United States District Court, W.D. Kentucky, Louisville Division
DONNA DISSELKAMP, et al. PLAINTIFFS
NORTON HEALTHCARE, INC., et al. DEFENDANTS
MEMORANDUM OPINION AND ORDER
N. Stivers, Chief Judge.
matter is before the Court on Defendants' Motions to
Dismiss (DN 19, 31, 32), and Plaintiffs' Motion for Leave
to File Sur-Reply (DN 54). The motions are ripe for
adjudication. For the reasons outlined below, Defendants'
Motions to Dismiss (DN 31, 32) are GRANTED IN PART and DENIED
IN PART, and the other motions are DENIED.
STATEMENT OF CLAIMS
an action brought under the Employee Retirement Income and
Security Act of 1974 (“ERISA”), 29 U.S.C. §
1001 et seq., concerning the administration of Defendant
Norton Healthcare, Inc.'s (“Norton”) 403(b)
Retirement Savings Plan (“the Plan”). (Am. Compl.
¶ 14, DN 20). The Plan is a defined contribution,
individual account, pension benefit plan as defined under 29
U.S.C. §§ 1002(2)(A) and 1002(34). (Am. Compl.
¶ 14). Named Plaintiffs Donna Disselkamp, Erica Hunter,
Sey Momodou Bah, Kathy Reed, and Curtis Cornett
(“Plaintiffs”) were participants in the Plan
during the alleged class period. (Am. Compl. ¶¶
is the Plan Administrator and a named fiduciary. (Am. Compl.
¶ 25). Plaintiffs allege Defendants Richard Wolf, G.
Hunt Rounsavall, Stephen A. Williams, and Donald H. Robinson
were members of Norton's Board of Directors from
2012-2017. (Am. Compl. ¶¶ 26-29). These named
individual Defendants were also members of the Norton
Healthcare Retirement Plan Investment Committee
(“Retirement Committee”) and as such were ERISA
fiduciaries responsible for ensuring that plan expenses were
reasonable and that plan funds were invested prudently and
loyally. (Am. Compl. ¶¶ 26-29). There are presently
twenty-five additional unnamed Defendants whom Plaintiffs
believe comprise the remainder of the Retirement Committee.
(Am. Compl. ¶ 30). When appropriate, the Court will
refer to Norton, the Retirement Committee and the
individually named Defendants collectively as “Norton
Lockton Investment Advisors, LLC is affiliated with Lockton
Financial Advisors, LLC and Lockton Companies, LLC (jointly
“Lockton Defendants”). Lockton Defendants offer
licensed broker-dealers and insurance agents to sell
securities, insurance products, and insurance consulting
services. (Am. Compl. ¶ 31).
the lawsuit was filed, Norton Defendants moved to dismiss the
claims asserted against them. (Defs.' Mot. Dismiss, DN
19). Subsequently, Plaintiffs amended the Complaint. In the
Amended Complaint, Plaintiffs assert seven counts against
Defendants alleging various breaches of fiduciary duty. (Am.
Compl. ¶¶ 204-82). Norton Defendants have moved to
dismiss Counts I, II, III, IV, VI, and VII, and Lockton
Defendants have joined in this motion. (Defs.' Mot.
Dismiss Am. Compl., DN 32). Lockton Defendants have
separately moved to dismiss Count V. (Lockton Defs.' Mot.
Dismiss, DN 31 [hereinafter Lockton's Mot.]).
case presents a federal question, and jurisdiction is
therefore proper under 28 U.S.C. § 1331.
STANDARD OF REVIEW
complaint must contain “a short and plain statement of
the claim showing that the pleader is entitled to relief,
” and is subject to dismissal if it “fail[s] to
state a claim upon which relief can be granted.”
Fed.R.Civ.P. 8(a)(2); Fed.R.Civ.P. 12(b)(6). When considering
a motion to dismiss, courts must presume all factual
allegations in the complaint to be true and make all
reasonable inferences in favor of the non-moving party.
Total Benefits Planning Agency, Inc. v. Anthem Blue Cross
& Blue Shield, 552 F.3d 430, 434 (6th Cir. 2008)
(citation omitted). “But the district court need not
accept a bare assertion of legal conclusions.”
Tackett v. M & G Polymers, USA, LLC, 561 F.3d
478, 488 (6th Cir. 2009) (citation omitted). “A
pleading that offers labels and conclusions or a formulaic
recitation of the elements of a cause of action will not do.
Nor does a complaint suffice if it tenders naked assertion[s]
devoid of further factual enhancement.” Ashcroft v.
Iqbal, 556 U.S. 662, 678 (2009) (internal quotation
marks omitted) (citation omitted).
survive a motion to dismiss under Rule 12(b)(6), the
plaintiff must allege “enough facts to state a claim to
relief that is plausible on its face.” Traverse Bay
Area Intermediate Sch. Dist. v. Mich. Dep't of
Educ., 615 F.3d 622, 627 (6th Cir. 2010) (internal
quotation marks omitted) (quoting Bell Atl. Corp. v.
Twombly, 550 U.S. 544, 570 (2007)). A claim becomes
plausible “when the plaintiff pleads factual content
that allows the court to draw the reasonable inference that
the defendant is liable for the misconduct alleged.”
Iqbal, 556 U.S. at 678 (citing Twombly, 550 U.S. at 556).
“A complaint will be dismissed pursuant to Rule
12(b)(6) if no law supports the claims made, if the facts
alleged are insufficient to state a claim, or if the face of
the complaint presents an insurmountable bar to
relief.” Southfield Educ. Ass'n v. Southfield
Bd. of Educ., 570 Fed.Appx. 485, 487 (6th Cir. 2014)
(citing Twombly, 550 U.S. at 561-64).
Defendants' Motion to Dismiss Complaint (DN 19)
Defendants have moved to dismiss the claims asserted against
them in the Complaint. (Defs.' Mot. Dismiss, DN 19).
Because the Amended Complaint subsumes the allegations in the
original Complaint, the Court will deny this motion as moot.
See Herran Props., LLC v. Lyon Cty. Fiscal Court, No.
5:17-CV-00107-GNS, 2017 WL 6377984, at *2 (citing
Cedar View, Ltd. v. Colpetzer, No. 5:05-CV-00782,
2006 WL 456482, at *5 (N.D. Ohio Feb. 24, 2006)); Ky.
Press Ass'n, Inc. v. Kentucky, 355 F.Supp.2d 853,
857 (E.D. Ky. 2005) (citing Parry v. Mohawk Motors of
Mich., Inc., 236 F.3d 299, 306 (6th Cir. 2000)).
Defendants' Motions to Dismiss Amended Complaint (DN 31,
the filing of the Amended Complaint, Defendants moved to
dismiss the claims asserted against them. Each claim will be
Background and Overview
2012, Norton provided its employees retirement benefits in
the form of a “bundled plan” administered by
Transamerica Life Insurance and its affiliates. (Am. Compl.
35). The term “bundled plan” means Norton
purchased a pre-packaged platform where custody, record
keeping, and investments were provided in an integrated
platform. (Am. Compl. ¶ 35).
2012, Norton restructured the Plan, which is now funded under
a group annuity contract and a trust arrangement. (Am. Compl.
¶¶ 16, 36). Norton established a trust with
Delaware Charter Guarantee and Trust, doing business as
Principal Trust. (Am. Compl. ¶ 16). Norton also
established a group annuity contract with Principal Life
Insurance (“Principal Life”). The alleged class
period concerns only Plan decisions made after the
Defendants provided advice to Norton Defendants with respect
to its restructure of the Plan. (Am. Compl. ¶ 37).
Plaintiffs allege Lockton Defendants advised Norton
Defendants on matters including but not limited to the
following: the selection and compensation of service
providers; initial plan and vendor analysis; investment
selection and monitoring; fiduciary and compliance services;
employee communication and education; mergers; and
acquisitions and divestitures. (Am. Compl. ¶ 37).
Lockton Defendants continued advising Norton after the
restructuring as well. (Am. Compl. ¶ 37).
Count I: Breach of the Duty of Prudence for Failing to Employ
Viable Methodology for Selecting and Monitoring Investment
claims regarding Defendants' breach of the duty of
prudence can be separated into two categories:
Defendants' selection of and failure to replace higher
cost share classes when identical shares with lower costs
were available, and Defendants' selection of and failure
to replace the Principal Fixed Income Option as its sole
stable value fund. Because Defendants' motion first
addresses the share class issue, the Court will begin its
Selection of Share Classes
to the Amended Complaint, a general principle of investment
management holds that investors with greater assets enjoy
greater bargaining power when negotiating management fees
because the more assets they possess, the lower the
management fees will be when expressed as a percentage of the
overall portfolio. (Am. Compl. ¶ 83). The two most
common classes of mutual funds are retail funds and
institutional funds. (Am. Compl. ¶ 84). Retail funds are
available to a broad spectrum of investors, including
individuals, whereas institutional funds, as their names
suggests, are generally only available to larger investors
including 401(k) and 403(b) plans. (Am. Compl. ¶ 84).
Institutional funds typically charge lower expense ratios
than similarly situated retail mutual funds. (Am. Compl.
there are different classes of mutual funds, there are also
different share classes of a single mutual fund. (Am. Compl.
¶¶ 85, 87). Retail share classes possess different
shareholder rights and responsibilities from institutional
class shares, which are also called “R Class
shares.” (Am. Compl. ¶ 87). These may include
differing fee and load charges. (Am. Compl. ¶¶ 85,
87). But while the fees differ, the assets underlying the
various share classes as well as their management and
investment styles are identical. (Am. Compl. ¶ 85).
state that a prudent fiduciary should have in place a
methodology for taking advantage of discounts available
through the purchase of institutional shares. (Am. Compl.
¶ 90). Because mutual funds are not static, it is
important for a prudent fiduciary to monitor the Plan in the
event lower cost share classes become available. (Am. Compl.
¶ 91). Plaintiffs contend Norton violated its duty of
prudence by failing to monitor the availability of lower cost
share classes, and in so doing subjected Plan participants to
higher-than-necessary expenses. (Am. Compl. ¶¶
92-93). Further, Plaintiffs contend Norton began correcting
the problem by substituting lower cost share classes in 2015.
(Am. Compl. ¶ 93).
exemplify Plaintiffs' allegations, they allege that in
2012 Norton offered a mutual fund known as the Principal
Equity R-5 Fund (“PEIQX”). (Am. Compl. ¶
96). The PEIQX fund offered a total expense ratio of
0.77%. (Am. Compl. ¶ 96). At the same time,
Norton offered an identical product of a different share
class, the Principal Equity Institutional Class Fund
(“PEIIX”) with an expense ratio of 0.52%, 0.25%
lower than PEIQX. (Am. Compl. ¶¶ 97-98). Plaintiffs
argue because the Plan invested $33, 558, 344 in the PEIQX,
the 0.25% difference in fees resulted in Plan participants
paying $83, 896 in additional fees for a different class
share of the exact same product. (Am. Compl. ¶ 98).
2013, the expense ratios were the same as the previous year
for both the PEIQX and the PEIIX respectively. (Am. Compl.
¶¶ 99-100). That year, Norton invested $46, 955,
568 in the PEIQX, an amount Plaintiffs allege resulted in
Plan participants paying an extra $117, 389. (Am. Compl.
¶ 101). In 2014, Plaintiffs contend Norton invested $55,
479, 949 in the PEIQX, bringing the alleged overpayment to
$138, 700 before it switched the PEIQX funds to the PEIIX in
2015. (Am. Compl. ¶¶ 102-06).
offer identical allegations about a No. of other funds, with
differences only in the precise expense ratios and resultant
damages. (Am. Compl. ¶¶ 108-65). In total,
Plaintiffs contend the Plan fiduciaries subjected
participants to more than $2 million in unnecessary
overpayments. (Am. Compl. ¶ 166). Plaintiffs
additionally contend that they lost the money they would have
made by investing the overpayments, bringing their total
damages to around $3.3 million. (Am. Compl. ¶ 168).
now seek dismissal of this claim, arguing Plaintiffs have
failed to assert specific facts that could lead to a
conclusion that Norton Defendants acted imprudently.
(Defs.' Mot. Dismiss Am. Compl. 7) Defendants contend
Plaintiffs criticize investment decisions based solely on
results viewed with 20/20 hindsight and fail to identify any
specific flaw in Defendants' methodology. (Defs.'
Mot. Dismiss Am. Compl. 7-9). Further, Defendants maintain
the Amended Complaint supports a conclusion that Defendants
acted prudently by responding to and correcting certain
problems well before this lawsuit. (Defs.' Mot. Dismiss
Am. Compl. 8-9). Specifically, Defendants argue that the
Complaint acknowledges that Defendants substituted some
higher cost share classes for lower cost institutional
options in 2015, and this action supports a conclusion that
Defendants acted prudently by monitoring the Plan.
(Defs.' Mot. Dismiss Am. Compl. 9).
state a claim for breach of the duty of prudence, a plaintiff
must allege (1) that the defendants were fiduciaries of the
plan; (2) that the defendants' acts or omissions amounted
to a breach of duty; and (3) that harm resulted from the
breach. Pegram v. Herdrich, 530 U.S. 211, 225-26
(2000). “An ERISA fiduciary must discharge his
responsibility ‘with the care, skill, prudence, and
diligence that a prudent person ‘acting in a like
capacity and familiar with such matters' would
use.” Tibble v. Edison Int'l, 135 S.Ct.
1823, 1828 (2015) (Tibble I) (quoting 29 U.S.C. §
1104(a)(1)(B)). A fiduciary must act “solely in the
interest of the participants and beneficiaries and . . . for
the exclusive purpose of providing benefits to participants
and their beneficiaries . . . .” 29 U.S.C. §
1104(a)(1)(A). The statute codifies the common law duties of
loyalty and prudence, and these duties are “the highest
known to the law.” SEC v. Capital Consultants,
LLC, 397 F.3d 733, 751 (9th Cir. 2005).
is measured according to the objective ‘prudent
person' standard developed in the common law of
trusts.” Whitfield v. Cohen, 682 F.Supp. 188,
194 (S.D.N.Y. 1988) (quoting Katsaros v. Cody, 744
F.2d 270, 279 (2d Cir. 1984)). A fiduciary has a continuing
duty to monitor investments and remove imprudent ones. Tibble
I, 135 S.Ct. at 1828-29. The test for whether a fiduciary has
violated the duty of prudence asks whether the fiduciary
employed appropriate methods for investigating the merits of
the investment and the investment structure, judged at the
time of the challenged transaction. Pfeil v. State Street
Bank & Tr. Co., 806 F.3d 377, 384 (6th Cir. 2015).
Focus should be placed on whether the fiduciary engaged in
reasonable decision-making consistent with a prudent person
acting in a similar capacity. Id.
Defendants do not dispute that they are fiduciaries of the
Plan, and Plaintiffs have alleged damages. Therefore, the
issue centers on the second prong of the test, and the Court
must ask whether Defendants' failure to purchase
institutional class ...