McGeathy v. Reinalt-Thomas Corporation et al

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WO
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF ARIZONA
Cory McGeathy,
Plaintiff,
v.
Reinalt-Thomas Corporation, et al.,
Defendants.
No. CV-25-01439-PHX-DLR
ORDER
Plaintiff Cory McGeathy brings this putative class action accusing The Reinalt-
Thomas Corporation (“Corporation”) and The Reinalt-Thomas Corporation Board of
Directors (“Board of Directors”) (collectively “Defendants”) of breaches of fiduciary duty
under the Employee Retirement Income Security Act (“ERISA”), 29 U.S.C. § 1001 et seq.
(Doc. 6.) Before the Court is Defendants’ motion to dismiss Plaintiff’s first amended
complaint (“FAC”). (Doc. 22.) The motion is fully briefed1 (Docs. 23, 24) and for the
following reasons is denied.
I. Background2
Plaintiff brings this action under § 1132(a)(2) for relief under § 1109(a) on behalf
of the Discount Tire/America’s Tire Retirement Plan (“Plan”) and the Plan’s participants
1 Oral argument is denied because the motions are adequately briefed, and oral
argument will not help the Court resolve the issues presented. See Fed. R. Civ. P. 78(b);
LRCiv. 7.2(f).
2 The following background is derived from Plaintiff’s FAC (Doc. 6) and presumed
true for purposes of this order. See Cousins v. Lockyer, 568 F.3d 1063, 1067 (9th Cir. 2009).
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and beneficiaries. (Doc. 6 ¶ 5.) Plaintiff alleges he was a participant in the Plan, as defined
in § 1002(7), and that he suffered individual injury by investing in the Plan’s American
Century Target Fund Suite. (Id. ¶ 24.) The Corporation, which does business as Discount
Tire Co., Inc., is a major retailer of tires, auto parts, and accessories. (Id. ¶ 25.) The
Corporation is the Plan sponsor, Plan Administrator, and a fiduciary of the Plan. (Id.) The
Board of Directors is a fiduciary of the Plan responsible for appointing and monitoring the
Plan’s fiduciaries. (Id. ¶ 26.)
The Plan is a profit-sharing plan subject to the provisions of ERISA. (Id. ¶ 38.) The
Plan provides for retirement income for approximately 16,000 Discount Tire employees,
former employees, and their beneficiaries. (Id. ¶ 39.) The Plan’s participants have the
option to invest their retirement savings in the funds that Defendants select for the Plan.
(Id. ¶ 2.) As of December 31, 2023, Plan participants had invested almost $1.2 billion in
the Plan. (Id. ¶ 40.) Of that, approximately $519.5 million, or 43.5% of the Plan’s total
assets, was invested in the American Century Target Fund Suite. (Id.)
The American Century Target Fund Suite is comprised of “target date funds,” which
are designed to achieve certain investment results based on an investor’s anticipated
retirement date. (Id. ¶ 7.) The American Century Target Fund Suite consists of nine funds,
also referred to as vintages, each separated by five-year increments that represent different
anticipated retirement dates from 2025 to 2065. (Id.) The American Century Target Fund
Suite is an “actively managed” fund. (Id. ¶ 11.) Defendants included the American Century
Target Fund Suite in the Plan for over 15 years despite Plaintiff’s allegation that it is “one
of the worst-performing investment suites in the entire market.” (Id. ¶ 3.) Accordingly,
Plaintiff brings claims for imprudence and for failure to monitor. (Id. ¶¶ 207–222.)
Defendants move to dismiss both claims.
II. Legal Standard
“To avoid a Rule 12(b)(6) dismissal, a complaint need not contain detailed factual
allegations; rather, it must plead ‘enough facts to state a claim to relief that is plausible on
its face.’” Clemens v. DaimlerChrysler Corp., 534 F.3d 1017, 1022 (9th Cir. 2008)
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(quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007)). Well-pled factual allegations
are accepted as true and construed in the light most favorable to the plaintiff. Cousins v.
Lockyer, 568 F.3d 1063, 1067 (9th Cir. 2009). The court’s task merely is to determine
whether those well-pled factual allegations plausibly state a claim to relief under governing
law. See Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). However, the court “does not have
to accept as true conclusory allegations in a complaint or legal claims asserted in the form
of factual allegations.” In re Tracht Gut, LLC, 836 F.3d 1146, 1150 (9th Cir. 2016).
III. Analysis
A. Imprudence Claim
Defendants argue that the Court should dismiss Plaintiff’s imprudence claim
because ERISA does not provide a cause of action for underperforming investments. (Doc.
22 at 13.) Plaintiff responds that an imprudence claim can be based on allegations of
underperforming investments so long as the performance is compared to a meaningful
benchmark. (Doc. 23 at 11.) Additionally, Defendants argue that Plaintiff has failed to
allege meaningful benchmarks. (Doc. 22 at 17.) Plaintiff responds that it plausibly alleged
meaningful benchmarks, including two that the Plan itself designated as benchmarks. (Doc.
23 at 13.)
“To state a claim for breach of fiduciary duty under ERISA, a plaintiff must allege
that (1) the defendant was a fiduciary; and (2) the defendant breached a fiduciary duty; and
(3) the plaintiff suffered damages.” Bafford v. Northrop Grumman Corp., 994 F.3d 1020,
1026 (9th Cir. 2021). Under ERISA, a plan fiduciary “shall discharge his duties with
respect to a plan solely in the interest of the participants and beneficiaries,” § 1104(a)(1),
and must do so “with the care, skill, prudence, and diligence under the circumstances then
prevailing that a prudent man acting in a like capacity and familiar with such matters would
use in the conduct of an enterprise of a like character and with like aims,” § 1104(a)(1)(B).
This duty of prudence extends to both the initial selection of an investment and the
continuous monitoring of investments to remove imprudent ones. Tibble v. Edison Int’l,
575 U.S. 523, 530 (2015). Thus, “[i]f the fiduciaries fail to remove an imprudent
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investment from the plan within a reasonable time, they breach their duty.” Hughes v. Nw.
Univ., 595 U.S. 170, 176 (2022).
But ERISA “requires prudence, not prescience.” Anderson v. Intel Corp. Investment
Pol’y Comm., 137 F.4th 1015, 1021 (9th Cir. 2025) (quotation omitted). Courts therefore
assess “a fiduciary’s actions based upon information available to the fiduciary at the time
of each investment decision and not from the vantage point of hindsight.” Id. “[I]t is not
enough for a plaintiff simply to allege that the fiduciaries could have obtained better
results”—such as higher returns—“by choosing different investments.” Id. Instead, “when
a plaintiff alleges imprudence based on a fiduciary’s decision to make one investment
rather than an alternative, the key to nudging an inference of imprudence from possible to
plausible is providing a sound basis for comparison—a meaningful benchmark—not just
alleging that costs are too high, or returns are too low.” Id. at 1022 (cleaned up). A
meaningful benchmark is one that has similar aims, risks, and potential rewards. See id. at
1023.
Here, Plaintiff alleges the aim of the American Century Target Fund Suite “is to
balance total return and stability over time.” (Doc. 6 ¶ 74.) Plaintiff identifies the principal
risks as “allocation risk, longevity risk, and the risks inherent in the underlying funds—
stock market risk, issuer risk, small company risk, interest rate and default risk, and the
risks of investing in non-U.S. securities.” (Id. ¶ 80.) Plaintiff alleges that Morningstar3 rates
the risk level of vintages 2025 through 2040 as a moderate risk level and rates vintages
2045 through 2065 as an aggressive risk level. (Id. ¶ 81.) Plaintiff characterizes the
potential rewards as each target date fund “generat[ing] investment returns that outperform
its benchmark index so that the investors can maximize their real account balances at
retirement to sustain sufficient income throughout retirement.” (Id. ¶ 79.)
Plaintiff points to five other comparator funds as benchmarks: American Funds
Target Fund Suite, Fidelity Freedom Target Fund Suite, State Street Target Fund Suite,
Vanguard Target Fund Suite, and Voya Target Solution Trust Series. (Id. ¶¶ 82–125.) First,
3 Plaintiff alleges that “Morningstar, Inc. is a leading provider of independent
investment research products.” (Doc. 6 ¶ 3 n.1.)
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Plaintiff alleges each comparator shares American Century’s aim “to balance total return
and stability over time.” (Id. ¶¶ 84, 93, 102 112, 120.) Second, Plaintiff alleges each
comparator shares American Century’s potential reward of maximizing investors’ account
balances to generate sufficient income throughout retirement. (Id. ¶¶ 88, 97, 106, 115, 123.)
Finally, Plaintiff alleges each comparator shares American Century’s potential risks as
“[t]he principal risks are allocation risk, longevity risk, and the risks inherent in the
underlying funds.” (Id. ¶¶ 89, 98, 107, 116, 124.) Of American Funds’, State Street’s,
Vanguard’s, and Voya’s nine vintages, the one variance is that Morningstar recognizes
their 2040 vintages as an aggressive risk level rather than moderate. (Id. ¶¶ 89, 107, 116,
124). Of Fidelity Freedom’s nine vintages, the two variances are that Morningstar
recognizes the Fidelity Freedom 2035 and 2040 vintages as an aggressive risk level rather
than moderate. (Id. ¶ 98.)
As required to establish that the proposed comparator funds are truly comparable,
Plaintiff evaluates the aims, risks, and potential rewards of each comparator fund with those
of the American Century Target Fund Suite. Plaintiff does not merely label the comparator
funds as “comparable” or “a peer.” See Anderson, 137 F.4th at 1023. Further, Plaintiff
describes the glide path of each comparator fund and the types of investments they engage
in. (Id. ¶¶ 83, 84, 92, 93, 101, 102, 111, 112, 119, 120.) The question at this stage is whether
Plaintiff has alleged meaningful comparators. Plaintiff has done so. Defendants’ disputes
about the facts concerning each comparator fund are more appropriate for summary
judgment. Plaintiff has alleged enough to demonstrate he is comparing apples to apples
and not apples to oranges. See id. at 1025. Defendants’ arguments would require a plaintiff
alleging imprudence to not just compare apples to apples but only Gala apples to Gala
apples and Fuji apples to Fuji apples.
Additionally, Plaintiff alleges that the American Century Target Fund Suite
underperformed the benchmark designated by the Plan itself: the S&P Index. (Id. ¶ 13.) In
its Notice of Investment Returns and Fee Disclosure to Plan participants, the Plan identified
the S&P Target Date Index as the benchmark for each vintage of the American Century
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Target Fund Suite. (Id. ¶ 126.) American Century has also identified the S&P Target Date
Index as the benchmark in the statutory prospectus for the American Century Target Fund
Suite. (Id. ¶ 127.) There is case law establishing “that a plan’s own benchmarks are
plausibly meaningful benchmarks against which to compare funds.” See Anderson v. Intel
Corp. Inv. Pol’y Comm., 579 F. Supp. 3d 1133, 1151 (N.D. Cal. 2022), aff’d, 137 F.4th at
1015. But courts in this Circuit are divided on this issue and there is no Ninth Circuit
decision on point. It is not necessary for the Court to determine whether the S&P Index can
be a meaningful benchmark when a plan or fund designates it as a benchmark for Plaintiff
to survive the motion to dismiss because the Court has determined Plaintiff alleged the five
other comparators funds as meaningful benchmarks.
Additionally, Plaintiff alleges that the American Century Target Fund Suite
underperformed all these plausibly meaningful benchmarks. Plaintiff alleges the
underperformance occurred over a 15-year period, 10 years prior to and then through the
proposed Class Period, and that this underperformance cost Plan participants between $11
and $44 million. (Id. ¶ 143.) Plaintiff has plausibly alleged meaningful benchmarks and
underperformance relative to those benchmarks. Accordingly, Plaintiff has stated a claim
for breach of the fiduciary duty of prudence.
B. Failure to Monitor Claim
Defendants argue that the Court should dismiss Plaintiff’s failure to monitor claim
because it is derivative of the imprudence claim. (Doc. 22 at 24.) Plaintiff agrees that the
failure to monitor claim is derivative and argues it should survive this motion because the
imprudence claim is sufficiently alleged. (Doc. 23 at 23.) Because Plaintiff has sufficiently
alleged the imprudence claim, the failure to monitor claim also survives.
IT IS ORDERED that Defendants’ motion to dismiss (Doc. 22) is DENIED.
Dated this 4th day of March, 2026.
Douglas L. Rayes
Senior United States District Judge
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