Posted July 13th, 2021.
By Alexis Shanes
Law360 (July 13, 2021, 5:40 PM EDT) — Home Depot Inc. and a group of hundreds of thousands of current and former employees have launched dueling bids for summary judgment in a $140 million class action accusing the home improvement retailer of mismanaging its multibillion-dollar 401(k) plan at workers’ expense.
Home Depot and several subsidiary financial entities on Monday urged U.S. District Judge William Ray II to grant summary judgment on the plaintiffs’ Employee Retirement Income Security Act claims, which alleged the plan improperly offered poorly performing investment options and pricey advisory services to participants.
“Plaintiffs’ complaint alleged the existence of other, supposedly comparable, alternatives that cost less or performed better,” the company’s summary judgment brief said. “Now that discovery is finally over, the evidence shows otherwise.”
The plaintiffs, meanwhile, filed their own motion Monday for partial summary judgment. They targeted three claims, including allegations that one set of the four challenged funds, the BlackRock Target Date Funds, relied on a misleading benchmark as proof of adequate performance.
“I think the evidence is pretty compelling that Home Depot did not follow a prudent process in monitoring the BlackRock Target Date Funds,” Charles Field, who represents the plaintiffs, told Law360 on Tuesday. “As a result, [Home Depot] did not remove them from the plan when they should have.”
Both parties claimed the evidence in their favor was “indisputable.”
The case dates to April 2018, when the workers sued Home Depot alongside two of the investment firms that helped manage the plan, which was worth around $9 billion by 2019. The court tossed claims against the adviser firms in September 2019.
Judge Ray in September certified three classes with more than 300,000 total current and former Home Depot employees and denied an earlier summary judgment bid by the company.
But nearly a year later, Home Depot claimed none of the alleged ERISA violations caused the plan participants financial loss.
Four investment options that the plan participants claimed underperformed actually did better than their peers long term, exceeding benchmarks the entire time they were part of the Home Depot plan, the company argued.
The plaintiffs used hindsight to criticize Home Depot’s plan management, according to the brief. But the company’s decision-making in real time was reasonable based on the information it had, it claimed.
The plaintiffs disagreed. The BlackRock funds, they argued, were evaluated using only a benchmark created by BlackRock itself instead of other benchmarks typically used for similar funds.
“The funds cannot be measured against themselves in a vacuum and simply declared to be ‘A-OK,'” the plaintiffs said in their Monday memorandum supporting summary judgment.
Two of the three classes approved last year turned on Home Depot’s inclusion of optional advisory services in the plan provided first by Financial Engines and later by Alight Financial Advisors.
The plaintiffs claimed the plan’s record-keeper, Aon Hewitt, was improperly allowed to retain revenue from the plan via an agreement with the advisory service providers. The workers’ memo alleged Home Depot even rejected Aon’s offer to refund millions of dollars to the plan.
“The undisputed facts show that the plan fiduciaries made no effort to ensure that fees collected by the plan’s recordkeeper, and charged by the plan’s investment advisory services providers, were reasonable,” the memo said.
Home Depot acknowledged that the fees it paid for advisory services might not have been the lowest on the market, but argued that the price was still reasonable, all that ERISA requires.
None of the alternatives the plaintiffs suggested were reasonable options, the company added. Many alternatives offered one-size-fits-all portfolios, while Home Depot’s provider provided individually customized investment lineups, the company said.
Home Depot claimed it bargained for fee reductions every two or three years and monitored the service fees via quarterly reports, according to the brief.
“The proof is in the pudding,” the brief said. “Home Depot achieved professional management fees for plan participants that were among the lowest of any plan throughout the class period.”
But the plaintiffs argued that the company for years made no attempt to solicit competitive prices for the services, including in 2016, when Alight Financial Advisors replaced Financial Engines. At that point, Home Depot didn’t even ask the two providers about their offerings and fees, the plaintiffs claimed.
“It was content to let them charge participants millions of dollars in fees without even a rudimentary inquiry — not one single question,” the plaintiffs’ memo said.
A spokesperson for Home Depot declined to comment Tuesday.
An attorney for Home Depot did not immediately respond Tuesday to a request for comment.
The plaintiffs are represented by Andrew Melzer, David Tracey, Edward Chapin, Kevin Sharp, Leigh St. Charles, Sean Ouellette, David Sanford and Charles Field of Sanford Heisler Sharp LLP; by T. Brandon Welch of Stillman Welch LLC; and by Aparajit Bhowmik, Molly Desario, Nicholas De Blouw, Norman Blumenthal and Jeffrey Herman of Blumenthal Nordrehaug Bhowmik De Blouw LLP.
Home Depot is represented by David Tetrick Jr., Darren Shuler, Danielle Chattin and Benjamin Watson of King & Spalding LLP.
The case is Pizarro et al. v. The Home Depot Inc. et al., case number 1:18-cv-01566, in the U.S. District Court for the Northern District of Georgia.
–Additional reporting by Max Kutner and Emily Brill. Editing by Vincent Sherry.