Charles Creamer, et al v. Starwood Hotels And Resorts Worldwide, Inc.

NOTICE OF MOTION AND MOTION to Dismiss Case

C.D. Cal.March 13, 2017

CROWELL & MORING LLP ATTO RN EY S AT LA W 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 NOTICE OF MOTION AND MOTION TO DISMISS; CASE NO. 2:16-CV-09321-DSF-MRWx CROWELL & MORING LLP Jennifer S. Romano (CSB No. 195953) Megan A. Weisgerber (CSB No. 285271) 515 South Flower St., 40th Floor Los Angeles, CA 90071 Telephone: 213.622.4750 Facsimile: 213.622.2690 Email: jromano@crowell.com mweisgerber@crowell.com CROWELL & MORING LLP Jeffrey L. Poston (Admitted Pro Hac Vice) Charles D. Austin (Admitted Pro Hac Vice) 1001 Pennsylvania Avenue, NW Washington, DC 20004 Telephone: 202.624.2500 Facsimile: 213.628.5116 Email: jposton@crowell.com caustin@crowell.com Attorneys for Defendant Starwood Hotels and Resorts Worldwide, LLC UNITED STATES DISTRICT COURT CENTRAL DISTRICT OF CALIFORNIA CHARLES CREAMER et al., Plaintiff, v. STARWOOD HOTELS AND RESORTS WORLDWIDE, INC., Defendant. Case No. 2:16-cv-9321-DSF (MRWx) DEFENDANT STARWOOD HOTELS AND RESORTS WORLDWIDE, LLC’S NOTICE OF MOTION AND MOTION TO DISMISS COMPLAINT; MEMORANDUM OF POINTS AND AUTHORITIES Hearing Date: May 1, 2017 Hearing Time: 1:30 p.m. Courtroom: 7D, First St. Courthouse Judge: Hon. Dale S. Fischer Case 2:16-cv-09321-DSF-MRW Document 31 Filed 03/13/17 Page 1 of 2 Page ID #:298 CROWELL & MORING LLP ATTO RN EY S AT LA W 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 -1- NOTICE OF MOTION AND MOTION TO DISMISS; CASE NO. 2:16-CV-09321-DSF-MRWx TO ALL PARTIES AND TO THEIR ATTORNEYS OF RECORD: PLEASE TAKE NOTICE that on May 1, 2017 at 1:30 p.m., or as soon thereafter as the matter may be heard in Courtroom 7D of the above-entitled Court located at 350 West 1st Street, Los Angeles, California 90012, Defendant Starwood Hotels and Resorts Worldwide, LLC (“Starwood”) will and hereby does move this Court to dismiss Plaintiffs Charles Creamer and Jennif r Trevino’s Complaint under Federal Rule of Civil Procedure (“Rule”) 12(b)(6) because the Complaint fails to plead sufficient facts to state a plausible claim for relief as required by Rule 8(a). This motion is made following a conference of counsel pursuant to Local Rule 7-3, which took place on January 30, 2017. This motion is based on this notice of motion, the attached memorandum of points a d authorities, the papers and records on file, and the oral argument and documentary evidence that may be presented at the hearing on this motion. Dated: March 13, 2017 CROWELL & MORING LLP /s/ Jennifer S. Romano Jennifer S. Romano Jeffrey L. Poston Charles D. Austin Megan A. Weisgerber Attorneys for Defendant STARWOOD HOTELS AND RESORTS WORLDWIDE, LLC Case 2:16-cv-09321-DSF-MRW Document 31 Filed 03/13/17 Page 2 of 2 Page ID #:299 CROWELL & MORING LLP ATTO RN EY S AT LA W 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 NOTICE OF MOTION AND MOTION TO DISMISS; CASE NO. 2:16-CV-09321-DSF-MRWx CROWELL & MORING LLP Jennifer S. Romano (CSB No. 195953) Megan A. Weisgerber (CSB No. 285271) 515 South Flower St., 40th Floor Los Angeles, CA 90071 Telephone: 213.622.4750 Facsimile: 213.622.2690 Email: jromano@crowell.com mweisgerber@crowell.com CROWELL & MORING LLP Jeffrey L. Poston (Admitted Pro Hac Vice) Charles D. Austin (Admitted Pro Hac Vice) 1001 Pennsylvania Avenue, NW Washington, DC 20004 Telephone: 202.624.2500 Facsimile: 213.628.5116 Email: jposton@crowell.com caustin@crowell.com Attorneys for Defendant Starwood Hotels and Resorts Worldwide, LLC UNITED STATES DISTRICT COURT CENTRAL DISTRICT OF CALIFORNIA CHARLES CREAMER et al., Plaintiff, v. STARWOOD HOTELS AND RESORTS WORLDWIDE, INC., Defendant. Case No. 2:16-cv-9321-DSF (MRWx) MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF MOTION TO DISMISS Hearing Date: May 1, 2017 Hearing Time: 1:30 p.m. Courtroom: 7D, First St. Courthouse Judge: Hon. Dale S. Fischer Case 2:16-cv-09321-DSF-MRW Document 31-1 Filed 03/13/17 Page 1 of 29 Page ID #:300 CROWELL & MORING LLP ATTO RN EY S AT LA W 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 TABLE OF CONTENTS Page -i- NOTICE OF MOTION AND MOTION TO DISMISS; CASE NO. 2:16-CV-09321-DSF-MRWx INTRODUCTION ........................................................................................ 1 BACKGROUND .......................................................................................... 3 A. The Starwood Plan offered a range of investment options for its participants ......................................................................................... 3 B. Plaintiffs participated in the Plan and controlled their investment choices ........................................................................................ 4 C. Starwood disclosed the amount of fees Plaintiffs paid and how those fees were calculated ..................................................................... 5 D. Starwood’s disclosed each year that it engaged in revenue sharing .............................................................................................. 6 ARGUMENT ............................................................................................. 7 I. PLAINTIFFS FAIL TO STATE A BREACH OF FIDUCIARY DUTY BASED ON STARWOOD’S ALLEGED FAILURE TO ENSURE REASONABLE FEES .................................................................................... 9 A. Plaintiffs’ allegations fail to satisfy the Twombly plausibility standard ....................................................................................... 9 B. Plaintiffs’ unsupported conclusions do not implicate fiduciary duties or demonstrate any fiduciary misconduct ....... ..................... 10 C. Plaintiffs’ excessive fees theory is time-barred .................................. 13 II. PLAINTIFFS’ “REVENUE SHARING” CLAIM DOES NOT CONSTITUTE A BREACH OF FIDUCIARY DUTY ............................. 14 A. Plaintiffs fail to allege a violation of any fiduciary duty related to revenue sharing ............................................................................... 15 B. Plaintiffs’ revenue-sharing claim is time-barred ................................ 16 III. PLAINTIFFS’ CLAIM ALLEGING “TWO LAYERS” OF FEES FOR THE BLACKROCK LIFEPATH INDEX FUNDS IS NOT ACTIONABLE ....................................................................................... 17 A. Plaintiffs fail to allege any imprudent or disloyal conduct related to the Plan’s offering of BlackRock LifePath Index Funds ................ 17 B. The Plan offered multiple investment options other than the BlackRock LifePath Index Funds ................................................. 19 C. Plaintiffs’ theory about “two layers” of fees is t me-barred ............... 19 IV. PLAINTIFFS CANNOT STATE A CLAIM BASED ON THE OMISSION OF A STABLE VALUE FUND ............................................... 20 A. Fiduciaries are under no legal obligation to offer any particular type of fund as an investment option, including a stable value fund ............................................................................................ 20 B. Plaintiffs’ “stable value fund” claim is time-barred ........................... 21 Case 2:16-cv-09321-DSF-MRW Document 31-1 Filed 03/13/17 Page 2 of 29 Page ID #:301 CROWELL & MORING LLP ATTO RN EY S AT LA W 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 TABLE OF CONTENTS (continued) Page -ii - NOTICE OF MOTION AND MOTION TO DISMISS; CASE NO. 2:16-CV-09321-DSF-MRWx V. PLAINTIFF CREAMER’S THEORY THAT STARWOOD FAILED TO FOLLOW INVESTMENT INSTRUCTIONS FAILS TO STATE A CLAIM ............................................................................................. 21 A. Mr. Creamer’s claim is time-barred by the statute of limitations ....... 22 B. Plaintiffs’ allegations of plan-wide harm fail to satisfy the Twombly plausibility standard ............................................................ 22 CONCLUSION .............................................................................................. 23 Case 2:16-cv-09321-DSF-MRW Document 31-1 Filed 03/13/17 Page 3 of 29 Page ID #:302 CROWELL & MORING LLP ATTO RN EY S AT LA W 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 -iii - NOTICE OF MOTION AND MOTION TO DISMISS; CASE NO. 2:16-CV-09321-DSF-MRWx TABLE OF AUTHORITIES Page(s) Cases Ashcroft v. Iqbal, 556 U.S. 662 (2009) ............................................................................. 8, 15 Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) ........................................................................ 7, 9, 20, 22 Fifth Third Bancorp v. Dudenhoeffer, 134 S. Ct. 2459 (2014) ..................................................................................... 8 In re Gilead Sci. Sec. Litig., 536 F.3d 1049 (9th Cir. 2008) .................................................................... 3 Gobeille v. Liberty Mut. Ins. Co., 136 S. Ct. 936 (2016) ................................................................................. 8 Hecker v. Deere & Co., 556 F.3d 575 (7th Cir. 2009) .................................................................. passim In re Honda of Am. Mfg., Inc. Erisa Fees Litig., 661 F. Supp. 2d 861 (S.D. Ohio 2009) ................................................... 17, 20 Jablon v. Dean Witter & Co., 614 F.2d 677 (9th Cir. 1980) .................................................................... 13 Knopick v. UBS Fin. Servs., Inc., 121 F. Supp. 3d 444 ............................... .................................................. 17 Landwehr v. DuPree, 72 F.3d 726 (9th Cir. 1995) ...................................................................... 13 Loomis v. Exelon Corp., 658 F.3d 667 (7th Cir. 2011) ....................................................... 11, 13, 15,8 In re McKesson HBOC, Inc. ERISA Litig., 391 F. Supp. 2d 812 (N.D. Cal. 2005).......................................................... 15 In re Northrop Grumman Corp. Erisa Litig., No. CV 06-06213, 2015 WL 10433713 (C.D. Cal. Nov. 24, 015) ................... 14 Case 2:16-cv-09321-DSF-MRW Document 31-1 Filed 03/13/17 Page 4 of 29 Page ID #:303 CROWELL & MORING LLP ATTO RN EY S AT LA W 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 -iv- NOTICE OF MOTION AND MOTION TO DISMISS; CASE NO. 2:16-CV-09321-DSF-MRWx Renfro v. Unisys Corp., 671 F.3d 314 (3d Cir. 2011) ................................................................ 7, 11, 13 Renfro v. Unisys Corp., No. 07-2098, 2010 WL 1688540 (E.D. Pa. Apr. 26, 2010) ................................ 15 Romero v. Nokia, Inc., No. C 12-6260 PJH, 2013 WL 5692324 (N.D. Cal. Oct. 15, 2013) ..................... 8 Rosen v. Prudential Ret. & Ins. & Annuity Co., No. 3:15-cv-1839, 2016 WL 7494320 (D. Conn. Dec. 30, 2016) ................ 10, 13 Shirk v. Fifth Third Bancorp, No. 05cv-049, 2008 WL 4449024 (S.D. Ohio Sept. 26, 2008) ........................... 17 Sprewell v. Golden State Warriors, 266 F.3d 979 (9th Cir. 2001) ...................................................................... 7 Pension Ben. Guar. Corp. ex rel. St. Vincent Catholic Med. Ctrs. Ret. Plan v. Morgan Stanley Inv. Mgmt. Inc., 712 F.3d 705 (2d Cir. 2013) .................................................................... 7, 9 Tibble v. Edison Int’l, 135 S. Ct. 1823 (2015) ..................................................................................... 8 Tibble v. Edison Int’l, 729 F.3d 1110 (9th Cir. 2013) .................................................................. 8, 13 United States v. Ritchie, 342 F.3d 903 (9th Cir. 2003) .................................................................... 19 White v. Chevron Corp., No. 16-cv-0793, 2016 WL 4502808 (N.D. Cal. Aug. 29,016) ................. passim Wise v. Verizon Commc’ns, Inc., 600 F.3d 1180 (9th Cir. 2010) .................................................................. 22 Yamauchi v. Cotterman, 84 F. Supp. 3d 993 (N.D. Cal. 2015) ............... ....................................... 13, 22 Young v. Gen. Motors Inv. Mgmt. Corp., 325 F. App’x 31 (2d Cir. 2009) .................................................................. 10 Case 2:16-cv-09321-DSF-MRW Document 31-1 Filed 03/13/17 Page 5 of 29 Page ID #:304 CROWELL & MORING LLP ATTO RN EY S AT LA W 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 -v- NOTICE OF MOTION AND MOTION TO DISMISS; CASE NO. 2:16-CV-09321-DSF-MRWx Young v. Gen. Motors Inv. Mgmt. Corp., 550 F. Supp. 2d 416 (S.D.N.Y. 2008) ............... ............................... 14, 20, 21 Statutes 29 U.S.C. § 1101 .............................................................................................. 1 29 U.S.C. § 1104(a) ............................................................................... 7, 8, 19 29 U.S.C. §1109 ............................................................................................. 22 29 U.S.C. § 1113 ............................................................................................ 22 Other Authorities Department of Labor Opinion 97-15A, 1997 WL 277980 (May 22, 1997) ............................................................................................................... 15 Case 2:16-cv-09321-DSF-MRW Document 31-1 Filed 03/13/17 Page 6 of 29 Page ID #:305 CROWELL & MORING LLP ATTO RN EY S AT LA W 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 -1- NOTICE OF MOTION AND MOTION TO DISMISS; CASE NO. 2:16-CV-09321-DSF-MRWx MEMORANDUM OF POINTS OF AUTHORITIES INTRODUCTION Plaintiffs Charles Creamer and Jennifer Trevino assert a single cause of action, claiming that Starwood Hotels and Resorts Worldwide, LLC1 (“Starwood”) violated its fiduciary duties under the Employee Retirement Income Security Act of 1974 (“ERISA”), 29 U.S.C. § 1101, et seq., with respect to the Starwood Hotels & Resorts Savings and Retirement Plan (“Starwood Plan” or the “Plan”), a 401(k) retirement plan that Starwood made available to its employees. Though nominally a single count, Plaintiffs allege five separate purported breaches of fiduciary duties. Each of these theories fails to state a claim under ERISA. Indeed, Plaintiffs’ Complaint ignores the relevant ERISA standard, which addresses whether Starwood acted with reasonable care, skill, and pruence at the time it made its investment decisions. The fatal flaws of Plaintiffs’ theories are not confined to the four corners of the Complaint. Plaintiffs attach 92 pages of exhibits (Plan-related documents) that actually refute their claims. These exhibits show that Plaintiffs cannot state a claim that Starwood breached its fiduciary duty under any o e of their five theories, even if given an opportunity to amend. First, Plaintiffs allege that Starwood breached its fiduciary duty by failing to ensure participants paid reasonable fees. But Plaintiffs fail to identify which fees were allegedly excessive, the amount of fees charged during the relevant time period, and why such fees are excessive as a matter of law. Rather, Plaintiffs simply state in a conclusory manner that the Plan charged excessive fees and those fees were reduced in 2015. This is insufficient to sustain a claim for breach of 1 On September 23, 2016, in connection with a corporate merger of Starwood Hotels & Resorts Worldwide, Inc. and Marriott International, Inc., Starwood Hotels & Resorts Worldwide, Inc. converted into a limited liability company and was renamed Starwood Hotels & Resorts Worldwide, LLC. Case 2:16-cv-09321-DSF-MRW Document 31-1 Filed 03/13/17 Page 7 of 29 Page ID #:306 CROWELL & MORING LLP ATTO RN EY S AT LA W 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 -2- NOTICE OF MOTION AND MOTION TO DISMISS; CASE NO. 2:16-CV-09321-DSF-MRWx fiduciary duty. Plaintiffs’ excessive-fees theory is also time-barred under ERISA’s 3-year statute of limitations because Plaintiffs had actual knowledge of the alleged violations as early 2010, and they failed to bring a timely claim. Second, Plaintiffs contend that Starwood unlawfully concealed the amount the Plan received pursuant to “revenue sharing” agreements with certain Plan investment funds. Plaintiffs muse that such practices “can easily become kickbacks,” but they do not allege actual kickbacks occurred. Moreover, Plaintiffs’ Annual Statements disclosed this practice beginning i 2010, giving Plaintiffs actual knowledge of the alleged violations and renderi g their claim time-barred. Third, Plaintiffs claim that certain BlackRock index funds imposed “two layers of fees” not charged by comparable funds. Yet, Plaintiffs fail to identify how the Plan’s inclusion of these BlackRock funds was imprudent. Moreover, Plaintiffs’ own exhibits show there were multiple investment options beyond the BlackRock funds and that Plaintiffs were free to invest in those other funds. Further, because Plaintiffs knew the composition of the available investment funds and their fee rates as early as 2010, their theory is barred by the statute of limitations. Fourth, Plaintiffs contend that the Plan’s decision t offer money market investment options rather than an alternative “stable value fund” is a breach of fiduciary duty. But Plaintiffs never allege that the Plan imprudently selected the money market fund as one of its investment options. Moreover, no law requires the inclusion of a stable value fund in a retirement plan, and no law recognizes a breach of fiduciary duty where a Plan selects a money market investment as a retirement fund option. Regardless, Plaintiffs knew no later than 2011 that the Plan included a money market fund and not a stable value fund, and thus this claim too is untimely. Finally, Plaintiff Creamer alone claims that the Plan ignored his investment selections and made contributions to the wrong fundbeginning in 2010. Again, the Plan supplied Creamer with regular statements identifying his investment selections Case 2:16-cv-09321-DSF-MRW Document 31-1 Filed 03/13/17 Page 8 of 29 Page ID #:307 CROWELL & MORING LLP ATTO RN EY S AT LA W 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 -3- NOTICE OF MOTION AND MOTION TO DISMISS; CASE NO. 2:16-CV-09321-DSF-MRWx and the alleged misallocation to the wrong fund beginning in 2011. His failure to bring his claim within the 3-year limitations period mandates dismissal. This claim is also not proper under the cited ERISA provisions as it asserts only individual harm to Creamer rather than the requisite harm to the Plan. For these reasons, Starwood respectfully requests that the Court dismiss Plaintiffs’ Complaint with prejudice. BACKGROUND 2 A. The Starwood Plan offered a range of investment options for its participants. The Starwood Plan is a retirement benefit that Starwood offers to its employees. As of December 31, 2015, the Starwood Plan had $1.23 billion in assets and more than 43,000 participants. (ECF No. 1 (“Compl.”) ¶ 14.) The Plan offers its participants a range of investmnt options, including a mix of actively managed and index funds, growth and value funds, large and small-cap funds, a mix of domestic and international funds, mutual funds, and bond funds. (See, e.g., ECF No. 13, Compl. Ex. 1 at 5, 31–34.) Between 2010 and 2016, the Plan offered between 18 and 23 investment options. (See, e.g., Compl. Ex. 1 at 23, 69–71, 79–82.) As explained to participants in the Plan’s disclosure documents, the investment options were subject to change—and did in fact change over time—and different investment options are subject to various fees. (See, e.g., Compl. Ex. 1 at 6, 26.) Plan documents attached to the Complaint titled “STARWOOD SAVINGS & RETIREMENT PLAN Information About Plan Fees and Investments” (“Plan Information”) provided participants detailed information, including descriptions of available investment options, 2 For the purpose of this Motion to Dismiss, the facts as described below are taken from the Complaint and documents referenced th rein. See, e.g., In re Gilead Sci. Sec. Litig., 536 F.3d 1049, 1055 (9th Cir. 2008). Case 2:16-cv-09321-DSF-MRW Document 31-1 Filed 03/13/17 Page 9 of 29 Page ID #:308 CROWELL & MORING LLP ATTO RN EY S AT LA W 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 -4- NOTICE OF MOTION AND MOTION TO DISMISS; CASE NO. 2:16-CV-09321-DSF-MRWx benchmarks for those options, and their fee schedules, as well as a “frequently-asked questions” section discussing various aspects of Plan operation and administration. (Compl. Ex. 1 at 26, 36; Ex. 2 at 65, 75.) B. Plaintiffs participated in the Plan and controlled their investment choices. Plaintiffs are former Starwood employees. Mr. Cream r worked for Starwood for about six years, through November 2016. (Compl. ¶ 17.) Ms. Trevino worked for Starwood from 2010 through 2012 and again from 2013 through December 2015. (Compl. ¶ 18.) Under the Plan’s terms, Plaintiffs had full control over their investment contributions, including the ability to make changes to their investments daily: The Plan permits you, as a participant or beneficiary, to choose how your funds in the Plan are invested. . . . You can select the investment mix that you think best meets your individual goals. . . . You may change the investment of your existing account balance daily by accessing the Plan website . . . or by calling the Starwood 401(k) Hotline . . . . (Compl. Ex. 1 at 36; Ex. 2 at 65, 75.) The Plan provided Plaintiffs with Annual Statements detailing their investments and the performance of their accounts. (See, e.g., Compl. Ex. 1 at 4; Ex. 2 at 49.) Plaintiffs were free to choose from the different investment options the Plan offered, and encouraged to consult investment experts. (See, e.g., Compl. Ex. 1 at 28–29.) Mr. Creamer alleges that in 2010, he allocated his contributions in six different investment funds (including 25% to the Vanguard Institutional Fund Index). (Compl. ¶¶ 38–40.) He alleges he allocated nothing to any BlackRock index fund. (Id.) In each of his Annual Statements attached to the Complaint, however, Starwood informed Mr. Creamer under the “Your Account Activity Summary” heading that 100% of his contributions were allocated to the BlackRock LifePath 2050 Index Fund. (Compl. Ex. 1 at 5.) There is no allegation that Mr. Case 2:16-cv-09321-DSF-MRW Document 31-1 Filed 03/13/17 Page 10 of 29 Page ID #:309 CROWELL & MORING LLP ATTO RN EY S AT LA W 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 -5- NOTICE OF MOTION AND MOTION TO DISMISS; CASE NO. 2:16-CV-09321-DSF-MRWx Creamer ever reported or sought to change this allocation. Each year she participated in the Plan, Ms. Trevino invested 100% of her contributions to the BlackRock LifePath 2050 Index Fund. (See Compl. Ex. 2 at 50, 52, 56, 59, 61.) C. Starwood disclosed the amount of fees Plaintiffs paid and how those fees were calculated. The Plan disclosed repeatedly the fact that Plaintiffs could be charged fees and how those fees were calculated. (See, e.g., Compl. Ex. 1 at 27, 37.) There are two broad categories of fees. First, there are administration fees charged by the Plan, which include administrative and recordkeeping fees (“Plan Administrative Fees”). (See, e.g., Compl. Ex. 1 at 27 (explaining that “[a] charge is deducted from the investment return of each investment fund over th course of each year to cover the cost of the Plan’s operations,” including for recordkeeping, trustee services, Plan communications, and investor fees). In the “Fee Detail” section of participants’ Annual Statements, each participant is otified whether and how much the participant paid in Plan Administrative Fees. (See, e.g., Compl. Ex. 1 at 11.) The Plan charged Mr. Creamer either zero or de minimis Plan Administrative Fees for almost all of the relevant time period. In 201, 2013, and 2014 statement periods, “[a]ccording to the plan records, no fees w re deducted from [his] account.” (Compl. Ex. 1 at 11, 14, 17.) He was charged $0.01 in 2010 and $0.24 in 2011 (a total of 25 cents in Plan Administrative Fes). (Compl. Ex. 1 at 5, 8.) In 2011, Ms. Trevino was charged $0.21 in Plan Administrative Fees. (Compl. Ex. 2 at 53.) In all other years, Ms. Trevino was charged z ro in Plan Administrative Fees. (Compl. Ex. 2 at 50, 56, 59, 62.) Second, each investment fund charges its own fees, which vary from fund to fund (“Individual Fund Fees”). These Individual Fund Fees are proportional to the balance of an individual’s account. (See, e.g., Compl. Ex. 1 at 27 (“Because the total fees charged by each investment fund described a ove are deducted from the Case 2:16-cv-09321-DSF-MRW Document 31-1 Filed 03/13/17 Page 11 of 29 Page ID #:310 CROWELL & MORING LLP ATTO RN EY S AT LA W 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 -6- NOTICE OF MOTION AND MOTION TO DISMISS; CASE NO. 2:16-CV-09321-DSF-MRWx funds’ investment return, the portion of these fees that you pay is in proportion to your account balance (that is, the larger your account balance, the larger the share of these fees that you pay).”) Thus, participants wi h relatively modest account balances might pay nominal fees or no fees at all, whi e participants with large accounts pay larger fees proportionate with their account balances. (See id.) The Plan Information documents show that the Plan disclosed the fee rates— labeled “total operating expense”—for each investment option and directed participants to review fund-specific documents, such as prospectuses, for more information on the investment options. (See, e.g., Compl. Ex. 1 at 45.) The Plan’s 2012 disclosure showed Individual Fund Fees ranged between 0.47% and 1.74%, with the majority of options charging less than 1% in fees. (Compl. Ex. 2 at 72-73.) Fees were reduced the following year, with the Plan’s 2013 disclosure showing fees ranging from 0.28% to 1.67%. All but four investment options imposed fees less than 1%, and fifteen investment options charged fees l ss than 0.50%. (Compl. Ex. 2 at 83–84.) By June 2015, fees were reduced again. Twenty-one of the 23 investment options carried total fee rates of less than 1%, and five funds charged rates of less than 0.2%, with the lowest rate being 0.1%. (Compl. Ex. 1 at 45–46.) D. Starwood’s disclosed each year that it engaged in revenue sharing. The Plan Information documents also show that Starwood notified participants that the Plan engaged in revenue sharing with some investment funds. Each yearly Account Statement contained the following information under the “Fee Detail” section: “Some of the Plan’s other administrative expenses are paid from the total annual operating expenses of one or more of the Plan’s investment funds (e.g. through an adjustment to the investment returns from the fund and through the proceeds of revenue sharing arrangements).” (See, e.g., Compl. Ex. 1 at 5.) The Plan Information documents also informed participants of these revenue- sharing arrangements. Under a frequently asked questions-style section with the subheading, “Explain the fees that are deducted from my account,” the Plan Case 2:16-cv-09321-DSF-MRW Document 31-1 Filed 03/13/17 Page 12 of 29 Page ID #:311 CROWELL & MORING LLP ATTO RN EY S AT LA W 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 -7- NOTICE OF MOTION AND MOTION TO DISMISS; CASE NO. 2:16-CV-09321-DSF-MRWx Information documents explained: Some of the investment funds return to the Plan a portion of the fees they charge, a process which is called “revenue sharing.” These amounts are usually used to pay Plan expenses. The Plan may credit revenue sharing amounts back to the funds and theseamounts would then be applied toward the cost of the Plan operations that are described above. (Compl. Ex. 1 at 27, 37; Compl. Ex. 2 at 66, 76.) ARGUMENT 3 Distilled to their essence, Plaintiffs’ theories contend merely that in hindsight, the Plan could have offered alternative in stment options that, if selected by participants, might have allowed for a better investment return. These types of backward-looking ERISA theories are routinely and firmly rejected by the courts at the pleading stage, as a claim for breach of a fiduciary duty requires much more. See, e.g., Pension Ben. Guar. Corp. ex rel. St. Vincent Catholic Med. Ctrs. Ret. Plan v. Morgan Stanley Inv. Mgmt. Inc. (“St. Vincent”), 712 F.3d 705 (2d Cir. 2013); Renfro v. Unisys Corp., 671 F.3d 314 (3d Cir. 2011); Hecker v. Deere & Co., 556 F.3d 575 (7th Cir. 2009); White v. Chevron Corp., No. 16-cv-0793, 2016 WL 4502808 (N.D. Cal. Aug. 29, 2016). ERISA provides that a fiduciary cannot be held liable for a breach of fiduciary duty unless its actions are found to be imprudent. 29 U.S.C. § 1104(a). To state a claim for breach of the duty of prudence, a plaintiff must allege facts 3 To survive the motion, a complaint must contain “eough facts to state a claim to relief that is plausible on its face,” whic requires the allegations to “be enough to raise a right to relief above the speculative level.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555, 570 (2007). The Court is not obligated to assume the truth of any allegations that are “merely conclusory, unwarranted deductions of fact, or unreasonable inferences,” or any allegations that contradict the exhibits to the complaint and other facts subject to judicial notice. Sprewell v. Golden State Warriors, 266 F.3d 979, 988 (9th Cir. 2001) (citations omitted), opinion amended on denial of reh’g, 275 F.3d 1187 (9th Cir. 2001). Case 2:16-cv-09321-DSF-MRW Document 31-1 Filed 03/13/17 Page 13 of 29 Page ID #:312 CROWELL & MORING LLP ATTO RN EY S AT LA W 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 -8- NOTICE OF MOTION AND MOTION TO DISMISS; CASE NO. 2:16-CV-09321-DSF-MRWx showing that the fiduciary failed to act “with the care, skill, prudence, and diligence that a prudent person acting in a like capacity and f miliar with such matters would use.” Tibble v. Edison Int’l (“Tibble II”), 135 S. Ct. 1823, 1828 (2015) (quotations omitted). Thus, plaintiffs must show more than just nfavorable results. See id.; see also Gobeille v. Liberty Mut. Ins. Co., 136 S. Ct. 936, 943 (2016) (“ERISA does not guarantee substantive benefits. The statute, instead, seeks to make the benefits promised by an employer more secure by mandating certain oversight and other standard procedures.”). In assessing prudence, the court must judge the fiduciary’s actions based on its process, not on the outcome of the fiduciary’s or beneficiary’s investment decisions. Tibble v. Edison Int’l, 729 F.3d 1110, 1136 (9th Cir. 2013) (“Tibble I”) (“the primary question is whether the fiduciaries, at the time they engaged in the challenged transactions, employed the appropriate methods to investigate the merits of the investment and to structure the investment”), vacated on other grounds, Tibble II, 135 S. Ct. 1823 (2015); see also Fifth Third Bancorp v. Dudenhoeffer, 134 S. Ct. 2459, 2471 (2014) (the duty of prudence turns on “the circumstances . . . prevailing” at the time the fiduciary acts). Fiduciaries also have a duty of loyalty to act “solely in the interest of the participants and beneficiaries,” and “for the exclusive purpose of . . . providing benefits to participants and beneficiaries.” 29 U.S.C. § 1104(a)(1)(A); White v. Chevron Corp., 2016 WL 4502808, at *4 (this duty requires that fiduciaries “make decisions ‘with an eye single to the interests of the participants and fiduciaries’”) (quoting Pegram v. Herdich, 530 U.S. 211, 235 (2000)). A claim of disloyalty must allege facts plausibly suggesting an improper motive, rather than conduct that has an “obvious alternative explanation.” Ashcroft v. Iqbal, 556 U.S. 662, 682 (2009); see also Romero v. Nokia, Inc., No. C 12-6260 PJH, 2013 WL 5692324, at *5 (N.D. Cal. Oct. 15, 2013) (dismissing disloyalty claim with prejudice because the duty of loyalty “‘hinge[d] entirely’ on the prudence-based allegations” that the court dismissed, and the plaintiff did not “present a y separate allegations regarding Case 2:16-cv-09321-DSF-MRW Document 31-1 Filed 03/13/17 Page 14 of 29 Page ID #:313 CROWELL & MORING LLP ATTO RN EY S AT LA W 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 -9- NOTICE OF MOTION AND MOTION TO DISMISS; CASE NO. 2:16-CV-09321-DSF-MRWx any loyalty breach”). In ERISA actions, courts are especially vigilant against permitting fishing expeditions or “settlement extortion” premised on cclusory allegations of fiduciary breaches. St. Vincent, 712 F.3d at 718–19; see also id. at 719 (noting the “ominous” prospect of probing and burdensome discovery where “a plaintiff with a largely groundless claim [will] simply take up the time of a number of other people, with the right to do so representing an in terrorem increment of the settlement value, rather than a reasonably founded hope that the discovery process will reveal relevant evidence”) (internal quotation marks and citation omitted). The Complaint fails to allege facts showing disloyaty or imprudence in the process Starwood employed in investigating and selecting investment choices offered in the Plan. Plaintiffs instead offer only conclusions and allegations that lack a factual basis. “[I]mprecise pleading is particularly inappropriate here, where the plaintiffs necessarily have access, without discovery, to plan documents and reports that provide specific information from whic to fashion a suitable complaint.” Id. at 723. I. PLAINTIFFS FAIL TO STATE A BREACH OF FIDUCIARY DUTY BASED ON STARWOOD’S ALLEGED FAILURE TO ENSURE REASONABLE FEES. Plaintiffs contend that Starwood breached its fiducary duty by subjecting participants to investment options with excessive fees. (Compl. ¶¶ 22-32.) This claim is bereft of any factual basis and fails to identify which fees are being challenged as excessive. A. Plaintiffs’ allegations fail to satisfy the Twombly plausibility standard. Plaintiffs’ theory is tied to the allegations that in 2015 the Plan reduced some unidentified fees by forty basis points (4/10 of one percent), and that the Plan should have used a flat fee instead of an asset-basd fee. These allegations fail to specify which fees are at issue—Plan Administrative fees, Individual Fund Fees, or Case 2:16-cv-09321-DSF-MRW Document 31-1 Filed 03/13/17 Page 15 of 29 Page ID #:314 CROWELL & MORING LLP ATTO RN EY S AT LA W 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 -10- NOTICE OF MOTION AND MOTION TO DISMISS; CASE NO. 2:16-CV-09321-DSF-MRWx some subset of either—or why the fees were excessive a a matter of law. The Complaint also is devoid of any allegations regarding whether the post-2015 fees were reasonable (and why), why the pre-2015 fees were allegedly unreasonable, and whether Plaintiffs are challenging all pre-2015 fees or only fees in certain years. The Complaint merely states in a conclusory fashion that some fees charged at some point were excessive. Yet, their own exhibits undercut this claim. For example, Plaintiffs declare that the Starwood Plan “has consistently averaged recordkeeping and administrative fees that are close t $100.” (Compl. at ¶ 28.) Setting aside the conclusory nature of this contention, he Complaint exhibits show they paid virtually no Plan Administrative Fees betw en 2010 and 2016: Plaintiff Creamer paid $0.10 in 2010, $0.24 in 2011, and zero fees in 2012, 2013, and 2014; Plaintiff Trevino paid $0.21 in 2011 and zero fees all other years. As Plaintiffs’ allegations simply do not “create more than a ‘sheer possibility that [the Plan fiduciaries] ha[ve] acted unlawfully,” they fail tostate a claim under this excessive- fees theory. White, 2016 WL 4502808, at *14 (rejecting excessive fee claim based only on conclusory allegations that (1) an asset-based revenue-sharing arrangement resulted in excessive fees and (2) plaintiffs believ d the fiduciary failed to seek competitive bids for recordkeeping services); see also Young v. Gen. Motors Inv. Mgmt. Corp., 325 F. App’x 31, 33 (2d Cir. 2009) (dismissing claim where “[p]laintiffs fail to allege that the fees were excessive relative ‘to the services rendered’”) (citation omitted). B. Plaintiffs’ unsupported conclusions do not implicate fiduciary duties or demonstrate any fiduciary misconduct. Plaintiffs fail to allege that Plan fiduciaries were imprudent or disloyal in their investigation, selection, and retention of this wide range of investment options, or to allege any flaws in Starwood’s exercise of its duties. These pleading failures require dismissal of Plaintiffs’ claim. Rosen v. Prudential Ret. & Ins. & Annuity Case 2:16-cv-09321-DSF-MRW Document 31-1 Filed 03/13/17 Page 16 of 29 Page ID #:315 CROWELL & MORING LLP ATTO RN EY S AT LA W 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 -11- NOTICE OF MOTION AND MOTION TO DISMISS; CASE NO. 2:16-CV-09321-DSF-MRWx Co., No. 3:15-cv-1839, 2016 WL 7494320, at *14 (D. Conn. Dec. 30, 2016) (dismissing claim where there were no “allegations directly addressing the methods used by [defendants] to select investment options fr the plan,” and plaintiffs relied on “general allegations regarding the cost of select d investments), appeal filed No. 17-239 (2nd Cir., filed Jan. 27, 2017); see also White, 2016 WL 4502808 at *12 (dismissing claim where the plaintiffs “allege[d] no facts that are suggestive of imprudent action” and merely challenged “the entire lin up of funds . . . primarily based on the speculation that the Plan fiduciaries ‘could have’ provided lower-cost versions of the funds”). Furthermore, a claim for excessive fees fails where a plan provides “a sufficient mix of investments for [its] participants” with a “wide range of expense ratios.” Hecker, 556 F.3d at 586 (“The fact that it is possible that some other funds might have had even lower ratios is beside the point[.]”) (holding that 26 investment options, including 23 retail mutual funds plus a brokerage fund, was a sufficient mix of investments to warrant dismissal of an excessive-fee allegation). The duty of prudence requires that fiduciaries “offer participants meaningful choices about how to invest their retirement savings” and a “range of investment options and . . . characteristics of those included options—including the risk profiles, investment strategies, and associated fees.” Renfro, 671 F.3d at 327; see also Loomis v. Exelon Corp., 658 F.3d 667, 673–74 (7th Cir. 2011). During the relevant period, the Plan offered between 18 and 23 investment options with a wide range of fees and investment risks. Plaintiffs do not challenge the number or quality of the options offered, nor d they provide even basic details such as which fees were excessive and why.4 That fees could have been lower—or, 4 Plaintiffs attempt to circumvent the Hecker standard for an excessive-fee claim by citing third-party “ratings” that purportedly establish that the Starwood Plan’s fees were excessive. First, Plaintiffs claim that BrightScope, a third party rating service, gave the Plan a 61 rating while givin a 90 rating to alleged “top (Continued…) Case 2:16-cv-09321-DSF-MRW Document 31-1 Filed 03/13/17 Page 17 of 29 Page ID #:316 CROWELL & MORING LLP ATTO RN EY S AT LA W 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 -12- NOTICE OF MOTION AND MOTION TO DISMISS; CASE NO. 2:16-CV-09321-DSF-MRWx as alleged here, were reduced—does not state a plausible claim: fiduciaries are under no obligation to “scour the market to find an offer the cheapest possible fund (which might, of course, be plagued with other problems).” Hecker, 556 F.3d at 586. The Plan Information documents attached to the Complaint show that in 2015, the expense ratios for investment options ranged from 0.1% to 1.28%. (Compl. Ex. 1 at 45–46.) This is almost identical to the range the Third Circuit accepted as sufficiently “wide,” and it is comparable to ranges that other courts have accepted in dismissing similar excessive-fee claims. Renfro, 671 F.3d at 327-28 (affirming dismissal of excessive-fee claim where fees ranged from 0.1% to 1.21%); Hecker, 556 F.3d at 586 (holding that fees ranging from 0.07% to “just over 1%” were reasonable); Rosen, 2016 WL 7494320 at *15 (holding that a mix of investment options with fees ranging between 0.04% and 1.02% were reasonable, and dismissing excessive-fee claim); Tibble I, 729 F.3d at 1135 (fees ranged from .03% to 2%). The Plan’s prior fee rates and offerings likewise reflected the same diversity of investment options and a wide range of fees. In any event, as courts have recognized, cost is not a dispositive factor in determining what investment options may or may not be prudent selections. See Hecker, 556 F.3d at 586; Tibble I, 729 F.3d at 1135. rated” peer plan. (Compl. at ¶ 26). Not being the “ op rated” plan does not create an inference that a fiduciary breached its duty. And Plaintiffs neglect to mention that BrightScope characterized the Plan’s fees as “low.” See https://www.brightscope.com/401k-rating/247869/Starwood-Hotels-Resorts- Worldwide-Inc/251907/Starwood-Hotels-Resorts-Worldwi e-Inc-Savings-And- Retirement-Plan/. Second, Plaintiffs reference a survey by a third-party organization, identified by the acronym NEPC, that determined the administrative fees of 113 unidentified companies to be $64. (Compl. Ex. 3.) Absent context about the identity and composition of these plans and the basis for their fees, this survey does not add plausibility to Plaintiffs’ claims. Furthermore, Plaintiffs’ records show they paid much less, if any, fees for m st of the relevant period. Case 2:16-cv-09321-DSF-MRW Document 31-1 Filed 03/13/17 Page 18 of 29 Page ID #:317 CROWELL & MORING LLP ATTO RN EY S AT LA W 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 -13- NOTICE OF MOTION AND MOTION TO DISMISS; CASE NO. 2:16-CV-09321-DSF-MRWx Finally, the Plaintiffs themselves controlled their investment decisions and were free to select funds with lower fees. The first page of each attached Plan Information disclosure, titled “Information About Plan Fees and Investments,” contained the following information: 1. Can I control how my account is invested, and ifso, how do I do that? The Plan permits you, as a participant or beneficiary, to choose how your funds in the Plan are invested. The Plan offers you a variety of investment fund options from which to choose. You can select the investment mix that you think best meets your individual goals. . . . You may change the investment of your existing account balance daily by accessing the Plan website . . . or by calling the Starwood 401(k) Hotline . . . . (Compl. Ex. 1 at 26, 36; Ex. 2 at 65, 75.) Starwood satisfied its duties when it offered a mix of investment choices and “left the coi e [of investments] to the people who have the most interest in the outcome.” Loomis, 658 F.3d at 673–74. Thus, any contention that fees were unreasonable fails. C. Plaintiffs’ excessive fees theory is time-barred. Under ERISA, a claimant with knowledge of alleged wrongdoing must file an action “no more than ‘three years after the earliest date on which the Plaintiff had actual knowledge of the breach or violation.’” Landwehr v. DuPree, 72 F.3d 726, 731 (9th Cir. 1995) (citing 29 U.S.C. § 1113). “A plaintiff fails to state a claim, and therefore dismissal is appropriate, where his failure to comply with the applicable statute of limitations is evident from the allegations of the complaint.” Yamauchi v. Cotterman, 84 F. Supp. 3d 993, 1004–05 (N.D. Cal. 2015) (citations omitted); see also Jablon v. Dean Witter & Co., 614 F.2d 677, 682 (9th Cir. 1980) (“If the running of the statute is apparent on the face of the complaint, the defense may be raised by a motion to dismiss.”). As late as 2011, Plaintiffs’ Annual Statements identified all fees charged for Case 2:16-cv-09321-DSF-MRW Document 31-1 Filed 03/13/17 Page 19 of 29 Page ID #:318 CROWELL & MORING LLP ATTO RN EY S AT LA W 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 -14- NOTICE OF MOTION AND MOTION TO DISMISS; CASE NO. 2:16-CV-09321-DSF-MRWx a particular year, giving participants actual knowledge of this information. (See, e.g., Compl. Ex. 1 at 5, 8, 20, 24.) Plan Information documents disclosed, as late as 2012, the fee ratios for all available investment options. (Compl. Ex. 2 at 72.) Thus, “[t]he allegedly excessive fees that form the central basis of this claim were readily apparent from the information provided to all Plan participants more than three years before Plaintiffs filed this suit.” Young v. Gen. Motors Inv. Mgmt. Corp., 550 F. Supp. 2d 416, 419–20 (S.D.N.Y. 2008); see also In re Northrop Grumman Corp. Erisa Litig., No. CV 06-06213, 2015 WL 10433713, at *22 (C.D. Cal. Nov. 24, 2015) (“To the extent plaintiffs conte d the investment fees charged were excessive and unreasonable, they were on notice of those fees . . . when they began receiving [plan-related documents reflecting individual fund fees and expense ratios].”). Because Plaintiffs had actual knowledge of fees and fee rates prior to December 2013, the excessive fees theory is time-barred. II. PLAINTIFFS’ “REVENUE SHARING” CLAIM DOES NOT CONSTITUTE A BREACH OF FIDUCIARY DUTY. Plaintiffs’ second theory is that Starwood had revenue-sharing arrangements with investment funds included in Starwood’s investment menu, and Starwood breached its fiduciary duty by failing to disclose th amount of revenue shared. (Compl. ¶ 33.) This theory has no legal basis and should be dismissed. As the Plan Information documents explain, revenue sharing is the practice where investment funds return to a retirement plan a portion of fees paid to the investment fund. The retirement plan in turn applies those returned fees to cover the costs of plan operations and administration, or to pay other plan expenses. (See, e.g., Compl. Ex. 1 at 37.) This is a common and acceptable practice that benefits participants by lowering the costs of plan administration.5 Hecker, 556 F.3d at 5 Notably, the NEPC article on which Plaintiffs rely states that “fees for half of all retirement investment accounts are still calculated using pricing models based on assets within the plan,” “fees include some elemnt of revenue sharing for most (Continued…) Case 2:16-cv-09321-DSF-MRW Document 31-1 Filed 03/13/17 Page 20 of 29 Page ID #:319 CROWELL & MORING LLP ATTO RN EY S AT LA W 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 -15- NOTICE OF MOTION AND MOTION TO DISMISS; CASE NO. 2:16-CV-09321-DSF-MRWx 585–86 (holding that because plan disclosed the total amount of fees and directed participants to the fund prospectuses for information about fund-level expenses, that “was enough” to dismiss an alleged breach of fiduciary duty based on revenue- sharing agreements); see also DOL Op. 97-15A, 1997 WL 277980 at *4 (May 22, 1997) (finding that a fiduciary’s receipt of fees from mutual funds does not breach the fiduciary’s duty as long as the fees are used either as an offset to fees the plan would otherwise pay or in any other manner that benefits the plan). A. Plaintiffs fail to allege a violation of any fiduciary duty related to revenue sharing. The core of Plaintiffs’ theory is a hypothetical possibility—not a well- pleaded factual allegation. Plaintiffs opine that revenue-sharing fee arrangements “can easily become kickbacks or ‘pay-to-play’ payments.” (Compl. ¶ 34.) But Plaintiffs do not allege that any of Starwood’s revenue-sharing payments were actually kickbacks (because they were not). Such speculation without any factual basis does not comply with federal pleading requirements. See Iqbal, 556 U.S. at 678 (Rule 8 “asks for more than a sheer possibility that a defendant has acted unlawfully”); Loomis, 658 F.3d at 671 (dismissing duty of loyalty claims because there was “no reason to think” that the defendant chose particular investment options “to enrich itself at participants’ expense”); In re McKesson HBOC, Inc. ERISA Litig., 391 F. Supp. 2d 812, 834–35 (N.D. Cal. 2005) (“[T]he duty of loyalty requires fiduciaries to refrain from actual disloyal conduct, not simply running the risk that such behavior will occur.”). Absent allegations that an illegal kickback scheme actually existed or allegations that the shared revenue did not benefit the Plan, Plaintiffs’ revenue-sharing theory fails. Renfro v. Unisys Corp., No. 07-2098, 2010 WL 1688540, at *7 (E.D. Pa. Apr. 26, 2010) (“F]ailure to disclose plans,” and “87% of plans have some level of revenue sharing.” (Compl. Ex. 3 at 87–88.) Case 2:16-cv-09321-DSF-MRW Document 31-1 Filed 03/13/17 Page 21 of 29 Page ID #:320 CROWELL & MORING LLP ATTO RN EY S AT LA W 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 -16- NOTICE OF MOTION AND MOTION TO DISMISS; CASE NO. 2:16-CV-09321-DSF-MRWx information about revenue sharing among the Fidelity Defendants cannot form the basis of an ERISA breach of fiduciary duty claim[.]”), aff’d 671 F.3d 314, 327 (3d Cir. 2011) (affirming dismissal of revenue-sharing allegation). Plaintiffs’ pleading failures aside, no law requires the Plan to disclose the amount it receives in revenue sharing as Plaintiffs contend. The Complaint sets forth no standard or law requiring such a disclosure and instead simply asserts in a conclusory fashion that the Plan did not disclose the amount of these fees. There is also no legal obligation, as Plaintiffs contend, requiring the Plan to disclose to Plaintiffs whether “the revenue sharing payments are based on a percentage of assets.” (Compl. at ¶ 36.) Based on the exhibits to he Complaint, Plaintiffs cannot dispute that the Plan disclosed the fact that it enter d into revenue sharing arrangements. Plaintiffs’ revenue-sharing claim, based entirely on a hypothetical possibility, lacks plausibility and must be dismissed. B. Plaintiffs’ revenue-sharing claim is time-barred. Each Plaintiff was on notice of the facts giving rise to the alleged breach as early as 2011. Beginning in at least 2011, the Annual Statements that Plaintiffs received informed them that “[s]ome of the Plan’s other administrative expenses are paid . . . through the proceeds of revenue sharing greements.” (See, e.g., Compl. Ex. 1 at 5.) Thus, Plaintiffs were on notice that Starwood used revenue-sharing agreements but did not identify the specific amounts paid through those agreements. Beginning in at least 2012, the detailed P an Information documents also clearly disclosed to Plaintiffs the Plan’s revenue-sharing arrangements. For example, under the subheading “Explain the fees that are deducted from my Plan account,” each Plan Information document explains: Some of the investment funds return to the Plan a portion of the fees they charge, a process which is called “revenue sharing.” These amounts are usually used to pay Plan expenses. The Plan may credit revenue sharing amounts back to the funds and theseamounts would then be applied toward the cost of the Plan operations that are Case 2:16-cv-09321-DSF-MRW Document 31-1 Filed 03/13/17 Page 22 of 29 Page ID #:321 CROWELL & MORING LLP ATTO RN EY S AT LA W 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 -17- NOTICE OF MOTION AND MOTION TO DISMISS; CASE NO. 2:16-CV-09321-DSF-MRWx described above. (Compl. Ex. 1 at 27, 37; Ex. 2 at 66, 76.) Accordingly, the 3-year statute of limitations bars Plaintiffs’ revenue-sharing theory. III. PLAINTIFFS’ CLAIM ALLEGING “TWO LAYERS” OF FEES FOR THE BLACKROCK LIFEPATH INDEX FUNDS IS NOT ACTIONABLE. Plaintiffs allege that the BlackRock LifePath Index Funds held only other BlackRock funds, which caused participants who invested in BlackRock index funds to pay “two layers” of fees—one layer for theLifePath Index Fund itself and another layer for the securities within that index fund—that were purportedly seven times larger than comparable index funds, such as te Vanguard Institutional fund. (Compl. ¶¶ 42-45.) This theory is also meritless. A. Plaintiffs fail to allege any imprudent or disloyal conduct related to the Plan’s offering of BlackRock LifePath Index Funds. As a general matter, fiduciaries do not breach their duty by offering as an investment option an index fund. Such offerings are common and cost-effective investment structures that allow for broad diversification of risk across multiple market sectors. See, e.g., Knopick v. UBS Fin. Servs., Inc., 121 F. Supp. 3d 444, 458 n.15 (E.D. Pa. 2015) (“An index fund is a mutual fund that seeks to match the performance of the market as a whole by holding the shares that compose an index such as the S&P 500. The basic goal of the indexing strategy is to maximize diversification and to minimize fund management expenses.” (internal quotation marks and citation omitted)). Plaintiffs allege no factual basis for how Starwood’s selection of BlackRock’s LifePath Index Funds as investment options was allegedly imprudent.6 6 Alleged breaches based on paying “multiple layers of fees” arise where a defendant is found or alleged to have engaged in self-dealing through the imposition of additional fees. See In re Honda of Am. Mfg., Inc. Erisa Fees Litig., 661 F. Supp. 2d 861, 868 (S.D. Ohio 2009); Shirk v. Fifth Third Bancorp, No. (Continued…) Case 2:16-cv-09321-DSF-MRW Document 31-1 Filed 03/13/17 Page 23 of 29 Page ID #:322 CROWELL & MORING LLP ATTO RN EY S AT LA W 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 -18- NOTICE OF MOTION AND MOTION TO DISMISS; CASE NO. 2:16-CV-09321-DSF-MRWx There is also no legal basis to hold a fiduciary liable for the informed investment choices of plan participants. Starwood disclosed information regarding the index fund, including its investment strategy and fee structure. Participants were free to choose any of the other non-LifePath investment options. Having offered Plan participants a range of investment options and information about fees and other risks of those options, Starwood cannot be lia le simply because participants are disappointed in their investment rturns. See Hecker, 556 F.3d at 590 (“If particular participants lost money or did not earn as much as they would have liked, that disappointing outcome was attributa le to their individual choices. Given the numerous investment options, varied in type and fee, neither [fiduciary] . . . can be held responsible for those choices.”).7 Finally, Plaintiffs’ theory about two layers of fees is false and easily refuted by publicly available information that could be found in a quick internet search, the same information that the Plan Information documents advised participants to review before making investment decisions. The Plan Information documents attached to the Complaint tell participants: To get information on the investment funds and the Plan, go to the Plan website . . . or call the Starwood 401(k) Hotline. . . . Read each investment fund description and each fund’s prospectus before investing. (Compl. Ex. 1 at 26.) The top result of a Google search for “BlackRock LifePath prospectus” is a PDF of BlackRock’s 2016 pros ectus, which 05cv-049, 2008 WL 4449024 at *20 (S.D. Ohio Sept. 26, 2008); cf. Loomis, 658 F.3d at 670-71 (dismissing claims based on conflict of interest absent allegations that the fiduciary had influence over or was influenc d by the funds in the portfolio). There is no such self-dealing allegation here. 7 Fiduciaries cannot be liable for any claims for losses where a participant exercised control over assets in an individual account plan, and the plan provided the opportunity to choose from a broad range of investment alternatives. See 29 U.S.C. § 1104(c)(1)(A). Case 2:16-cv-09321-DSF-MRW Document 31-1 Filed 03/13/17 Page 24 of 29 Page ID #:323 CROWELL & MORING LLP ATTO RN EY S AT LA W 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 -19- NOTICE OF MOTION AND MOTION TO DISMISS; CASE NO. 2:16-CV-09321-DSF-MRWx provides that fees for the target date index funds (such as BlackRock LifePath 2050) “reflect a weighted average of the total operating expense ratios of the underlying funds.” See https://www.blackrock.com/investing/literature/ prospectus/pro-brfunds3-lifepathfunds-inv-us.pdf at page 79, footnote 3.8 In other words, there is only one fee, not two fees, for BlackRock LifePath Index Funds that hold other BlackRock funds. B. The Plan offered multiple investment options other than the BlackRock LifePath Index Funds. Plaintiffs’ allegations suggest that the Plan offered only BlackRock LifePath Index Funds, saddling participants with the allegedly xcessive double layer of fees, and did not offer “the Vanguard Institutional Index Fund Institutional Shares [which] has a total expense ratio of only .04%.” (Compl. ¶ 44.) Once again, Plaintiffs ignore the exhibits they attach to the Complaint. These documents show that (a) BlackRock LifePath Index Funds comprised less than half of the Plan’s offerings in any given year during the relevant time period, (b) participants were free to choose investments other than the BlackRock LifePath Index Funds, and (c) and the very Vanguard fund that Plaintiffs claim had the much lower fee was offered as an investment option every year between 2010 and 2016. (See, e.g., Compl. Ex. 1 at 45–46, 72, 83.) C. Plaintiffs’ theory about “two layers” of fees is time-barred. The BlackRock LifePath Index Funds were offered as early as 2010. The 8 The Court can consider the BlackRock prospectus information without converting the motion to dismiss into one for summary judgment because the Complaint exhibits, which form the basis of Plaintiffs’ allegations, direct Plan participants to these kinds of documents before making investment decision. See United States v. Ritchie, 342 F.3d 903, 908 (9th Cir. 2003) (allowing a court to incorporate by reference a document not attached to a complaint if it forms the basis of the plaintiff’s claim). Case 2:16-cv-09321-DSF-MRW Document 31-1 Filed 03/13/17 Page 25 of 29 Page ID #:324 CROWELL & MORING LLP ATTO RN EY S AT LA W 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 -20- NOTICE OF MOTION AND MOTION TO DISMISS; CASE NO. 2:16-CV-09321-DSF-MRWx Annual Statements covering 2010 to 2016 listed the Plan’s available investment options, as did the Plan Information documents distributed during that time. Accordingly, as of 2011, Plaintiffs were on notice of Plan’s investment offerings and their corresponding fees. The limitations period has long run on any claim that the fees imposed by the BlackRock LifePath Index Funds were excessive. See Young, 550 F. Supp. 2d at 419–20 (claim alleging imprudent s lection of investment options was time-barred). IV. PLAINTIFFS CANNOT STATE A CLAIM BASED ON THE OMISSION OF A STABLE VALUE FUND. Plaintiffs allege Starwood breached its fiduciary duty by offering a money market fund but not a “stable value fund,” which is purportedly an “essential investment alternative for 401(k) plans.” (Compl. ¶¶ 46, 49.) This claim has no basis in law and is also time-barred. A. Fiduciaries are under no legal obligation to offer any particular type of fund as an investment option, including a stable value fund. The notion that the Plan was required to offer a stable fund is meritless. Fiduciaries are not required to provide a stable vaue fund or any other particular investment option; they need only provide a “sufficient mix” of options. See Hecker, 556 F.3d at 586; In re Honda, 661 F. Supp. 2d at 866-67 (dismissing claim based on the plan fiduciary’s decision to offer particular share mutual funds) (“There is nothing in ERISA that prohibits this type of investment offering nor that requires plan fiduciaries to include any particular mix of investment vehicles in their plan.”). Plaintiffs offer their personal opinions that a stable fund is an “essential” offering, but they do not and cannot claim that fiduciaries are legally obligated to offer this type of fund. Rather, they simply assert in a conclusory manner that by “failing to offer a stable value fund . . . Starwood failed to fulfill its fiduciary duties to Plaintiffs . . . .” This does not satisfy the Twombly pleading standard and thus mandates dismissal of this theory. Similarly, the Complaint offers only a conclusory, implicit attack on the Case 2:16-cv-09321-DSF-MRW Document 31-1 Filed 03/13/17 Page 26 of 29 Page ID #:325 CROWELL & MORING LLP ATTO RN EY S AT LA W 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 -21- NOTICE OF MOTION AND MOTION TO DISMISS; CASE NO. 2:16-CV-09321-DSF-MRWx Plan’s choice of a money market fund instead of a stable value fund. But there is no allegation that the Plan’s fiduciaries acted imprudently in selecting this fund. Here, as was the case in White, “plaintiffs plead no facts showing that the Plan fiduciaries failed to evaluate whether a stable fund or some other investment option would provide a higher return and/or failed to evaluate the relative risks and benefits of money market funds versus other capital reservation options.” 2016 WL 4502808 at *8. “Without some facts that raise an inference of imprudence in the selection of the money market fund–apart from the fact that stable value funds may provide a somewhat higher return than money market funds–plaintiffs have failed to state a claim.” Id. (emphasis added). B. Plaintiffs’ “stable value fund” claim is time-barre d. Beginning in at least 2010, the Plan provided Plaintiffs with the full menu of investment options. This menu explicitly included the Vanguard money market fund and conspicuously omitted any “stable value fund.” (See, e.g., 65–66 (listing investment options by category).) Because information regarding the offering of a money market fund (and the absence of a “stable value fund”) was evident to Plan participants prior to December 2013, the 3-year limitations period has run on this claim. Young, 550 F. Supp. 2d at 419–20. V. PLAINTIFF CREAMER’S THEORY THAT STARWOOD FAILED TO FOLLOW INVESTMENT INSTRUCTIONS FAILS TO STATE A CLAIM. Mr. Creamer alleges that he elected certain investmn options but Starwood directed his contributions to the wrong funds from 2010 through 2015. (Compl. ¶ 38–40.) Plaintiffs further allege “on information and belief” that Starwood breached its fiduciary duty by failing “to employ reasonable and prudent mechanisms to ensure that investment allocation decisions of participants were followed.” (Compl. ¶ 41.) Not only is this claim time-barred, it fails to state a claim for plan-wide relief under ERISA. Case 2:16-cv-09321-DSF-MRW Document 31-1 Filed 03/13/17 Page 27 of 29 Page ID #:326 CROWELL & MORING LLP ATTO RN EY S AT LA W 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 -22- NOTICE OF MOTION AND MOTION TO DISMISS; CASE NO. 2:16-CV-09321-DSF-MRWx A. Mr. Creamer’s claim is time-barred by the statute of limitations. Mr. Creamer’s Annual Statements, beginning in 2011, identified the funds in which his money was invested, and they specifically warned Mr. Creamer to review the statements and report any errors within 60 days. (See, e.g., Compl. Ex. 1 at 4– 6.) These documents demonstrate his actual knowledge about whether Starwood followed his investment instructions. See Yamauchi, 84 F. Supp. 3d at 1004–05. The statements show under the heading “Your Account Activity Summary” that 100% of his contributions went to the BlackRock LifePath 2050 Index Fund. Based on his records, Mr. Creamer knew these facts as early as 2011 (when he received his first Annual Statement) and did nothing to change or correct this alleged discrepancy, even though the Account Statements urged participants to review and correct any errors promptly. (See, e.g., Compl. Ex. 1 at 6.). Given Mr. Creamer’s actual knowledge of this alleged breach, this theory is time-barred by the 3-year statute of limitations and must be dismissed. See 29 U.S.C. § 1113. B. Plaintiffs’ allegations of plan-wide harm fail to satisfy the Twombly plausibility standard. Mr. Creamer’s complaint about his individual account is insufficient to state a plausible claim for plan-wide harm and relief under ERISA. The statutory provisions under which Plaintiffs bring this claim only provide relief for injuries to a plan. See 29 U.S.C. §§ 1132(a)(2) (providing for “appropriate relief under” 29 U.S.C. §1109, which focuses on recovery to the plan); 1132(a)(3) (providing relief for violations of terms of a plan). Mr. Creamer’s claim, at best, asserts harm to him rather than harm to the Plan. Mr. Creamer’s claim that the mistake he alleges was systemic and thus affected the other Plan participants is refuted by Plaintiff Trevino’s failure to make the same claim. The assertion that Mr. Creamer’s highly- individualized claim affected others is purely speculative and falls well short of pleading the pleading requirements. See Wise v. Verizon Commc’ns, Inc., 600 F.3d 1180, 1189–90 (9th Cir. 2010) (dismissing §1132(a)() claim where the plaintiff Case 2:16-cv-09321-DSF-MRW Document 31-1 Filed 03/13/17 Page 28 of 29 Page ID #:327 CROWELL & MORING LLP ATTO RN EY S AT LA W 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 -23- NOTICE OF MOTION AND MOTION TO DISMISS; CASE NO. 2:16-CV-09321-DSF-MRWx “state[d] conclusions about the . . . alleged fiduciary breach . . . without alleging facts tending to show that any claim besides [hers] was mishandled or that the result of any such mishandling caused plan-wide injury”).9 CONCLUSION For the foregoing reasons, because Plaintiffs have not alleged any facts showing that Starwood failed to act with prudence and loyalty, Starwood respectfully requests that the Court grant this motion and dismiss Plaintiffs’ claims in their entirety with prejudice. Dated: March 13, 2017 CROWELL & MORING LLP /s/ Jennifer S. Romano Jennifer S. Romano Jeffrey L. Poston Charles D. Austin Megan A. Weisgerber Attorneys for Defendant STARWOOD HOTELS AND RESORTS WORLDWIDE, LLC. 9 Indeed Plaintiff Trevino does not allege any similar conduct with regard to her account, further demonstrating that this is not a Plan-wide issue, but rather and individual issue related to Mr. Creamer alone. Case 2:16-cv-09321-DSF-MRW Document 31-1 Filed 03/13/17 Page 29 of 29 Page ID #:328 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 UNITED STATES DISTRICT COURT CENTRAL DISTRICT OF CALIFORNIA CHARLES CREAMER et al., Plaintiff, v. STARWOOD HOTELS & RESORTS WORLDWIDE, INC., Defendant. Case No. 2:16-cv-9321-DSF (MRWx) Judge: Hon. Dale S. Fischer [PROPOSED] ORDER GRANTING DEFENDANT’S MOTION TO DISMISS COMPLAINT Case 2:16-cv-09321-DSF-MRW Document 31-2 Filed 03/13/17 Page 1 of 2 Page ID #:329 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 -1- The Court, having considered Defendant Starwood Hotels & Resorts Worldwide, Inc.’s motion to dismiss the complaint filed by Plaintiffs Charles Creamer and Jennifer Trevino, and having considered th Plaintiffs’ complaint, the parties’ briefs herein, and the oral arguments of counsel, and good cause having been shown: IT IS HEREBY ORDERED THAT Defendant’s motion to dismiss is GRANTED. Plaintiffs’ complaint containing a single cause of action for breach of fiduciary duty is DISMISSED. IT IS SO ORDERED. Dated: May __, 2017 ________________________ Hon. Dale S. Fischer United States District Court Judge Case 2:16-cv-09321-DSF-MRW Document 31-2 Filed 03/13/17 Page 2 of 2 Page ID #:330 CROWELL & MORING LLP ATTO RN EY S AT LA W 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 NOTICE OF MOT. AND MOT TO DISMISS; CASE NO. 2:16-CV-09321-DSF-MRWx CERTIFICATE OF SERVICE I hereby certify that I am an attorney at Crowell & Moring LLP. My business address is 515 S. Flower St., 40th Floor, Los Angeles, CA 90071 and I am over the age of eighteen years and not a party to the above-titled action. I certify on March 13, 2017, I served the following document(s): • NOTICE OF MOTION TO DISMISS • MEMORANDUM OF POINTS AND AUTHORITIES • PROPOSED ORDER The document(s) were served by electronic means via the Court's CM/ECF system to those on the Court's Electronic Mail Notice List who are currently signed up to receive e-mail notices for this case: Electronic Mail Notice List • Howard B. Prossnitz prossnitzlaw@gmail.com • Shoham J. Solouki shoham@soloukisavoy.com • Grant J. Savoy grant@soloukisavoy.com Manual Notice List • (No manual recipients) I declare under penalty of perjury under the laws of the United States of America that the foregoing is true and correct. Dated: March 13, 2017 /s/ Megan A. Weisgerber Megan A. Weisgerber Case 2:16-cv-09321-DSF-MRW Document 31-3 Filed 03/13/17 Page 1 of 1 Page ID #:331