Sacerdote et al v. New York University

MEMORANDUM OF LAW in Opposition re: 131 MOTION for Summary Judgment . . Document

S.D.N.Y.February 12, 2018

IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK DR. ALAN SACERDOTE et al., Plaintiffs, v. NEW YORK UNIVERSITY, Defendant. No. 1:16-CV-06284 PLAINTIFFS’ MEMORANDUM IN OPPOSITION TO DEFENDANT’S MOTION FOR SUMMARY JUDGMENT [DOC. 131] Case 1:16-cv-06284-KBF Document 162 Filed 02/12/18 Page 1 of 30 i TABLE OF CONTENTS Table of Authorities ....................................................................................................................... iii Preliminary Statement ..................................................................................................................... 1 Material Facts ................................................................................................................................. 1 NYU’s Unreasonable Recordkeeping Fees ........................................................................ 1 I. A. NYU Went Seven Years Without an RFP and Conducted Flawed RFPs .............. 1 B. NYU Delayed Recordkeeping Consolidation for Years ......................................... 3 C. NYU Saddled the Plans with Excessive Fees ......................................................... 4 NYU Imprudently Never Removed CREF Stock and TRE ................................................ 5 II. A. NYU Conducted No Review of CREF Stock or TRE Before 2011 ....................... 5 B. NYU Had an Alarming Lack of Knowledge of Basic Facts ................................... 6 C. NYU Knowingly Applied Improper Benchmarks for Funds .................................. 7 D. NYU Failed to Preform Due Diligence .................................................................. 7 E. NYU Imprudently Included CREF Stock After December 31, 2009 ..................... 8 F. NYU Imprudently Included TRE After December 31, 2009 .................................. 8 Argument ................................................................................................................................. 9 Legal Standards ................................................................................................................... 9 I. A. Summary Judgment Standard ................................................................................. 9 B. ERISA’s Prudence Standard ................................................................................... 9 Expert Conflicts Alone Create Genuine Issues of Material Fact ...................................... 10 II. NYU Failed to Prudently Monitor and Obtain Reasonable Recordkeeping Fees and Had III. No Process for Doing So................................................................................................... 12 A. Defendant’s Fails to Demonstrate a “Robust and Prudent” Process ..................... 14 1. Hiring Cammack cannot whitewash NYU’s conduct ............................... 15 2. NYU’s claimed fee “reduction” in fees does not excuse imprudence did not eliminate uncapped asset-based fee .......................... 16 3. NYU imprudently waited years to consolidate recordkeepers ................. 16 B. NYU’s Recordkeeping Fees Were Unreasonable ................................................. 18 NYU Imprudently Kept CREF Stock and TRE in the Plans ............................................ 19 IV. A. NYU’s Imprudent Process for Evaluating Investments ........................................ 19 1. Defendant’s failure to review CREF Stock and TRE ............................... 19 2. NYU’s imprudent investment review process after 2010 ......................... 20 Case 1:16-cv-06284-KBF Document 162 Filed 02/12/18 Page 2 of 30 ii 3. Defendant’s hindsight analysis is irrelevant ............................................. 23 B. CREF Stock and TRE Were Imprudent On December 31, 2009 ......................... 23 Conclusion ............................................................................................................................... 25 Case 1:16-cv-06284-KBF Document 162 Filed 02/12/18 Page 3 of 30 iii Table of Authorities Cases Anderson v. Liberty Lobby, Inc., 477 U.S. 242 (1986) ................................................................................................................. 11 Bd. of Trs. of the S. Cal. IBEW-NECA Defined Contribution Plan v. Bank of N.Y. Mellon Corp., No. 09-6273, 2011 U.S. Dist. LEXIS 142367 (S.D.N.Y. Dec. 9, 2011)(Berman, D.J.) .......... 10 Deutsche Bank Nat’l Tr. Co. v. Morgan Stanley Mortg. Capital Holdings LLC, No. 14-3020, 2018 U.S. Dist. LEXIS 12591 (S.D.N.Y. Jan. 25, 2018)(Forrest, J.) ................ 11 Donovan v. Bierwirth, 680 F.2d 263 (2d Cir. 1982) ..................................................................................................... 15 Donovan v. Cunningham, 716 F.2d 1455 (5th Cir. 1983) .................................................................................................. 15 George v. Kraft Foods Glob., Inc., 641 F.3d 786 (7th Cir. 2011) ................................................................................................ 1, 11 In re Meridian Funds Grp. Sec. & ERISA Litig., 917 F.Supp.2d 231 (S.D.N.Y. 2013) ........................................................................................ 18 In re Meridian Funds Grp. Sec., 917 F. Supp. 2d 231 (S.D.N.Y. 2013) ...................................................................................... 24 Jeffreys v. City of New York, 426 F.3d 549 (2d Cir. 2005) ....................................................................................................... 9 Katsaros v. Cody, 744 F.2d 270 (2d Cir. 1984) ..................................................................................................... 15 Meinhardt v. Unisys Corp. (In re Unisys Sav. Plan Litig.), 74 F.3d 420 (3d Cir. 1996) ....................................................................................................... 15 N.Y. State Teamsters Council Health & Hosp. Fund v. Estate of DePerno, 18 F.3d 179 (2d Cir. 1994) ................................................................................................. 10, 18 Pension Benefit Guar. Corp. ex rel. St. Vincent Catholic Med. Ctrs. Ret. Plan v. Morgan Stanley Inv. Mgmt. Inc., 712 F.3d 705 (2d Cir. 2013) ..................................................................................................... 10 Silverman v. Mutual Benefit Life Ins. Co., 138 F.3d 98 (2d Cir.1998) ........................................................................................................ 10 Tibble v. Edison Int’l, 843 F.3d 1187 (9th Cir. 2016) ............................................................................................ 12, 19 Tibble v. Edison Int'l, 135 S. Ct. 1823 (2015) ................................................................................................. 10, 19, 23 Case 1:16-cv-06284-KBF Document 162 Filed 02/12/18 Page 4 of 30 iv Town of Southold v. Town of E. Hampton, 477 F.3d 38 (2d Cir. 2007) ....................................................................................................... 11 Trammell v. Keane, 338 F.3d 155 (2d Cir. 2003) ....................................................................................................... 9 Tussey v. ABB, Inc., 746 F.3d 327 (8th Cir. 2014) ................................................................................................ 1, 13 Statutes 29 U.S.C. §1104(a)(1) ............................................................................................................. 10, 17 29 U.S.C. §1109(a) ....................................................................................................................... 10 Rules Fed. R. Civ. P. 56(c) ....................................................................................................................... 9 Regulations 72 Fed. Reg 41127 (July 26, 2007) ............................................................................................... 18 Other Authorities A. Hess, G. Bogert, & G. Bogert, Law of Trusts and Trustees (3d ed.) ....................................... 19 Case 1:16-cv-06284-KBF Document 162 Filed 02/12/18 Page 5 of 30 1 PRELIMINARY STATEMENT The Court should deny Defendant New York University’s (“NYU”) Motion for Summary Judgment because overwhelming evidence demonstrates that NYU breached its fiduciary duties.1 Michael Geist and Gerald Buetow, opine that NYU allowed unreasonable recordkeeping fees2 and NYU imprudently retained the CREF Stock Variable Account (“CREF Stock”) and TIAA Real Estate Fund (“TRE”). Geist’s and Buetow’s opinions alone create issues of fact. See George v. Kraft Foods Glob., Inc., 641 F.3d 786, 798 (7th Cir. 2011) (reversing summary judgment and holding an expert’s opinion that 401(k) recordkeeping fees were unreasonable created genuine issues of material fact). Additionally, Defendant breached its fiduciary duties by failing to “(1) calculate the amount the Plan[s] [were] paying [] for recordkeeping through revenue sharing, (2) determine whether [TIAA’s and Vanguard’s] pricing was competitive, [and] (3) adequately leverage the Plan[s’] size to reduce fees.” Tussey v. ABB, Inc., 746 F.3d 327, 336 (8th Cir. 2014). Finally, Defendant conducted an imprudent review of TRE and CREF Stock and failed to remove the funds after years of underperformance. For these reasons, issues of material fact exist that require denial of Defendant’s Motion. MATERIAL FACTS NYU’s Unreasonable Recordkeeping Fees I. A. NYU Went Seven Years Without an RFP and Conducted Flawed RFPs Contrary to Cammack’s recommendation that NYU conduct a request for proposals (“RFP”) for recordkeeping services every three to five years to obtain competitive fees and 1 Defendant failed to produce its experts for deposition before the deadline for Plaintiffs’ Opposition. On February 6, 2018, the Court stated that if it is inclined to grant this Motion, Plaintiffs may supplement after the depositions. 2 “Recordkeeping fees” refers to all recordkeeping, administrative and service fees the Plans paid to TIAA and Vanguard for their. Ex.7 (Corrected Geist Report). Case 1:16-cv-06284-KBF Document 162 Filed 02/12/18 Page 6 of 30 2 ,3 NYU only conducted one RFP after 2009. Pls.’ 56.1 Resp. ¶182. Additionally, NYU’s RFPs in 2009 and 2016 were fundamentally flawed. When NYU began its 2009 RFP, the Retirement Plan Committee (the “Committee”) noted the most important factor was “reducing [NYU’s] administrative burden,” not reducing fees. Pls.’ 56.1 Resp. ¶230; Doc. 134-28 (May 15, 2009 minutes). 4 Accordingly, the Committee chose Fidelity and TIAA as finalists while rejecting Great-West’s lower bid for the same “full range of services” without explanation. Rule 56.1 Resp. ¶74; Ex. 60 (NYU0028189) at 195, 207;5 Doc. 134-30 (Dec. 12, 2009 minutes). When reviewing the finalists, . Pls.’ 56.1 Resp. ¶83; Doc. 134-31 (Jan. 21, 2010 minutes); Doc. 134-32 (Feb. 18, 2010 minutes). Additionally, NYU never questioned TIAA’s fees or even knew TIAA’s fees until January 2011, months after it chose TIAA as the recordkeeper. Pls.’ Rule 56.1 Resp. ¶¶99, 102. Doc. 134-38 (Jan. 10, 2011 minutes). Additionally, NYU blatantly favored TIAA throughout the RFP, and NYU admitted that it would have retained TIAA regardless of the results. During the 2009 RFP, Margaret Meagher6 engaged in the following actions:  ,7 met secretly with TIAA for lunches and dinners which TIAA paid for to discuss the ongoing RFP;8 3 Pls.’ 56.1 Resp. ¶¶180-181; Doc. 134-28 (NYU0003086) at 089; Ex. 7 (Corrected Geist Report) ¶ 60. 4 “Doc. __” refers to the document numbers for filings in this case. “Ex. __” refers to the Exhibits to the Declaration of Joel Rohlf in Support of Plaintiffs’ Opposition to Defendant’s Motion for Summary Judgment. “Pls.’ 56.1 Resp.” refers to Plaintiffs’ Response to Defendant’s Rule 56.1 Statement and Statement of Undisputed Material Facts. “Minutes” in this memorandum refers to the minutes of meetings of the NYU Retirement Plan Committee. Plaintiffs adopt Defendant’s definitions of Plans, Faculty Plan and Medical Plan. See Doc. 132 at 1. 5 TIAA’s bid only applied to new assets, and it would continue to apply a higher 19.9 points to legacy assets. Id. 6 Meagher is the co-chair of the Committee and its longest serving member. Ex. 2 (Meagher Dep.) at 8:12-18. 7 Doc. 134-94 at CLC0022142 ( Ex. 2 (Dep. of M. Meagher (“Meagher Dep.”)) at 87:18–25; 89:25–90:5. Case 1:16-cv-06284-KBF Document 162 Filed 02/12/18 Page 7 of 30 3  Did not inform other Committee members of these individual meetings with TIAA or what was discussed;9  ;10  Secretly provided TIAA with intelligence on Committee members’ leanings;11  Requested Cammack deliver RFP pricing to her before any Committee member;12  Attended conferences paid for by TIAA in locations across the country;13  Testified that, regardless of the outcome, TIAA would remain recordkeeper.14 Finally, the Committee never determined the total or per-participant fee or TIAA’s true costs and profits for recordkeeping. Pls.’ Rule 56.1 Resp. ¶¶104, 210; Ex. 2 (Meagher Dep.) at 71:21–72:5. Tellingly, multiple members of the Committee could not explain “revenue sharing.” Ex. 65 (Dep. of Tina Surh (“Surh Dep.”)) at 235:5–235:17; Ex. 84 (Dep. of Linda Woodruff (“Woodruff Dep.”)) at 358:24–360:14. Even NYU’s former Chief Investment Officer could not even explain revenue sharing. Ex. 65 (Surh Dep.) at 235:5-235:17. Meagher remains the co-chair of the Committee, so the 2016 RFP was equally tainted. Ex. 2 (Meagher Dep.) at 8:12-18. B. NYU Delayed Recordkeeping Consolidation for Years Beginning in 2008, .”15 In March 2010, the Committee unanimously recommended both Plans move to a single recordkeeper. Pls. 56.1 Resp. ¶85; Doc. 134-33 (March 18, 2010 minutes). However, the Medical Plan only consolidated in 9 Ex. 2 (Meagher Dep.) at 87:18–25. 10 Ex. 2 (Meagher Dep.) at 113:15–116:13 (“The RFP took the slow path. In the interest of preserving the union I had to endure this protracted delay. Will explain more when I see you on the 9th. Hope I did not lose ground with TIAA.”); see also Ex. 9 (TIAA_NYU_00056900). 11 Ex. 2 (Meagher Dep.) at 90:19–97:15. 12 Id. at 121:2–24. 13 Id. at 103:24–106:21. 14 Id. at 118:4–12. 15 Pls.’ 56.1 Resp. ¶¶85, 205; Ex. 5, CLC0001265 at 271-272 (2008); Ex. 8, CLC0021496 at 518 (2009); Ex. 66, NYU0004345 at 54-55 (2010); Doc. 134-34, NYU0004040 at 41 (April 19, 2010); Doc. 134-35, NYU0002881 at 881 (June 14, 2010); Doc. 134-36, NYU002388 at 89 (September 23, 2010); Ex. 67, CLC0009559 at 559 (September 23, 2010); Ex. 68, CLC0024978 at 981 (November 2010); Ex. 69, CLC0025080 at 085 (December 2010); Ex. 45, NYU0009295 at 298 (January 2011); Ex. 70, NYU0005468 at 472–473 (February 2011); Doc. 134- 49, NYU0002391 at 393 (June 14, 2013); Ex. 71, CLC0000755 at 761 (2017). Case 1:16-cv-06284-KBF Document 162 Filed 02/12/18 Page 8 of 30 4 March 2013 – – and the Faculty Plan still uses two recordkeepers. Pls. 56.1 Resp. ¶¶118, 208. NYU provides no reason for five year delay for the Medical Plan and no valid reason for the ten year delay for the Faculty Plan. The record demonstrates that NYU repeatedly put its own administrative needs above the interests of participants. NYU attempts to justify its delay with: 1) the need for consultation with the faculty under its Principles of Joint Shared Governance; and 2) implementing new software. Doc. 132 at 13-14. NYU’s Principles of Joint Shared Governance merely require that NYU present a policy change to the faculty senate council with time for a “meeting to occur before the consultation period comes to a close.”16 NYU presents no evidence that it ever presented recordkeeper consolidation to either council. In fact, the faculty councils never even mentioned recordkeeper consolidation until after this lawsuit. Pls.’ 56.1 Resp. ¶¶12, 235; Ex. 42 (Dec. of M. Monaco). Exs. 40, 41 (Senate Minutes). As to the software, .17 The ten year delay was unexplained . Pls. 56.1 Resp. ¶236; . C. NYU Saddled the Plans with Excessive Fees NYU’s failures caused the Plans to pay excessive recordkeeping fees. Pls.’ 56.1 Resp. ¶239; Ex. 7. (Corrected Geist Report). , 16 Doc. 134-29 ¶3. 17 Pls. 56.1 Resp. ¶232; Case 1:16-cv-06284-KBF Document 162 Filed 02/12/18 Page 9 of 30 5 $80 per participant fee offered by Fidelity in 2009 despite declining recordkeeping costs the last decade. Compare Id. ¶151 with Ex. 60 (NYU0028189) at 207. .18 NYU Imprudently Never Removed CREF Stock and TRE II. A. NYU Conducted No Review of CREF Stock or TRE Before 2011 First, Defendant ignores the important fact that it did not implement investment review until June 2010. Pls.’ 56.1 Resp. ¶¶125, 249; Doc. 134-34 (April 19, 2010 minutes). When NYU finally reviewed investments, it never discussed CREF Stock or TRE despite years of underperformance. Doc. 134-35 (June 14, 2010 minutes). Additionally, NYU conducted no 18 Ex.107 (Enhancements to NYU’s Retirement program, October 2015, NYU0031773) at 774 (“Cammack Retirement Group has estimated NYU cost savings of $1.9 million by moving to a single plan with a single recordkeeper[.]”); Case 1:16-cv-06284-KBF Document 162 Filed 02/12/18 Page 10 of 30 6 investment review on September 23, 2010, November 2, 2010, or January 10, 2011.19 . B. NYU Had an Alarming Lack of Knowledge of Basic Facts NYU could not have conducted prudent due diligence . For example, the Committee Co-Chair, Linda Woodruff, and NYU’s former Chief Investment Officer, Tina Surh, did not understand the term “revenue sharing.” Pls. 56.1 Resp. ¶246; Ex. 65 (Surh Dep.) at 235:5-235:17; Ex. 84 (Woodruff Dep.) at 359:24-360:14. Meagher had never heard the common financial terms “float” or “securities lending.”20 Pls. 56.1 Resp. ¶242; Ex. 2 (Meagher Dep. at 213:10-214:4). Despite serving on the Committee for ten years, Meagher showed a remarkable lack of knowledge regarding the Plans’ size, share class differences, increases in equity investments in the last ten years, the Plans’ per- participant recordkeeping fees, layers of fees in and composition of both TRE and CREF Stock, and mistakenly believed that TIAA is a non-profit.21 Committee member, Nancy Sanchez, stated she did not “know enough about [variable annuities] to answer” whether they should be offered 19 Doc. 134-36 (Sept. 23, 2010 minutes) (no due diligence review); Doc 134-37 (Nov. 2, 2010 minutes) (same), Doc. 134-38 (Jan. 10, 2011 minutes) (same). 20 Department of Labor regulations require fiduciaries to consider float and other indirect compensation vendors may receive. Ex. 119 (Doyle, Robert J, Dept. of Labor Field Assistance Bulletin No. 2002-03 (Nov. 5, 2002), available at https://www.dol.gov/agencies/ebsa/employers-and-advisers/guidance/field-assistance-bulletins/2002- 03). NYU also failed to consider the marketing benefit TIAA received from using participants’ recordkeeping information to cross-sell non-plan TIAA products. Ex. 48, Gretchen Morgenson, The Finger-Pointing at the Finance Firm TIAA, N.Y. Times, Oct. 21, 2017, https://www.nytimes.com/2017/10/21/business/the-finger-pointing-at-the- finance-firm-tiaa.html; see also Ex. 49, Gretchen Morgenson, TIAA Receives New York Subpoena on Sales Practices, N.Y. Times, Nov. 9, 2017, https://www.nytimes.com/2017/11/09/business/tiaa-subpoena.html; and Ex. 50, Tara Siegel Bernard, If you Bought In To TIAA Based On Reputation, Check Your Accounts, N.Y. Times, Nov. 13, 2017 https://www.nytimes.com/2017/11/13/your-money/tiaa-403b.html; Ex. 2 (Meagher Dep.) at 222:14– 223:6. 21 See Pls.’ 56.1 Resp. ¶242; Ex. 2 (Dep. of M. Meagher) at 140:5-24, 141:22-141:20, 143:10-143:18, 143:22- 144:11, 146:22-149:10, 192:12-193:15, 198:4-198:11, 199:14-24, 204:9-204:19, 205:10-205:20, 234:3-4. Case 1:16-cv-06284-KBF Document 162 Filed 02/12/18 Page 11 of 30 7 in the Plans. Ex. 110 (Dep. of N. Sanchez) at 117:12-117:24. Many other examples of similar ignorance exist. Pls.’ 56.1 Resp. ¶¶240-48. C. NYU Knowingly Applied Improper Benchmarks for Funds .23 No Committee member confronted Cammack about misusing Morningstar averages, asked for the appropriate benchmark or even mentioned it. Pls.’ 56.1 Resp. ¶¶215-16; Ex. 2 (Meagher Dep.) at 193:11–17. D. NYU Failed to Perform Due Diligence Even after NYU began reviewing investments, the process was imprudent. First, NYU never adopted an Investment Policy Statement; it still operates under a draft policy. Pls.’ 56.1 Resp. ¶¶125, 267-69; Ex. 81 (August 11, 2016 email from Rezler (Cammack) to Petti (NYU) (NYU0112654)) at 656 (noting “we do not have a single copy of the approved IPS”). Second, NYU never reviewed each investment in the Plans; rather, it reviewed Cammack’s executive summaries. Pls. 56.1 Resp. ¶129. NYU could not meaningfully review every fund in the time it allotted. From 2010 to 2016, the Faculty Plan offered 101 to 104 investments with an average of 103 per year. Pls.’ 56.1 Resp. ¶¶128. From 2010 to 2016, the Medical Plan offered 82 to 86 investments with an average of 84 a year. Pls.’ 56.1 Resp. ¶¶128. Generally, NYU allocated . Pls. 56.1 Resp. ¶128; Ex. 84 (Dep. of L. Woodruff) at 181:20-183:12; Exs. 15-31 (Agendas for Committee Meetings). Thirty 22 Pls.’s 56.1 Resp. ¶¶215-16; See, e.g., Case 1:16-cv-06284-KBF Document 162 Filed 02/12/18 Page 12 of 30 8 minutes to review 103 investments is under 18 seconds per quarter and 72 seconds per year. Pls.’ 56.1 Resp. ¶¶ 128. In fact, Committee members called the task “daunting,” and members worried that NYU was “not really doing due diligence.”24 E. NYU Imprudently Included CREF Stock After December 31, 2009 CREF Stock was imprudent for a multiple reasons. First, . Pls.’ 56.1 Resp. ¶255; Third, AonHewitt, a respected independent recordkeeper, recommended that its clients remove CREF Stock from their plans in 2012.25 Fourth, NYU never truly reviewed CREF Stock, because TIAA’s recordkeeping contract required its inclusion. Pls.’ 56.1 Resp. ¶244; Ex. 2, (Dep. of M. Meagher) at 201:10-202:17. Fifth, . Sixth, . Based on all these facts, a . F. NYU Imprudently Included TRE After December 31, 2009 TRE was also an imprudent investment for many reasons. First, 24 Pls.’ 56.1 Resp. ¶¶16, 259-60; Ex. 45 (NYU0009295) (emphasis added; Ex. 2 (Dep. of M. Meagher) at 39:9- 39:13 (emphasis add); see also Ex. 1 (Buetow Report) ¶81. 25 Ex. 32 (AonHewitt, TIAA-CREF Asset Management, InBrief, at 3 (July 2012), available at http://system.nevada.edu/Nshe/?LinkServID=82B25D1E-9128-6E45-1094320FC2037740.) Case 1:16-cv-06284-KBF Document 162 Filed 02/12/18 Page 13 of 30 9 Doc. 133 ¶149. . Second, TRE could not be benchmarked; TIAA finally developed custom benchmarks for the fund. Doc. 133 ¶ 157. In fact, ARGUMENT Legal Standards I. A. Summary Judgment Standard Rule 56 allows summary judgment when “there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(c). A court must view “the evidence in the light most favorable to the non-moving party and to draw all reasonable inferences in its favor.” Trammell v. Keane, 338 F.3d 155, 161 (2d Cir. 2003). A court should grant summary judgment only if “even after drawing all inferences in the light most favorable to [the plaintiff], no reasonable jury could have issued a verdict in [her] favor.” Jeffreys v. City of New York, 426 F.3d 549, 554 (2d Cir. 2005). B. ERISA’s Prudence Standard The Employee Retirement Income Security Act of 1974 (“ERISA”) assigns liability for any 26 Case 1:16-cv-06284-KBF Document 162 Filed 02/12/18 Page 14 of 30 10 “losses to a plan” to “any person [1] who is a fiduciary with respect to a plan and [2] who breaches any responsibility, obligations, or duties imposed upon fiduciaries . . .” 29 U.S.C. § 1109(a). If plaintiff proves a “prima facie case of breach of fiduciary duty and loss to the plan,” the “burden of explanation or justification . . . shifts to the fiduciaries.” N.Y. State Teamsters Council Health & Hosp. Fund v. Estate of DePerno, 18 F.3d 179, 182 (2d Cir. 1994).27 A fiduciary must act for the exclusive purposes of (1) “providing benefits to participants and their beneficiaries;” and (2) “defraying reasonable expenses.” 29 U.S.C. §1104(a)(1). Reasonableness requires “‘the care, skill, prudence, and diligence’” of a person “‘acting in a like capacity and familiar with such matters.’” Tibble v. Edison Int'l, 135 S. Ct. 1823, 1828 (2015) (quoting 29 U.S.C. §1104(a)(1)). Prudence focuses on the “fiduciary’s conduct in arriving at an investment decision . . .” Pension Benefit Guar. Corp. ex rel. St. Vincent Catholic Med. Ctrs. Ret. Plan v. Morgan Stanley Inv. Mgmt. Inc., 712 F.3d 705, 716 (2d Cir. 2013). “The fiduciary standard imposed by ERISA requires the application of a reasonableness standard. Rarely will such a determination be appropriate on a motion for summary judgment.” Bd. of Trs. of the S. Cal. IBEW-NECA Defined Contribution Plan v. Bank of N.Y. Mellon Corp., No. 09-6273, 2011 U.S. Dist. LEXIS 142367, at *14 (S.D.N.Y. Dec. 9, 2011)(Berman, D.J.) Expert Conflicts Alone Create Genuine Issues of Material Fact II. Issues of material fact exist because the Parties’ experts disagree on Defendant’s prudence. “The Court’s role is to determine whether there are any triable issues of material fact, not to 27 Defendant incorrectly states “the Second Circuit has refused to adopt burden shifting in ERISA breach of fiduciary duty claims.” Doc. 132 at 6 (citing Silverman v. Mutual Benefit Life Ins. Co., 138 F.3d 98 (2d Cir.1998)). Silverman did not reject burden shifting to the defendant to prove objective prudence. At most, Silverman rejected an argument that burden shifting eliminated the need for a plaintiff to prove a minimal causal link between breach and loss at summary judgment. 138 F.3d at 104 (“Specifically, Silverman must show some causal link between the alleged breach of Principals duties and the loss plaintiff seeks to recover.”) Additionally, Silverman never overruled DePerno. Silverman, 138 F.3d at 104; DePerno, 18 F.3d at 182 (“once the beneficiaries have established their prima facie case by demonstrating the trustees’ breach of fiduciary duty, ‘the burden of explanation or justification . . . shifts to the fiduciaries.’”) (citations omitted). Case 1:16-cv-06284-KBF Document 162 Filed 02/12/18 Page 15 of 30 11 weigh the evidence or resolve any factual disputes.” Deutsche Bank Nat’l Tr. Co. v. Morgan Stanley Mortg. Capital Holdings LLC, No. 14-3020, 2018 U.S. Dist. LEXIS 12591, at *17 (S.D.N.Y. Jan. 25, 2018)(Forrest, J.) (citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248- 49 (1986)). Because of this, courts routinely deny summary judgment when experts disagree. See, e.g., Town of Southold v. Town of E. Hampton, 477 F.3d 38, 52 (2d Cir. 2007) (“courts also must be wary of granting summary judgment when conflicting expert reports are presented”); Deutsche Bank Nat’l Tr. Co., No. 2018 U.S. Dist. LEXIS 12591 at *68 (“The Court is persuaded that plaintiff’s expert reports are wholly sufficient to create a genuine dispute as to the materiality of defendant’s alleged breaches.”). Courts deny summary judgment on ERISA prudence claims when the parties’ experts differ on reasonableness of the fiduciary. In George, the Seventh Circuit reversed summary judgment in a similar 401(k) excessive fee case based on the plaintiffs’ expert testimony alone. George, 641 F.3d at 798-800.28 The defendants made similar arguments that their actions were prudent because of reliance on an investment consultant. Id. at 798. Plaintiffs’ expert “opined that defendants acted imprudently by extending the contract without first soliciting bids from other recordkeepers” and “a reasonable fee for the kind of recordkeeping services the Plan needed would have been between $20 and $27 per participant per year, rather than the $43 to $65 the Plan paid.” Id. The Seventh Circuit held the expert’s opinion created issues of material fact. Id. at 799-800. The evidence is stronger here. - 28 Undersigned counsel represented the plaintiffs before the Seventh Circuit in George and Eighth Circuit in Tussey. Case 1:16-cv-06284-KBF Document 162 Filed 02/12/18 Page 16 of 30 12 NYU Failed to Prudently Monitor and Obtain Reasonable Recordkeeping Fees and III. Had No Process for Doing So Ignoring compelling evidence of its lack of a prudent process, Defendant argues it met its fiduciary duties and that fees were reasonable. A fiduciary must “‘incur only costs that are reasonable in amount and appropriate to the investment responsibilities of the trusteeship.’” Tibble v. Edison Int’l, 843 F.3d 1187, 1197 (9th Cir. 2016) (quoting RESTATEMENT (THIRD) OF TRUSTS § 90(c)(3)). “‘Wasting beneficiaries’ money is imprudent [and] . . . trustees are obliged to minimize costs.” Tibble, 843 F.3d at 1197 (quoting Unif. Prudent Investor Act § 7). This includes a duty to use “the power the trust wields” to obtain more favorable fees. Id. at Case 1:16-cv-06284-KBF Document 162 Filed 02/12/18 Page 17 of 30 13 1198. Because of this, a fiduciary breaches its duty if it fails to “diligently investigate” and “monitor” recordkeeping costs. Tussey, 746 F.3d at 336 (8th Cir. 2014). As discussed below, NYU failed to diligently investigate or monitor its recordkeeping costs and failed to wield the power of the Plans to obtain more favorable fees. Tussey upheld a district court’s ruling that a fiduciary breached its duties by failing to: (1) calculate the amount the Plan was paying Fidelity for recordkeeping through revenue sharing, (2) determine whether Fidelity’s pricing was competitive, (3) adequately leverage the Plan’s size to reduce fees, and (4) ‘make a good faith effort to prevent the subsidization of administration costs of ABB corporate services’ with Plan assets. . . . Id.29 NYU committed three of the four breaches recognized in Tussey as well as other failings. First, NYU never calculated total fees the Plans paid TIAA and Vanguard for recordkeeping or the per participant fee. See supra at 1-3; Tussey, 746 F.3d at 336.30 Second, NYU failed to “determine whether [TIAA’s and Vanguard’s] pricing was competitive.” Tussey, 746 F.3d at 336. NYU failed to obtain competitive pricing from timely RFPs every three years. See supra at 1-3. Moreover, NYU conducted non-competitive RFPs because NYU: (a) favored TIAA; (b) recordkeeping would remain with TIAA regardless; (c) never conducted a true price comparison; (d) excluded the lowest bidder, Great-West, from the finalists without explanation. See, supra at 1-3. Third, NYU never adequately leveraged the Plans’ size to reduce fees. Tussey, 746 F.3d at 336. , yet NYU took five years to consolidate the 29 For the reasons discussed above, Plaintiffs’ evidence also meets the Seventh Circuit’s standard in George. See surpa at Part II. 30 In fact, Because of this, the only recordkeeping totals for the Faculty Plan and the Medical Plan prior to 2013 are those calculated by Geist. Case 1:16-cv-06284-KBF Document 162 Filed 02/12/18 Page 18 of 30 14 recordkeeper for Medical Plan and ten years later the Faculty Plan still uses two recordkeepers. See supra at 1-3. In short, Defendant committed nearly identical breaches to the defendants in Tussey and George. A. Defendant Fails to Demonstrate a “Robust and Prudent” Process Even if the Court ignores the overwhelming evidence discussed above, Defendant failed to establish a “robust and prudent process” to monitor recordkeeping fees. To support its conclusion that it conducted a “robust and prudent process,” Defendant cites to a laundry list of meeting minutes, Cammack reports, responses to RFPs, fee disclosures and the opinion of its expert Marcia Wagner without discussing of the substance of the documents. Doc 132 at 7. Even a cursory review of these documents demonstrates NYU failed to conduct a “robust and prudent process.” The meeting minutes demonstrate that NYU never even compared the basis point fees of TIAA and Vanguard to other providers until 2016.31 Additionally, the minutes explicitly state that reducing recordkeeping fees was not a priority; instead, the most important goal was “reducing administrative burdens” on NYU. Doc. 134-28 (May 15, 2009 meeting minutes) at 2 (“while reducing expenses is important, a key element in vendor selection is also their ability to service NYU’s needs, most importantly reducing administrative burdens.”) (emphasis added). This violates ERISA’s requirement that fiduciaries act for the “exclusive” benefit of participants. 29 U.S.C. § 1004(a)(1). 3, 31 Doc. 133 ¶68 (listing 26 meetings when fees were allegedly discussed); Docs. 134-28 (conducting no comparison of recordkeeping fees), 134-33 (same), 134-34 (same), 134-35 (same), 134-36 (same), 134-37 (same), 134-38 (same), 134-39 (same), 134-45 (same), 134-46 (same), 134-47 (same), 134- 50 (same), 134-53 (same), 134-55 (same), 134-56 (same), 134-57 (same),134-58 (same), 134-59 (same), 134-61 (same), 134-62 (same), 134-63 (same), 134-64 (same);134-65 (same). Case 1:16-cv-06284-KBF Document 162 Filed 02/12/18 Page 19 of 30 15 and 138. Defendant cites Form 5500s and fee disclosure statements from TIAA and Vanguard. Doc. 132 at 7, n.10. While these at least evidence the total fees the Plans paid, Defendant presents no evidence the Committee ever considered these documents. Id.32 Finally, Defendant cites Doc. 132 at 8. 1. Hiring Cammack cannot whitewash NYU’s conduct . However, the law is clear that hiring advisors cannot “operate as a complete whitewash which, without more, satisfies ERISA's prudence requirement.” Donovan v. Bierwirth, 680 F.2d 263, 272 (2d Cir. 1982).33 As set forth 32 Defendant also cites the RFP bids it received from vendors and its price “reductions” which are addressed below in response to Defendant’s specific arguments regarding those issues. 33 See also Katsaros v. Cody, 744 F.2d 270, 279-80 (2d Cir. 1984) (holding that a fiduciary acted imprudently by relying solely on a representations of a vendor); Meinhardt v. Unisys Corp. (In re Unisys Sav. Plan Litig.), 74 F.3d 420, 435 (3d Cir. 1996) (“ERISA’s duty to investigate requires fiduciaries to review the data a consultant gathers, to assess its significance and to supplement it where necessary.”); Donovan v. Cunningham, 716 F.2d 1455, 1474 (5th Cir. 1983) (stating that “[a]n independent appraisal is not a magic wand that fiduciaries may simply waive over a Case 1:16-cv-06284-KBF Document 162 Filed 02/12/18 Page 20 of 30 16 2. NYU’s claimed fee “reduction” in fees does not excuse imprudence did not eliminate uncapped asset-based fee Defendant argues that it was prudent because in hindsight its fees went down. Doc. 132 at 9- 11. While there were “reductions” in basis points, the assets in the Plans dramatically increased for the entire period. See Pls. 56.1 Resp. ¶¶98-123. A reduction in basis points on increasing assets does not necessarily lead to a decrease in fees. Id. . The basis point reductions by NYU remain uncapped and asset basis rather than per participant. Additionally, most, if not all, of the reductions in basis points were not the result of “negotiations” by NYU but acceptance of TIAA’s and Vanguard’s proposed “reductions” without any benchmarking, price comparison or even exchange of a counter-offer. Pls.’ 56.1 Resp. ¶98-123.34 3. NYU imprudently waited years to consolidate recordkeepers Remarkably, NYU tries to spin the delays in consolidating to a single recordkeeper as prudent. Doc. 132 at 13-15. ERISA requires a fiduciary to “discharge his duties . . . solely in the interest of the participant” and for the “exclusive purpose of: (i) providing benefits to participants transaction to ensure that their responsibilities are fulfilled”). 34 Defendant’s argument that the RFPs it conducted demonstrate a prudent process is rebutted above. See supra at 1-2, 13-14. Case 1:16-cv-06284-KBF Document 162 Filed 02/12/18 Page 21 of 30 17 . . .; and (ii) defraying reasonable expenses . . .” 29 U.S.C. § 1104(a)(1). . NYU offers no reason for the five year delay in consolidating the Medical Plan. Doc. 132 at 13-15. For the Faculty Plan, it offers two excuses: (1) NYU’s claimed need to build “faculty consensus” under the Principles of Joint Shared Governance and (2) NYU’s claimed need to implement new human resources software. Id. However, building consensus and software upgrades are NYU’s administrative needs and fail to serve the “exclusive purpose” of providing benefits to the participants or defraying expenses. 29 U.S.C. § 1104(a)(1). Beyond being an improper justification for fiduciary inaction, NYU’s excuses cannot begin to justify a five and ten year delay. NYU never attempted to bring recordkeeping consolidation before the faculty council. See supra at 3-4. and his testimony conflicts with NYU itself, and Geist that consolidation results in lower fees. See supra at 1–2. The Faculty Plan had 2,000 more participants than the Medical Plan. Doc. 133 ¶¶ 14, 19. Because of its size, naturally the Faculty Plan’s per participant fees should be lower. 35 Case 1:16-cv-06284-KBF Document 162 Filed 02/12/18 Page 22 of 30 18 B. NYU’s Recordkeeping Fees Were Unreasonable NYU’s recordkeeping fees were not objectively prudent. Defendant cannot meet its burden to demonstrate objective prudence.36 First, Defendant argues that its failure to consolidate to a single recordkeeper was objectively prudent. Defendant conveniently ignores its own internal documents, . See supra at 1-3. .37 Moreover, courts measure prudence by what a prudent investment professional would do . In re Meridian Funds Grp. Sec. & ERISA Litig., 917 F.Supp.2d 231, 240 (S.D.N.Y. 2013)(“prudence is measured against hypothetical sophisticated and prudent investment professionals”).38 Second, Defendant argues that the Plans’ fees were objectively prudent. Defendant ignores 36 The Second Circuit explicitly held in DePerno that the fiduciary bears the burden to demonstrate objective prudence. 18 F.3d at 182. Contrary to Defendant’s assertion, Silverman does not hold otherwise. See supra at n.27 37 Not all 403(b) plans are governed by ERISA. See, e.g., 72 Fed. Reg 41127 (July 26, 2007). 38 Defendant also incorporates by reference its argument from point I.A.5 that a single vendor is not always prudent. Doc. 132 at 16. For the reasons stated above, this argument fails. See supra at Part II.B.5. Case 1:16-cv-06284-KBF Document 162 Filed 02/12/18 Page 23 of 30 19 . Pls. 56.1 Resp. ¶239; Ex 7 (Corrected Geist Report) ¶151). NYU Imprudently Kept CREF Stock and TRE in the Plans IV. A. NYU’s Imprudent Process for Evaluating Investments In its watershed case on 401(k) fee, the Supreme Court made clear “a trustee has a continuing duty to monitor trust investments and remove imprudent ones.” Tibble, 135 S. Ct. at 1828. This requires a fiduciary to “systematically consider all the investments of the trust at regular intervals to ensure that they are appropriate.” Id. (internal quotations and alterations omitted). For prudence, “the court focuses not only on the merits of the transaction, but also on the thoroughness of the investigation into the merits of the transaction.” Tibble, 843 F.3d at 1197 (quotation omitted). A fiduciary must comply with “‘the prudent investor rule,’” which requires that he ‘invest and manage trust assets as a prudent investor would.’” Tibble, 843 F.3d at 1197 (quoting A. Hess, G. Bogert, & G. Bogert, Law of Trusts and Trustees § 684 (3d ed.)). NYU conducted no review of CREF Stock and TRE prior to 2011 and lacked a prudent review for the entire period. 1. Defendant’s failure to review CREF Stock and TRE Case 1:16-cv-06284-KBF Document 162 Filed 02/12/18 Page 24 of 30 20 .39 Defendant conducted no review and merely accepted the recordkeepers’ proprietary funds until June 2010. See supra at 5-6. When the Committee finally conducted a review of , it did not discuss either CREF Stock or TRE despite their years of underperformance. Doc. 134-35 (June 14, 2010 minutes). Additionally, NYU conducted no review on September 23, 2010, November 2, 2010, or January 10, 2011. See supra at 6. CREF Stock’s and TRE’s long history underperformance required removal at those meetings as well. 2. NYU’s imprudent investment review process after 2010 NYU conducted an imprudent investment review process even after 2010 for at least ten reasons. First, Defendant ignores that members of the committee lacked an understanding of basic investment terms and principles by itself makes prudent conduct difficult, if not impossible. Multiple members did not understand “revenue sharing” though it was used to pay recordkeeping fees the entire class period. See supra at 6-7. Additionally, Meagher knew nothing about float or securities lending and many basic facts about the Plans. See supra at 6-7. Another member could not even describe a variable annuity. See supra at 6-7. Many other examples abound. Pls.’ 56.1 Resp. ¶¶240-251. In short, the Committee could not make decisions “as a prudent investor would,” because co-chairs and members lacked the basic knowledge to do so. Tibble, 843 F.3d at 1197. Second, . A prudent 39 Pls. 56.1 Resp. ¶¶ 264-65; Ex. 1 (Buetow Report) ¶¶83-85 (documenting CREF Stock’s underperformance for three, five and ten years prior to December 2009); Ex. 94 (NYU0030499) at 521 (documenting CREF Stock’s underperformance for three and five years prior to December 2009); Ex. 1 (Buetow Report) ¶¶99-104 (documenting TRE’s underperformance for three and five years prior to December 2009). Case 1:16-cv-06284-KBF Document 162 Filed 02/12/18 Page 25 of 30 21 fiduciary would not use an improper benchmark to measure fee levels at all, much less for a decade. ¶¶65, 79. Third, NYU never formally adopted an Investment Policy Statement. See supra at 7. Prudence requires a formalized Investment Policy Statement to set standards for evaluating funds. Fourth, NYU could not adequately review the Plans’ vast number of investments in 30 minutes every quarter—under 18 seconds per investment per quarter and 72 seconds per year. See supra at 7-8. evidence exists that NYU reviewed a single prospectus for any investment, let alone over 100. Even Committee co- chair expressed alarm that they were “not really doing due diligence.” See supra at 7-8. A prudent investor either would have (a) allocated enough time to conduct meaningful due diligence on every investment in the Plans; or (b) streamlined or adopted a best in class fund lineup capable of review. Fifth, In fact, the Committee admitted TRE could not be benchmarked and TIAA had to develop a custom benchmark for the fund. Id. ¶157. Case 1:16-cv-06284-KBF Document 162 Filed 02/12/18 Page 26 of 30 22 Sixth, Seventh, . Eighth, AonHewitt, a large, national, independent consultant, recommended to its clients in 2012 that they remove CREF Stock from their plans.40 AonHewitt’s recommendation demonstrates the imprudence of CREF Stock, yet NYU still included it in the Plans. Ninth, Tenth, NYU never truly reviewed or considered removing CREF Stock from the Plans because TIAA’s contract required it to be in the Plans. Pls.’ 56.1 Resp. ¶254; Ex. 2, (Dep. of M. 40 Ex. 32 (AonHewitt, TIAA-CREF Asset Management, InBrief, at 3 (July 2012), available at http://system.nevada.edu/Nshe/?LinkServID=82B25D1E-9128-6E45-1094320FC2037740.) Case 1:16-cv-06284-KBF Document 162 Filed 02/12/18 Page 27 of 30 23 Meagher) at 206:8-12. It is an elementary fiduciary principle that retaining a fund regardless of performance is imprudent. Tibble, 135 S. Ct. at 1828 (“a trustee has a continuing duty to monitor trust investments and remove imprudent ones.”) In sum, this mountain of evidence not only creates issues of fact as to whether NYU acted prudently, but overwhelmingly compels the conclusion it did not. 3. Defendant’s hindsight analysis is irrelevant Defendant’s discussion of CREF Stock and TRE and their performance after 2010 is hindsight analysis and irrelevant. Defendant’s argument focuses entirely on the review process after 2010, discussions of TRE and CREF Stock post 2010, and performance of the investments after 2010. Doc. 132 at 18-22. However, this analysis is irrelevant to “whether ‘the individual trustee[] [NYU] at the time they engaged in the challenged transactions, [before 2010], employed the appropriate method to investigate the merits.” Doc. 132 at 5 (quoting Doc. 79 at 8.) B. CREF Stock and TRE Were Imprudent On December 31, 2009 Defendant fails to meet its burden of demonstrating objective prudence regarding CREF Stock and TRE. In 2012, AonHewitt, an independent recordkeeper, recommended that its clients remove CREF stock. See supra at n.38. Prudence is not measured by but by a prudent investment professional. In re Meridian Funds Grp. Sec., 917 F. Supp. 2d 231, 240 (S.D.N.Y. Case 1:16-cv-06284-KBF Document 162 Filed 02/12/18 Page 28 of 30 24 2013). NYU’s standard would mandate that popularity determine prudence. By such a standard, a Bernie Madoff fund could be considered prudent. Moreover, Third, Plaintiffs’ Amended Complaint merely cites CalTech’s consolidation to single recordkeeper to show feasibility having nothing to do with TRE. Finally, 41 Case 1:16-cv-06284-KBF Document 162 Filed 02/12/18 Page 29 of 30 25 CONCLUSION For the reasons stated above, genuine issues of material fact clearly exists and Defendant’s motion to for summary judgment (Doc. 131) should be denied. February 12, 2018 Respectfully submitted, /s/ Joel D. Rohlf SCHLICHTER, BOGARD & DENTON, LLP Andrew D. Schlichter, Bar No. 4403267 Jerome J. Schlichter (pro hac vice) Heather Lea (pro hac vice) Joel Rohlf (pro hac vice) James Redd, IV (pro hac vice) Ethan Hatch (pro hac vice) 100 South Fourth Street, Suite 1200 St. Louis, MO 63102 Phone: (314) 621-6115 Fax: (314) 621-5934 Counsel for Plaintiffs CERTIFICATE OF SERVICE I hereby certify that on February 12, 2018, I electronically filed the foregoing document with the Clerk of Court using the CM/ECF system which will automatically send e-mail notification of such filing to the attorneys of record. /s/ Joel D. Rohlf Attorney for Plaintiffs Case 1:16-cv-06284-KBF Document 162 Filed 02/12/18 Page 30 of 30