Court Opinion

ID: 9959461
Source: CourtListenerOpinion
Date Created: 2024-04-11 18:01:31.67688+00
Date Added: 2024-06-11T08:17:34.277642
License: Public Domain

Case: 23-10375      Document: 58-1     Page: 1    Date Filed: 04/11/2024

        United States Court of Appeals
             for the Fifth Circuit                                United States Court of Appeals
                                                                           Fifth Circuit

                            ____________                                 FILED
                                                                     April 11, 2024
                              No. 23-10375                          Lyle W. Cayce
                            ____________                                 Clerk

Amanda Perkins, Individually and on behalf of all others similarly
situated; Heather C. Holst, Individually and on behalf of all others
similarly situated; Terry J. Williams, Individually and on behalf of all
others similarly situated; Tanya C. Standifer, Individually and on
behalf of all others similarly situated; Karley Mayhill, Individually and
on behalf of all others similarly situated,

                                                    Plaintiffs—Appellants,

                                  versus

United Surgical Partners International, Inc.;
Retirement Plan Administration Committee of United
Surgical Partners International, Inc.; John Does 1-30,

                                        Defendants—Appellees.
               ______________________________

               Appeal from the United States District Court
                   for the Northern District of Texas
                         USDC No. 3:21-CV-973
               ______________________________
 Case: 23-10375          Document: 58-1          Page: 2      Date Filed: 04/11/2024

                                       No. 23-10375

Before Jones, Barksdale, and Elrod, Circuit Judges.
Edith H. Jones, Circuit Judge:*
        Plaintiffs Amanda Perkins, Heather Holst, Terry Williams, Tanya
Standifer, and Karley Mayhill participated in a defined contribution plan
established by their employer and governed by the Employee Retirement
Income Security Act (“ERISA”). The Plaintiffs allege their employer,
United Surgical Partners International, Inc. (“United”), together with the
committee United tasked with overseeing the plan’s administration,
mismanaged the plan’s investments and costs, in violation of ERISA. The
Plaintiffs sued United and the committee, but the district court dismissed the
Plaintiffs’ complaint pursuant to Federal Rule of Civil Procedure 12(b)(6),
having concluded the Plaintiffs’ allegations failed to support plausible duty
of prudence and duty to monitor claims. The Plaintiffs challenge the
dismissal in the wake of the Supreme Court’s decision in Hughes v.
Northwestern University, 595 U.S. 170, 142 S. Ct. 737 (2022). We agree with
the Plaintiffs and, accordingly, REVERSE the judgment of the district
court. In so doing, we express no opinion about the merits of the case.
                                 I. BACKGROUND
        The Plaintiffs participated in United’s 401(k) Plan (“Plan”). The
Plan was a defined contribution plan1 that United established to provide

        _____________________
        *
           Pursuant to 5th Circuit Rule 47.5, the court has determined that this opinion
should not be published and is not precedent except under the limited circumstances set
forth in 5th Circuit Rule 47.5.4.
        1
          ERISA defines a “defined contribution plan” as “a pension plan which provides
for an individual account for each participant and for benefits based solely upon the amount
contributed to the participant’s account, and any income, expenses, gains and losses, and
any forfeitures of accounts of other participants which may be allocated to such
participant’s account.” 29 U.S.C. § 1002(34).

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                                        No. 23-10375

retirement benefits to employees of the company.2 United appointed the
Retirement Plan Administration Committee of United Surgical Partners
(“Committee”) and tasked it with managing the Plan’s expenses and
ensuring that the Plan’s investments were appropriate.
        The Plaintiffs, suing for themselves and for others similarly situated,
allege that the Defendants mismanaged the Plan’s assets between April 30,
2015, and December 31, 2018 (“Class Period”), and, in so doing, violated
their fiduciary duties. Their Amended Complaint3 raises two claims against
the Defendants. In Count One, the Plaintiffs allege the Committee violated
the duty of prudence that is incumbent upon ERISA fiduciaries. The
Plaintiffs allege the Committee violated that duty in two ways. First, the
Committee implemented a flawed process for selecting the Plan’s
investment options. Second, the Committee failed to manage and mitigate
the Plan’s recordkeeping costs. Count Two alleges United violated its duty
to monitor the Committee’s administration of the Plan.
        The district court dismissed the Amended Complaint under
Rule 12(b)(6) with prejudice.             The district court concluded that the
Plaintiffs’ Count One allegations concerning the Committee’s flawed
process for selecting investment options were insufficient to support a
plausible duty of prudence claim because “the plaintiffs failed to provide the
necessary context by which the Court [could] infer imprudence.” The
district court reached a similar conclusion about the allegations concerning
high administrative fees, concluding that although the Plaintiffs “provided

        _____________________
        2
        In 2019, the Tenet Healthcare Corporation 401(k) Retirement Savings Plan
subsumed the Plan.
        3
          The district court dismissed the Plaintiffs’ Original Complaint without prejudice.
However, “[l]eave to amend [did] not extend to . . . [P]laintiffs’ request for injunctive relief
or to their claims against the Board of Directors [of United] or the [D]oe defendants.”

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facts about an allegedly high cost, . . . they did not show why those costs were
excessive in light of the services that the Plan offered.” (Emphasis in
original). The district court dismissed the Count Two duty to monitor claim
against United solely because the Amended Complaint failed to support a
plausible duty of prudence claim against the Committee.
        The Plaintiffs appealed.4
                                    II. DISCUSSION
        We review the district’s court’s order granting a Rule 12(b)(6) motion
to dismiss de novo and “accept[] all well-pleaded facts as true and view[]
those facts in the light most favorable to the plaintiffs.” Teeuwissen v. Hinds
County, 78 F.4th 166, 170 (5th Cir. 2023) (citation and quotations omitted).
The well-settled pleading standards articulated in Ashcroft v. Iqbal, 556 U.S.
662, 129 S. Ct. 1937 (2009), and Bell Atlantic Corp. v. Twombly, 550 U.S. 544,
127 S. Ct. 1955 (2007), apply to duty of prudence claims brought under
ERISA. See Hughes, 595 U.S. at 177, 142 S. Ct. at 742. To survive the
Defendants’ motion to dismiss, the Plaintiffs’ Amended Complaint “must
contain sufficient factual matter, accepted as true, to state a claim to relief
that is plausible on its face.” Iqbal, 556 U.S. at 678, 129 S. Ct. at 1949.
                                              A.
        ERISA fiduciaries are required to discharge their duties “solely in the
interest of the participants and beneficiaries and . . . with the care, skill,
prudence, and diligence under the circumstances then prevailing that a
        _____________________
        4
           The district court also dismissed the Plaintiffs’ request for injunctive relief under
Federal Rule of Civil Procedure 12(b)(1), given that the Plaintiffs “concede[d] they cannot
assert claims for injunctive relief because . . . the Plan no longer exists.” The district court
also concluded “the amended pleadings [were] sufficient to establish standing” for all the
Plaintiffs except Perkins and, therefore, dismissed Perkins’ claims. The Plaintiffs do not
challenge these decisions on appeal.

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                                  No. 23-10375

prudent man acting in a like capacity and familiar with such matters would
use in the conduct of an enterprise of a like character and with like aims.”
29 U.S.C. § 1104(a)(1)(B).     To determine the contours of this duty of
prudence, the Supreme Court looks to the common law of trusts. Tibble v.
Edison Int’l, 575 U.S. 523, 528–29, 135 S. Ct. 1823, 1828 (2015). Under that
regime, a fiduciary “normally has a continuing duty of some kind to monitor
investments and remove imprudent ones.” Id. at 530, 135 S. Ct. at 1828–29.
In the ERISA context, that means “[a] plaintiff may allege that a fiduciary
breached the duty of prudence by failing to properly monitor investments and
remove imprudent ones.” Id., 135 S. Ct. at 1829.
       The Plaintiffs’ duty of prudence claim against the Committee is two-
fold. First, the Plaintiffs claim the Committee implemented a flawed process
for selecting the Plan’s investment options. Second, the Plaintiffs allege the
Committee failed to monitor and mitigate the Plan’s recordkeeping costs.
1. Process for Selecting the Plan’s Investment Options
       The Plaintiffs allege the Committee’s failure to select the lowest-cost
shares for the Plan demonstrates a flawed process for selecting the Plan’s
investment options. At a minimum, the Plaintiffs contend that this allegation
supports a plausible duty of prudence claim.
       At the pleadings stage, this court must consider allegations that a
fiduciary “neglect[ed] to provide cheaper and otherwise identical alternative
investments . . . in light of the principles set forth in Tibble to determine
whether petitioners have stated a plausible claim for relief.”        Hughes,
595 U.S. at 176, 142 S. Ct. at 741.
       Broadly speaking, there are two classes of shares—retail (i.e.,
investor) and institutional. These shares are identical, but retail shares are
more expensive. Moreover, the funds in the Plan offered both types of shares
and, based on the size of the Plan and individual funds therein, the

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                                      No. 23-10375

Committee could have ensured that all shares the Plan offered were the
cheaper institutional shares. But the Committee failed to do that. In fact, as
of 2018, 83% of the funds (15 out of 18) in the Plan had not invested in the
lower-cost share class, and nine of these funds were not changed during the
Class Period.
        From these allegations, the Plaintiffs argue the court can reasonably
infer that the Committee was asleep at the wheel, and that by not replacing
the Plan’s retail shares with the cheaper and otherwise identical institutional
shares, the Committee breached its duty of prudence. Notably, at least six
circuit courts faced with similar share-class allegations have held that a duty
of prudence claim survives a Rule 12(b)(6) dismissal. See Hughes v. Nw.
Univ., 63 F.4th 615, 634–36 (7th Cir. 2023); Forman v. TriHealth, Inc.,
40 F.4th 443, 450–53 (6th Cir. 2022); Kong v. Trader Joe’s Co., No. 20-56415,
2022 WL 1125667, at *1 (9th Cir. Apr. 15, 2022); Sacerdote v. N.Y. Univ.,
9 F.4th 95, 107–10 (2d Cir. 2021); Davis v. Wash. Univ. in St. Louis, 960 F.3d
478, 483 (8th Cir. 2020); Sweda v. Univ. of Pa., 923 F.3d 320, 331–34 (3d Cir.
2019).5
        The Defendants do not dispute that retail shares and institutional
shares are identical in all ways except cost. Instead, the Defendants argue
that the Plaintiffs’ duty of prudence claim warrants dismissal because the
Plaintiffs failed to allege facts demonstrating the ways in which retail and
institutional shares are “identical.” But the Plaintiffs described the ways in
which retail and institutional shares are alike. The Amended Complaint
makes clear that these shares are identical in all ways except cost. The
Plaintiffs also allege that, regardless of the class of shares selected, the funds

        _____________________
        5
         The Defendants do not point to any contrary circuit court authorities, nor are we
aware of any.

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                                No. 23-10375

“hold identical investments and have the same manager.” As a result, the
more expensive retail shares cannot, from the Plaintiffs’ perspective, be
differentiated from the institutional shares by having “(1) a potential for
higher return, (2) lower financial risk, (3) more services offered, (4) or
greater management flexibility.”
       Next, the Defendants contend that the Plaintiffs’ duty of prudence
claim falls short because the “Plaintiffs offer no facts whatsoever rebutting
the obvious alternative explanation” for United’s decision to offer the more
expensive retail shares. (Citation and quotations omitted). That “obvious
alternative explanation,” according to United, is that retail shares permit
revenue sharing which, in turn, helps to defray and better allocate
recordkeeping costs. But defraying recordkeeping costs is not the only
plausible explanation for United’s decision to include retail shares. Indeed,
another plausible explanation is that the Committee included retail shares in
the Plan due to mismanagement. See Davis, 960 F.3d at 483. Moreover, the
Defendants’ argument that they “obviously” included retail shares in the
Plan to reduce recordkeeping costs is severely undercut by the Plaintiffs’
allegation that the Plan’s recordkeeping costs were significantly higher than
those of comparable plans. See Hughes, 63 F.4th at 635–36 (The “Plaintiffs’
version is especially plausible in light of their allegation that the [p]lans
collectively paid about four to five times as much in recordkeeping fees as
they should have.”).
       Finally, the Defendants assert that “the record . . . confirms that
United Surgical changed Plan investments frequently throughout the case
period, including at times changing share classes of its investments.” To be
sure, the Tenth Circuit held that dismissing a duty of prudence claim is
proper where the plaintiffs allege that the defendants improperly included
costlier shares, but there the documents the complaint referenced contradict
the allegation that the shares in the plan were more expensive. See Matney v.

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                                  No. 23-10375

Barrick Gold of N. Am., 80 F.4th 1136, 1149–52 (10th Cir. 2023). But here,
none of the documents referenced in the Amended Complaint appear to
contradict Plaintiffs’ claims or demonstrate that Defendants replaced a
substantial number of retail shares with institutional shares. Instead, the
Defendants point to one example in which they purportedly swapped share
classes. A single example does not refute other instances in which the
Defendants allegedly did not swap retail shares for less expensive institutional
shares.
       Because the Defendants’ failed to sufficiently refute the Plaintiffs’
allegations about pricier retail shares, we conclude that the Amended
Complaint sufficiently alleges a plausible breach of the duty of prudence.
2. Recordkeeping Costs
       The Plaintiffs also allege the Plan’s high recordkeeping costs raise a
plausible duty of prudence claim. “At the pleadings stage, plaintiffs [are]
required to plausibly allege that [the defendant’s] failure to obtain
comparable recordkeeping services at a substantially lesser rate was outside
the range of reasonable actions that the [defendant] could take as plan
fiduciary.” Hughes, 63 F.4th at 633 (applying Hughes, 595 U.S. at 177,
142 S. Ct. at 742). Thus, for this claim to survive dismissal, the Plaintiffs
must have “pleaded sufficient facts to render it plausible that [the
Committee] incurred unreasonable recordkeeping fees and failed to take
actions that would have reduced such fees.” Id. at 631.
       According to the Plaintiffs, a plan’s recordkeeping costs are
“primarily dependent upon the number of participant accounts in the plan
rather than the value of assets under management in the plan.” In general,
as the number of participants in a plan increases, the per-participant cost for
recordkeeping services decreases.       Because the Plan had over 15,000
participants in 2017 and 2018, it was “eligible for some of the lowest fees on

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the market.” Moreover, since at least the mid-2000s, fees for recordkeeping
services have generally “decreased steadily.”
        Other plans with a similar number of participants paid significantly
less for recordkeeping services that are similar to those which the Plan
received.6 In 2019, these plans’ participants ranged from 10,072 to 18,674,
and their individual record-keeping costs lay between $22 to $38. Similarly,
between 2015 and 2018, the Plan had as few as 11,855 and up to 16,605
participants. Yet on average, the Plan paid about $83 per participant for these
services, and specific amounts that ranged from $98.35 in 2018 down to
$71.28 in 2016. By this reckoning, the Plan’s participants paid significantly
more.
        Plaintiffs allege that the Defendants could have taken certain steps to
mitigate the Plan’s recordkeeping costs.7 But they did not do so. Faced with
similar allegations concerning recordkeeping costs, at least three other circuit
courts have declined to dismiss a duty of prudence claim. See Hughes,
63 F.4th at 630–34; Davis, 960 F.3d at 482–83; Sweda, 923 F.3d at 330–35.
        The Defendants do not dispute Plaintiffs’ data concerning the Plan’s
recordkeeping costs during the Class Period and the costs incurred by

        _____________________
        6
          According to codes in the Plan’s 2018 Form 5500, the Plan received participant
loan processing, recordkeeping and information management, and “recordkeeping fees”
services. The Plaintiffs note that the recordkeeping costs for comparator plans in the
Amended Complaint “do not necessarily include [fees for] participant loan processing.”
However, the “fees for those services are negligible.” Indeed, “loan processing is a service
that can be provided for next to nothing” and “many recordkeepers in recent years have
entirely waived any fees associated with loan processing.” Thus, the Plaintiffs conclude
that “[p]articipant loan processing fees alone cannot account for [the] discrepancy”
between the cost of the Plan’s recordkeeping services and those of comparator plans.
        7
         According to the Plaintiffs, there are steps that prudent fiduciaries take to
minimize recordkeeping costs, such as regularly soliciting competitive bids and following
Department of Labor guidelines for monitoring and scrutinizing recordkeeping costs.

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                                      No. 23-10375

comparable plans.          Instead, the Defendants contend, the Plaintiffs’
recordkeeping fee allegations failed to include “allegations about the specific
services rendered in exchange for fees.” Thus, the Plaintiffs have failed to
allege facts necessary to conduct a like-for-like comparison with other plans.
Accordingly, “no court can infer that [the Plan’s recordkeeping] fees were
‘unreasonable,’ let alone infer that permitting a plan to pay such a fee falls
beyond the ‘range of reasonable judgments’ fiduciaries may make.”
(Quoting Hughes, 595 U.S. at 177, 142 S. Ct. at 742). We disagree and
conclude Plaintiffs’ allegations about comparative costs and services are
sufficient to survive dismissal.
        The Defendants then rely on other circuit courts’ dismissals of duty
of prudence claims predicated on recordkeeping costs. But those cases are
distinguishable because the plaintiffs either compared recordkeeping costs
for their plan to industry-wide averages or failed to compare their plans with
similarly sized plans or did not offer a comparison between plans offering
similar recordkeeping services. See Matney, 80 F.4th at 1155–58; Matousek v.
MidAmerican Energy Co., 51 F.4th 274, 279–80 (8th Cir. 2022); Albert v.
Oshkosh Corp., 47 F.4th 570, 579–80 (7th Cir. 2022); Smith v. CommonSpirit
Health, 37 F.4th 1160, 1169 (6th Cir. 2022); White v. Chevron Corp., 752 F.
App’x 453, 455 (9th Cir. 2018). Here, although the Plaintiffs point to
industry-wide averages, they also compare the Plan’s recordkeeping costs
with the costs for similar recordkeeping services provided to a similar number
of plan participants.8

        _____________________
        8
          The Defendants also rely on Meiners v. Wells Fargo & Co., 898 F.3d 820 (8th Cir.
2018), to argue the Plaintiffs failed to provide a meaningful comparison between the Plan’s
recordkeeping costs and those of other plans. Meiners did not involve a duty of prudence
claim predicated on recordkeeping costs. See id. at 821. In Meiners, the Eighth Circuit
addressed sufficient benchmarks for comparing funds to support a claim that the

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        Because, in light of the Supreme Court’s decision in Hughes and
circuit court decisions addressing similar allegations, the Plaintiffs’
allegations support a plausible duty of prudence claim as to selection of
investment options and minimizing recordkeeping costs, the claim’s
dismissal must be reversed.
        The Plaintiffs’ allegations concerning the shares offered in the Plan
and the Plan’s recordkeeping costs are sufficient to support a plausible duty
of prudence claim.9 Therefore, we conclude the district court erred in
dismissing this claim at this early stage of the litigation.
                                              B.
        The district court dismissed the Plaintiffs’ Count Two duty to
monitor claim solely because it dismissed the duty of prudence claim.10 Since
that reasoning is no longer operative, the district court should decide in the
first instance whether the Plaintiffs’ duty to monitor claim satisfies Rule

        _____________________
defendants “breached their fiduciary duties when they failed to remove their inordinately
expensive and underperforming funds from the [p]lan’s options.” Id.
        9
           The Plaintiffs also made other allegations supporting their claim that the
Committee breached its duty of prudence. But because we conclude the allegations
concerning the classes of shares offered and recordkeeping costs support a plausible duty
of prudence claim, we need not address whether these other allegations also support a claim
for which relief can be granted. See FED. R. CIV. P. 8(d)(2) (“A party may set out 2 or
more statements of a claim or defense alternatively or hypothetically, either in a single
count or defense or in separate ones. If a party makes alternative statements, the pleading
is sufficient if any one of them is sufficient.” (emphasis added)); see also 5B C. Wright, A.
Miller & A. Benjamin Spencer, FEDERAL PRACTICE AND PROCEDURE § 1357 (4th ed.
2024) (“If . . . the court concludes that the complaint states any legally cognizable claim for
relief, the court must deny the motion to dismiss and permit the action to continue.”
(emphasis added)).
        10
           The district court cited Singh v. RadioShack Corp., 882 F.3d 137 (5th Cir. 2018),
in which we stated that “duty-to-monitor claims recognized by other courts inherently
require a breach of duty by the appointed fiduciary.” Id. at 150.

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12(b)(6). See Wilson v. Stroman, 33 F.4th 202, 213 (5th Cir. 2022) (refusing
to determine whether the plaintiffs sufficiently pleaded a Franks violation in
the first instance because “the district court is best suited to decide in the
first instance whether each plaintiff here has adequately alleged [this]
violation”).
                              CONCLUSION
       We REVERSE the district court’s order dismissing the Plaintiffs’
duty of prudence and duty to monitor claims (but do not disturb the rulings
noted in footnotes 3 and 4 supra) and REMAND for further proceedings in
accordance with this opinion.

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