Grocery Chain’s Excessive Fee Suit Sacked

An excessive fee suit targeting a $5.9 billion 401(k) plan has been dismissed — with prejudice.

Fending off this particular lawsuit was Kroger and the fiduciaries of the Kroger 401(k) Retirement Savings Account Plan — the suit brought by participant Lisa A. Sigetich (a Customer Service Representative at a Kroger in Wisconsin, currently on disability leave). She was represented by Walcheske & Luzi, LLC[1] and Strauss Troy Co., LPA, in her suit brought on behalf of the 90,000 participants in that plan. 

The suit basically alleged that the fiduciaries “breached the duties they owed to the Plan, to Plaintiff, and to the other participants of the Plan by, among other things: (1) authorizing the Plan to pay unreasonably high fees for recordkeeping services; and (2) failing to disclose to Plan Participants fees associated with the Plan.” More specifically, they are alleged to have paid $30/participant for recordkeeping services when, by the plaintiff’s reckoning (relative to what the suit asserts are comparable plans), a reasonable amount would be $20/participant.

That said, we noted at the time that the suit itself was remarkably short on specifics, and conclusory in its accusations — and apparently U.S. District Judge Timothy S. Black concurred in that assessment.

‘Plausible on its Face’

 

Judge Black began (Sigetich v. The Kroger Co. et al., case number 1:21-cv-00697, in U.S. District Court for the Southern District of Ohio) by noting that in order to proceed past a motion to dismiss and go to trial/discovery, the plaintiffs were not required to provide “detailed factual allegations,” but cautioned that it did, however, “demand more than an unadorned, the-defendant-unlawfully-harmed-me accusation.” He went on to (citing the U.S. Supreme Court’s decision in Bell Atlantic v. Twombly) note that “pleadings offering mere ‘labels and conclusions’ or ‘a formulaic recitation of the elements of a cause of action will not do.’” He also clarified (again relying on Twombly) that in determining a motion to dismiss, “courts ‘are not bound to accept as true a legal conclusion couched as a factual allegation,” but they must rather “be enough to raise a right to relief above the speculative level.” Said another way, he explained that it “must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.”

Judge Black then made quick work of the Kroger defendants’ arguments that the plaintiff here had failed to allege an “injury-in-fact,” though it had been argued that she had paid only $5 in recordkeeping fees (with another $27 paid by Kroger). Judge Black felt it was equally plausible that, “because Kroger agreed to pay, and did in-fact pay, $27 per participant in recordkeeping fees during the relevant timeframe, Plaintiff would have paid less than $5, plausibly $0, in recordkeeping fees had Defendants been prudent and negotiated a lower fee” (again, viewing all plausible inferences in the plaintiff’s favor). 
Judge Black also decided for the plaintiff on an argument that the payment decision, being made by Kroger corporate wasn’t traceable to the plan fiduciaries. 

‘Wholly Conclusory’

 

All that said, however, Judge Black concluded that here the plaintiff failed to allege that the Kroger Plan’s recordkeeping fees were excessive when compared to services rendered. He commented that, while the plaintiff “attempts to survive this burden by describing the ‘two types of essential RK&A services provided by all recordkeepers[1],’ and then arguing that ‘[f]or mega plans, like the Kroger Plan, any minor variations in the level and quality of RK&A services described above and provided by recordkeepers has little to no material impact on the fees charged by recordkeepers.’” But that, Judge Black said was “wholly conclusory,” and that here the “plaintiff fails to give any context to the services rendered to the Kroger Plan or to the services rendered to her comparable plans which may lead to the inference that the Kroger Plan’s recordkeeping fees were excessive relative to the services rendered.”

He rejected the notion that “any minor variations” in recordkeeping services “have no material impact on the fees charged” — commenting that “when the Court takes a careful, context-sensitive scrutiny of the comparable plans, Plaintiff’s suggestion that minor variations are immaterial is not plausible.”

Beyond that, he found the comparator plans selected by the plaintiff “receive recordkeeping services from other providers, and the cost of those fees range from $18 to $27 per participant. Plaintiff relies on Form 5500’s when calculating those fees. But the Form 5500’s show variations in reported services for the comparable plans. For example, the Kroger Plan’s 2018 Form 5500 states that Merrill Lynch provided ‘recordkeeping and investment management services to the [Kroger] Plan,’” and proceeded to list varying expense codes for the various plans that supported his assessment that there were variations in services as well as cost. "To state a plausible claim that Defendants were imprudent when choosing a recordkeeper and negotiating recordkeeping fees, Plaintiff needed to allege facts that led to the inference that the recordkeeping fees paid were excessive relative to the services rendered," he wrote.

‘Comparable Plans’ Not Comparable Plans

 

He went on to note that, “even assuming variations in services have no material impact on recordkeeping fees, Plaintiff fails to give the kind of context that creates an inference that Defendants were imprudent when picking Merrill Lynch as a recordkeeper.” But ultimately, he concluded that “Plaintiff’s ‘comparable plans’ are not comparable plans.” He continued, “Indeed, common sense dictates that plans of different sizes have different bargaining power, resulting in different services and/or fees.”

Finally, in keeping with the plausible thresholds that a number of courts in different circuits have applied recently, Judge Black stated that, “To state a plausible claim that Defendants were imprudent when choosing a recordkeeper and negotiating recordkeeping fees, Plaintiff needed to allege facts that led to the inference that the recordkeeping fees paid were excessive relative to the services rendered.” He explained (citing CommonSpirit) that “the Court has taken a ‘careful, context-sensitive scrutiny of [the Amended Complaint]’s allegations,’ and, for the foregoing reasons, finds that Plaintiff fails to move her claim from ‘possibility to plausibility.’”

With that, he dismissed that claim, and with that claim discarded, also dismissed the failure to monitor claims — and did so with prejudice.

What This Means

 

Consistent with a growing number of courts (particularly in the Midwest), this Judge dismissed the notion that you could affix a reasonable standard based on nothing besides plan size, not to mention the notion that there might be material differences in services for different plans by different recordkeepers. 

The results in these federal court districts have been consistent — but it is not yet consistent throughout the nation.

Footnote

[1] It’s worth noting that a federal judge in another jurisdiction recently determined that that WAS sufficient, dismissing a motion to dismiss.