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Tracey v. Massachusetts Institute of Technology

United States District Court, D. Massachusetts

October 4, 2017

David Tracey et al., Plaintiffs,
v.
Massachusetts Institute of Technology et al., Defendants.

          MEMORANDUM & ORDER

          Nathaniel M. Gorton, United States District Judge.

         Plaintiffs are five employees of Massachusetts Institute of Technology (“MIT”) who are participants in the MIT Supplemental 401(k) Plan (“the Plan”). They bring a variety of claims under the Employee Retirement Income Security Act of 1974 (“ERISA”) arising out of MIT's allegedly improper relationship with Fidelity Investments (“Fidelity”), the recordkeeper and primary investment provider of the Plan.

         Plaintiffs allege breaches of the ERISA duties of loyalty and prudence arising out of the Plan's inclusion of retail class options instead of institutional class options in the funds provided by Fidelity. In addition, plaintiffs allege that Fidelity was paid excessive compensation for its recordkeeping services and that MIT never engaged in a competitive bidding process for those services. According to plaintiffs, the Plan was an illicit kickback scheme whereby Fidelity received inflated fees at the expense of the Plan's participants in exchange for making donations to the MIT endowment.

         Defendants filed a motion to dismiss for failure to state a claim upon which relief can be granted. On August 31, 2017, Magistrate Judge Marianne B. Bowler entered a Report and Recommendation (“R&R”) to dismiss, in part, Counts I, II, and IV of the complaint. Both parties filed timely objections to the R&R.

         I. Legal Standard

         When a district court refers a dispositive motion to a magistrate judge for recommended disposition, it must

determine de novo any part of the magistrate judge's disposition that has been properly objected to.

         Fed. R. Civ. P. 72(b)(3).

         In the present case that includes all four counts alleged by the plaintiffs.

         To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to “state a claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). In considering the merits of a motion to dismiss, the Court must accept all factual allegations in the complaint as true and draw all reasonable inferences in the plaintiff's favor. Langadinos v. Am. Airlines, Inc., 199 F.3d 68, 69 (1st Cir. 2000). Yet “[t]hreadbare recitals of the elements of a cause of action, supported by mere conclusory statements, ” do not suffice to state a cause of action. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). Accordingly, a complaint does not state a claim for relief where the well-pled facts fail to warrant an inference of anything more than the mere possibility of misconduct. Id. at 679.

         II. Analysis

         A. Count I - Breach of fiduciary duties under 29 U.S.C. §1104(a)(1)(A) & (B) arising from unreasonable investment management fees

         Magistrate Judge Bowler recommended dismissal of the duty of loyalty claim under §1104(a)(1)(B) in Count I but not the duty of prudence claim under §1104(a)(1)(A) in the same count. The Court will accept and adopt that recommendation.

         Plaintiffs allege that defendants selected and retained Plan investment options with excessive investment management fees instead of identical, lower-cost share classes of the same funds. Defendants respond that they did not breach their duties because ...


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