Cassell v. Vanderbilt University

          MEMORANDUM OPINION

          WAVERLY D. CRENSHAW, JR., CHIEF UNITED STATES DISTRICT JUDGE

         Pending before the Court is Defendants' Motion to Dismiss the Amended Complaint (Doc. No. 42). For the reasons stated herein, Defendants' Motion to Dismiss will be GRANTED in part and DENIED in part.

         INTRODUCTION

         This case is one of several cases filed in district courts across the country alleging that university retirement/pension plans have not been managed with loyalty or prudence, in violation of the Employee Retirement Income Security Act (“ERISA”). Plaintiffs, individually and on behalf of a purported class, brought this action under 29 U.S.C. § 1132(a)(2), for breach of fiduciary duties by Defendants with regard to the Vanderbilt University Retirement Plan and the Vanderbilt University New Faculty Plan (together, the “Plan”). The named Plaintiffs are participants in the Plan, and the Defendants are all alleged to be fiduciaries of the Plan.

         The Plan is a defined contribution, individual account, employee benefit plan under ERISA, and it requires mandatory participation for eligible employees. (Doc. No. 38 at ¶¶ 9 and 11) The Amended Complaint alleges that, as of December 31, 2014, the Plan had 41, 863 participants and $3.4 billion in assets. (Id. at ¶ 13) Plaintiffs assert that defined contribution plans allow employees to contribute a percentage of their pre-tax earnings to the plan, with the employer often matching those contributions up to a certain percentage. Each participant has an individual account and directs her plan contributions into one or more investment options in a lineup chosen and assembled by the plan fiduciaries. (Id. at ¶ 37)^[1]

         Plaintiffs contend that Defendants violated ERISA by:

COUNT I - breaching their fiduciary duties by locking the Plan into a certain stock account (CREF) and into the services of a certain record-keeper (TIAA).

COUNT II - engaging in “prohibited transactions” by locking the Plan into the CREF Stock Account and the record-keeping services of TIAA.

COUNT III - breaching their fiduciary duties by paying unreasonable administrative fees.

COUNT IV - engaging in “prohibited transactions” by paying excessive administrative fees.

COUNT V - breaching their fiduciary duties by agreeing to unreasonable investment, management, and other fees and failing to monitor imprudent investments.

COUNT VI - engaging in “prohibited transactions” by paying fees to certain third parties in connection with the Plan's investment in those parties' investment options.

COUNT VII - failing to monitor other fiduciaries. (Doc. No. 38) Defendants have moved to dismiss all of Plaintiffs' claims for failure to state claims upon which relief may be granted.

         MOTIONS TO DISMISS

         Although Plaintiffs have utterly failed to comply with Rule 8(a)(2) of the Federal Rules of Civil Procedure by filing a 160-page Amended Complaint, for purposes of a motion to dismiss, the Court must take all of the factual allegations in the complaint as true. Ashcroft v. Iqbal, 129 S.Ct. 1937, 1949 (2009). To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to state a claim for relief that is plausible on its face. Id. A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged. Id. Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice. Id. When there are well-pleaded factual allegations, a court should assume their veracity and then determine whether they plausibly give rise to an entitlement to relief. Id. at 1950. A legal conclusion couched as a factual allegation need not be accepted as true on a motion to dismiss. Fritz v. Charter Township of Comstock, 592 F.3d 718, 722 (6th Cir. 2010).

         ERISA

         ERISA is a comprehensive statute designed to promote the interests of employees and their beneficiaries in employee benefit plans. Chao v. Hall Holding Co., Inc., 285 F.3d 415, 425 (6^th Cir. 2002); Pledger v. Reliance Trust Co., 240 F.Supp.3d 1314, 1321 (N.D.Ga. 2017). The statute accomplishes this purpose by imposing fiduciary duties of prudence and loyalty on plan fiduciaries. Id. ERISA authorizes a plan participant to bring a civil suit against plan fiduciaries for breaches of the fiduciaries' duties of loyalty and prudence. Id. at 1322; 29 U.S.C. § 1132(a)(2).

         (A) Duty of Prudence

         Under ERISA's duty of prudence, a fiduciary is required to discharge his 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.” 29 U.S.C. § 1104(a)(1)(B). The test for determining whether a fiduciary has satisfied his duty of prudence is whether the fiduciary, at the time he engaged in the challenged transactions, employed the appropriate methods to investigate the merits of the investment and to structure the investment. Pfeil v. State Street Bank and Trust Co., 806 F.3d 377, 384 (6^th Cir. 2015); Sacerdote v. New York Univ., 2017 WL 3701482 at * 4 (S.D. N.Y. Aug. 25, 2017). The Court must focus on whether the fiduciary engaged in a reasonable decision-making process, consistent with that of a prudent person acting in a like capacity. Pfeil, 806 F.3d at 384. Because the content of the duty of prudence turns on the circumstances prevailing at the time the fiduciary acts, the appropriate inquiry will necessarily be context specific. Id. at 385.

         (B) Duty of Loyalty

         Under ERISA's duty of loyalty, a fiduciary “shall discharge his duties with respect to a plan solely in the interest of the participants and beneficiaries” and for the exclusive purpose of (1) providing benefits to participants and their beneficiaries and (2) defraying reasonable expenses of administering the plan. 29 U.S.C. § 1104(a)(1)(A). To state a loyalty-based claim under ERISA, a plaintiff must do more than simply recast purported breaches of the duty of prudence as disloyal acts. Sacerdote, 2017 WL 3701482 at * 5. Rather, a plaintiff must allege facts that permit a plausible inference that the defendant engaged in transactions involving self-dealing or in transactions that otherwise involve or create a conflict between the trustee's fiduciary duties and personal interests. Id. In other words, to implicate the concept of loyalty, a plaintiff must allege plausible facts supporting an inference that a fiduciary acted for the purpose of providing benefits to itself or some third party. Id.

         (C) Prohibited Transactions

         ERISA prohibits certain transactions between a plan and a “party in interest.” 29 U.S.C. § 1106(a).^[2] Included in those transactions are (1) the sale or exchange of any property between the plan and a party in interest; (2) the furnishing of goods, services or facilities between the plan and a party in interest; and (3) the transfer to, or use by or for the benefit of a party in interest, of any assets of the plan. 29 U.S.C. § 1106(a)(1)(A), (C) and (D). To state a claim under this statute, a plaintiff must allege that (1) the defendant is a fiduciary, (2) the defendant caused the plan to engage in one of the prohibited transactions, (3) the transaction was between the plan and a party-in-interest or involved plan assets, and (4) the defendant knew or should have known that the transaction was prohibited. Sacerdote, 2017 WL 3701482 at * 4.

         FIDUCIARY DUTY OF LOYALTY

         COUNT I

         With regard to the fiduciary duty of loyalty, the Court finds that Plaintiffs have not alleged sufficient facts to show that Defendants engaged in transactions involving self-dealing or that otherwise involved or created a conflict between Defendants' fiduciary duties and personal interests. Even though Plaintiffs allege that various third parties benefitted from Defendants' alleged mismanagement, the Amended Complaint fails to allege plausible facts supporting an inference that Defendants acted for the purpose of providing benefits to any third party or to themselves. Even if those third parties are considered “parties of interest, ” as defined in ERISA, in order to show that Defendants breached the fiduciary duty of loyalty, Plaintiffs must sufficiently allege that Defendants acted for the purpose of benefitting those third parties or themselves. When claims do not support an inference that the defendants' actions were for the purpose of providing benefits to themselves or someone else and simply had that incidental effect, loyalty claims should be dismissed. Sacerdote, 2017 WL 3701482 at * 6;^[3] Cunningham v. Cornell Univ., 2017 WL 4358769 at * 4 (S.D. N.Y. Sept. 29, 2017).

         Considering the Amended Complaint as a whole, the claims allege that Defendants followed an imprudent process, not that they acted disloyally. Plaintiffs' loyalty claims are characterizations that piggyback off their prudence claims. The facts alleged in the Amended Complaint assert that Defendants failed to manage and make decisions for the Plan in a prudent manner, not that Defendants engaged in self-dealing or acted for the purpose of benefitting a third party. (e.g., Doc. No. 38 at ¶¶ 104-151, 158-218, 225-231, 240-247, 255-267 and 275-280) Any facts that ...