United States District Court, D. Colorado
LORRAINE M. RAMOS, et al., Plaintiffs,
v.
BANNER HEALTH, et al., Defendants.
ORDER GRANTING IN PART AND DENYING IN PART
SLOCUM'S MOTION FOR SUMMARY JUDGMENT
William J. Martinez United States District Judge.
This
case arises out of alleged mismanagement of Defendant Banner
Health's (“Banner”) employee 401(k) plan (the
“Plan”). Plaintiff Lorraine Ramos and others
(together, “Plaintiffs”) bring this lawsuit
against Banner Health and certain current and former
employees (together, “Banner Defendants”) and
Jeffrey Slocum & Associates, Inc. (“Slocum”)
(collectively, “Defendants”) alleging that
Defendants breached their fiduciary duties under the Employee
Retirement Income Security Act of 1974 (“ERISA”),
29 U.S.C. §§ 1101 et seq. (ECF No. 118.)
Plaintiffs earlier moved for class certification, which the
Court granted as to the Banner Defendants and denied as to
Slocum. (ECF Nos. 296 & 345.)
Currently
before the Court is Slocum's Motion for Summary Judgment
(the “Motion”). (ECF Nos. 306 (restricted) &
307 (public).) For the reasons discussed below, the Court
grants in part and denies in part the Motion.
I.
BACKGROUND
The
following facts are undisputed unless otherwise
noted.[1]
A.
Plan Investment Options
Banner
offers employees an opportunity to invest and save for
retirement through the Plan, a defined contribution plan
under ERISA and a 401(k) plan under the Internal Revenue
Code. Plan participants may invest their voluntary and
company-matching contributions in a “choice of
investment options that allow [participants] to create a
diversified portfolio to help [them] meet [their] individual
needs.” (ECF No. 322-3 at 6; ECF No. 306 at 11, ¶
5.)[2]
Until August 2014, the Plan offered three
“levels” of funds to participants: (1)
“Level 1: Ready-mixed Investment Options” or
target-date funds that allowed a participant to invest in a
single fund based on a desired retirement date; (2)
“Level 2: Core Investment Options” described as
“8 core investment options to help you create and
manage a diversified portfolio”; and (3) “Level
3: Expanded Investment Options” intended as
“[a]dditional investment opportunities for more
sophisticated investors.” (ECF No. 322-4 at 10, 16,
20.) Changes to the investment options in any of these three
levels required a letter of direction by Banner sent to the
Plan recordkeeper.
Level 3
Funds in the form of the “mutual fund window”
were eliminated in August 2014, though participants could
still access options beyond Levels 1 & 2 Funds through
the Plan's “brokerage-account window.” (ECF
No. 306 at 11, ¶ 7.) Participants were specifically
informed that the Plan fiduciaries did not monitor
investments available through the brokerage link.
Slocum
refers to Levels 1 & 2 Funds collectively as the
“Core Funds” and Level 3 Funds as the
“Mutual Fund Window” (ECF No. 306 at 11,
¶¶ 5-6). Plaintiffs refer to the Level 1 Funds as
the “Freedom Funds” and the Level 3 Funds by the
level number. (ECF No. 322 at 8-9, ¶ 5; id. at
33-40; see ECF No. 322-33 at 14, ¶ 63.) For the
sake of clarity, the Court will use the level number, unless
referring to a specific fund within a particular level.
B.
Contractual Responsibility for Plan Investment
Options
1.
The Plan's Delegation of Responsibility
The
Plan delegates responsibility “for all investment and
administrative functions related to the Plan” to the
Retirement Plan Advisory Committee (the “RPAC”).
(ECF No. 306-2 at 44; ECF No. 306 at 10, ¶ 2.) In
addition to the RPAC, Banner Health, its Board of Directors,
and the Chief Executive Officer of Banner Health have
responsibilities regarding the operation and administration
of the Plan. (ECF No. 306-2 at 43; ECF No. 322 at 8, ¶
2.)
Banner
hired Fidelity Management Trust Company
(“Fidelity”) to serve as the Plan's
recordkeeper in 1999. The Plan's recordkeeping services
were never put out for competitive bidding. Until the end of
2016, Fidelity was compensated for its services through a
revenue-sharing arrangement, which was a percentage of the
retirement savings that participants invested in the Plan and
was sent to Fidelity in uncapped asset-based fees. Banner
also retained Drinker Biddle as outside ERISA counsel to
attend quarterly meetings, provide training to RPAC members,
and advise the RPAC on ERISA issues.
The
RPAC was tasked with “advis[ing] the Company on Plan
investments and administrative functions.” (ECF No.
306-2 at 43; ECF No. 322 at 8, ¶ 2.) The RPAC's
investment responsibilities included, among other things,
selecting investment options; reviewing and evaluating the
performance of investment options; taking “prudent and
appropriate” corrective action regarding investment
options, including adding, removing, or replacing options;
and “appoint[ing] investment managers to oversee the
investment options” and “an independent
investment consultant to (I) act as a fiduciary of the Plan,
(II) evaluate investment options, and (III) make
recommendations regarding appropriate investment
funds.” (ECF No. 306-2 at 44; ECF No. 306 at 10, ¶
3; ECF No. 322 at 8, ¶ 3.) On the administrative side,
the RPAC was responsible for serving as the Plan
Administrator, reviewing the reasonableness of administrative
fees, and monitoring the recordkeeper. (ECF No. 306-2 at
44-45.)
2.
Slocum's 2010 and 2014 Contracts with Banner
To
assist the RPAC in carrying out its investment
responsibilities under the Plan, Banner hired Slocum to serve
as an independent investment consultant. Banner and Slocum
signed the 2010 and 2014 Contracts for investment consulting
services, and Slocum served as an independent investment
consultant until October 24, 2016, when it was purchased by
Pavilion Financial Corporation. The 2010 and 2014 Contracts
state that the investment-related responsibilities of the
RPAC and Plan service providers, including Slocum, would be
defined in the Plan's “Statement of Investment
Objectives and Policies” (referred to by the parties as
the “Investment Policy Statements” or
“IPSs”). These contracts also outlined other
contractual obligations of Slocum, including reviewing
investment performance of current investment options in
(among other things) the Plan, helping to evaluate and select
additional or replacement investment managers, providing
written investment performance evaluations on a quarterly
basis, and giving asset allocation and asset liability
advice. (ECF No. 306-11 at 2-3; ECF No. 306-12 at 2-3.)
Under
the 2010 Contract, Slocum was paid fixed a percentage on
Banner's Consolidated Investment Portfolio for services
on “the Consolidated Investment Pool, defined benefit,
supplemental executive retirement plans, insurance,
Foundation and Planned Giving assets.” (ECF No. 306-11
at 4.) It also received an annual fee of $50, 000 for
services to the Plan. (Id.) Under the 2014 Contract,
Slocum received a variable percentage fee for non-Plan
investments based on the total value of assets, as well as an
annual fee of $75, 000 for services to the Plan. (ECF No.
306-12 at 4.)
The
2010 Contract also contemplated Slocum's involvement with
“large-scale special projects outside the scope of
services” on a negotiated basis. (ECF No. 306-11 at
2-3.) The parties dispute whether Slocum was assigned or took
on special projects. Slocum argues that it “was never
assigned any special projects and was not paid beyond its
contractual fee.” (ECF No. 306 at 15, ¶ 22.)
Plaintiffs contend that Slocum did take on or perform
additional work or projects, and cite the Plan Reviews that
Slocum provided. (ECF No. 322 at 10, ¶ 22.) Plaintiffs
do not address or present any evidence that Slocum was paid
beyond its contractual fee for the Plan Reviews. In reply,
Slocum cites the testimony of Kyle Schmit, a former Slocum
investment advisor, who testified that Slocum's retention
fee for services to the Plan would include a Plan Review.
(ECF No. 334 at 3, ¶ 22; ECF No. 306-16 at 12.)
The
2010 Contract described Slocum as a “fiduciary within
the meaning of section (3)(21)(A)(ii) of ERISA with respect
to the Defined Benefit and 401(k) Plans.”[3](ECF No. 306-11 at
4.) The 2014 Contract provided that the “sole standard
of care imposed on us [Slocum] by this Agreement is to act
with the care, prudence, and diligence under the
circumstances then prevailing that a prudent person acting in
a like capacity and familiar with such matters would use in
the conduct of an enterprise of like character and with like
aims.” (ECF No. 306-12 at 5.)
3.
Delegation of Responsibilities by the IPSs
The
2011 & 2014 IPSs outlined the responsibilities of, among
other entities, Banner, Banner's Board of Directors,
Banner's CEO, the RPAC, and Slocum. The 2011 and 2014
IPSs separately outlined the duties of the RPAC (referred to
in the IPSs as the “Advisory Committee”) for
investment functions and plan administration functions.
a.
The RPAC's Investment Functions Under the IPSs
The
RPAC was responsible for “overseeing and reviewing the
investment of the Plan's assets” and required to
“act prudently and solely in the interest of the
Plan's participants and beneficiaries” when
carrying out its “management, investment, and review of
the Plan's assets.” (ECF No. 306-13 at 7; ECF No.
306-14 at 7.) Among other duties, the RPAC was responsible
for “[e]valuating and selecting firms for consideration
as . . . [r]ecordkeeper” reviewing the performance of
the recordkeeper, taking prudent and appropriate corrective
action as necessary, and “[r]eviewing the
reasonableness of investment related fees paid by the
Plan.” (ECF No. 306-13 at 8; ECF No. 306-14 at 8.) As
Tom Koelbl, a former RPAC board member, testified, Slocum did
not have final decision-making authority over which
recordkeeper would provide services to the Plan and RPAC was
responsible for insuring the reasonableness of recordkeeping
and investment fees. (ECF No. 306-6 at 6.) RPAC chair Brenda
Schaefer testified that RPAC had a fiduciary responsibility
to ensure that the administrative fees for recordkeeping
services were reasonable. (ECF No. 334-2 at 5.) She also
testified that she understood that Slocum acted in a
fiduciary capacity when assessing the reasonableness of the
Plan's recordkeeping fees. (ECF No. 332 at 3-5, 8.)
The
RPAC was also tasked with “evaluating and selecting
investment funds, which may include commingled accounts,
bank, common or investment trust funds, or separately managed
accounts for participants' directed investments to effect
the [RPAC's] investment vehicle selections (collectively,
‘Investment Funds'), and, where appropriate,
appointing one or more ERISA Investment Managers to provide
separately managed Investment Funds.” (ECF No. 306-13
at 7; ECF No. 306-14 at 7.)
However,
the IPSs made clear that the RPAC had no responsibility
“for any self- directed brokerage accounts to the
extent permitted by applicable law.” (ECF No. 306-14 at
8; see ECF No. 306-13 at 8 (2010 IPS disclaimed any
responsibility for “any self-directed brokerage
accounts/mutual fund windows”).) The IPSs explained
that the “primary objective of the self-directed
brokerage accounts is to allow participants access to
investments not currently available through the core
investment options in the Plan, ” and explicitly
disclaimed any fiduciary liability for decisions made by
participants within these options to the extent permitted by
law. (ECF No. 306-14 at 8-9; see ECF No. 306-13 at
8-9 (also including “mutual fund window”)).
b.
Slocum's Functions Under the IPSs
The
IPSs state that RPAC retained “an Investment
Consultant, ” Slocum, “to provide investment
advice in accordance with ERISA.” (ECF No. 306-13 at 9;
ECF No. 306-14 at 9.) Both IPSs provide that Slocum is a
fiduciary “but only with respect to those matters
specifically assigned or delegated to Slocum pursuant to its
Contract for Consulting Services dated June 28, 2010, or any
supplemental assignment of duties mutually agreed to by the
parties.” (ECF No. 306-13 at 9; ECF No. 306-14 at 9.)
In
terms of the recordkeeper advice, under the IPSs, Slocum was
tasked with advising the RPAC in selection of the
“[r]ecordkeeper, and any other investment related
service providers, as requested, by identifying and screening
candidates for appropriate characteristics and assisting in
performing due diligence checks.” (ECF No. 306-13 at
9-10; ECF No. 306-14 at 9-10.) Slocum contends that RPAC
never requested Slocum to assist in selecting a recordkeeper,
and Plaintiffs do not respond to this factual allegation.
(ECF No. 306 at 18 ¶ 36; ECF No. 322 at 12-13, ¶
36.)
In
addition, among other things, Slocum was responsible for:
• “[a]dvising the [RPAC] in selecting the
Investment Funds to be offered under the Plan by identifying
and researching potential Investment Funds”;
• “[p]reparing regular performance evaluations of
Investment Funds” and providing a written report for
each Investment Fund addressing returns, comparisons,
diagnostics, reconciliation, and compliance;
• “[m]aking recommendations, with supporting
material, as to the appropriate Investment Funds”; and
• reporting quarterly to the RPAC a “review and
reappraisal of the Investment Funds, ” a
“commentary on investment results of each Investment
Fund in light of current market conditions and the
appropriate standards of performance, ” and a
“discussion of any key policy issues facing the
Plan.”
(ECF No. 306-13 at 9-11; ECF No. 306-14 at 9-11.)
Plaintiffs
and Slocum dispute whether the term “Investment
Fund” in the IPSs includes self-directed brokerage
accounts or mutual fund windows. Slocum cites testimony of
Slocum representatives and RPAC members stating that Slocum
had no responsibility for monitoring or reporting to the RPAC
on individual funds in the mutual fund window, and
Slocum's responsibility was limited to the “Core
Funds” (defined by Slocum as Levels 1 & 2). (ECF
No. 306 at 16, ¶ 29; ECF No. 322 at 11, ¶ 29.)
Specifically,
Edward Oxford, Jr., a current or former member of the RPAC,
testified that Slocum did not provide analysis on any of the
approximately 300 funds within Level 3, nor did the RPAC
expect Slocum to provide analysis of those funds. (ECF No.
306-9 at 12, 23.) Richard Sutton, another current or former
member of the RPAC, testified that the RPAC monitored the
general participation in the mutual fund window and the
window “overall, ” but not the individual
performance and fees associated with individual mutual funds.
(ECF No. 306-5 at 13.) Kyle Schmit testified that he
understood Slocum's responsibility to be the same as the
RPAC, with no responsibility over funds in the mutual fund
window. (ECF No. 306-15 at 153-54.)
In
addition, Slocum's principal, Jeffrey Slocum, stated that
the annual fees of $50, 000 and later $75, 000 reflected an
understanding that Slocum's responsibility did not
include the Level 3 Investment Options. (ECF No. 306-58 at
2.) He also stated that he understood that the RPAC was not
responsible for selecting and monitoring Level 3 options, and
thus had no need for Slocum's services with respect to
those funds. (Id.) Had Slocum been hired to perform
services for Level 3 options, Mr. Slocum stated, the firm
would have charged far more for its services. (Id.
at 4-5.)
However,
Slocum's own expert witness, Terry Dennison, admitted at
his deposition that the scope of Slocum's review of
“the performance of the current options in the
funds” is “[a]dmittedly . . . not precise”
and “not terribly specific about . . . what is
contemplated.” (ECF No. 322-7 at 14, 16.) He also
testified, based on the Plan's fee disclosure to
participants, that there was no “differentiation being
made between the core investment options and the funds that
are in the mutual funds window.” (Id. at 24.)
Nonetheless, he went on to explain that because ...