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Reetz v. Lowe's Companies, Inc.

United States District Court, W.D. North Carolina, Statesville Division

September 6, 2019



          Kenneth D. Bell United States District Judge.

         THIS MATTER IS BEFORE THE COURT on Defendants Lowe's Companies, Inc.'s (“Lowe's”) and Administrative Committee of Lowe's Companies, Inc.'s (“Lowe's Committee”) (together the “Lowe's Defendants”) Motion to Dismiss the Complaint (Doc. No. 38), the Honorable Magistrate Judge David C. Keesler's Memorandum and Recommendation (“M&R”) (Doc. No. 54), recommending that the Motion be denied, and the Lowe's Defendants' Objection to the M&R (Doc. No. 55). The Court has carefully reviewed and considered de novo the M&R, Plaintiff Benjamin Reetz's Complaint, Lowe's Defendants' Motion, the parties' briefs and all other relevant portions of the record. For the reasons expressed herein, the Court ADOPTS the recommendations contained in the M&R as discussed below and GRANTS IN PART and DENIES IN PART Lowe's motion.

         I. BACKGROUND

         This is a putative class action in which Plaintiff alleges that the Lowe's Defendants, John and Jane Does 1-20 (the unnamed members of the Lowe's Committee during the alleged class period), and Aon Hewitt Investment Consulting, Inc. (“Aon Hewitt”) (collectively, “Defendants”) breached their fiduciary duties under the Employment Retirement Income Security Act (“ERISA”) by removing certain investment options from Lowe's 401(k) retirement plan (the “Plan”) and replacing them with an option to invest in a growth fund established and managed by Aon Hewitt (“Hewitt Growth Fund”). Specifically, the Complaint alleges two causes of action: (1) Breach of Duties of Loyalty and Prudence under 29 U.S.C § 1104 (“Breach of Fiduciary Duty”) against all Defendants and (2) Failure to Monitor Fiduciaries against Lowe's. (Complaint, Doc. No. 1, at ¶¶ 72-93.) The class sought to be certified is defined to include “[a]ll participants and beneficiaries of the Lowe's 401(k) Plan whose account balances were invested in the Hewitt Growth Fund at any time on or after October 1, 2015 … .” (Id. at ¶ 64.)

         Lowe's employees are permitted to contribute a portion of their salary into the Plan on a tax-favored basis. As of December 2016 (the most recent year information was publicly available at the time of the Complaint in April 2018), the Plan had more than 250, 000 participants and held approximately $5.3 billion in retirement assets, consisting of approximately $2.65 billion in Lowe's stock and approximately $2.61 billion in investment funds. (Id. at ¶ 24.) The Plan is governed by a written document, which is attached as Exhibit A to the Motion to Dismiss (the “Plan Document”). The Plan Document provides that an Administrative Committee made up of fiduciaries appointed by Lowe's has the “authority to control and manage the operation and administration of the [P]lan.” At a hearing before the Magistrate Judge related to the Motion, Lowe's admitted that all members of the Administrative Committee are employed by Lowe's.

         Plaintiff's claims are premised on allegations that Aon Hewitt, the appointed investment consultant for the Plan, convinced Lowe's to remove eight of the Plan's existing investment options and transfer the funds that had been invested therein into the Hewitt Growth Fund. (Id. at ¶¶ 38-61.) The Hewitt Growth Fund is a “fund of funds” investment product first introduced to the market by Aon Hewitt 2013. Lowe's transferred over $1 billion of Plan assets into the Hewitt Growth Fund in 2015, which amounted to nearly half of the Plan's assets other than Lowe's stock. (Id. at ¶ 40.) The Complaint alleges that a “prudent fiduciary acting in the best interest of Plan participants would not have undertaken this restructuring and transferred the Plan's assets.” (Id. at ¶ 41.)

         Plaintiff also alleges that the failure to replace the Hewitt Growth Fund in light of its alleged “continued underperformance and unpopularity” constitutes a separate and continuing breach of fiduciary obligations under ERISA. (Id. at ¶ 58.) Plaintiff contends that since the initial transfer, the Hewitt Growth Fund has performed “so poorly that the Plan already has suffered $100 million in investment losses” when its gains are compared to the returns earned by the eight replaced investment options. Specifically, Plaintiff alleges that the Hewitt Growth Fund has earned an 11.99% return, while the eight replaced investment options earned a “collective weighted return of 16.15%.” (Id. at ¶¶ 56-57.)


         Under Federal Rule of Civil Procedure 8(a)(2), a complaint must contain “a short and plain statement of the claim showing that the pleader is entitled to relief.” Fed.R.Civ.P. 8(a)(2). However, “Rule 8(a)(2) still requires a ‘showing,' rather than a blanket assertion, of entitlement to relief.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555, n.3 (2007).

         The purpose of a motion to dismiss under Rule 12(b)(6) is to test the legal sufficiency of the complaint, not to resolve conflicts of fact or to decide the merits of the action. Edwards v. City of Goldsboro, 178 F.3d 231, 243-44 (4th Cir. 1999). In considering a motion to dismiss, the court assumes the truth of all facts alleged in the complaint and the existence of any fact that can be proved, consistent with the complaint's allegations. Erickson v. Pardus, 551 U.S. 89, 94 (2007). “The issue is not whether a plaintiff will ultimately prevail but whether the claimant is entitled to offer evidence to support the claims.” Revene v. Charles County Comm'rs, 882 F.2d 870, 872 (4th Cir. 1989) (quoting Scheuer v. Rhodes, 416 U.S. 232, 236 (1974)).

         However, the “‘[f]actual allegations must be enough to raise a right to relief above the speculative level' and have ‘enough facts to state a claim to relief that is plausible on its face.'” Wahi v. Charleston Area Med. Ctr., Inc., 562 F.3d 599, 616 n.26 (4th Cir. 2009) (quoting Twombly, 550 U.S. at 555); Ashcroft v. Iqbal, 556 U.S. 662 (2009) (“While legal conclusions can provide the framework of a complaint, they must be supported by factual allegations.”). “[A] plaintiff's obligation to provide the grounds of his entitle[ment] to relief requires more than labels and conclusions, and a formulaic recitation of a cause of action's elements will not do.” Twombly, 550 U.S. at 555 (citations omitted). Moreover, a court “need not accept the legal conclusions drawn from the facts” nor “accept as true unwarranted inferences, unreasonable conclusions, or arguments.” Eastern Shore Mkts., Inc. v. J.D. Assocs. Ltd. Pshp., 213 F.3d 175, 180 (4th Cir. 2000).

         The Federal Magistrates Act of 1979, as amended, provides that “a district court shall make a de novo determination of those portions of the report or specific proposed findings or recommendations to which objection is made.” 28 U.S.C. § 636(b)(1); Camby v. Davis, 718 F.2d 198, 200 (4th Cir. 1983). However, de novo review is not required by the statute “when a party makes general or conclusory objections that do not direct the court to a specific error in the magistrate judge's proposed findings and recommendations.” Orpiano v. Johnson, 687 F.2d 44, 47 (4th Cir. 1982). Moreover, the statute does not on its face require any review at all of issues that are not the subject of an objection. Thomas v. Arn, 474 U.S. 140, 149 (1985); Camby v. Davis, 718 F.2d at 200.


         The Lowe's Defendants have asserted the following objections to the M&R:

(i) Applying a “relaxed pleading standard” derived from an Eighth Circuit opinion that has not been adopted by the Fourth Circuit (and failing to account for a later Eighth Circuit opinion informing the same issue);
(ii) Finding that Lowe's had any fiduciary duty for selecting or monitoring investment choices;
(iii) Finding that Reetz stated a claim for breach of loyalty, despite not pleading that Lowe's intended to benefit Aon Hewitt or itself when choosing the Hewitt Growth Fund;
(iv) Finding that Reetz stated a claim for breach of duty of prudence, despite not pleading a deficient process for selecting and monitoring investment choices;
(v) Finding that Reetz stated a claim for breach of duty to monitor fiduciaries, despite the Plan Document providing that the Committee, not Lowe's, has sole authority to appoint Aon Hewitt;
(vi) Finding that Reetz stated a claim for co-fiduciary liability against Lowe's, despite merely reciting the ...

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