A New York federal court recently denied former hospital employees’ request for leave to file a Third Amended Complaint (“TAC”) after dismissing their Second Amended Complaint (“SAC”) for lack of standing and failure to state a claim.  Boyette v. Montefiore Medical Ctr., No. 22-cv-5280 (JGK), 2024 U.S. Dist. LEXIS 63150, at *1 (S.D.N.Y. Apr. 5, 2024). The court reasoned that the proposed amended complaint contained “substantively the same defects” as its predecessor.   

Former Montefiore employees challenged the healthcare center’s management of its 403(b) retirement plan, alleging that plan fiduciaries (1) selected underperforming funds charging excessive management fees; (2) failed to offer the least expensive share classes of funds; and (3) failed to control the plan’s recordkeeping costs.  The court found that Plaintiffs lacked standing and factual support for their claims and dismissed the SAC without prejudice.  Boyette v. Montefiore Med. Ctr., No. 22-cv-5280 (JGK), 2023 U.S. Dist. LEXIS 203442, at *3 (S.D.N.Y. Nov. 13, 2023).

Standing 

First, the court found that Plaintiffs lacked standing to assert recordkeeping claims because they failed to allege they had personally paid excessive recordkeeping fees.  Not all participants in the Montefiore plan paid the same fees because the plan employed an asset-based fee schedule under which recordkeeping fees were charged as a percentage of each participant’s account balance.  Plaintiffs asserted that plan fiduciaries could have negotiated a reasonable recordkeeping fee in the mid-$20 range per participant, but neither of the Named Plaintiffs claimed they personally paid more than this “reasonable” fee.  The court held that because Plaintiffs failed to allege they personally paid unreasonable fees, they had not pleaded any individualized harm and thus lacked standing to bring their claims.

The court found that Plaintiffs lacked standing to bring their investment claims for the same reason.  Because Plaintiffs failed to allege they invested in any of the challenged funds, they had not pleaded individualized harm associated with the funds’ performance, management fees, or higher cost share classes.

Failure to State a Claim

The court then turned to the adequacy of the complaint and found additional grounds to dismiss each claim. 

Relying on its own decision in Singh v. Deloitte LLP, 650 F. Supp. 3d 259 (S.D.N.Y. 2023), the court held that Plaintiffs failed to plausibly allege the Montefiore plan’s recordkeeping fees were excessive “relative to the services rendered.”  The court explained that Plaintiffs’ assertion that all recordkeepers offer the same range of services was no substitute for specific factual allegations.

The court similarly disposed of Plaintiffs’ share class claim, finding that Plaintiffs’ assertion that “[t]here is no good-faith explanation for utilizing high-cost share classes” was undermined by public filings explaining the Montefiore plan’s use of revenue sharing from these investments to offset its expenses.

Finally, the court dismissed Plaintiffs’ investment selection claims because Plaintiffs provided no grounds to infer that the information concerning the funds’ alleged underperformance was available to the fiduciaries at the beginning of the Class Period.

Request for Leave to Amend Denied

Dropping the investment and share class claims, Plaintiffs sought leave to file the TAC to save their recordkeeping claim by alleging a Named Plaintiff paid recordkeeping fees in excess of the “reasonable” range.  But the court held that amending would be futile because Plaintiffs failed to specifically allege the recordkeeping services received by the Montefiore plan and its purported comparators, thereby failing to plead that the Montefiore plan’s fees were unreasonable. 

Takeaways

The initial Boyette decision serves as a reminder for all defendants to scrutinize the standing of Named Plaintiffs in ERISA actions.  And both Boyette decisions swell the ranks of court rulings dismissing claims for breach of fiduciary duty related to recordkeeping fees without specific factual allegations of recordkeeping services.