No. 18-1

In the United States Court of Appeals

for the District of Columbia Circuit

___________________

MS. SMITH; MS. JONES,

Plaintiffs – Appellants,

v.

BIG CORP 401(K) INVESTMENT COMMITTEE;

RONALD JONES; JOSEPHINE SMART; JOHN DOE

Defendants – Appellees.

On Appeal from the United States District Court

For the District of Columbia

___________________

APPELLANTS’ BRIEF

___________________

Team 5

Counsel for Plaintiffs – Appellants

2

QUESTION PRESENTED

Whether the Big Corp 401(k) Plan’s venue provision is enforceable, despite it

being added to the Plan’s contract after participants have already signed and whether

the Big Corp 401(k) Investment breach their fiduciary duties by including the

Environmental Fund and the Make America Great Again Fund in the 401(k) Plan.

3

TABLE OF CONTENTS

QUESTION PRESENTED ............................................................................................ 2

STATEMENT OF JURISDICTION .............................................................................. 6

STATEMENT OF FACTS ............................................................................................. 7

SUMMARY OF ARGUMENT ..................................................................................... 9

ARGUMENT ............................................................................................................... 12

I. The Big Corp 401(k) Plan’s venue selection clause is unenforceable as it was not

agreed upon by both parties and contravenes substantial rights provide by ERISA.12

A. The venue selection clause in the Big Corp 401(k) Plan should not be enforced

because the participants did not agree to it. ......................................................... 13

B. The venue provision contravenes strong public policy expressed by ERISA. .. 16

C. The venue selection clause in the Big Corp 401(k) plan strips participants of an

affirmative right granted by ERISA. ................................................................... 18

II. .... The Big Corp 401(k) Investment Committee members breached their fiduciary

duties by including and imprudently evaluating underperforming funds. ............... 20

A. The MAGA Fund was an imprudent inclusion to Big Corp’s 401(k) plan due to

flawed decision making. ..................................................................................... 20

B. Inclusion of the MAGA Fund breached the fiduciary duties of prudence and

loyalty because of the fund’s lack of track record and Big Corp’s gain from

MAGA’s inclusion. ............................................................................................. 21

C. The Big Corp 401(k) Investment Committee breached their fiduciary duty of

prudence by including the MAGA fund, failing to meet the prudent investor

standard. ............................................................................................................. 23

D. Big Corp 401(k) Investment Committee was imprudent in its insufficient

monitoring of the Environmental Fund. .............................................................. 25

E. The Big Corp 401(k) Investment Committee did not act in the best interest of

participants. ........................................................................................................ 28

CONCLUSION ............................................................................................................ 30

4

TABLE OF AUTHORITIES

Cases

Atlantic Marine Const. Co. v. U.S. Dist. Court for W.D. Tex., 10, 13, 15

134 S.Ct. 568 (2016).

Boyd v. Grand Truck Western Railroad Co, 338 U.S. 263 (1949) 19

Braden v. Wal-mart Stores, Inc., 588 F.3d 585 (8th Cir. 2009). 11, 20, 22, 26

Carnival Cruise Lines, Inc. v. Shute, 499 U.S. 585 (1991). 13, 14, 15

Chao v. Moore, 2001 WL 743204 (D. Md. June 1, 2001) 22, 23

Coleman v. Supervalu, Inc. Short Term Disability Program, 11, 14, 15, 16, 17, 18, 19

920 F.Supp.2d 901 (N.D. Ill. 2013).

DiFelice v. U.S. Airways, Inc., 497 F.3d 410 (4th Cir. 2007). 21, 26, 27

Donovan v. Bierworth, 680 F.2d 263 (2d Cir. 1981). 12, 24, 28

Dumont v. PepsiCo, Inc., 192 F.Supp.3d 209 (D. Me. 2016). 10, 14, 16, 17, 18, 19

Flanigan v. Gen. Elec. Co., 242 F.3d 78 (2d Cir. 2001). 21

Gulf Life Ins. Co. v. Arnold, 809 F.2d 1520 (11th Cir. 1987) 18

Hecker v. Deere & Co., 556 F.3d 575 (7th Cir. 2009). 28

Henderson v. Shinseki, 131 S. Ct. 1197 (2011). 30

Katsaros v. Cody, 744 F.2d 270 (2d Cir. 1984). 21

Krueger v. Ameriprise Fin., Inc., No. 11-02781, 2012 WL 5873825 22

(D. Minn. Nov. 20, 2012).

Leber v. Citigroup 401(k) Plan Inv. Committee, 129 F.Supp.3d 4 (S.D.N.Y. 2015) 22

McDonald v. Jones, No. 4:16 CV 1346 RWS, 2017 WL 372101 22

(E.D. Mo. Jan. 26, 2017).

M/S Bremen v. Zapata Off-Shore Co., 407 U.S. 1 (1972). 10, 13, 15, 16

Pegram v. Hendrich, 530 U.S. 211 (2000). 23

Pension Benefit Guar. Corp. ex rel. St. Vincent v. Morgan Stanley Inv. Mgmt., 27

712 F.3d 705 (2d Cir. 2012).

Pledger v. Reliance Trust Company, 240 F.Supp.3d 1314 (N.D. Ga. 2017). 22

Reich v. King, 867 F.Supp. 341 (D. Md. 1994). 23

Roth v. Sawyer-Cleator Lumber Co., 16 F.3d 915 (8th Cir. 1994). 20

Salve Regina College v. Russell, 499 U.S. 225 (1991). 12

Schaefer v. Arkansas Medical Soc’y, 853 F.2d 1487 (8th Cir. 1988). 23

Smith v. Big Corp et al, (D.D.C. 2017). 11, 29

Stewart Organization, Inc. v. Ricoh Corp., 487 U.S. 22 (1988). 13

Tibble v. Edison Int’l., 135 S.Ct 1823 (2015). 12, 25

5

Wildman v. American Century Services, LLC, 237 F.Supp .3d 902 28, 29

(W.D. Mo. 2017).

Statutes

28 U.S.C. §1291 6

28 U.S.C. §1331 6

29 U.S.C. §1104(a)(1)(A)(i) 23

29 U.S.C. §1104(a)(1)(B) 25

29 U.S.C. §1104(a)(1)(D) 19

29 U.S.C. §1132 (e) 6, 10, 11, 12, 13, 16, 17, 18, 19

6

STATEMENT OF JURISDICTION

The district court had jurisdiction over this case pursuant to 28 U.S.C. § 1331

(federal question jurisdiction) and 29 U.S.C. §1132(e) of ERISA, since the lawsuit

relates to a claim for employee retirement benefits under an employer-sponsored

401(k) retirement plan.

The Court of Appeals has appellate jurisdiction over this case pursuant to 28

U.S.C. §1291, as this appeal is from a final order of the United States District Court

for the District of Columbia that disposes of all claims as to all parties and was

entered on November 10, 2017. This appeal is timely filed on November 10, 2017.

STATEMENT OF THE CASE

This is an ERISA class action suit seeking relief for Big Corp 401(k)

Investment Committee’s (“Investment Committee”) decision to offer the

Environmental Fund and the Make America Great Again (“MAGA”) Fund to the Big

Corp 401(k) Plan (“Plan”). Jane Smith and Edith Johnson, long time participants in

the Big Corp 401(k) Plan, both invested in the two funds.

In July 2017, Ms. Smith and Ms. Johnson filed a class action suit in the District

Court for the District of Columbia. They sued for relief under ERISA 502(a)(3) and

502(a)(2) seeking recovery for losses resulting from the underperformance of the

Environmental and MAGA Funds. They also sought an injunction requiring the

removal of the MAGA Fund from the Big Corp 401(k) Plan. The Investment

7

Committee moved to transfer or dismiss the lawsuit on the grounds of improper

venue, asserting that the claimants were required to file this action in the Federal

District Court located in Colorado Springs, Colorado. The Investment Committee also

claimed that Ms. Smith and Ms. Johnson’s claim failed to show how the inclusion of

the Environmental Fund and the MAGA Fund as investment options breached

ERISA’s required fiduciary duties.

Judge Wise referred the issues to Magistrate Judge Canny who issued a Report

and Recommendation. Magistrate Canny concluded that the venue provision was

enforceable, and required transfer of the lawsuit to the Federal District Court located

in Colorado Springs, Colorado. He also concluded that Ms. Smith and Ms. Johnson

set forth a plausible claim that the Big Corp 401(k) Committee breached its fiduciary

duties.

Judge Wise disagreed with the report. He concluded that the venue provision in

the Big Corp 401(k) plan was not enforceable, but dismissed the case because Ms.

Smith and Ms. Johnson did not state a plausible claim under ERISA. Ms. Smith and

Ms. Johnson timely appealed Judge Wise’s decision to the United States Court of

Appeals for the Thirteenth Circuit.

STATEMENT OF FACTS

Jane Smith is an employee of Big Corp and has been a participant in the Big

Corp 401(k) Plan since 2000. (R. at 1). During this time, Ms. Smith invested in the

Environmental Fund and the MAGA Fund. Edith Johnson, also an employee of Big

8

Corp, has been a participant in the Plan since 1996. Id. Similarly, she invested in both

funds. Id. The Big Corp 401(k) Investment Committee is responsible for determining

the investments to offer in the Big Corp 401(k) Plan. Id. The Investment Committee is

made up of defendants Ronald Jones, Josephine Smart, and John Doe. Id. The Plan is

administered in Colorado Springs, Colorado, where Big Corp is headquartered. (R. at

2). In 2015, the Plan was amended, without the consent of the participants, to add a

venue provision. This provision required any lawsuit seeking benefits or challenging

the management or administration of the Plan to be filed in the Federal District Court

located in Colorado Springs, Colorado. Id.

The Investment Committee offered the Environmental Fund from 2006 to 2016

after numerous employees from Big Corp’s human resource department asked to add

an investment option that focused on environmental issues. Id. In 2011, the

Investment Committee reviewed the five-year performance of the Environmental

Fund and noted that it had underperformed against other large cap stock funds. Id.

Nonetheless, the Investment Committee took no action to remove the Environmental

Fund, choosing to continue to offer it based solely on its popularity with employees.

In 2013, 2014, and 2016 the Environmental Fund underperformed bench mark cap

stock funds, with annual returns of 1% to 3% lower than those bench marks. Id. Only

in 2012, a year after the Investment Committee’s initial review, did the Environmental

Fund outperform other benchmark stock funds. Id. The Investment Committee

eliminated the fund after ten years of poor performance. Id. In fact, Big Corp’s CFO

9

noted that she thought this fund should have been eliminated in 2011 based on

investment performance. (R. at 3).

Shortly after removing the Environmental Fund, the Investment Committee

added the recently formed MAGA Fund. Id. The MAGA Fund was created after

Donald Trump’s election, and is dedicated to investing in S&P 500 companies that

support the Republican Party. Id. The MAGA Fund was added, despite having no

performance track-record. Id. Ronald Jones, a large donor and supporter of the

Republican Party, urged inclusion of the MAGA Fund, and the other committee

members agreed. Id. Mr. Jones touted that the inclusion of the MAGA Fund would

enhance Big Corp’s ability to compete for lobbying and public relations under the

new Trump Administration, but was unable to explain how investing in companies

that supported the Republican Party would increase expected investment returns. Id.

Unfortunately, during the first half of 2017, the MAGA fund underperformed

compared to other large cap stock funds. Ms. Smith and Ms. Johnson filed this suit

seeking recovery of losses due to the underperformance of the MAGA Fund and the

Environmental Fund. Id.

SUMMARY OF ARGUMENT

The venue provision in the Big Corp 401(k) Plan should not be enforced

because it was not bargained for by both parties. Big Corp unilaterally amended the

plan to include a venue provision more than a decade after the participants agreed to

the plan’s terms. Yet, the Supreme Court has consistently held that such provisions

10

are only enforceable where they “represent the parties’ agreement” or are “bargained

for by the parties.” See Atlantic Marine Const. Co. v. U.S. Dist. Court for Western

Dist. of Texas, 134 S.Ct. 568, 581 (2016); M/S Bremen v. Zapata Off-Shore Co., 407

U.S. 1, 13 (1972). The Supreme Court has also held that plaintiffs typically have the

right to select “whatever forum they consider most advantageous,” unless they “agree

by contract to bring suit in a specific forum.” See Atlantic Marine, 134 S.Ct at 582.

Here, the participants did not bargain away their right to choose the venue. Therefore,

the venue provision should not be enforced.

Second, the venue provision should not be enforced because it conflicts with a

strong public policy expressed by ERISA. The Supreme Court has held that venue

selection clauses are unenforceable if they “would contravene a strong public

policy…declared by statute or judicial decision.” See Bremen, 407 U.S. 1, 15 (1972).

One important policy expressed by ERISA is to provide participants with “ready

access to the Federal Courts.” See Dumont v. PepsiCo, Inc., 192 F.Supp.3d 209 (D.

Me. 2016). Another is to “remove jurisdictional and procedural obstacles

which…hamper effective enforcement of fiduciary responsibilities.” Id. In this case,

the provision at issue creates and obstacle (by requiring participants to travel to a

distant forum) that impedes ready access to a Federal Court. Thus, the venue clause in

the Big Corp 401(k) plan should not be enforced.

Lastly, the venue provision should not be enforced because it is inconsistent

with ERISA sections 1132(e) and 1104(a). Section 1132(e) grants ERISA participants

11

the right to bring suit in the district where the plan is administered, where the breach

took place, or where a defendant resides or may be found. U.S.C.A. § 1132(e). The

District Court correctly held that this provision is not permissive, but that it was

“intended to grant an affirmative right to ERISA participants.” See Smith v. Big Corp

et al, (D.D.C. 2017) (quoting Coleman v. Supervalu, Inc. Short Term Disability

Program, 920 F.Supp.2d 901, 906 (N.D. Ill. 2013)). Further, section 1104(a) prohibits

enforcement of plan provisions that interfere with ERISA rights and remedies. Here,

the venue provision takes away the participants’ right to choose venue. Consequently,

the provision interferes with the claimant’s right under Section 1132(e) and should not

be enforced.

In short, the venue selection clause should not be enforced because 1) the

parties did not agree to it, 2) it contravenes strong public policy expressed by ERISA,

and 3) it interferes with the participant’s right under ERISA §1132(e).

Judge Wise’s dismissal of Ms. Smith and Ms. Johnson’s claim was improper.

When the complaint does not allege facts showing specifically how the fiduciaries

breached their duty through improper decision-making, “it is sufficient for a plaintiff

to plead facts indirectly showing unlawful behavior, so long as the facts pled ‘give the

defendant fair notice of what the claim is and the grounds upon which it rests,’” and

“allow the court to draw the reasonable inference” that the plaintiff is entitled to relief.

Braden v. Wal-Mart Stores, Inc., 588 F.3d 585, 595-596 (8th Cir. 2009).

The inclusion and continuation of the Environmental Fund for ten years was

12

imprudent and disloyal. The Investment Committee had a duty to monitor this fund

and failed this duty by not removing it after its first five years of poor performance.

“A fiduciary normally has a continuing duty of some kind to monitor investments and

remove imprudent ones.” Tibble v. Edison Int’l., 135 S.Ct 1823, 1828 (2015). The

Investment Committee also breach its duty of loyalty by maintaining the fund based

solely on its popularity with employees. “[Trustees’] decisions must be made with an

eye single to the interests of the participants and beneficiaries.” Donovan v.

Bierworth, 680 F.2d 263, 271 (2d Cir. 1981). The Investment Committee continued

the Environmental Fund without considering any economic benefits the fund provided

for participants and did not keep participants best interests in mind.

STANDARD OF REVIEW

The District Court’s holding should be reviewed de novo. Judge Wise correctly

concluded that ERISA § 1132 (e)(2) grants participants an affirmative right that

cannot be unilaterally eliminated by an employer. Nevertheless, an appellate court

must review conclusions of law under a de novo standard. See Salve Regina College

v. Russell, 499 U.S. 225, 225 (1991).

ARGUMENT

I. The Big Corp 401(k) Plan’s venue selection clause is unenforceable as it

was not agreed upon by both parties and contravenes substantial rights

provide by ERISA.

The venue selection clause added to the Big Corp 401(k) Plan is unenforceable

as it was added to the Plan’s contract after Ms. Smith and Ms. Johnson had already

13

signed. The clause should not be enforced because 1) the parties did not agree to it, 2)

it contravenes strong public policy expressed by ERISA, and 3) it interferes with the

participant’s right under ERISA §1132(e).

A. The venue selection clause in the Big Corp 401(k) Plan should not be

enforced because the participants did not agree to it.

The Supreme Court has generally held that venue provisions are enforceable

when they represent the parties’ agreement. See Bremen, 407 U.S. 1 at 12,13; Atlantic

Marine, 134 S.Ct. at 581. In Carnival Cruise, the court created an exception to this

rule for form ticket contracts. See Carnival Cruise Lines, Inc. v. Shute, 499 U.S. 585,

593 (1991). However, Carnival Cruise does not control here.

In Bremen, the Supreme Court held that a venue provision in “a freely

negotiated private international agreement…should be given full effect.” See Bremen,

407 U.S. 1 at 12,13. The court provided several reasons for its holding, one of which

was that venue clauses eliminate uncertainty because the parties can agree “in

advance on a forum acceptable to both parties.” Id. at 13. Similarly, in Atlantic

Marine, the Supreme Court held that a venue clause in a contract should be enforced

when it “’represents the parties’ agreement as to the most proper forum.’” Atlantic

Marine, 134 S.Ct. at 581 (quoting Stewart Organization, Inc. v. Ricoh Corp., 487 U.S.

22, 31 (1988)). The court reasoned that “’the enforcement of valid forum-selection

clauses, bargained for by the parties’, protects their legitimate expectations and

furthers vital interests of the justice system.’” Id. (quoting Id. at 33).

In Carnival Cruise, the court enforced a non-negotiated forum-selection clause

14

in a cruise line ticket. See Carnival Cruise, 499 U.S. at 593. However, the court’s

analysis was limited to “form passage contracts.” The court pointed out that a cruise

line has a special interest in limiting the fora in which it can be sued, because a cruise

line typically has no connection to most states in which its customers reside.

Additionally, a venue provision dispels confusion about where suits arising from a

contact may be brought, and a venue clause leads to reduced fares. Id. at 594. The

court also stressed the fact that the claimants had notice of the forum clause when they

purchased the ticket. Id. at 595.

Other Federal Courts dealing with venue provision issues in ERISA claims

have held such clauses unenforceable. In Dumont, the court pointed out that the

claimant “never agreed to the forum selection clause contained in the plan.” See

Dumont, 192 F.Supp.3d at 215. The court held that this provision in an ERISA plan

was unenforceable. Id. at 209. Similarly, in Coleman, the court refused to enforce a

venue selection clause that the defendant unilaterally added to an ERISA plan. See

Coleman, 920 F.Supp.2d at 908.

Both courts also held that Carnival Cruise was not applicable. In Dumont, the

court stated that because the claimant “was not notified about the modifications at a

time when he could do anything about it,” the venue provision was unenforceable.

Dumont, 192 F.Supp.3d at 215. The Court in Coleman rejected the defendant’s

argument that Carnival Cruise should govern in the context of an ERISA plan because

“there is a vital difference between the context in which the Carnival Cruise contract

15

was formulated and the context in which ERISA plans are agreed to” in that

“participants automatically possess certain rights decreed by Congress.” See Coleman,

920 F.Supp.3d at 908.

Here, Ms. Smith and Ms. Johnson had no notice of the venue clause. Unlike

defendants in Bremen and Atlantic Marine, Big Corp added the provision more than a

decade after the parties already agreed to the Plan’s terms. There is no evidence that

Ms. Smith or Ms. Johnson had any input in the decision to amend the plan. Enforcing

the forum clause will not protect the parties’ legitimate expectations. Ms. Smith and

Ms. Johnson could not have legitimately expected to sue in Colorado because the

original agreement did not contain a venue provision. Additionally, the clause does

not further the interests of justice. In fact, the opposite is true. The clause creates an

obstacle that forces the participants in the Plan to travel to a distant forum that they

have no connection to. The venue clause only represents Big Corp’s interest regarding

venue when it should represent the interests of both parties. In this case, the venue

provision did not eliminate any uncertainty because ERISA already contains a venue

provision that directs a participant where he may bring suit.

Carnival Cruise is not applicable in this case for similar reasons. Unlike the

contract in Carnival Cruise, there was no venue provision when Ms. Smith and Ms.

Johnson signed their contract, so they could not have received notice. Also, the

reasoning for enforcing provisions in a form ticket contract for a cruise do not apply

to a 401(k) plan contract for a company with significant ties to one location. While a

16

cruise company will not have connections to many of the states in which its customers

are located, Big Corp can be found in the District of Columbia where both Ms. Smith

and Ms. Johnson reside. There is also no confusion about where a suit may be

brought. As stated previously, ERISA contains a venue provision that determines

where a participant may bring a suit. Thus, none of the reasons that the Supreme

Court has provided for enforcing venue selection clauses are applicable to this case.

B. The venue provision contravenes strong public policy expressed by

ERISA.

The Supreme Court has held that a venue provision “should be held

unenforceable if enforcement would contravene a strong public policy…declared by

statute.” Bremen, 407 U.S. at 15. Moreover, courts have held, and the Secretary of

Labor agrees, that venue selection clauses in ERISA plans are contrary to ERISA’s

stated policies of “providing ready access to the Federal Courts” and “to remove

jurisdictional and procedural obstacles which in the past appear to have hampered

effective enforcement of fiduciary responsibilities”. See Dumont, 192 F.Supp.3d at

218; Coleman, 920 F.Supp.2d at 908.

In Dumont, the Court provided several reasons why unilaterally added venue

selection clauses in ERISA plans violate ERISA’s stated policies:

If employers had the right to unilaterally eliminate the venue option most

convenient for participants and beneficiaries, ERISA's goal of breaking

down procedural barriers for those seeking to enforce their rights would

be seriously undercut. See Smith, 769 F.3d at 935(Clay, J., dissenting)

(observing that § 1132(e)(2)'s broad jurisdictional grant for benefit

claims “is indispensable for many of those individuals whose rights

ERISA seeks to protect, since claimants in suits for plan benefits—

17

retirees on a limited budget, sick or disabled workers, widows and

other dependents—are often the most vulnerable individuals in our

society, and are the least likely to have the financial or other wherewithal to litigate in a distant venue.”). The fact that ERISA's

venue provision allows participants to file suit where they reside,

coupled with the explicit textual statement in favor of “ready access” to

federal court, means that enforcement of the forum selection clause is

contrary to ERISA's public policy.

Dumont, 192 F.Supp.3d at 220.

Likewise, the court in Coleman, held that a venue clause in an ERISA plan is

contrary to ERISA’s public policy. Coleman, 920 F.Supp.2d at 908. There, the court

pointed out that an employer may “unilaterally design the benefits packages that they

offer their employees,” but correctly stated that this does not apply to an “employer’s

insertion” of a venue selection clause. Id. The court noted that ERISA §1132 (e)(2)

demonstrates that “Congress clearly desires to open access to several venues for

beneficiaries to enforce their rights.” The court reasoned that if an employer could

unilaterally add a venue provision, then participants would have two choices: “forgo

participation or waive their §1132(e)(2) rights.” Id. “If waiver were permitted, an

employer could obliterate any ERISA requirements by merely including a term in the

benefit plan that contradicts an established right.” Id. Thus, ERISA would be “no

better than an unenforceable wish list, flouting the will of Congress completely.” Id.

Consequently, the court held that the venue selection provision should not be

enforced. Id.

In this case, the court should follow the reasoning of Dumont and Coleman.

Their reasoning is consistent with the stated intent of Congress to “provide ready

18

access to the Federal Courts” and is supported by the Secretary of Labor. If employers

can unilaterally add venue provisions to ERISA plans that force claimants to travel

great distances to vindicate their rights, then many people will be deprived of the right

bring their claims before any court. Thus, justice requires that such provisions be held

unenforceable, where they are not the result of a fair bargain between the parties.

C. The venue selection clause in the Big Corp 401(k) plan strips participants

of an affirmative right granted by ERISA.

ERISA § 1132(e)(2) grants plan participants a substantive right to bring suit in

(3) three different fora, if they so choose. 29 U.S.C.A § 1132 (e)(2). This right ensures

that ERISA’s stated goal of providing “ready access to the Federal Courts” is not

undercut. Furthermore, courts have correctly construed § 1132(e)(2) to provide

ERISA plan participants with an affirmative right. See Coleman, 920 F.Supp.2d at

908; Dumont, 192 F.Supp.3d at 219. In fact, The Secretary of Labor agrees with the

Coleman court’s interpretation of § 1132 (e)(2). See Brief for the Secretary of Labor

at 19.

An employer cannot simply strip away the right granted by ERISA § 1132

(e)(2). Coleman, 920 F.Supp.2d at 908. As the court in Coleman stated, “that would

make ERISA no better than an unenforceable wish list, flouting the will of Congress

completely.” Similarly, the Eleventh Circuit referred to § 1132(e)(2) as “the sword

that Congress intended participants/beneficiaries to wield in asserting their right.” See

id. at 906 (quoting Gulf Life Ins. Co. v. Arnold, 809 F.2d 1520, 1524-25 (11th Cir.

1987)). The protections granted by ERISA would be undermined if an employer could

19

simply eradicate them at their discretion.

Additionally, ERISA provides that a “fiduciary shall discharge his duties…in

accordance with the documents and instruments governing the plan insofar as such

documents…are consistent with the provisions of this subchapter.” 29 U.S.C.A.

§1104(a)(1)(D). A venue selection clause added to a document that limits a

participant’s choice of venue, without her consent, is inconsistent with §1132(e)(2).

See Coleman, 920 F.Supp.2d at 907.

In Dumont, the court pointed out that the Supreme Court declined to enforce a

forum selection clause that contravened an analogous statutory provision of the

Federal Employers’ Liability Act (“FELA”). Dumont, 192 F.Supp.3d at 218. Like

ERISA, FELA provided that “an action may be brought in…the district of the

residence of the defendant, or [a district court] in which the cause of action arose, or

in which the defendant [conducts business]. Id. at 219. There, the Supreme Court

determined that “’the right to select the forum granted in [FELA’s venue provision] is

a substantial right’” and “’it would thwart the express purpose of the statute” to allow

a venue selection clause to strip away that right. Id. (quoting Boyd v. Grand Truck

Western Railroad Co, 338 U.S. 263 (1949)). Therefore, venue selection clauses not

agreed upon by both parties violate a party’s substantial right.

This court should not enforce the venue selection clause in the Big Corp 401(k)

plan. Courts have held that ERISA 1132 (e)(2) grants participants an affirmative right,

which cannot be abolished without their consent. Here, the venue provision, which

20

was added without the consent of the participants, eliminates their right to choose a

suitable venue. Therefore, the venue provision in the Big Corp 401(k) plan should be

held unenforceable.

II. The Big Corp 401(k) Investment Committee members breached their

fiduciary duties by including and imprudently evaluating

underperforming funds.

Ms. Smith and Ms. Johnson sufficiently stated a claim that should have

survived a motion for dismissal. Even when the complaint does not allege facts

showing specifically how the fiduciaries breached their duty through improper

decision-making, a claim can survive a motion to dismiss if the court may reasonably

infer from what was alleged that the fiduciaries followed a flawed process. See

Braden, 588 F.3d at 595. The Investment Committee’s inclusion of the MAGA Fund

was imprudent and disloyal as investment in the fund only benefitted committee

members and Big Corp, not participants in the 401(k) plan. Additionally, the

Investment Committee’s failure to monitor and remove the Environmental Fund after

years of poor performance also breached its fiduciary duty of prudence and loyalty.

A. The MAGA Fund was an imprudent inclusion to Big Corp’s 401(k) plan

due to flawed decision making.

The prudence of an investment decision is determined by the process the

fiduciary used at the time the decision was discussed, investigated, and ultimately

made, rather than from the “vantage point of hindsight.” Chao v. Moore, 2001 WL

743204, at 4 (D. Md. June 1, 2001) (citing Roth v. Sawyer-Cleator Lumber Co., 16

F.3d 915, 918 (8th Cir. 1994)). “The court [should] focus on how the investment

21

decision was made rather than on the results of that decision. Id. (quoting Katsaros,

744 F.2d at 279)). Courts must inquire whether the fiduciaries “employed the

appropriate methods to investigate the merits of the investment….” DiFelice v. U.S.

Airways, 497 F.3d 410, 420 (4th Cir. 2007) (quoting Flanigan v. Gen. Elec. Co., 242

F.3d 78, 86 (2d Cir. 2001)).

The MAGA Fund’s investment strategies, based on donation reports to the

Republican Party, are narrowly aimed and not focused on the best economic gains

possible through its investments. Before deciding whether to include the MAGA fund,

Big Corp’s 401(k) Investment Committee should have investigated the MAGA fund

and its potential effect on the plan before including it. This investigation would have

uncovered the questionable investment decisions the MAGA fund was making,

including the Fund’s “big bet on wall builders.” (R. at 3). While the fund’s

underperformance compared to the market at large does not prove that the investment

option was imprudent, there were signs that the Fund would underperform based on

the investment criteria utilized. Therefore, the investigation into and decision to

include the MAGA fund as an investment option in Big Corp’s 401(k) plan was an

imprudent decision, and a breach of fiduciary duty by the Big Corp 401(k) Investment

Committee.

B. Inclusion of the MAGA Fund breached the fiduciary duties of prudence

and loyalty because of the fund’s lack of track record and Big Corp’s gain

from MAGA’s inclusion.

An allegation that a fiduciary chose investment options with poor performance

22

histories compared to other better performing alternatives does not itself state a claim

showing breach of fiduciary duty. Pledger v. Reliance Trust Company, 240 F.Supp.3d

1314, 1326 (N.D. Ga. 2017) (citing Braden, 588 F.3d at 596). The standard required

to state a claim of fiduciary breach is met when that allegation is paired with an

allegation that the investment choice benefitted fiduciary or corporate interests over

the interest of the plan. Id. Several courts have held that plaintiffs properly state a

claim against fiduciary defendants that “did not discharge their duties solely in the

interest of the participants and beneficiaries” by choosing investment options with

poor or non-existent performance track records when compared to other available

investment options. Id. (quoting Krueger v. Ameriprise Fin., Inc., No. 11-02781, 2012

WL 5873825 (D. Minn. Nov. 20, 2012); referencing McDonald v. Jones, No. 4:16 CV

1346 RWS, 2017 WL 372101, at *2 (E.D. Mo. Jan. 26, 2017)).

Here, the MAGA Fund was active for less than sixty days when it was included

in the Big Corp 401(k) Plan. While the lack of track record would not the standard

needed to claim a breach of fiduciary duty, it is less likely that a prudent fiduciary

would choose to include the MAGA fund in their plan’s investment options after

careful investigation. The criteria used by Mr. Jones to recommend inclusion of the

MAGA Fund lacked specific benefits for the participants and beneficiaries of the plan.

This criteria, however, was replete with benefits conferred to Big Corp through

lobbying and public relations work. The Fund’s lack of track record is exacerbated by

the poor selection criteria used to add it to the Plan’s investment menu. Like plaintiff

23

in Pledger, Ms. Smith and Ms. Johnson’s allegation that a lack of performance history

alongside an investment decision against the plan meets the standard required to claim

a breach of fiduciary duty. Therefore, the inclusion of the MAGA Fund, through its

lack of performance history and its selection criteria against the plan’s interests,

breaches the fiduciary duties owed by Mr. Jones, Ms. Smart, and Mr. Doe.

C. The Big Corp 401(k) Investment Committee breached their fiduciary duty

of prudence by including the MAGA fund, failing to meet the prudent

investor standard.

ERISA regulations state that a fiduciary’s duties involve making decisions

“solely in the interest of the participants and beneficiaries and for the exclusive

purpose of providing benefits to participants and their beneficiaries.” 29 U.S.C.A. §

1104(a)(1), (a)(1)(A)(i) (2018). Fiduciary duties are evaluated within a prudent person

standard, an objective standard “requiring the fiduciary to (1) employ proper methods

to investigate, evaluate, and structure the investment; [and] (2) act in a manner as

would others who have a capacity and familiarity with such matters….” Chao, 2001

WL at 3 (D. Md. June 1, 2001) (quoting Reich v. King, 867 F.Supp. 341, 343 (D. Md.

1994)). A fiduciary is also “obligated to investigate” any decisions affecting the plan,

and “must act in the best interests of the beneficiaries.” Id. (quoting Schaefer v.

Arkansas Medical Soc’y, 853 F.2d 1487, 1491 (8th Cir. 1988)).

Fiduciaries of a plan always “wear the fiduciary hat when making fiduciary

decisions,” including and especially when that fiduciary also represents the plan’s

sponsor or service provider. Leber v. Citigroup 401(k) Plan Inv. Committee, 129

24

F.Supp.3d 4, 12 (S.D.N.Y. 2015) (quoting Pegram v. Hendrich, 530 U.S. 211, 225

(2000)). The Second Circuit further explained that:

Although officers of a corporation who are trustees of its [plan] do not

violate their duties as trustees by taking action which, after careful and

impartial investigation, they reasonably conclude best to promote the

interests of participants and beneficiaries simply because it incidentally

benefits the corporation, or indeed, themselves, their decisions must be

made with an eye single to the interests of the participants and

beneficiaries. … This, in turn, imposes a duty on the trustees to avoid

placing themselves in a position where their acts as officers or directors

of the corporation will prevent their functioning with the complete

loyalty to participants demanded of them as trustees of a [plan].

Id. (quoting Donovan, 680 F.2d at 271 (emphasis supplied)).

Here, Mr. Jones urged the inclusion of the MAGA fund into the investment

options offered by Big Corp’s 401(k) Plan. (R. at 3). During the discussion about

adding the fund, Mr. Jones could not explain how the investment criteria focusing on

donations to the Republican Party would increase expected investment returns. (R. at

3). Further, Mr. Jones has publically stated that including the MAGA fund in Big

Corp’s 401(k) plan would enhance the company’s ability to compete for lobbying and

public relations work under the Trump administration. (R. at 3).

A prudent investor with “an eye single to the interests of the [plan] participants

and beneficiaries,” Donovan, 680 F.2d at 271, would not choose to offer an

investment option to plan participants and beneficiaries based on the criteria supplied

by Mr. Jones. Mr. Jones’s reasons on why the MAGA fund should be included in the

plan’s offerings actually work against participants and beneficiaries as the plan itself

does not benefit from any of the gains that Big Corp would see through the MAGA

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Fund. Mr. Jones has offered no explanation for how Big Corp’s enhanced ability to

compete for lobbying and public relations work would benefit the plan. He has also

failed to show how investing in companies that actively donate to the Republican

party would benefit the plan or its participants.

Mr. Jones suggested the inclusion of the MAGA fund in opposition of his

fiduciary duties of prudence and loyalty, a suggestion that a prudent fiduciary would

not recommend. Therefore, he has breached his fiduciary duty. Ms. Smart and Mr.

Doe breached their fiduciary duties as well by failing to oppose Mr. Jones and

allowing the inclusion of the MAGA fund to the plan.

D. Big Corp 401(k) Investment Committee was imprudent in its insufficient

monitoring of the Environmental Fund.

Defendants were imprudent in that they were not diligent in their duty to

monitor and remove the Environmental Fund “with the care, skill, prudence, and

diligence” that a prudent person “acting in a like capacity and familiar with such

matters” would use. 29 U.S.C.A §1104(a)(1)(B). The Environmental Fund, in its first

five years, substantially underperformed against large cap stock funds. In 2013, 2014,

and 2016 the fund continued to underperform benchmark large cap stock funds, with

annual returns of 1% to 3% lower than those benchmarks. 2012 was the only year

throughout the ten years the fund was offered, that the Environmental Fund

outperformed those benchmarks. In Tibble, the Court held that “a fiduciary normally

has a continuing duty of some kind to monitor investments and remove imprudent

ones.” Tibble, 135 S.Ct at 1828. The Big Corp 401(k) Investment Committee

26

reviewed the fund’s performance in 2011, a year before there was any indication of

good performance, and failed to take any action to remove this fund. A prudent

fiduciary would have removed this fund after this five-year review.

The Trial Court stated that “an investment’s poor performance, standing alone,

does not create an inference that a prudent fiduciary would have chosen different

investment products.” The court cites to White v. Chevron, explaining that

investments cannot be evaluated based on hindsight alone. Yet hindsight is the only

method that the Investment Committee used when evaluating the fund. When

determining whether a fiduciary has acted prudently, the court must “focus on the

process by which it makes its decisions rather than the results of those decisions.” See

Braden 588 F.3d at 595. A fiduciary acting “with care, skill, prudence, and diligence”

would base her evaluation on more than just hindsight when choosing to continue to

offer a plan that severely underperforms compared to other options.

In DiFelice v. U.S. Airways, the Court held that defendant did not breach its

duty of prudence. Plaintiff claimed that defendant breached its fiduciary duty because

it failed to properly monitor its Company Fund. See DiFelice, 497 F.3d at 422.

Defendant argued that during the class period of the plan, it properly monitored the

plan’s performance and evaluated its continued stability. See id. at 421. The Court

agreed with defendant. The Pension Investment Committee (PIC), the group that acted

as fiduciaries to this plan, met numerous times informally and at least four times

formally to discuss the continuation of the plan. Id. On at least two occasions, the PIC

27

sought outside legal opinions in regards to ERISA’s fiduciary duty requirements.

These opinions stated it was prudent to continue the plan. Id. All of this occurred

within a nine-month period. See id. at 414. The Court concluded that defendant met

its fiduciary duty to engage in a reasoned, prudent decision-making process,

using appropriate methods to investigate the merits of retaining the fund as an

investment option. Id. at 421. “Although plainly independent advice is not a

‘whitewash,’ it does provide evidence of a thorough investigation.” Id.

Therefore, multiple meetings between committee members and with independent

advisors does provide evidence of prudence and proper monitoring.

Here, the Investment Committee members failed to properly monitor the

Environmental Fund. During the ten-year timespan the Environmental Fund was

offered, the Big Corp 401(k) Investment Committee met only two times to discuss the

future of the fund. The PIC in DiFelice met formally twice as many times as the Big

Corp 401(k) Investment Committee and sought the opinion of independent advisors.

There is no evidence that the Investment Committee members even made an attempt

to seek outside advice concerning the continuation of the Environmental Fund. In less

than a year, the PIC was more active in its monitoring than the Investment Committee

has been over the past ten. A question of prudence is based on whether a “fiduciary

employed the appropriate methods to investigate and determine the merits of a

particular investment.” Pension Benefit Guar. Corp. ex rel. St. Vincent v. Morgan

Stanley Inv. Mgmt., 712 F.3d 705, 716 (2d Cir. 2012). The only methods that the

28

Investment Committee employed to determine the merits of the Environmental Fund

was based solely on hindsight, a method that Judge Wise stated was improper. The

evaluation of the Environmental Fund by the Investment Committee was minimal and

lacking. Therefore, the Investment Committee was imprudent in its duty to monitor.

E. The Big Corp 401(k) Investment Committee did not act in the best interest

of participants.

The Big Corp 401(k) Investment Committee breached its duty of loyalty by

choosing to continue to offer the Environmental Fund due to its popularity with a

large segment of Big Corp’s employees. “[Trustees’] decisions must be made with an

eye single to the interests of the participants and beneficiaries.” Donovan 680 F.2d at

271. A fiduciary must make decisions based on the best interest of participants.

In Wildman v. American Century Services, LLC, the Court held that plaintiffs

sufficiently alleged that fiduciaries followed a flawed process which was disloyal,

satisfying the requirements for a claim of breach of duty. See Wildman v. American

Century Services, LLC, 237 F.Supp .3d 902, 913 (W.D. Mo. 2017). Plaintiffs alleged

that defendants breached their fiduciary duty because they limited the investments to

options that would benefit the company. Id. Plaintiffs claim this decision-making

process was deficient because they failed to investigate lower-cost, non-proprietary

investment options with comparable performances, and instead, retained higher-cost,

proprietary investment options to the detriment of participants. Id. at 915. Defendants

argued that nothing in ERISA requires fiduciaries to “scour the market to find and

offer the cheapest possible fund.” See id. (citing Hecker v. Deere & Co., 556 F.3d

29

575, 586 (7th Cir. 2009)). The Court agreed with plaintiffs in that defendants acted in

their own self-interest by following a flawed process that failed to consider lower-cost

funds in favor of higher cost ones. Id. Therefore, a fiduciary that follows a process

that fails to keep the best interest of participants in mind is disloyal.

Here, the Investment Committee states that the decision to continue to offer the

Environmental Fund after reviewing it after five years came about because it was

popular with employees. Despite the fund’s higher than average annual fees, the

Investment Committee continued to offer it without stating any benefit it brings to

employees. Like defendants in Wildman, the Investment Committee followed a

flawed process when choosing and retaining the Environmental Fund and did not act

with the loyalty required of a fiduciary. Therefore, the Investment Committee

breached its duty of loyalty to the 401(k) participants.

Judge Wise states that there is nothing inherently suspect about using the SRI

criteria to select investments such as the Environmental Fund. See Smith v. Big Corp

et al, (D.D.C 2017). Judge Wise explains that “companies that are involved in

renewable energies or that have shown dedicated commitments to sustainable

practices may be more profitable long-term than the general market because of these

practices.” Although this may be a sound argument against a claim of breach of

loyalty, it was not one made by the Investment Committee. As stated previously, the

facts given show that the only reason for the Investment Committee to continue to

offer the fund is because it was popular among Big Corp employees. The argument

30

that companies involved in or dedicated to renewable energies may be more profitable

in the long-term is an argument offered by Judge Wise. “[Federal] courts do not

usually raise claims or arguments on their own.” Henderson v. Shinseki, 131 S. Ct.

1197, 1202 (2011). Without Judge Wise’s argument, there is no evidence that the

Investment Committee acted “with an eye single to the interests of the participants

and beneficiaries.” Therefore, Ms. Smith and Ms. Johnson have sufficiently alleged a

claim of breach of fiduciary duty.

CONCLUSION

The Big Corp 401(k) Investment Committee had a duty to keep participants’

best interest in mind. The members breached this duty by putting their own interests

in front of participants’ and by imprudently monitoring underperforming funds. This

court should overturn Judge Wise’s dismissal and remand this case for further

proceedings. The remanded trial should take place in the District of Columbia because

the venue selection clause that was added to the Big Corp 401(k) Plan is just as unjust

as the committee members’ actions and should be unenforceable.