Khan v. PTC Inc.

UNITED STATES DISTRICT COURT

DISTRICT OF MASSACHUSETTS

)

KRISTAL M. KHAN, )

MICHELLE R. BALLINGER, )

and GEORGE A. CRAAN, )

individually and on behalf )

of all others similarly situated, )

)

Plaintiffs, )

)

v. ) CIVIL ACTION

) NO. 20-11710-WGY

)

PTC, INC., THE BOARD OF DIRECTORS )

OF PTC, INC., THE INVESTMENT )

COMMITTEE OF PTC, INC., and JOHN )

DOES 1-30, )

)

Defendants. )

)

YOUNG, D.J. April 20, 2021

MEMORANDUM & ORDER

I. INTRODUCTION

Kristal M. Khan, Michelle R. Ballinger, and George A. Craan

(collectively, the “Beneficiaries”) participated in PTC, Inc.’s

401(k) defined-contribution plan (the “Plan”). The

Beneficiaries bring this putative class action pursuant to 29

U.S.C. § 1132 on behalf of a proposed class of similarly

situated participants and beneficiaries, and on behalf of the

Plan itself, asserting breaches of fiduciary duty in violation

of the Employee Retirement Income Security Act (“ERISA”), 29

U.S.C. §§ 1001-1461. In count I, the Beneficiaries claim that

the Investment Committee of PTC, Inc. (the “Investment

Committee”) breached the fiduciary duties of prudence and

loyalty in violation of 29 U.S.C. § 1104(a). In count II, the

Beneficiaries claim that PTC, Inc. and the Board of Directors of

PTC, Inc. (the “Board of Directors”) failed adequately to

monitor the Investment Committee.

Pending before the Court is PTC’s motion to dismiss for

lack of subject-matter jurisdiction. For the reasons stated

below, the motion is DENIED.

A. Factual Allegations

PTC, Inc. is a Boston-based software company. Compl. ¶ 25,

ECF No. 1. PTC, Inc. sponsors the Plan, which “provides for

individual accounts for each participant and for benefits based

solely upon the amount contributed to those accounts, and any

income, expense, gains and losses, and any forfeitures of

accounts of the participants which may be allocated to such

participant’s account.” Id. ¶¶ 25, 42. During their employment

with PTC, Inc., the Beneficiaries “participated in the Plan[,]

investing in the options offered by the Plan and which are the

subject of this lawsuit.” Id. ¶¶ 18-20. The Plan has had more

than $450,000,000 in assets under management since September

2014, qualifying it “as a large plan in the defined contribution

plan marketplace, and among the largest plans in the United

States.” Id. ¶ 10.

According to the complaint, PTC, Inc. is both a “sponsor”

and a “named fiduciary” of the Plan. Id. ¶ 25. PTC, Inc.

allegedly “acted through” the Board of Directors “to perform

Plan-related fiduciary functions . . . .” Id. ¶ 28. These

functions allegedly “includ[ed] appointing and monitoring the

activities of the [Investment] Committee.” Id. ¶ 31. The

Investment Committee, in turn, “had discretionary authority to

select . . . [and] monitor Plan investments.” Id. ¶ 36. The

Beneficiaries then “select[ed] from several investment options,”

including “a common/collective trust, various mutual funds, and

a money market account.” Id. ¶ 51 (quotations omitted).

The Beneficiaries assert that during the proposed Class

Period, defined as September 17, 2014 through the date of

judgment, id. ¶ 1 n.2, PTC, Inc., the Investment Committee, the

Board of Directors, and John Does 1-30 (collectively, “PTC”)

failed to act in the Beneficiaries’ best interest, id. ¶¶ 1-14.1

Specifically, the Beneficiaries allege that PTC: (1) failed

“objectively and adequately [to] review the Plan’s investment

portfolio with due care to ensure that each investment option

was prudent, in terms of cost,” and (2) “maintain[ed] certain

funds in the Plan despite the availability of identical or

1 John Does 1-10 are unidentified members of the Board of

Directors, Compl. ¶ 34, John Does 11-20 are unidentified members

of the Investment Committee, id. ¶ 39, and John Does 21-30 are

other unidentified fiduciaries, id. ¶ 40.

similar investment options with lower costs and/or better

performance histories.” Id. ¶ 11. Based on this conduct, the

Beneficiaries seek to recover against the Investment Committee

for breach of the fiduciary duties of prudence and loyalty in

violation of 29 U.S.C. § 1104(a) (count I), id. ¶¶ 116-122, and

against PTC, Inc. and the Board of Directors for failure

adequately to monitor the Investment Committee (count II), id.

¶¶ 123-129.

B. Procedural History

The Beneficiaries filed a complaint against PTC in

September 2020. See generally id. In response, PTC moved to

dismiss for failure to state a claim, see generally Defs.’ Mot.

Dismiss Pls.’ Compl. Failure State Claim Upon Which Relief Can

Be Granted, ECF No. 10; Defs.’ Mem. Law Supp. Defs.’ Mot.

Dismiss Failure State Claim Upon Which Relief Can Be Granted,

ECF No. 14, and for lack of subject-matter jurisdiction, see

generally Defs.’ Mot. Dismiss Pls.’ Compl. Lack Subject-Matter

Jurisdiction Fed. R. Civ. P. 12(b)(1), ECF No. 11; Defs.’ Mem.

Law Supp. Defs.’ Mot. Dismiss Pursuant Fed. R. Civ. P. 12(b)(1)

(“Defs.’ 12(b)(1) Mem.”), ECF No. 15.

The Beneficiaries opposed each motion, see generally Pls.’

Mem. Law Opp’n Defs.’ Mot. Dismiss Pursuant Fed. R. Civ. P.

12(b)(1), ECF No. 21; Pls.’ Mem. Law Opp’n Defs.’ Mot. Dismiss

Failure State Claim Upon Which Relief Can Be Granted, ECF No.

22, and PTC filed replies in support of the motions, see

generally Defs.’ Reply Supp. Defs.’ Mot. Dismiss Pursuant Fed.

R. Civ. P. 12(b)(6), ECF No. 25; Defs.’ Reply Supp. Defs.’ Mot.

Dismiss Pursuant Fed. R. Civ. P. 12(b)(1), ECF No. 26.

The Court held oral argument on March 31, 2021. When

arguments concluded, this Court allowed in part and denied in

part PTC’s motion to dismiss for failure to state a claim, ECF

No. 10. See Elec. Clerk’s Notes, ECF No. 34. With respect to

PTC’s pending motion to dismiss for lack of subject-matter

jurisdiction, ECF No. 11, this memorandum addresses only those

issues of law as to which the First Circuit has not yet spoken

and elucidates this Court’s reasoning.

II. ANALYSIS

PTC’s primary argument in support of its motion to dismiss

for lack of subject-matter jurisdiction is that the

Beneficiaries lack Article III standing because they fail

adequately to plead injury and redressability stemming from

PTC’s alleged mismanagement of the specific funds in which they

invested.2 Defs.’ 12(b)(1) Mem. 3-6. The Beneficiaries respond

2 The Court rejects PTC’s other argument -- that the

Beneficiaries “executed broad releases that prohibit them from

pursuing the ERISA claims they attempt to assert here,” Defs.’

12(b)(1) Mem. 2 -- as premature. See Fed. R. Civ. P. 8(c)(1);

Citibank Glob. Markets, Inc. v. Rodríguez Santana, 573 F.3d 17,

23 (1st Cir. 2009); Bendaoud v. Hodgson, 578 F. Supp. 2d 257,

280 (D. Mass. 2008) (Gertner, J.).

that because they alleged that “they invested in Plan

investments which are the subject of this lawsuit,” they have

Article III standing to bring this action on behalf of the Plan.

Pls.’ Mem. Law Opp’n Defs.’ Mot. Dismiss Pursuant Fed. R. Civ.

P. 12(b)(1) 2 (citing Compl. ¶¶ 18-20). This Court agrees with

the Beneficiaries.

“To establish standing under Article III of the

Constitution, a plaintiff must demonstrate (1) that he or she

suffered an injury in fact that is concrete, particularized, and

actual or imminent, (2) that the injury was caused by the

defendant, and (3) that the injury would likely be redressed by

the requested judicial relief.” Thole v. U.S. Bank N.A., 140 S.

Ct. 1615, 1618 (2020) (citing Lujan v. Defs. of Wildlife, 504

U.S. 555, 560–61 (1992)). At issue here are the first and third

requirements: injury in fact and redressability, respectively.

See Defs.’ 12(b)(1) Mem. 4-6.

A. Injury in Fact

First, with respect to injury in fact, “[a]lthough in

certain types of matters[] courts have found that a plaintiff

cannot suffer an injury from an investment that he or she did

not purchase, ‘courts have declined to apply the above bright-

line rule when addressing ERISA claims for breach of fiduciary

duties.’” Hay v. Gucci Am., Inc., Civil Action No.: 17-cv-

07148, 2018 WL 4815558, at *4 (D.N.J. Oct. 3, 2018) (quoting

Urakhchin v. Allianz Asset Mgmt. of Am., L.P., Case No. SACV 15-

1614-JLS (JCGx), 2016 WL 4507117, at *4 (C.D. Cal. Aug. 5, 2016)

(collecting cases)). “Rather, courts look to the nature of the

claims and allegations to determine whether the pleaded injury

relates to the defendants’ management of the Plan as a whole.”

Urakhchin, 2016 WL 4507117, at *4.

Against this backdrop, most courts hold that “plaintiffs

need not prove individualized damages in an ERISA class action

case; rather, an injury to the Plan[] suffices.” Sacerdote v.

N.Y. Univ., 16-cv-6284 (KBF), 2018 WL 840364, at *7 (S.D.N.Y.

Feb. 13, 2018); see Cunningham v. Cornell Univ., 16-cv-6525

(PKC), 2019 WL 275827, at *3 (S.D.N.Y. Jan. 22, 2019) (stating

that “[p]laintiffs do not need to make a showing of investment

in each fund to demonstrate standing” in 29 U.S.C. § 1132(a)(2)

action brought on behalf of defined-contribution plan). But see

Patterson v. Morgan Stanley, No. 16-cv-6568 (RJS), 2019 WL

4934834, at *5 (S.D.N.Y. Oct. 7, 2019) (“Losses incurred by

funds in which Plaintiffs did not invest cannot have impaired

the value of Plaintiffs’ individual accounts. Therefore,

Plaintiffs have not been injured as to those funds.” (internal

citation omitted)); Wilcox v. Georgetown Univ., Civil Action No.

18-422 (RMC), 2019 WL 132281, at *9 (D.D.C. Jan. 8, 2019)

(holding that plaintiffs lacked standing to advance ERISA claims

based “an investment option neither Plaintiff selected”).3

Specifically, the injury in fact stems from the “alleged

foregone opportunities from funds that were not included and the

alleged reduction in choice that resulted.” Sacerdote, 2018 WL

840364, at *7 (citing Ross v. Bank of Am., N.A., 524 F.3d 217,

223 (2d Cir. 2008) (ruling that antitrust plaintiffs had pled an

injury in fact by alleging that “reduced choice and diminished

quality result[ed] directly from the defendants’ illegal

collusion to constrict the options available” (brackets and

ellipsis omitted))); see Urakhchin, 2016 WL 4507117, at *4

(ruling that plaintiffs in ERISA breach of fiduciary duty action

brought on behalf of defined-contribution plan had pled an

injury in fact by alleging that they “were unable to select low-

cost options when investing in the Plan,” an “injury rooted in

3 Less than a year after Patterson v. Morgan Stanley issued,

another session of that court recognized that “Patterson is an

outlier; the majority of courts considering similar cases both

in this district and elsewhere are consistent with Leber [v.

Citigroup 401(k) Plan Investment Committee, 323 F.R.D. 145

(S.D.N.Y. 2017)].” Falberg v. Goldman Sachs Grp., Inc., 19 Civ.

9910 (ER), 2020 WL 3893285, at *8 (S.D.N.Y. July 9, 2020).

Leber held that “plaintiffs do not need to point to

individualized injuries with respect to each Plan investment in

order to establish constitutional standing in a derivative suit

brought pursuant to 29 U.S.C. § 1132(a)(2).” 323 F.R.D. at 155.

Wilcox v. Georgetown University is similarly at odds with the

weight of authority.

Defendants’ conduct in managing all the funds as a group”

(brackets, ellipsis, and quotations omitted)).

Here, the Beneficiaries plead that while acting in a

fiduciary capacity, Compl. ¶¶ 61-71, PTC failed to investigate

and select lower-cost alternative funds, id. ¶¶ 72-80, failed to

utilize lower-cost share classes, id. ¶¶ 81-90, failed to

utilize lower-cost passively managed and actively managed funds,

id. ¶¶ 91-99, and failed to monitor and control the Plan’s

recordkeeping expenses, id. ¶¶ 100-115. Consequently, the Plan

allegedly “suffered millions of dollars of losses due to

excessive costs and lower net investment returns.” Id. ¶ 120.

These allegations are sufficient to plead that the Plan suffered

an injury in fact and, under the majority approach limned above,

to permit the Beneficiaries to pursue their claims on behalf of

the Plan pursuant to 29 U.S.C. § 1132(a)(2).

B. Redressability

Second, PTC contends that the Beneficiaries cannot

demonstrate redressability in light of the Supreme Court’s

recent decision in Thole v. U.S. Bank N.A., 140 S. Ct. 1615,

1618 (2020). Defs.’ 12(b)(1) Mem. 5-6. Specifically, according

to PTC, if the Beneficiaries “were to win this lawsuit, any

recovery would inure to those accounts that held the investment

options on which they prevailed, and if they were to lose this

lawsuit, it would have no bearing on [the Beneficiaries’]

benefits.” Id. 5 (citing Thole, 140 S. Ct. at 1622).

This Court is unconvinced. As an initial matter, Thole

concerned the injury-in-fact requirement of Article III

standing, not the redressability requirement. See generally 140

S. Ct. 1615 (mentioning redressability only once in the majority

opinion, when stating the three requirements of Article III

standing). Moreover, to the extent that Thole could be read to

concern redressability, it supports the Beneficiaries’ position.

In Thole, the Supreme Court recognized that in ERISA actions,

the type of plan is “[o]f decisive importance” to the Article

III standing inquiry. Id. at 1618. “In a defined-benefit plan,

retirees receive a fixed payment each month, and the payments do

not fluctuate with the value of the plan or because of the plan

fiduciaries’ good or bad investment decisions.” Id. “By

contrast, in a defined-contribution plan, such as a 401(k) plan,

the retirees’ benefits are typically tied to the value of their

accounts, and the benefits can turn on the plan fiduciaries’

particular investment decisions.” Id. In that “private trust

context, the value of the trust property and the ultimate amount

of money received by the beneficiaries will typically depend on

how well the trust is managed, so every penny of gain or loss is

at the beneficiaries’ risk.” Id. at 1619. Accordingly,

defined-contribution plan participants properly may plead a

redressable injury to the Plan based on alleged plan

mismanagement. See id. at 1618-19; Boley v. Universal Health

Servs., Inc., Civil Action No. 20-2644, 2020 WL 6381395, at *2-6

(E.D. Pa. Oct. 30, 2020) (rejecting argument that plaintiffs

lacked Article III standing to bring 29 U.S.C. § 1132(a)(2)

claims on behalf of defined-contribution plan under Thole);

Parmer v. Land O’Lakes, Inc., Civil No. 20-1253(DSD/HB), 2021 WL

464382, at *3-4 (D. Minn. Feb. 9, 2021) (same). Recovery for

that redressable injury would inure to the benefit of the plan,

and thereafter the plan’s fiduciaries would reallocate the

recovery “to the individual accounts injured by the breach.”

Evans v. Akers, 534 F.3d 65, 74 (1st Cir. 2008). Thus an

“allegation of fiduciary mismanagement, which at this stage in

the proceedings we assume to be true, identifies a concrete

injury that is redressable by a court and falls within the scope

of Article III standing.” See id. at 75.

Here, seeking “to restore to the Plan all losses caused by”

PTC’s alleged mismanagement, Compl. ¶¶ 121, 129, the

Beneficiaries bring this action on behalf of the defined-

contribution Plan, id. ¶¶ 11-14, 25, 42, 121, 129. Under Thole,

the Beneficiaries’ allegations suffice to plead a redressable

injury to the Plan. See Parmer, 2021 WL 464382, at *3-4; Boley,

2020 WL 6381395, at *2-6. Recovery would inure to the Plan

generally, not just to the “accounts that held the investment

options on which the[] [Beneficiaries] prevail[],” Defs.’

12(b)(1) Mem. 5, though the Plan’s beneficiaries would later

reallocate that recovery “to the individual accounts injured by

the breach,” Evans, 534 F.3d at 74. That sequence of events

nevertheless identifies a redressable injury to the Plan. See

id. at 75.

III. CONCLUSION

For the foregoing reasons, PTC’s motion to dismiss for lack

of subject-matter jurisdiction, ECF No. 11, is DENIED.

SO ORDERED.

/s/ William G. Young

WILLIAM G. YOUNG

DISTRICT JUDGE