Judge Says (Another) Excessive Fee Suit Comes Up Short

A federal magistrate judge has recommended tossing an excessive fee suit against a $4 billion 401(k) plan.

While the recommendation still requires the signoff of a district judge,[1] U.S. Magistrate Judge Stephen C. Dries basically recommended granting Nestle’s — the $4 billion plan in question — motion to dismiss made in December 2020. 

Now, as it’s been awhile, the suit (Guyes et al. v. Nestle USA Inc. et al.) was brought in the U.S. District Court for the Eastern District of Wisconsin in October 2020 by Walcheske & Luzi, LLC on behalf of Lorie M. Guyes — a participant in the plan until April 2020 — “individually and as representative of a Class of Participants and Beneficiaries on behalf of the Nestle 401(k) Savings Plan.” As other excessive fee suits have alleged, this one alleges that “after an inquiry reasonable under the circumstances,” the defendants breached their fiduciary duties by “…among other things: (1) authorizing the Plan to pay unreasonably high fees for recordkeeping and administration (RK&A); (2) authorizing the Plan to pay unreasonably high fees for managed account services; and (3) engaging in self-dealing with regard to administration of the Plan.”

That said, the 19-page recommendation (Guyes v. Nestle USA Inc et al., case number 1:20-cv-01560, in the U.S. District Court for the Eastern District of Wisconsin) made relatively quick work in dismissing most of the plaintiff’s claims, citing the Oshkosh decision, he explained that “the complaint in this case does not provide the necessary context to support a plausible recordkeeping claim.” Rather, he noted that “the complaint alleges in conclusory fashion that the recordkeeping fees were excessive relative to the recordkeeping services received.” Commenting that the complaint describes some of the services offered by recordkeepers — maintaining plan records, tracking participant account balances and investment elections, transaction processing, call center support, participant communications, and trust and custody services — and alleges that the defendants “received a standard package of [recordkeeping] services,” he noted that “the complaint does not contain any allegations concerning the specific services performed by the comparator plans’ recordkeepers or any allegations supporting a plausible inference that the plan paid more for equivalent services.”

“Absent that context, the court is left with only a naked fee-to-fee comparison, which does not permit a reasonable inference that the defendants’ process of managing the plan’s recordkeeping fees was imprudent,” he concluded, commenting that “Guyes therefore has failed to plausibly plead a duty of prudence claim based on the allegedly excessive recordkeeping fees the plan paid.”

Managed Accounts

With regard to the allegations of excessive fees in the managed account, Judge Dries noted that “given the dicta in Albert (Oshkosh), I am not satisfied that Guyes was injured by the plan’s allegedly excessive managed account service fees. An uncontested declaration from the plan’s project manager makes clear that Guyes has never enrolled in the managed account services offered by Voya Retirement to the plan’s participants.” Consequently, he concluded that the plaintiff here “has never been charged any fees related to those services, she cannot claim to be injured by the defendants’ authorization of those fees, no matter how high they are.” He was equally dismissive of the notion that the fee structure here was part-and-parcel of the overall fee structure that she claimed DID injure her (“Guyes maintains that she has standing when considering the plan’s fees ‘holistically’”) — noting that that kind of approach “appears to have been rejected by the Supreme Court, which recently said that ‘plaintiffs must demonstrate standing for each claim that they press.’” Ultimately, he noted that “because the undisputed facts show that she has not suffered an injury in fact from the plan’s allegedly excessive managed account service fees, she lacks standing to pursue that claim on behalf of herself or anyone else.”

Plan Administration

There had been questions regarding fees paid by the plan to Nestle’s for administrative services.  However, Judge Dries noted that “the complaint here does not contain any allegations beyond those pertaining to alleged breaches of the duty of prudence to support its duty of loyalty claims. To be sure, the complaint alleges as a separate cause of action that Nestle engaged in self-dealing by paying itself for administrative services. The duty of loyalty claims, however, do not rely on any of those allegations.” Ultimately, Judge Dries concluded that, here again, “because Guyes has failed to plausibly plead a duty of prudence claim, her duty to monitor claims fail as well.”

As for the prohibited transaction claims, Judge Dries observed that “Guyes alleges that the services provided to the plan by Nestle did not provide any value to the plan, were not provided for the exclusive benefit of the participants, and did not warrant the payment of the fees to Nestle,” and that she “further alleges that the services are standard services that can be provided by Voya, the plan’s recordkeeper.” That said, he noted that “Guyes has not plausibly pled a self-dealing prohibited transaction claim,” explaining that “Guyes concedes that she doesn’t even know what the payments were for. She speculates they were for ‘some sort of administrative service to the Plan,’ but the public filings relied upon for that allegation indicate merely that Nestle received the payments for ‘Commissions and Fees.’” 

Were that not enough, comments by the plaintiff that the services in question could have been provided by the plan’s recordkeeper “suggests that Nestle received those payments not as a fiduciary but for its role as the plan sponsor. Such conduct does not constitute self-dealing under § 1106(b)(1).” And thus, as has been the case with the other allegations here, “Guyes has not plausibly pled a party-in-interest prohibited transaction claim.” Rather, “the complaint alleges merely that for each year from 2014 to 2018 the plan made payments to Nestle for ‘Commissioners and Fees.’”

However, the complaint does not contain any non-speculative allegations as to why Nestle received those payments. “Without knowing that information, Guyes has no basis to allege that the services didn’t provide any value to the Plan, weren’t provided for the exclusive benefit of the participants, and didn’t warrant the payment of the fees to Nestle. Nor does the complaint identify any single transaction that could form the basis for a prohibited transaction under § 1106(a)(1). Again, the complaint merely states the total amount of money the trust paid to Nestle for each year.”

That said, and while Judge Dries largely dismissed the claims made as lacking plausibility, he did recommend partially granting plaintiff Guyes another shot at amending claims that Nestle’s breached its duty of prudence under ERISA, in addition to allegations that the company failed to monitor other fiduciaries in charge of the plan regarding record-keeping fees.

We’ll see what the presiding judge makes of these recommendations.

Footnote

[1] Recently Judge William C. Griesbach—who was the judge in the Oshkosh case — dismissed the lawsuits against both Prevea (Nohara v. Prevea Clinic, Inc., 2022 BL 406225, E.D. Wis., No. 2:20-cv-01079, 11/14/22) and ThedaCare—but left the door open for the plaintiffs in those cases to file amended complaints. In doing so, Judge Griesbach followed the recommendations of the same Magistrate Judge Stephen C. Dries, who has made the recommendations above.