potential trend worth watching.

Footnote

[1] The Adidas plan participants were represented by Milberg Coleman Bryson Phillips Grossman PLLC, Crueger Dickinson LLC, Terrell Marshall Law Group PLLC, Wallace Legal Group LLC, Wexler Boley & Elgersma LLP, and Jordan Lewis PA.