# Brown v. Daikin America, Inc.

> District Court, S.D. New York · May 4, 2021

URL: https://www.frixlaw.com/law-library/cases/10331878

## Case

- **Court:** District Court, S.D. New York
- **Decided:** May 4, 2021
- **Opinion:** 100trialcourt
- **Cited by:** 0 later opinions in the Frix Law Library

## Citator (automated)

- No negative treatment found by the automated citator. That is not the same as a confirmation that the case is good law; read the citing cases.
- Full citator and citing cases: https://www.frixlaw.com/law-library/cases/10331878

## How later opinions describe it (automated extraction)

- concluding there was a breach of the duty of loyalty, under ERISA, where fiduciary “awarded himself a series of salary raises” without required authorization
- observing that the purpose of these provisions is “protect the entire plan, rather than the rights of an individual beneficiary”
- stating that an investment does not become imprudent because of a significant “downward trend” in price

## Opinion text

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
ene nee een nena nee □□□ eee
JUSTIN BROWN and TELISA :
LIPSCOMB, individually and on behalf of all :
others similarly situated, :
Plaintiffs, 18-cv-11091 (PAC)
-against- : OPINION & ORDER
DAIKIN AMERICA, INC.; ‘
BETH DONALDS; PAUL GREER; :
DONNA JOHNSTON; KASUHITO :
KITSUHIKO; MIKE LADD; and :
LISA WILL, :
Defendants. :
gnanannmenene nen cena □□□□□□□□□□□□□□□□□□□□□□□□□□□ Ke
Plaintiffs Justin Brown and Telisa Lipscomb (collectively, “Plaintiffs”), individually
on behalf of a class of participants in the Daikin America, Inc. 401(k) Savings and Retirement
Plan, bring this putative class action lawsuit against Daikin America, Inc, and a group of
individual fiduciaries (collectively, “Daikin”). Plaintiffs allege that Daikin breached its fiduciary
duties under the Employee Retirement Income Security Act “ERISA”), 29 U.S.C. 1001 et seq.,
by mismanaging the Plan’s investment portfolio with respect to participants’ 401(k) accounts.
Daikin moves to dismiss Plaintiffs’ First Amended Complaint pursuant to Rules 12(b)(1)
and 12(b)(6) of the Federal Rules of Civil Procedure. For the reasons set forth below, the motion
is GRANTED.

BACKGROUND
I. Factual Background
The following facts are drawn from the First Amended Complaint and assumed true for
purposes of this motion.' Daikin is a corporation with its principal place of business in the
Southern District of New York. (Amend. Compl. 3, ECF 52.) Since November 2018, or the
Class Period,” Daikin has offered its employees and certain affiliates the opportunity to
participate in the Daikin America, Inc. 401(k) Savings and Retirement Plan. (Id. at JJ 5, 19.)
Plaintiffs are Alabama residents who participated in the Plan at different points during the Class
Period. (/d. at J] 7, 8.)
The Plan is a defined contribution employee benefit plan that provides enrollees an
opportunity to save for retirement.? (Id. at { 2.) Under the Plan, participants may elect to
contribute a portion of their pre-tax compensation to their 401(k) retirement accounts and Daikin,
in turn, matches a percentage of those contributions. (See Exhibit 1, at 12-13, ECF 42-1; Exhibit
2, ECF 42-2.) To help implement the Plan, Daikin engaged John Hancock Trust Company, LLC
to act as the Plan’s trustee. (Amend. Compl. { 6.) In that fiduciary role, John Hancock provided
administrative services, including recordkeeping and investment platform services. (d.)
The central dispute in this case arises from Daikin’s management of the Plan during the

1 On this motion to dismiss, the Court may consider documents that are attached as exhibits,
incorporated by reference, or integral to the complaint. See Chambers v. Time Warner, Inc., 282
F.3d 147, 153 (2d Cir. 2002).
* The First Amended Complaint defines the Class Period as “November 28, 2012 through the
date of judgment,” and the Class as those who participated in the Plan during the Class Period,
with the exception of specific categories of persons. (Amend. Compl. { 197, ECF 52.)
3 “As of December 31, 2017, the Plan had more than $120 million in assets and 590 participants
with account balances.” (Amend. Compl. { 2.)

Class Period. Annually, Plan participants were given the choice to select from a preselected
menu of investment funds to invest in using their respective 401(k) accounts. (Amend. Compl.
24-25, 50.) Daikin was responsible for selecting the Plan’s investment offerings. (/d. at {
25.) Although the precise number of investment options offered to Plan participants in any given
year is not clear from the First Amended Complaint, investment offerings were fluid and neared
30 different selections “at any one time during the Class Period.” (Ud. at 49.) In addition, the
Plan’s offerings covered the major asset classes, including domestic equities, bonds, international
equities, balanced investments, and a stable value fund, as well as both actively and passively □
managed funds. (/d.) Notably, however, only a “handful” of these investment selections were
“index funds.” (d.)
The Plan incurred two kinds of expenses on participants: administrative expenses and
investment management fees. Administrative expenses are the costs of compensating the
“custodian, recordkeeper, insurance provider, and other vendors that provided administrative
services to the Plan.” (Amend. Compl. J 27.) Investment management fees, or more
colloquially referred to as a fund’s “expense ratio,” are the management fees paid to the
particular investment fund included in the Plan (d. at 26.) As the Plan’s fiduciary, Daikin was
responsible for considering both kinds of expenses in selecting investment options for the Pian.
Ud. at Jf 27, 28.)
IL. The First Amended Complaint
This class action lawsuit was initially filed on November 28, 2018, (ECF 2.) On
February 26, 2020, the Plaintiffs amended their original complaint. (ECF 52.) The First
Amended Complaint sets forth two legal claims under ERISA.
Count One of the First Amended Complaint alleges that Daikin breached its fiduciary

duties by failing to prudently select and monitor the Plan’s investment options during the Class
Period, (Amend. Compl. {| 206.) In particular, Plaintiffs’ breach of fiduciary duty claims focus
on five investment funds (“MainStay Funds”) that were managed by John Hancock:
(1) MainStay S&P 500 Index Fund;
□ (2) MainStay Large Cap Growth Fund R2;
e (3) MainStay ICAP Select Equity Fund J;
e (4) MainStay MAP Fund [; and
e (5) MainStay Balanced Fund I.
(id, at Ff 73~134.)
During the Class Period, Plaintiffs personally invested in two of the five MainStay Funds:
(1) the MainStay S&P 500 Index Fund and (2) the MainStay Large Cap Growth Fund R2. (Id. at
7-8.) In total, the Plaintiffs invested in six different investment options offered by the Plan.
Count Two of the First Amended Complaint alleges a disclosure injury under ERISA.
(id. at J 217.) In July 2018, the Plaintiffs requested the disclosure of certain Plan documents
from Daikin in preparation for this lawsuit. (Id. at § 220.) Plaintiffs allege, however, that Daikin
did not fully comply with their disclosure request within the 30-day timeframe as required under
ERISA. (/d. at Jf 221, 223.) Consequently, they contend that this delay entitles them to
monetary damages.
HI. Motion to Dismiss
Daikin now moves to dismiss the First Amended Complaint pursuant to Rules 12(b)(1)
and 12(b)(6) of the Federal Rules of Civil Procedure. (ECF 40.) In support of its motion, Daikin
argues that Plaintiffs lack Article III standing to bring this case because they did not personally
invest in each of the funds complained of in the First Amended Complaint. Alternatively, Daikin

contends that it did not breach its fiduciary duties under ERISA while managing the Plan, and
hence, that the case must be dismissed under Rule 12(b)(6).
LEGAL STANDARD
L Rule 12(b)(1}
On a motion to dismiss pursuant to Rule 12(b)(1) of the Federal Rules of Civil Procedure,
the party seeking to invoke the Court’s jurisdiction bears the burden of proving that subject
matter jurisdiction exists. Robinson vy. Overseas Military Sales Corp., 21 F.3d 502, 507 (2d Cur.
1994). “A case is properly dismissed for lack of subject matter jurisdiction under Rule 12(b)(1)

when the district court lacks the statutory or constitutional power to adjudicate it.” Makarova v.
United States, 201 F.3d 110, 113 (2d Cir. 2000). In deciding a Rule 12(b)(1) motion, the district
court “may refer to evidence outside the pleadings.” Id. It is incumbent, however, on the
plaintiff to prove subject matter jurisdiction exists by a “preponderance of the evidence”
standard. Id.; see also Malik v. Meissner, 82 F.3d 560, 562 (2d Cir. 1996).
I. Rule 12(b)(6)
To survive a motion to dismiss pursuant to Rule 12(b)(6), “a complaint must contain
sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face.”
Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544,
570 (2007)) (cleaned up). A claim is facially 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.” Id. “Threadbare recitals of the elements of a cause of action, supported by
mere conclusory statements, do not suffice.” Id.
When considering a Rule 12(b)(6) motion, the district court accepts as true all of the
factual allegations contained in the complaint and draws all reasonable inferences in the

plaintiff’s favor. ATS! Comme’ns, Inc. v. Shaar Fund, Ltd., 493 F.3d 87, 98 (2d Cir. 2007). That
tenet, however, “is inapplicable to legal conclusions.” Jgbal, 556 U.S. at 678. Accordingly, a
pleading that offers only “labels and conclusions” or “a formulaic recitation of the elements of a
cause of action will not do.” Twombly, 550 U.S. at 555.
ANALYSIS
I. Article HI Standing
As an initial matter, Daikin contends that the Plaintiffs have not demonstrated Article III
standing to raise claims against the Plan’s investment options that they did not personally invest
in during the Class Period, (Daikin Mem. at 9, ECF 41.) As noted above, Plaintiffs had
personally invested in six investment offerings during the Class Period, and in two of the five
MainStay Funds specifically alleged to be deficient in the First Amended Complaint. (/d. at 10.)
So because they did not have a personal stake in each of the funds that their lawsuit complains
about, Daikin argues that the Plaintiffs lack Article III standing with respect to those investment
funds. (/d.)
Article If standing is an indispensable feature of our separation of powers structure and
“the irreducible constitutional minimum” that must be satisfied before a case can pass through
the front gates of federal court. Schlesinger v. Reservists Comm., 418 U.S. 208, 220-21 (1974).
“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); McMorris
v. Carlos Lopez & Assocs., LLC, No. 19-4310 (2d Cir. April 26, 2021). Moreover, in the context
of a class action lawsuit, plaintiffs must also establish “class standing”—that is, standing to

litigate the claims of the absent class. See NECA-IBEW Health & Welfare Fund v. Goldman
Sachs & Co., 693 F.3d 145, 162 (2d Cir, 2012).
The standing question presented before the Court thus is two-fold: (1) whether Plaintiffs,
themselves, have demonstrated Article III standing in the instant case; and (2) whether Plaintiffs
have demonstrated class action standing to litigate the claims of absent class members. Jd. The
Court will address each issue im turn.
Plaintiffs’ Individual Standing. Daikin’s argument with respect to Article III standing is
that the Plaintiffs did not suffer any injuries in the particular funds that they had never personally
invested in, and thus, for standing purposes, their injuries are not sufficiently “concrete” and
“narticularized.” This line of reasoning, however, misconceives the nature of this lawsuit. The
nature of this lawsuit is derivative, not personal: the Plaintiffs bring their breach of fiduciary
duty claims pursuant to Sections 1109(a)* and 1132(a)(2)° of ERISA, which do not call for
“individual relief, but instead [are claims] brought in a representative capacity on behalf of the
plan.” Head Start Child Dev. Servs., Inc. v. Econ, Opportunity Comm'n of Nassau Cty., Inc.,

4 Section 1109(a) provides:
Any person who is a fiduciary with respect to a plan who breaches any of the
responsibilities, obligations, or duties imposed upon fiduciaries by this subchapter shail
be personally liable to make good to such plan any losses to the plan resulting from
each such breach, and to restore to such plan any profits of such fiduciary which have
been made through use of assets of the plan by the fiduciary, and shall be subject to
such other equitable or remedial relief as the court may deem appropriate, including
removal of such fiduciary. A fiduciary may also be removed for a violation of section
1111 of this title.
29 U.S.C. § 1109(a).
5 Section 1132(a)(2) confers civil enforcement standing on “the Secretary, or by a participant,
beneficiary or fiduciary for appropriate relief under section 1109 of this title[.]” 29 U.S.C. §
1132(a)¢2).

710 F.3d 57, 65 (2d Cir. 2013) (cleaned up); see also LaRue v. De Wolff, 552 U.S. 248, 251-52
(2008) (observing that the purpose of these provisions is “protect the entire plan, rather than the
rights of an individual beneficiary”). Accordingly, the Plaintiffs sue not only to recover their
individual losses but to also vindicate the collective injuries suffered by the Plan and its
participants. L.f. Head Start, 710 F.3d at 65. And ERISA permits them to do this—to step into
the shoes of Plan attorney general—so long as they can demonstrate that they are “within the

zone of interests ERISA was intended to protect.” /d. (quoting Mullins v. Pfizer, Inc., 23 F.3d
663, 668 (2d Cir. 1994).
Here, Plaintiffs have satisfied this test. As past participants in the Plan, Plaintiffs’
interests are within the zone of interests that “ERISA was intended to protect.” See 29 U.S.C. §
1132(a)(2) (authorizing civil enforcement by a retirement plan participant under ERISA’s
liability provisions); LI. Head Start, 710 F.3d at 66; see Slupinski v. First Unum life Ins. Co.,
554 F.3d 38, 47 (2d Cir. 2009) (“The central purpose of ERISA is to protect beneficiaries of
employee benefit plans[.]”). Derivative standing to sue on behalf of the Plan has unlocked the
door to federal court.
Daikin’s remaining argument with respect to Article III standing fails as a matter of law.
Anticipating that derivative standing may exist, Daikin contends that the Plaintiffs’ alleged
injuries do not actually affect the Plan as a whole, but instead, are personal injuries that abrogate
the derivative nature of this lawsuit. (Daikin Mem. at 11, n. 4.) Even if this premise were true,
however, it is still of no moment. The Supreme Court has held that derivative suits under
Section 1132(a)(2) “authorize recovery for fiduciary breaches that impair the value of plan assets
in a participant’s individual account.” LaRue, 552 U.S. at 256. In other words, LaRue instructs
that a plaintiffs individual recovery is not mutually exclusive with plan-wide relief under

Section 1132(a)(2). id. (“We therefore hold that although [§ 1132(a)(2)] does not provide a
remedy for individual injuries distinct from plan injuries, that provision does authorize recovery
for fiduciary breaches that impair the value of plan assets in a participant’s individual account.”).
So here, the mere fact that the Plaintiffs stand to recover in their individual capacities as
investors in the Plan, without more, does not abrogate the derivative nature of their lawsuit. See
id.
Moreover, the existence of personal injuries on the part of the Plaintiffs is, in fact, a

necessary requirement for Article III standing under the Supreme Court’s recent decision in
Thole vy. U. S. Bank N.A, 140 S. Ct. 1615 (2020). In Thole, the Supreme Court held that
beneficiaries of a defined-benefit retirement plan who “receive a fixed payment each month” and
whose “payments do not fluctuate with the value of the plan or because of the plan fiduciaries’
good or bad investment decisions” lacked Article III standing to bring breach of fiduciary duty
claims under ERISA. See id. at 1618. The Court reached this conclusion after finding a lack of
concrete injuries suffered by the plaintiffs, whose monthly retirement benefits would remain
fixed regardless of the plan fiduciary’s investment decisions. See id. at 1619. And in doing so,
the Court explained that there “is no ERISA exception to Article III” and therefore, a concrete
and personalized injury must be alleged in order to bring suit under ERISA.® See id. at 1622.
Here, that requirement has been satisfied because the Plaintiffs personally invested in several of
the Plan’s investment funds that they now claim were imprudently selected. Thus, under Thole,

6 To be sure, Thole must not be read to stand for the sweeping proposition that derivative
lawsuits under ERISA do not satisfy Article III standing. In Thole, the Court explained that the
plaintiffs could claim “standing as representatives of the plan itself” but “in order to claim the
interests of others, the litigants themselves still must have suffered an injury in fact[.]” Thole,
140 S. Ct. at 1620 (cleaned wp). Here, Plaintiffs have alleged personal losses as past participants
in the Plan, so they satisfy that requirement.

they have demonstrated Article II standing to bring this case,
Class Action Standing. As noted before, the Plaintiffs must also demonstrate class
action standing to sue on behalf of absent class members. The Second Circuit has articulated a
two-step test that governs this analysis: (1) the plaintiff must show that she “personally”
suffered “actual injury” because of the defendants illegal conduct; and (2) “such conduct” must
implicate “the same set of concerns” as those of the rest of the putative class. NECA-IBEW
Health & Welfare Fund v. Goldman Sachs & Co., 693 F.3d 145, 162 (2d Cir. 2012) (cleaned up).
Both requirements have been met in this case.
First, because the Plaintiffs allege that they “personally” suffered “actual” injuries by
investing in several of the Plan’s investment offerings during the Class Period, they have
established step one of the class action standing analysis. NECA-IBEW, 693 F.3d at 162.
Second, because the Plaintiffs and the absent class were both involved with the Plan at some
point during the Class Period, both groups share the “same set of concerns” regarding Daikin’s
management of the Plan. Id. Therefore, the Court finds that the second element of class action
standing has been met.
In sum, Plaintiffs have demonstrated Article standing to bring this case.
II. Breach of Fiduciary Duty Claims
Turning to the merits, Count One of the First Amended Complaint alleges that Daikin
violated ERISA in two respects: First, the Plaintiffs contend that Daikin breached its duty of
loyalty by selecting the MainStay Funds for inclusion in the Plan; and second, the Plaintiffs

7 Daikin also argues, with respect to Article IM] standing, that Plaintiffs have not sufficiently
alleged any financial losses due to excessive investment management fees and so, they did not
suffer concrete and personalized injuries. (Daikin Mem. at 11-12.) These arguments, however,
are better construed as breach of fiduciary duty arguments, not Article ITI standing claims.

10

contend that Daikin breached its duty of investment prudence by failing to select investment
options that yielded a greater return for Plan participants. The Court will address each claim in
turn.
A. Conflict of Interest Claim
Recall that the MainStay Funds were managed by John Hancock, who also served as the
Pian’s investment platform provider during the Class Period. See supra 4. Given John
Hancock’s dual roles with respect to the Plan, the Plaintiffs allege that John Hancock was under

a “strong financial incentive to market its own proprietary funds,” and that Daikin’s failure to
exclude the MainStay Funds from the Plan constituted a breach of the duty of loyalty under
ERISA, (Amend. Compl. { 75.)
ERISA imposes “four distinct, but interrelated duties” on fiduciaries, including the duty
to act “for the exclusive purpose of . . . providing benefits to participants and their beneficiaries
and defraying reasonable expenses of administering the plan.” Pension Ben. Guar. Corp. ex rel.
St. Vincent Catholic Med. Centers Ret. Plan v. Morgan Stanley Inv. Mgmt. Inc., 712 F.3d 705,
715 (2d Cir. 2013) (quoting 29 U.S.C. § 1104(a)(1)(A)). As Judge Friendly explained, the duty
of loyalty requires that “decisions be made with an eye single to the interests of the participants
and beneficiaries.” Donovan v. Bierwirth, 680 F.2d 263, 271 (2d Cir. 1982) (cleaned up). To
plausibly plead a duty of loyalty claim under ERISA, a plaintiff must allege facts showing that
the fiduciary in question acted purposely—or with the “goal”—of “providing benefits to itself or

someone else.” Sacerdote v. New York Univ., No. 16-CV-6284 (KBP), 2017 WL 3701482, at *5
(S.D.N.Y. Aug. 25, 2017).
Under that standard, the Plaintiffs have not pled a plausible duty of loyalty claim. Simply
put, the First Amended Complaint contains no plausible facts showing that Daikin selected the

11

MainStay Funds for the purpose of benefitting itself or John Hancock. Sacerdote, 2017 WL
3701482, at *5. Instead, the Plaintiffs attempt to mfer a conflict of interest from the fact that
John Hancock held dual roles with respect to the Plan. But, as several other courts in this district
confirm, that fact alone does not demonstrate that Daikin purposely chose the MainStay Funds
with an “eye” towards its own benefit or even John Hancock’s. Bierwirth, 680 F.2d at 271; see
Sacerdote, 2017 WL 3701482, at *6 (the fact that “all of the Plans’ options were the □□

recordkeepers’ own proprietary investments” did not plausibly allege a breach of loyalty claim)
(cleaned up); Patterson v. Stanley, No. 16-CV-6568 (RJS), 2019 WL 4934834, at *9 (S.D.N.Y.
Oct. 7, 2019) (holding that a fiduciary’s selection of its own funds for inclusion in its defined
contribution plan did not constitute a breach of the duty of loyalty); cf LaScala v. Scrufari, 479
F.3d 213, 220-21 (2d Cir. 2007) (concluding there was a breach of the duty of loyalty, under
ERISA, where fiduciary “awarded himself a series of salary raises” without required
authorization). Accordingly, Plaintiffs’ duty of loyalty claim must be rejected.
B. Duty of Prudence Claim
Next, Plaintiffs allege that Daikin violated its duty of prudence, under ERISA, by
selecting investment options for the Plan that were tainted by excessive fees which, in turn,
incurred substantial losses on Plan participants. Under Section 1104(a)(1)(B) of ERISA,
fiduciaries of qualifying retirement plans are obligated to act:
with the care, skill, prudence, and diligence under the circumstances then
prevailing that a 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).
It is well established in this circuit that the prudence vel non of a fiduciary’s actions,
under ERISA, is judged “based upon information available to the fiduciary at the time of each

12

investment decision and not from the vantage point of hindsight.” Morgan Stanley, 712 F.3d at
716 (citing In re Citigroup ERISA Litigation, 662 F.3d 128, 140 (2d Cir. 2011) (cleaned up).
The central aim of ERISA’s investment prudence standard is to police the means by which
fiduciaries carry out their duties, and not to scrutinize the substantive outcomes of their
decisions. See Morgan Stanley, 712 F.3d at 716 (“This standard focuses on a fiduciary’s conduct
in arriving at an investment decision, not on its results, and asks whether a fiduciary employed
the appropriate methods to investigate and determine the merits of a particular investment.”)
(cleaned up); see also Gearren v. The McGraw-Hill, 660 F.3d 605, 610 (2d Cir. 2011) (stating
that an investment does not become imprudent because of a significant “downward trend” in
price); In re Citigroup, 662 F.3d at 141.
Thus, for a breach of prudence claim to survive a motion to dismiss, it must allege
sufficient facts showing flaws in the fiduciary’s “knowledge, methods, or investigations” in
arriving at the underlying investment decisions. See Morgan Stanley, 712 F.3d at 716.
Threadbare allegations that the funds at issue underperformed or that “better investment
opportunities were available” are insufficient to make out a plausible prudence claim. See id.; In

re Citigroup, 662 F.3d at 141. As the Seventh Circuit aptly noted, “nothing in ERISA requires
every fiduciary to scour the market to find and offer the cheapest possible fund (which might, of

course, be plagued by other problems).” Hecker v. Deere & Co., 556 F.3d 575, 586 (7th Cir.
2009).
The operative question here, therefore, is whether Daikin employed adequate
methodologies in selecting the Plan’s investment offerings during the Class Period. On this
issue, the First Amended Complaint sets forth four allegations: (1) Daikin acted imprudently by
selecting underperforming and unjustifiably expensive investment options, and failing to monitor

13

them (Amend. Compl. { 73); (2) Daikin imprudently offered Plan participants retail share class
funds instead of institutional share funds (id. at J 147); (3) Daikin imprudently engaged and
monitored John Hancock whose administrative fees were unreasonably expensive (id. at { 161);
and (4) Daikin offered funds containing high fees that “were hidden in the sense that they were
charged to the expense ratios of the Plan’s investments, not to participants accounts” (id. at Jf]
172, 175). For the reasons set forth below, the Court concludes that none of these allegations
raises a plausible claim under ERISA’s investment prudence standard. Therefore, the claims are
dismissed.
Underperformance. The bulk of the Plaintiffs’ allegations, with respect to their
investment prudence claim, concern the underperformance of the Plan’s funds during the Class
Period. In short, the Plaintiffs contend that better investment vehicles were available during the
Class Period and Daikin’s failure to select those better alternatives (e.g. index funds) constituted

a breach of its fiduciary duties under ERISA. In support of this theory, the Plaintiffs copiously
reference the teachings of various financial authorities, such as Warren Buffet (Amend. Compl.
{4 36, 65, 71), Nobel Laureates in economics (id. at ff 63, 65), and other leading financial
experts. (See, ¢.g., id. at J] 35, 50, 85, 99, 116, 123.)
The problem with these allegations, however, is that the investment prudence required
under ERISA does not reflect the investment prudence of Warren Buffett or Nobel Laureate
economists. And as this circuit’s precedents have affirmed time and time again,
underperformance allegations of this sort are allegations based in “hindsight,” which fall short of
the plausibility standard under Rule 12(b)(6). See Morgan Stanley, 712 F.3d at 716; In re
Citigroup, 662 F.3d at 140. Indeed, as the Seventh Circuit explained, “nothing in ERISA
requires every fiduciary to scour the market to find and offer the cheapest possible fund.”

14

Hecker, 556 F.3d at 58. Accordingly, because the Plaintiffs’ allegations of underperformance do
not reveal a defective methodology by which the investment options were selected, they do not
plausibly allege a violation of the duty of prudence under ERISA.’ See Morgan Stanley, 712
F.3d at 716; In re Citigroup, 662 F.3d at 140,
Retail Shares. The Court also finds that Daikin’s selection of retail shares in lieu of
institutional shares for several investment funds in the Plan does not reveal actionable
misfeasance under ERISA. In the context of ERISA cases, several courts in this district have
found that the failure to include “lower-cost share classes . . . do not, as a matter of law, support
an inference of a flawed fiduciary process.” See, e.g., Ferguson v. Ruane Cunniff & Goldfarb
Inc., No. 17-CV-6685 (ALC), 2019 WL 4466714, at *6 (S.D.N.Y. Sept. 18, 2019); see
Sacerdote, 2017 WL 3701482, at *11 (holding the same and noting the 3d, 7th, and 9th circuits’
agreement). As the Sacerdote court explained, there are inherent trade-offs between retail and
institutional share classes——for example, the greater liquidity normally offered by retail share
classes, see 2017 WL 3701482, at *11, and the cheaper fees associated with institutional share
classes. (Amend. Compl. § 147.) And under ERISA, the responsibility to weigh these

§ Plaintiffs advance two other allegations that also fail as a matter of law. First, Plaintiffs argue
that a 2009 regulatory action and settlement between John Hancock and the SEC raise the
inference that Daikin did not prudently select and monitor the MainStay Funds when it selected
those funds for the Plan. (Amend. Compl. 79.) But this argument is ultimately unpersuasive
because the SEC action did not concern the MainStay Funds at issue here, and because the
regulatory action occurred well before the Class Period. Second, Plaintiffs argue that two
managerial changes in the MainStay ICAP Equity Fund during the Class Period indicate that the
fund should have been terminated (sooner) from the Plan. (/d. at J] 98, 104.) Yet, as the
Plaintiffs themselves acknowledge, the MainStay ICA Equity Fund was removed from the Plan
following these managerial changes, and furthermore, even if removal did not follow, the Court
concludes that the internal HR decisions of investment funds provide no basis for inferring
fiduciary misfeasance under ERISA.

15

competing interests and to decide on a (prudent) financial strategy lies with the plan’s fiduciary,
not an Article II court. Thus the mere fact that Daikin selected retail share classes for certain
investment options in the Pian does not establish a breach of fiduciary duty under ERISA.
Administrative Fees. Next, the Plaintiffs allege that Daikin breached its duty of
prudence by paying unreasonably expensive administrative fees to John Hancock. According to
the First Amended Complaint, John Hancock received a compensation of “$3 million to $5
million” during the Class Period from “direct payments, income from stable value funds, fees
from separate accounts, revenue share from mutual funds, among other sources.” (Amend.
Compl. 164, 167.) In contrast, the Plaintiffs allege that an alternative investment platform
provider would have only charged “$30,000 to $40,000 per year” during that same period (id. at
{| 166, 167), and thus, Pian participants were charged excessive administrative fees due to
Daikin’s negligence in engaging John Hancock.
The Plaintiffs’ comparison, however, is illusory because as it pertained to the Plan, John
Hancock was not only an administrative services provider, but also an investment manager for
several of the Plan’s investment funds. So it would only make sense that the fees it charged,
during the Class Period, would exceed those charged by a simple administrative services
provider. In light of this fact, Plaintiffs cannot demonstrate that John Hancock’s fees were “so
disproportionately large that [they bore] no reasonable relationship to the services rendered and
could not have been the product of arm’s-length bargaining.” Gartenberg v. Merrill Lynch Asset
Memt., 694 F.2d 923, 928 (2d Cir. 1982); see Young v. Gen. Motors Inv. Mgmt. Corp., 325 F.
App'x 31, 33 (2d Cir. 2009). This allegation therefore also fails to establish a breach of fiduciary
duty under ERISA. See Ferguson, 2019 WL 4466714, at *7-8 (rejecting similar excessive
administrative fees claim).

16

Hidden Fees. Finally, the Court rejects the Plaintiffs’ conclusory allegation that Daikin
failed to adequately monitor the MamStay Funds’ “hidden fees.” The Plaintiffs allege that
certain fees paid to John Hancock were “hidden” because they were charged in the MainStay
Funds’ expense ratios and not directly to participants’ 401(k) accounts. (Amend. Compl. ff 172,
175.) But the term “hidden,” as used by Plaintiffs here, is a misnomer because relevant Plan
documents expressly disclosed the nature of John Hancock’s fee payment arrangement.’ (See
Exhibits 9 & 11, ECF 42.) Hence, the Court concludes that Daikin did not breach its duty of
prudence in this respect.
For the foregoing reasons, the Court dismisses Plaintiffs’ breach of fiduciary duty claims
pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure.
C. Untimely Disclosure Claim
The Plaintiffs’ final claim concerns an alleged disclosure violation under ERISA. Under
Section 1024(b)(4), administrators of qualifying retirement plans must “upon written request of
any participant or beneficiary, furnish a copy of the latest updated summary, plan description .. .
or other instruments under which the plan is established or operated.” 29 U.S.C. § 1024(b)(4).
Furthermore, ERISA’s remedial provision states that if the administrator fails to fulfill such a .

The Plan’s 2018 Disclosure Statement provides:
The plan may pay service providers for administrative services rendered during the year,
such as recordkeeping and investment advisory services. Service providers may offset
the fees they would otherwise charge with revenue sharing payments that the service
provider receives in connection with plan investment options, otherwise their service fees
may be paid from a segregated account under the plan and/or may be charged against
participants’ or beneficiaries’ accounts on a pro rata basis, per capita basis, or as a
specific dollar amount, subject to the terms of the plan.
Exhibit 9, at 7 (emphasis added).

17

request within 30 days, it is within the “court’s discretion” to assess a penalty of “up to $100 a
day from the date of such failure” against the plan administrator. 29 U.S.C. § 1132(c)(1).
In Count Two of the First Amended Complaint, the Plaintiffs allege that they had
requested Daikin to disclose “the summary plan description, plan documents and amendments,
408(b)(2) service provider disclosures, 404(a)(5) disclosures, and an enroliment packet” on July
23, 2018. (Amend. Compl. 220.) However, the Plaintiffs allege that Daikin did not completely
fulfill this disclosure request until only after the present litigation commenced in November
2018. (id. at § 223.) Accordingly, they contend that ERISA’s remedial provision entitles them
to statutory damages.
As noted at the outset, monetary relief under Section 1132(c)(1) is entirely discretionary.
McDonald vy. Pension Plan of NYSA-ILA Pension Tr. Fund, 320 F.3d 151, 163 (2d Cir, 2003).
To guide that discretion, the Second Circuit has articulated several factors to consider in deciding
whether Section 1132(c)(1) relief is warranted: “(1) the administrator’s bad faith or intentional
conduct; (2) the length of the delay; (3) the number of requests made; (4) the extent and
importance of the documents withheld; and (5) the existence of any prejudice to the participant
or beneficiary.” Id.
Upon balancing these considerations, the Court declines to exercise its discretion to
award statutory damages. First, apart from threadbare assertions, the First Amended Complaint
does not allege any plausible facts showing that Daikin acted in bad faith or with the intent to
hinder the present lawsuit. Second, the delay was insignificant and only one disclosure request
was made by Plaintiffs. Finally, although the withheld documents were certainly important,
Daikin partially fulfilled the disclosure request when initially asked, and it completed the rest of
the disclosures shortly thereafter. Consequently, the Court finds no compelling circumstances

18

that call out for the imposition of monetary relief. McDonald, 320 F.3d at 163. Count Two of
the First Amended Complaint is therefore dismissed.
CONCLUSION
For the foregoing reasons, Daikin’s motion to dismiss is GRANTED. The Clerk of
Court is respectfully directed to terminate this case.

Dated: New York, New York SO ORDERED
May 4, 2021 [/,
PAUL A. CROTTY
United States District Judge

19

---

Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/10331878. Public record. Not legal advice.