FILED

NOT FOR PUBLICATION

APR 15 2022

UNITED STATES COURT OF APPEALS MOLLY C. DWYER, CLERK

U.S. COURT OF APPEALS

FOR THE NINTH CIRCUIT

RICHARD A. KONG; et al., No. 20-56415

Plaintiffs-Appellants, D.C. No. 2:20-cv-05790-PA-JEM v.

TRADER JOE’S COMPANY; et al., MEMORANDUM*

Defendants-Appellees.

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

* 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. 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

2 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 § 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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