Schissler v. Janus Henderson US (Holdings) Inc. et al

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
Senior Judge Raymond P. Moore
Civil Action No. 22-cv-02326-RM-SBP
SANDRA SCHISSLER,
KARLY SISSEL, and
DERRICK HITTSON, individually and as representatives of a class of similarly situated
persons, and on behalf of the Janus 401(k) and Employee Stock Ownership Plan,
Plaintiffs,
v.
JANUS HENDERSON US (HOLDINGS) INC.,
JANUS HENDERSON ADVISORY COMMITTEE, and
JOHN AND JANE DOES 1-30,
Defendants.
______________________________________________________________________________
ORDER
______________________________________________________________________________
This lawsuit brought under the Employee Retirement Income Security Act (“ERISA”) is
before the Court on the Recommendation of United States Magistrate Judge Susan Prose (ECF
No. 50) to grant in part and deny in part Defendants’ Motion to Dismiss (ECF No. 39). Plaintiffs
and Defendants filed Objections to Recommendation (ECF Nos. 51, 52) as well as Responses
and supplemental briefing (ECF Nos. 53, 54, 55, 56). For the reasons below, the Court overrules
the Objections and accepts the Recommendation, which is incorporated into this Order by
reference. See 28 U.S.C. § 636(b)(1)(B); Fed. R. Civ. P. 72(b).
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I. 	LEGAL STANDARDS
A. 	Review of a Magistrate Judge’s Recommendation
Pursuant to Fed. R. Civ. P. 72(b)(3), this Court reviews de novo any part of the
magistrate judge’s recommendation that is properly objected to. An objection is proper only if it
is sufficiently specific “to focus the district court’s attention on the factual and legal issues that
are truly in dispute.” United States v. One Parcel of Real Prop., 73 F.3d 1057, 1060 (10th Cir.
1996). However, “[i]ssues raised for the first time in objections to the magistrate judge’s
recommendation are deemed waived.” ClearOne Commc’ns, Inc. v. Biamp Sys., 653 F.3d 1163,
1185 (10th Cir. 2011) (quotation omitted). “In the absence of a timely objection, the district
court may review a magistrate’s report under any standard it deems appropriate.” Summers v.
Utah, 927 F.2d 1165, 1167 (10th Cir. 1991).
B. 	Dismissal under Fed. R. Civ. P. 12(b)(6)
In evaluating a motion to dismiss under Fed. R. Civ. P. 12(b)(6), a court must accept as
true all well-pleaded factual allegations in the complaint, view those allegations in the light most
favorable to the plaintiff, and draw all reasonable inferences in the plaintiff’s favor. Brokers’
Choice of Am., Inc. v. NBC Universal, Inc., 757 F.3d 1125, 1136 (10th Cir. 2014); Mink v. Knox,
613 F.3d 995, 1000 (10th Cir. 2010). However, a court need not accept threadbare recitals of the
elements of a cause of action that are supported by mere conclusory statements or allegations
plainly contradicted by properly considered documents or exhibits. Clinton v. Sec. Benefit Life
Ins. Co., 63 F.4th 1264, 1275 (10th Cir. 2023). To defeat a motion to dismiss, the complaint
must allege a “plausible” right to relief. Bell Atl. Corp. v. Twombly, 550 U.S. 544, 569 n.14
(2007); see also id. at 555 (“Factual allegations must be enough to raise a right to relief above
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the speculative level.”). Conclusory allegations are insufficient, Cory v. Allstate Ins., 583 F.3d
1240, 1244 (10th Cir. 2009), and courts “are not bound to accept as true a legal conclusion
couched as a factual allegation,” Twombly, 550 U.S. at 555 (quotation omitted).
II. 	BACKGROUND
No party objected to the magistrate judge’s recitation of the relevant factual allegations,
which the Court adopts in full while abbreviating here. Plaintiffs are participants in a defined-
contribution employee pension benefit plan (the “Plan”) sponsored by Defendant Janus
Henderson US (Holdings) Inc. (“Janus Henderson”) and administered by Defendant Janus
Henderson Advisory Committee (the “Committee”). Plaintiffs bring this action on behalf of
themselves, the Plan, and a putative class of similarly situated participants and beneficiaries of
the Plan who were invested on or after September 9, 2016, excluding any persons with
responsibility for the Plan’s administrative functions or investments. (ECF No. 31, ¶ 69.)
Janus Henderson is an investment management company, and all its proprietary funds
(the “JH Funds”) are included in the Plan’s investment menu from which participants may
choose investments for their individual accounts. Plaintiffs allege that this arrangement harms
participants because there are other available investments that are less costly and achieve greater
returns than the JH Funds and the JH Funds are automatically included as investment options
regardless of their relatively poor performance. 	Plaintiffs further allege that this arrangement
benefits Janus Henderson at the expense of Plan participants because it earns profits and
management fees on additional investments in its own funds and is able to “seed” new and
unproven proprietary funds.
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Although the Committee is charged with overseeing and managing the Plan’s
investments, the terms of the Plan require that the JH Funds be included in the investment menu
unless Janus Henderson removes them or amends the Plan. Plaintiffs allege that Defendants’
“favoritism” of the JH Funds “has led to the payment of excessive investment management fees
by participants to Janus Henderson, a failure to prudently monitor and remove the
underperforming proprietary Janus Henderson Funds, and a failure to engage in a prudent and
loyal process in the selection of new Plan investments.” (Id. at ¶ 44.)
Thus, Plaintiffs’ allege that Defendants breached their fiduciary duty of prudence by
offering inappropriate investment options and their fiduciary duty of loyalty by benefiting from
the Plan at Plaintiffs’ expense. According to the Amended Complaint, Defendants’ alleged
favoritism of the JH Funds took several forms over the putative class period. First, the JH Funds,
which were “essentially the only actively managed investments available to participants,”
resulted in higher fees compared to nonproprietary alternatives. (Id. at ¶¶ 45, 46.) Second,
Defendants failed to remove JH Funds from the investment menu despite their chronic
underperformance. (Id. at ¶ 52.) Third, Defendants automatically added new JH Funds to the
Plan’s menu before they had an adequate track record demonstrating they were prudent
investments. (Id. at ¶¶ 62, 63.) In addition to their breach of fiduciary duty claim against both
Defendants, Plaintiffs assert a derivative claim for failure to monitor fiduciaries against Janus
Henderson only.
Defendants filed a Motion to Dismiss (ECF No. 39), which was referred to the magistrate
judge for a Recommendation. After it was fully briefed (ECF Nos. 45, 46, 48), the magistrate
issued the Recommendation.
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As a threshold matter, the magistrate judge rejected Defendants’ assertion that Plaintiffs
lack standing to bring their claims. Next, the magistrate judge turned to whether Plaintiffs stated
a plausible claim for relief under Fed. R. Civ. P. 12(b)(6). The magistrate judge framed
Plaintiffs’ breach of fiduciary claim against Janus Henderson as premised on four sets of
allegations, that it (1) designed the Plan to mandate offering all JH Funds; (2) failed to amend the
Plan to remove that mandate; (3) failed to otherwise remove any of the JH Funds or override the
terms of the Plan; and (4) failed to use a prudent and loyal process to select the investment
options in the Plan because the JH Funds had above-average expenses without commensurate
performance. (ECF No. 50 at 31-32.)
The magistrate judge determined that writing and failing to amend the Plan documents
were settlor functions to which no fiduciary duty attached because Janus Henderson was acting
in its role as the Plan sponsor; therefore, the first two sets of allegations failed to state a claim for
relief. But the magistrate judge agreed with Plaintiffs that failing to remove underperforming
funds or to employ a reasonable selection process for investment options were administrative
functions that could support a claim for breach of fiduciary duty and therefore concluded the
third and fourth sets of allegations state a claim for relief against Janus Henderson.
Regarding the Committee, the magistrate judge found it “was a fiduciary with respect to
offering the JH Funds, regardless that the Plan and related documents said those funds were
outside the Committee’s discretion.” (ECF No. 50 at 34.) Accordingly, the magistrate judge
concluded that Plaintiffs should be able to proceed with their claims against the Committee
premised on the theories that it failed to remove or suspend JH Funds from the investment
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options available and employed a faulty selection process in choosing or managing the
investment options of the Plan.
III. 	ANALYSIS
No party objected to the magistrate judge’s consideration of certain documents outside
the Complaint, and the Court agrees that these are appropriately considered here. They include
relevant portions of the Plan (ECF No. 40-1) and an investment policy statement promulgated by
the Committee (ECF No. 40-3).
A. 	Plaintiffs’ Partial Objection
Plaintiffs state that they largely agree with the Recommendation. They nevertheless
object to it “to the extent it suggests that the acts of selecting and monitoring the investments in a
401(k) plan are not subject to ERISA’s fiduciary standards.” (ECF No. 51 at 2.) But the
Recommendation does not state or suggest that selecting and monitoring the Plan’s investment
options are not fiduciary functions. Rather, it draws a well-supported distinction between, on
one hand, settlor functions performed by Janus Henderson by establishing the Plan—including
drafting the Plan and providing that the JH Funds could only be removed through amendment—
and, on the other, administrative ones pertaining to how the Plan, once established, was
managed.
“In general, an employer’s decision to amend a pension plan concerns the composition or
design of the plan itself and does not implicate the employer’s fiduciary duties which consist of
such actions as the administration of the plan’s assets.” Hughes Aircraft Co. v. Jacobson, 525
U.S. 432, 444 (1999); see id. (“ERISA’s fiduciary duty requirement simply is not implicated
where [the employer], acting as the Plan’s settlor, makes a decision regarding the form or
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structure of the Plan . . . .”); Lockheed Corp. v. Spink, 517 U.S. 882, 890 (1996) (“Plan sponsors
who alter the terms of a plan do not fall into the category of fiduciaries.”). Plaintiffs fail to cite a
single example where an employer was found to be acting as an ERISA fiduciary when it drafted
or declined to amend its plan documents, and the Court finds the magistrate judge’s distinction
between settlor and administrative functions is supported under applicable law.
Plaintiffs acknowledge that “[a]s a practical matter, it is unlikely that this error in the
Recommendation’s analysis would impact the outcome of this case.” (ECF No. 51 at 4.)
Because this case will proceed on Plaintiffs breach of fiduciary duty claims based on the
assertions that Defendants employed a faulty selection process for choosing investment options
and failed to remove the JH Funds despite their high cost and poor performance, the Court is
likewise at a loss to see how sustaining their Objection would alter the trajectory of this case.
Therefore, the Court overrules Plaintiffs’ Objection.
B. 	Defendants’ Limited Objection
Defendants first argue that the magistrate judge erred by concluding the Committee was a
fiduciary with respect to the JH Funds. Defendants contend that the Plan, by design, gave the
Committee discretionary authority solely over non-JH Funds and that it had no authority over the
JH Funds. But according to the Amended Complaint, the Committee is a named fiduciary of the
Plan, and it is generally responsible for promulgating the Plan’s investment policy statement,
selecting the core funds available under the Plan, reviewing the funds for compliance with the
investment policy statement, and making revisions to the investment policy statement to reflect
changing conditions within the Plan or the investment environment or as the Committee sees fit.
(ECF No. 31, ¶¶ 28, 30.) Although these obligations may be in some tension with the mandate
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to offer all the JH Funds as investment options, it is far from clear that the Plan requires the
Committee to completely refrain from monitoring and managing the JH funds as Defendants
would have it. Taking Plaintiffs’ allegations as true, the Court agrees that they show the
Committee had fiduciary responsibility for both the JH Funds and the non-JH Funds offered as
investments under the Plan.
Moreover, the Court agrees with the magistrate judge’s conclusion that ERISA’s
statutory duties override the Plan’s mandate to offer—and continue offering—all JH Funds as
investment options unless Janus Henderson amends the Plan. In the context of an employee
stock ownership plan, the Supreme Court has held that “the duty of prudence trumps the
instructions of a plan document, such as an instruction to invest exclusively in employer stock
even if financial goals demand the contrary.” Fifth Third Bancorp v. Dudenhoeffer, 573 U.S.
409, 421 (2014). Moreover, “trust documents cannot excuse trustees from their duties under
ERISA.” Id. at 422 (quotation omitted). Defendants appear to suggest that because offering
proprietary funds is sometimes permissible, it must always be. But they cite no authority
supporting the proposition that the twin duties of prudence and loyalty may be circumvented
with a mandate that proprietary funds be offered. And, pursuant to 29 U.S.C. § 1104(a)(1)(D),
ERISA fiduciaries are required to follow plan documents only insofar as they are consistent with
their duty of prudence. See In re CMS Energy ERISA Litig., 312 F. Supp. 2d 898, 913 (E.D.
Mich. 2004). Therefore, the Court is not persuaded that the Plan limits the Committee’s
statutory duties in the manner Defendants suggest.
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Further, in its investment policy statement, the Committee describes circumstances which
might lead to the termination of non-JH Fund investment options; it then goes on to state as
follows:
Notwithstanding the forgoing discussion regarding performance evaluation, the
Advisory Committee believes that the unique position of the Corporation in the
investment advisory business . . . offers added opportunities to plan participants to
participate in the growth and success of their employer. The Advisory Committee
will therefore offer, on an extended basis, [JH Funds] as additional options within
specific asset classes and not part of a “broad range” of Investment Options as
defined by ERISA 404c.
(ECF No. 40-3 at 11.) This passage—along with the Committee’s express authority to revise the
investment policy statement—suggests that the Committee had at least some discretion to decide
how the JF Funds were offered, creating the potential for fiduciary liability notwithstanding the
Plan language mandating their inclusion. See CMS Energy, 312 F. Supp. at 914 (dismissing
breach of fiduciary duty claims premised on failure to amend the terms of the plan while
allowing claims premised on alleged broader management and administrative powers to
proceed). In short, the Court is not persuaded that Plaintiffs’ allegations are insufficient to
establish that the Committee had a no fiduciary duty vis-a-vis the JH Funds.
Defendants next argue the magistrate judge erred by concluding the Amended Complaint
adequately alleges that although Janus Henderson acted as a settlor when it drafted and declined
to amend the Plan, it acted as a fiduciary when it selected the funds for the Plan and when it
failed to override the Plan’s terms to remove certain JH Funds. However, “the trustee under
ERISA may wear different hats.” Pegram v. Herdrich, 530 U.S. 211, 225 (2000). An ERISA
fiduciary’s duty is derived from the common law of trusts and includes the requirement “to
conduct regular review of its investment with the nature and timing of the review contingent on
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the circumstances.” Tibble v. Edison Int’l, 575 U.S. 523, 528 (2015). “ERISA plan fiduciaries
must discharge their duties ‘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.’” Hughes, 595 U.S. at
172 (quoting 29 U.S.C. § 1104(a)(1)(B)).
Here, contrary to Defendants’ argument, the magistrate judge did not find that the
decision to offer the JH Funds—standing alone—was sufficient to infer a fiduciary breach or a
flawed selection process. Instead, the magistrate judge found that “once the Plan was in place,
ERISA’s statutory duties of loyalty and prudence in selecting investment controlled over the
Plan’s instruction to offer all JH Funds.” (ECF No. 50 at 32.) “A plaintiff may allege that a
fiduciary breached the duty of prudence by failing to properly monitor investments and remove
imprudent ones.” See Tibble, 575 U.S. at 530. The Court agrees that Plaintiffs’ allegations are
sufficient to state a claim that Defendants failed to meet their continuing duty to monitor the
Plan’s investments and remove imprudent ones. See id. at 529.
Defendants’ contention that the magistrate judge should have considered the process by
which non-JH Funds were selected for inclusion in the Plan is unavailing. It is well established
that a plan administrator cannot insulate itself from liability for including imprudent investment
options simply by offering others that are satisfactory. See Hughes v. Northwestern Univ., 595
U.S. 170, 173 (2022). Thus, whether some investment options were properly selected is
irrelevant in a case like this one. The Court discerns no error in the magistrate judge’s failure to
analyze how Defendants selected the Plan’s non-JH Fund investment options in reaching the
determination that Plaintiffs adequately alleged Defendants breached the duty of prudence.
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Defendants additionally argue that the magistrate judge erred by concluding Plaintiffs
met their burden of providing meaningful benchmarks, as required under Matney v. Barrick Gold
of N. Am., 80 F. 4th 1136, 1157 (10th Cir. 2023), to support their allegations of excessive fees
and underperformance. However, the Court is not persuaded that Plaintiffs’ allegations are
conclusory or insufficient. Plaintiffs provide multiple analyses indicating that expense ratios for
the JH Funds were higher than those of similar funds and that the JH Funds did not perform as
well as similarly situated funds. The Amended Complaint contains several charts documenting
and comparing fund performance in multiple categories. Though these analyses are subject to
counter-analyses and debate as to the appropriateness of the comparators, even if Defendants
ultimately prevail on the merits, such issues are not suitable for resolution at the motion to
dismiss stage. The Court finds Plaintiffs’ allegations are distinguishable from the allegations
found to be insufficient to provide a meaningful benchmark in Matney. Cf. id. at 1158.
Defendants’ contention that Plaintiffs failed to allege a violation of the duty of loyalty is
similarly unavailing. 	Defendants argue the magistrate judge erred by concluding Plaintiffs’
allegations for breach of the duty of loyalty were sufficient to state a claim because inclusion of
proprietary funds is permissible and that any benefit Janus Henderson received from the
arrangement was incidental. But Plaintiffs allege that, in addition to the excessive fees Janus
Henderson received from the JH Funds, mandating the JH Funds be included in the Plan allowed
it to “seed” new proprietary funds, benefiting Janus Henderson at the expense of Plan
participants who chose to invest in the JH Funds. Although there are factual disputes as to
whether any benefit to Defendants was merely incidental, the Court agrees that Plaintiffs’
allegations are sufficient to state a claim.
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Finally, Defendants object in passing to the magistrate judge’s conclusion that Plaintiffs
have standing, arguing they failed to allege they suffered cognizable harm. Noting the absence
of Tenth Circuit authority on whether an ERISA plan participant who suffers a loss has standing
to sue on behalf of the plan, the magistrate judge agreed with the analysis in Anderson v. Coca-
Cola Bottlers’ Ass’n, 2022 WL 951218, at *3-4 (D. Kan. Mar. 30, 2022), where the court held
that an ERISA plaintiff is entitled to represent the interests of other injured participants in a
derivative capacity, observing that this appears to be the position of the majority of the courts
that have considered the issue. See, e.g., Dover v. Yanfeng US Auto. Interior Sys. I LLC, 563 F.
Supp. 3d 678, 683 (E.D. Mich. 2021) (“[A]s long as the Complaint contains broad allegations
that the fiduciaries violated ERISA, claims regarding specific funds are allowed to move forward
at the motion to dimiss stage even if not all of the named plaintiffs participated in every one of
the individual funds.”); McGowan v. Barnabas Health, Inc., 2021 WL 1399870, at *4 (D.N.J.
Apr. 13, 2021) (unpublished); see also Jones v. DISH Network Corp., No. 22-cv-00167-CMA-
STV, 2023 WL 2644081, at *3 (D. Colo. Mar. 27, 2023). The magistrate judge further
concluded that this was consistent with the language in 29 U.S.C. § 1109(a), which holds
fiduciaries liable for “any losses to the plan.” See also 29 U.S.C. § 1132(a)(2) (permitting civil
enforcement by, inter alia, plan participants). In their Objection, Defendants do not
meaningfully address the magistrate judge’s thorough analysis of this issue (see ECF No. 50 at
13-18) and devote only a brief paragraph to it. Defendants employed a similarly cursory
approach in their Motion to Dismiss. (ECF No. 39 at 7-8; see also ECF No. 46 at 10 n.11.)
Assuming they did not waive the issue, the Court is persuaded that Plaintiffs have standing. See
McGowan, 2021 WL 1399870, at *4 (noting that courts “have generally rejected the argument
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that a plaintiff’s ERISA challenge must be confined to the individual funds in which he or she
invested”); see also Jones, 2023 WL 2644081, at *3.
IV. 	CONCLUSION
Accordingly, the Objections (ECF Nos. 51, 52) are OVERRULED, and the
Recommendation (ECF No. 50) is ACCEPTED. Defendants’ Motion to Dismiss (ECF No. 39)
is GRANTED IN PART and DENIED IN PART, as set forth in the Recommendation and this
Order.
DATED this 22nd day of January, 2024.
BY THE COURT:
____________________________________
RAYMOND P. MOORE
Senior United States District Judge
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