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Ninth Circuit Reinstates Putative Class Action Under ERISA Against Trader Joe’s Company
By a MetNews Staff Writer
The Ninth U.S. Circuit Court of Appeals has ordered reinstatement of a putative class action against Trader Joe’s Company based on an alleged failure to invest wisely the $1.7 billion in funds in the company’s retirement account.
Richard A. Kong and three other named plaintiffs sued on behalf of themselves and 35,470 other participants in Trader Joe’s Company Retirement Plan. They brought the action under the Employee Retirement Income Security Act of 1974 (“ERISA”) alleging that Trader Joe’s breached its fiduciary duties of prudence and loyalty.
In particular, it asserted, among other things, that Trader Joe’s pays Capital Research an excessive amount for its for its recordkeeping services, does not seek competitive bids every three years for such services, charges the participants an excessive amount, and fails to monitor the performance of those appointed to the committee overseeing the fund.
Anderson Reversed
District Court Judge Percy Anderson for the Central District of California on Nov. 30, 2020, dismissed the first amended complaint without leave to amend, declaring that the allegations were merely conclusory. The Ninth Circuit on Friday reversed and remanded in a memorandum opinion signed by Circuit Judge Susan P. Graber, Senior Circuit Judge Mary M. Schroeder, and District Court Judge Stephen M. McNamee of the District of Arizona, sitting by designation.
The judges said:
“Here, the operative complaint plausibly alleges a failure to provide cost- effective investments with reasonable fees. Taking the allegations as true, as we must at this stage of the litigation. Defendants Trader Joe’s Company, its board of directors, and its executive committee failed to monitor and control the offering of a number of mutual funds in the form of ‘retail’ share classes that carried higher fees than those charged by otherwise identical ‘institutional’ share classes of the same investments. Except for the extra fees, the share classes were identical. That choice resulted in more than $30,464,538 in extra fees.”
Explanation ‘Unvailing’
Trader Joe’s “explanation for the more expensive choice is unavailing at the pleading stage,” the judges said, remarking:
“Though the parties signed a revenue sharing agreement that might provide some explanation for this choice, the agreement shows only what could occur in theory—not what occurred in fact.”
The judges added:
“Taking all the allegations as true, Defendants did not act with the purpose of defraying reasonable administrative expenses.”
The case is Kong v. Trader Joe’s Company, 20-56415.
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