Opinion ID: 4527833
Heading Depth: 2
Heading Rank: 2

Heading: all the wrongful acts alleged in marshall

Text: RELATE TO THOSE ALLEGED IN GRABEK In the duty-to-defend posture, our review is strictly textual: we look to the policies’ text and to each action’s complaint to figure out whether the Marshall Action relates to the Grabek Action. Our review confirms that each of the wrongful acts alleged in Marshall relates to a wrongful act alleged in Grabek. 14 A. The “four corners” rule narrows our review To decide whether an insurer owes a duty to defend, we apply the “four corners” rule (sometimes called the “eight corners” rule). Lupu v. Loan City, LLC, 903 F.3d 382, 389 (3d Cir. 2018); AES Corp. v. Steadfast Ins. Co., 725 S.E.2d 532, 535 (Va. 2012). That rule limits our review to allegations within the four corners of the operative complaints in the liability actions and the four corners of the insurance policies. AES Corp., 725 S.E.2d at 535. The parties agree that the four-corners rule applies. And the insurance policies confirm its applicability: each defines the term “Claim” by referring to a written document alleging wrongful behavior, like a civil complaint. Even so, Axis and National Union argue that various statements made by the litigants and the district judge in the Marshall and Grabek Actions bear on the relatedness of the claims. But those statements fall beyond the four corners of the complaints and the policies. So we will not consider them in deciding which insurer must defend the Marshall Action. Even if we did, these cherry-picked statements from a decade’s worth of litigation are hardly reliable indicators of relatedness. Thus, to decide whether the two actions allege related wrongful acts, we compare each of the complaints and the insurance policies. Because the Marshall complaint is narrower and more particularized, we consider whether its claims are a subset of Grabek’s. To do that, we focus on three factors rooted in the text of the allegations: what went wrong, who did it, and when. See Bay Cities Paving, 855 P.2d at 1274 (assessing relatedness by looking 15 to the nature of the injury, the identity of the actors, and the alleged wrongdoing). We address each factor in turn. B. Each of the wrongful acts alleged in Marshall relates to those alleged in Grabek Our review confirms that each of the Marshall Action’s three claims alleges wrongful acts that relate to those alleged in the Grabek Action. 1. The fee-capture claims are nearly identical. The Marshall Action’s fee-capture claim is nearly identical to the Grabek Action’s fee-capture claim. The Marshall complaint alleges that Northrop “hire[d] itself” to provide “administrative services,” without ensuring that its fees “were reasonable and that the quality of the services and the amount of the charges were equivalent to what an independent third party would charge.” App. 794–95. The class claimed that Northrop “did not put the[se] services . . . out for competitive bidding to determine the market rate for such services.” App. 796. So the defendants “allowed Northrop to receive Plan assets in the guise of compensation that was not reasonable or necessary for the administration of the Plan.” Id. The Grabek complaint similarly alleged that the plans’ fees were “excessive” because of: (1) “the high fees paid to Northrop for administrative services it provided”; (2) the defendants’ failure “to bring these administrative costs in line with market rates”; and (3) the fact that these services “could have been more effectively outsourced consistent with the practices of prudent fiduciaries.” App. 493–94. The text of the complaints reveals a clear logical and causal relationship between the two claims: both allege the same self-interested wrongdoing, through the same practices, causing the same harm. 16 2. The active-management claim relates to the excessive-fees claim. A close examination of Marshall’s active-management claim shows its roots in Grabek’s excessive-fees claim. The former alleges that Northrop mismanaged its Emerging Markets Equity Fund by continuing to retain an active investment manager. This decision, the class argued, caused two harms: the fund “underperformed lower-cost passively managed alternatives,” and it paid “$12 million [more] in unreasonable investment management fees compared to lower-cost passively managed alternatives.” App. 803–04. Both of these allegations relate causally and logically to Grabek’s excessive-fees claim. That claim alleged that Northrop generally overpaid third parties for plan-management services. Among those allegations, the Grabek class claimed specifically that several funds— including the same Emerging Markets Equity Fund—“charged excessive investment management fees,” yet still “failed to meet their stated performance objectives” by “fail[ing] to outperform . . . their relevant benchmarks.” App. 491–92. And the Grabek class accused Northrop of breaching its duty of care by “continu[ing] to hire and retain excessively expensive investment managers” even though “far less expensive passive management[ ] w[as] readily available.” App. 493. Once again, the text shows a causal and logical connection between the two claims: both complain that Northrop made poor fund-management decisions that led to increased fees and hampered fund performance. 3. The recordkeeping-fees claim is a type of excessive-fees claim. The closest call of the three is the recordkeeping-fees claim. Still, a careful review of each complaint reveals that Marshall’s recordkeeping-fees claim is a causal and logical subset of Grabek’s excessive-fees claim. 17 The crux of Marshall’s recordkeeping-fees claim is that Northrop overpaid a third party that provided recordkeeping services for one of its plans. The Marshall class alleged that the market for those services is “highly competitive” because “every” plan needs recordkeeping. App. 797. But, the class asserted, Northrop “pa[id] unreasonable administrative expenses to [that entity]” because it failed to “engage an independent third party to benchmark the reasonableness” of those fees and “failed to conduct a competitive bidding process” for those services in the relevant period. App. 799–800. The class also maintained that Northrop’s recordkeeping fees were unusual: they rose with the amount of assets under management when they should have dropped, on a percentage basis, as the number of plan participants increased. Those allegations relate to the Grabek Action’s excessive-fees claim, which alleged that Northrop’s third-party fees “were excessive and unreasonable when compared to the market rate[s] . . . [and] to known and readily available alternatives.” App. 491. It further alleged that Northrop’s external fees remained stubbornly high even though “[i]ndustry studies” showed that those fees should have “decline[d]” as a “percentage of assets . . . as asset size increase[d].” Id. Thus, a close review of the text reveals the causal and logical connections between the Marshall Action’s recordkeeping-fees claim and the Grabek Action’s excessive-fees claim. Both concern the same kind of wrongdoing: a failure to monitor and limit thirdparty fees prudently. 18 4. Axis’s counterargument misses the mark. Axis argues that the active-management and recordkeeping-fees claims are unrelated to any of the claims in the Grabek Action. This argument fails because it misconstrues the Grabek complaint’s scope. Axis argues that the Grabek complaint contains only the fee-capture claim (which it calls the “2000–2009 Excessive Fee Claim”) and the pay-for-play claim. Appellant’s Br. 10–11. It concedes that the two complaints allege common wrongdoing related to Northrop’s internal fees. But it argues that Marshall’s active-management and recordkeeping-fees claims are unrelated either to Northrop’s internal fees or to the pay-forplay claim. Thus, it maintains, these two claims are unrelated to any levied in the Grabek Action. To be sure, neither of Marshall’s duty-of-care claims relates to Grabek’s pay-for-play claim, which is a duty-of-loyalty claim. Still, this argument falls flat. It reads too narrowly the Grabek complaint’s allegations about Northrop’s failure to prudently control the internal and external fees that it charged the plans. Indeed, what Axis calls the “2000–2009 Excessive Fee Claim” is really two claims: the internal fee-capture claim and the external excessive-fees claim. Compare id., with App. 491 (alleging that the plans paid “excessive and unreasonable” fees both to Northrop and to third parties). Because Axis’s reading omits the portion of this claim that relates to third-party expenses, its counterargument falls short. In sum, each of the wrongful acts alleged in the Marshall Action relates—both causally and logically—to one of the wrongful acts alleged in the Grabek Action. 19 C. The parties in each action overlap substantially We next consider the commonality between the parties in the two actions. We find a considerable overlap for each. 1. The Marshall class is largely a subset of the Grabek class. We evaluate this subfactor on two axes: overlap in plans and overlap in time periods. Both show substantial commonality. First, the classes overlap in the plans to which they belonged. The Marshall class members were participants in one of the two retirement plans at issue in Grabek. So the two are logically related because the former is largely a subset of the latter. Second, the classes also overlap in time. Despite a sixteen-month gap between the two actions’ class periods, the District Court correctly found it “likely” that there was “a very large overlap between members of the [two] classes.” 2018 WL 5314918, at . True, it is likely that some number of Grabek class members were no longer plan participants when the Marshall Action was filed, and that some Marshall class members were not yet eligible to participate in a plan during the earlier Grabek class period. But the plans at issue are defined-benefit plans (also called 401(k) plans), which are vehicles for long-term financial savings. So it is likely that many participants kept their money invested the whole time. 2. The defendants overlap substantially too. We also evaluate this subfactor on two axes: the corporate defendants and the individual defendants. The overlap in the former overcomes the differences in the latter. For the corporate defendants, the overlap is complete: each class sued Northrop and its two committees responsible for plan management. For the individual defendants, it is true 20 that none is named in both actions. But the classes allege wrongdoing over more than a decade. And ERISA limits personal liability to the periods in which the defendant was a fiduciary. See 29 U.S.C. § 1109(b). So an exact match is unnecessary. In any case, the defendants’ names are less relevant than their official capacities. In both actions, each of the defendants served on one of the two committees at issue. So their official capacities overlap. In sum, there is a significant overlap between both the plaintiffs and the defendants in the two actions. That shows a logical relation between them. D. A common, continuing breach bridges the temporal gap between the actions Lastly, we consider the timing of the alleged wrongs. At first glance, this factor appears to cut against the actions’ relatedness because a sixteen-month gap separates their class periods. But when two actions concern a continuing breach, or a “single course of conduct,” this bridges the temporal gap between them. Cont’l Cas. Co., 205 F.3d at 1264. That is what happened here: as discussed, the Marshall Action concerns wrongful acts that began during the Grabek class period and whose causal and logical descendants continued into the Marshall class period. So this factor favors relatedness too. E. Axis must thus defend the Marshall Action In short, the “what,” “who,” and “when” of the Marshall and Grabek Actions overlap considerably. We thus conclude that under the 2016 policy’s prior-notice exclusion and the 2006 policy’s relation-back clause, the claims alleged in the Marshall Action are causally or logically related to those in the Grabek Action. So the duty to defend the Marshall Action shifts horizontally from the 2016 Tower to the 2006 Tower, and then vertically to 21 Axis’s excess tier. We will thus affirm the District Court’s judgment requiring Axis to defend the Marshall Action. In reaching this result, we need not decide which insurer would be on the hook if only a subset of the claims were related. Thus, we need not discuss any differences between the duty to defend and the duty to “advance defense costs.” See Appellant’s Br. 47–50; Reply Br. 15–18.