Richard A. Kong; v. Trader Joe’s Company;

NOT FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
RICHARD A. KONG; et al.,
Plaintiffs-Appellants,
v.
TRADER JOE’S COMPANY; et al.,
Defendants-Appellees.
No. 20-56415
D.C. No.
2:20-cv-05790-PA-JEM
MEMORANDUM*
Appeal from the United States District Court
for the Central District of California
Percy Anderson, District Judge, Presiding
Argued and Submitted April 6, 2022
Pasadena, California
Before: SCHROEDER and GRABER, Circuit Judges, and McNAMEE,** District
Judge.
Plaintiffs Richard Kong, Robert Cruzalegui, Matthew Heiden, and Cashay
Clayborn timely appeal the district court’s dismissal of their amended complaint,
pursuant to Fed. R. Civ. P. 12(b)(6), for failure to state a claim. Reviewing de
FILED
APR 15 2022
MOLLY C. DWYER, CLERK
U.S. COURT OF APPEALS
* This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
** The Honorable Stephen M. McNamee, United States District Judge
for the District of Arizona, sitting by designation.

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novo, Khoja v. Orexigen Therapeutics, Inc., 899 F.3d 988, 998 (9th Cir. 2018), we
reverse and remand.
The district court erred in dismissing Plaintiffs’ claim for breach of fiduciary
duty. “In determining the contours of an ERISA fiduciary’s duty, courts often
must look to the law of trusts.” Tibble v. Edison Int’l, 575 U.S. 523, 528–29
(2015).
1. Under trust law, “a trustee cannot ignore the power the trust wields to
obtain favorable investment products, particularly when those products are
substantially identical—other than their lower cost—to products the trustee has
already selected.” Tibble v. Edison Int’l, 843 F.3d 1187, 1198 (9th Cir. 2016) (en
banc). In short, though “the appropriate inquiry will necessarily be context
specific[,]” Hughes v. Nw. Univ., 142 S. Ct. 737, 742 (2022), quoting Fifth Third
Bancorp v. Dudenhoeffer, 573 U.S. 409, 425 (2014), “[w]asting beneficiaries’
money is imprudent.” Tibble, 843 F.3d at 1198 (internal quotation marks omitted).
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
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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.
Defendants’ explanation for the more expensive choice is unavailing at the
pleading stage. 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. See Starr v. Baca, 652 F.3d 1202,
1216 (9th Cir. 2011) (“If there are two alternative explanations, one advanced by
defendant and the other advanced by plaintiff, both of which are plausible,
plaintiff’s complaint survives a motion to dismiss under Rule 12(b)(6).”) Thus,
drawing every reasonable inference in favor of Plaintiffs, the operative complaint
“allege[s] ‘factual content that allows the court to draw the reasonable inference
that the defendant is liable for the misconduct alleged.’” In re Century Aluminum
Co. Sec. Litig., 729 F.3d 1104, 1108 (9th Cir. 2013) (quoting Ashcroft v. Iqbal,
556 U.S. 662, 678 (2009)).
2. In addition, fiduciaries must discharge their plan-related duties “for the
exclusive purpose of . . . providing benefits to participants and their beneficiaries;
and . . . defraying reasonable expenses of administering the plan.” 29 U.S.C.
3

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§ 1104(a)(1)(A). Taking all the allegations as true, Defendants did not act with the
purpose of defraying reasonable administrative expenses.
3. For the forgoing reasons, the district court also erred in dismissing the
claim for breach of the fiduciary duty to monitor.
REVERSED AND REMANDED.
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