Jaclyn Santomenno v. Transamerica Life Ins. Co. ( 2018 )

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
JACLYN SANTOMENNO; KAREN No. 16-56418
POLEY; BARBARA POLEY,
individually and on behalf of D.C. No.
Employee Retirement Income 2:12-cv-02782-
Security Act of 1974, etc.; as an DDP-MAN
investor in the Lommis Sayles
Investment Grade Bond Ret. Opt.
and the First American Mid Cap OPINION
Growth Opportunities Inv. Opt., etc.;
as an investor of Vanguard Target
Ret.,
Plaintiffs-Appellees,
v.
TRANSAMERICA LIFE INSURANCE
COMPANY; TRANSAMERICA
INVESTMENT MANAGEMENT, LLC;
TRANSAMERICA ASSET
MANAGEMENT, INC.,
Defendants-Appellants.
Appeal from the United States District Court
for the Central District of California
Dean D. Pregerson, District Judge, Presiding
Argued and Submitted November 17, 2017
Pasadena, California
2 SANTOMENNO V. TRANSAMERICA LIC
Filed February 23, 2018
Before: Jacqueline H. Nguyen and Andrew D. Hurwitz,
Circuit Judges, and Richard Seeborg, * District Judge.
Opinion by Judge Hurwitz
SUMMARY **
Employee Retirement Income Security Act
The panel (1) reversed the district court’s order denying
defendants’ motion to dismiss an ERISA case alleging
breach of fiduciary duties in connection with a retirement
plan, and (2) vacated the district court’s subsequent class
certification orders.
The district court held that a plan service provider
breached its fiduciary duties to plan beneficiaries first when
negotiating with an employer about providing services to the
plan and later when withdrawing predetermined fees from
plan funds.
An employer that forms an ERISA plan is a statutory
fiduciary, and a plan service provider becomes a functional
fiduciary under certain circumstances.
*
The Honorable Richard Seeborg, United States District Judge for
the Northern District of California, sitting by designation.
**
This summary constitutes no part of the opinion of the court. It
has been prepared by court staff for the convenience of the reader.
SANTOMENNO V. TRANSAMERICA LIC 3
Joining other circuits, the panel held that a plan
administrator is not an ERISA fiduciary when negotiating its
compensation with a prospective customer. As to alleged
breaches after the defendant became a plan service provider,
the panel held that the defendant was not a fiduciary with
respect to its receipt of revenue sharing payments from
investment managers because the payments were fully
disclosed before the provider agreements were signed and
did not come from plan assets. Agreeing with other circuits,
the panel held that defendant also was not a fiduciary with
respect to its withdrawal of preset fees from plan funds. The
panel concluded that when a service provider’s definitively
calculable and nondiscretionary compensation is clearly set
forth in a contract with the fiduciary-employer, collection of
fees out of plan funds in strict adherence to that contractual
term is not a breach of the provider’s fiduciary duty.
The panel remanded with instructions to the district court
to dismiss the complaint.
COUNSEL
Brian D. Boyle (argued), Shannon Barrett, and Anton
Metlitsky, O’Melveny & Myers LLP, Washington, D.C.;
Catalina J. Vergara and Christopher B. Craig, O’Melveny &
Myers LLP, Los Angeles, California; for Defendants-
Appellants.
Arnold C. Lakind (argued) and Stephen Skillman,
Szaferman Lakind Blumstein & Blader P.C., Lawrenceville,
New Jersey; Lynn Lincoln Sarko, Derek W. Loeser, Michael
D. Woerner, and Gretchen S. Obrist, Keller Rohrback LLP,
Seattle, Washington; for Plaintiffs-Appellees.
4 SANTOMENNO V. TRANSAMERICA LIC
Eric S. Mattson and Daniel R. Thies, Sidley Austin LLP,
Chicago, Illinois; Lisa Tate, Vice President, Litigation &
Associate General Counsel, American Council of Life
Insurers, Washington, D.C.; Janet M. Jacobson, American
Benefits Council, Washington, D.C.; Kate Comerford Todd
and Janet Galeria, U.S. Chamber Litigation Center,
Washington, D.C.; for Amici Curiae American Council of
Life Insurers, American Benefits Council, and Chamber of
Commerce of the United States of America.
Mary Ellen Signorille and William Alvarado Rivera, AARP
Foundation Litigation, Washington, D.C., for Amici Curiae
AARP and AARP Foundation.
OPINION
HURWITZ, Circuit Judge:
The Employee Retirement Income Security Act of 1974
(“ERISA”), Pub. L. 93-406, 88 Stat. 829 (codified at
29 U.S.C. § 1001 et seq.), imposes fiduciary duties on
various parties in connection with retirement plans. This
case turns on when and under what circumstances those
duties attach. The district court found that a provider
breached its fiduciary duties to plan beneficiaries first when
negotiating with an employer about providing services to the
plan and later when withdrawing predetermined fees from
plan funds. The court accordingly denied defendants’
motion to dismiss and certified three plaintiff classes. We
disagree and reverse.
SANTOMENNO V. TRANSAMERICA LIC 5
I. Background
A. TLIC’s Relationship with 401(k) Plans
The plaintiffs are members of employer-supported,
defined-contribution 401(k) plans governed by ERISA.
29 U.S.C. § 1002(34). Because the daily administration of
the plans often requires particularized expertise, employers
commonly contract with third-party administrators to
operate the plans.
Plaintiffs’ employers contracted with Transamerica Life
Insurance Company (“TLIC”) to manage and operate their
retirement plans. Each employer entered into an Application
and Agreement for Services (“Services Agreement”) and a
Group Annuity Contract (“GAC”) with TLIC. From a list of
potential investment options provided by TLIC in the GAC,
the employers selected those offered to employees. The list
of potential investments includes several advised and
managed by TLIC affiliates, Transamerica Asset
Management (“TAM”) and Transamerica Investment
Management (“TIM”). Many of the investments offered in
the GAC have multiple share classes, and TLIC did not
always offer the lowest-priced share class. If an employer
selects a “model line-up” of investment options, TLIC
warrants that the bundle satisfies ERISA’s “[p]rudent man
standard.” See 29 U.S.C. § 1104(a)(1).
After an employer chooses an investment bundle, TLIC
structures each selected investment option (typically a
mutual fund) as a separate account. The contributions of all
plan members choosing the option are pooled in the separate
account. Pooling “substantially reduces the mutual funds’
administrative, marketing, and service costs” because the
fund effectively has only one investor—the separate
account. Leimkuehler v. Am. United Life Ins. Co., 713 F.3d
6 SANTOMENNO V. TRANSAMERICA LIC
905, 909 (7th Cir. 2013). Under the Service Agreement,
TLIC tracks the investments of individual employees,
among other administrative tasks.
TLIC’s compensation is set in the GAC as a fixed
percentage of the assets in each separate account. The GAC
contains a specific schedule of fees for each separate
account. TLIC collects its fees on a daily basis by
withdrawing them from the separate accounts.
The managers of the investment vehicles underlying the
pooled accounts also charge fees. And, TLIC receives fees
separately from these investment managers. See id. at 909
(describing this practice). TLIC fully disclosed these
arrangements.
B. Procedural Background
The complaint alleged that TLIC violated ERISA by
(1) charging fees on the separate accounts in addition to
those charged by the managers of the underlying
investments; (2) charging an “Investment Management
Charge” on the separate accounts; (3) receiving revenue
sharing payments from managers of the underlying
investments; (4) “failing to invest in the lowest priced share
class of the mutual funds that underlie the separate account
investment options that invest in mutual funds”; and
(5) “negotiating the traditional lower fees that are associated
with these investment options but retaining them rather than
passing the savings along to Plaintiffs.” The complaint also
SANTOMENNO V. TRANSAMERICA LIC 7
alleged that TIM and TAM “knowingly participat[ed]” in
TLIC’s statutory violations. 1
TLIC moved to dismiss, asserting that it did not violate
ERISA because it was “not a fiduciary with respect to the
terms of its own compensation.” 2 The district court denied
the motion, and subsequently certified three classes: (1) a
“TLIC Prohibited Transaction Class,” which claimed “that
TLIC’s practice of taking the IM/Admin fee from plan assets
is [ ] a prohibited transaction” under 29 U.S.C. § 1106(b)(1);
(2) a “TIM and TAM Prohibited Transactions” class, which
claimed “that TLIC committed a prohibited transaction
when it acted on behalf of or represented TIM and TAM,
whose interests were adverse to the plans,” in violation of
29 U.S.C. § 1106(b)(2); and (3) a “TIM and TAM Excessive
Fees” class, which claimed “that TLIC breached three duties
under 29 U.S.C. § 1104(a)(1)” by allowing TIM and TAM
to charge fees higher than those charged to non-401(k)
clients.
The district court certified its Rule 23 orders and the
order denying the motion to dismiss for immediate appeal
under 28 U.S.C. § 1292(b), and we accepted the appeal. We
review orders granting or denying a motion to dismiss under
Rule 12(b)(6) de novo, Camacho v. Bridgeport Fin. Inc.,
430 F.3d 1078, 1079 (9th Cir. 2005), and the class
certification order for abuse of discretion, Pulaski &
1
The complaint also asserted other claims that were dismissed and
are not at issue in this appeal.
2
Defendants attached exhibits to their motion to dismiss. Plaintiffs
likewise attached exhibits to their opposition to the motion. The
complaint refers to all documents discussed in this opinion, which were
incorporated in the complaint by reference. See Fed. R. Civ. P. 10(c);
United States v. Ritchie, 342 F.3d 903, 908 (9th Cir. 2003).
8 SANTOMENNO V. TRANSAMERICA LIC
Middleman, LLC v. Google, Inc., 802 F.3d 979, 984 (9th Cir.
2015).
II. Discussion
A. Statutory Framework
“ERISA is . . . a comprehensive and reticulated statute,
the product of a decade of congressional study of the
Nation’s private employee benefit system.” Mertens v.
Hewitt Assocs., 508 U.S. 248, 251 (1993) (internal quotation
marks omitted). It seeks “to ensure that employees will not
be left empty-handed” by imposing fiduciary duties on those
responsible for management of retirement plans. Lockheed
Corp. v. Spink, 517 U.S. 882, 887 (1996).
An employer that forms an ERISA plan is a statutory
fiduciary. See 29 U.S.C. § 1102(a). But, a party not named
in the plan also becomes a fiduciary if
(i) he exercises any discretionary authority or
discretionary control respecting management
of such plan or exercises any authority or
control respecting management or
disposition of its assets, (ii) he renders
investment advice for a fee or other
compensation, direct or indirect, with respect
to any moneys or other property of such plan,
or has any authority or responsibility to do so,
or (iii) he has any discretionary authority or
discretionary responsibility in the
administration of such plan.
29 U.S.C. § 1002(21)(A). Such non-named fiduciaries are
sometimes referred to as “functional” fiduciaries, and plan
service providers, such as TLIC, can under the named
SANTOMENNO V. TRANSAMERICA LIC 9
circumstances become functional fiduciaries. See, e.g., IT
Corp. v. Gen. Am. Life Ins. Co., 107 F.3d 1415, 1419–22 (9th
Cir. 1997); Parker v. Bain, 68 F.3d 1131, 1139–40 (9th Cir.
1995).
Whether named or functional, an ERISA fiduciary has a
“duty of care with respect to management of existing [ ]
funds, along with liability for a breach of that duty.”
Lockheed Corp., 517 U.S. at 887. The fiduciary must
“discharge his duties with respect to a plan solely in the
interest of the participants and beneficiaries and [ ] for the
exclusive purpose of [ ] providing benefits to participants
and their beneficiaries.” 29 U.S.C § 1104(a)(1). The
fiduciary also must conduct business on behalf of the plan
“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). Accordingly, the
fiduciary cannot “deal with the assets of the plan in his own
interest or for his own account” or “receive any
consideration for his own personal account from any party
dealing with such plan in connection with a transaction
involving the assets of the plan.” 29 U.S.C. § 1106(b)(1),
(3).
B. Alleged Pre-Administration Breaches
Plaintiffs alleged that TLIC violated its fiduciary duties
by (1) charging administrative and investment fees on the
separate accounts; (2) receiving revenue sharing payments
from investment managers and “negotiating the traditional
lower fees that are associated with [TLIC’s] investment
options but retaining them rather than passing the savings
along to Plaintiffs”; and (3) “failing to invest in the lowest
priced share class of the mutual funds that underlie the
10 SANTOMENNO V. TRANSAMERICA LIC
separate account investment options.” Because TLIC fully
disclosed the fee arrangements and proposed investments in
its negotiations with the employers, all of whom agreed to
these matters before TLIC became a plan administrator, the
issue is whether TLIC was a functional fiduciary during
those negotiations.
Considering virtually identical claims to those raised
here, three of our sister Circuits have held that a plan
administrator is not an ERISA fiduciary when negotiating its
compensation with a prospective customer. See McCaffree
Fin. Corp. v. Principal Life Ins. Co., 811 F.3d 998, 1003 (8th
Cir. 2016); Santomenno ex. Rel John Hancock Tr. v. John
Hancock Life Ins. Co. (U.S.A.), 768 F.3d 284, 293–95, 297
(3d Cir. 2014); Hecker v. Deere & Co., 556 F.3d 575, 583–
84 (7th Cir. 2009). We agree.
Under two of the prongs of the functional fiduciary
definition, 29 U.S.C. §§ 1002(21)(A)(i) and (iii), “[o]nly
discretionary acts of plan . . . management trigger fiduciary
duties.” Santomenno, 768 F.3d at 293 (second alteration in
original) (quoting Edmonson v. Lincoln Nat’l Life Ins. Co.,
725 F.3d 406, 421–22 (3d Cir. 2013)). A service provider is
plainly not involved in plan management when negotiating
its prospective fees or compiling a list of proposed
investment options. Rather, at that stage “discretionary
control over plan management lies . . . with the trustee, who
decides whether to agree to the service provider’s terms.”
Santomenno, 768 F.3d at 293; accord McCaffree Fin. Corp.,
811 F.3d at 1003 (“Because Principal did not owe plan
participants a fiduciary duty while negotiating the fee terms
with McCaffree, Principal could not have breached any such
duty merely by charging the fees described in the contract
that resulted from that bargaining process.”); Hecker,
556 F.3d at 583 (“[A] service provider does not act as a
SANTOMENNO V. TRANSAMERICA LIC 11
fiduciary with respect to the terms in the service agreement
if it does not control the named fiduciary’s negotiation and
approval of those terms.”). And, § 1002(A)(21)(ii) is
similarly inapplicable, as TLIC was not rendering
investment advice while negotiating to become the plan
administrator.
The Supreme Court has stressed that the central inquiry
is whether the party was acting as an ERISA fiduciary “when
taking the action subject to complaint.” Pegram v. Herdrich,
530 U.S. 211, 226 (2000). When negotiating with the
employers, TLIC plainly did not exercise discretionary
control over the plan, possess authority over its assets, render
investment advice, nor have any discretionary authority in
the administration of the plan. The district court believed
that failing to assign a fiduciary duty to a service provider
during negotiations with employers would allow the
provider to “negotiate for a fee of 99% of each separate
account and still be considered to be fulfilling its fiduciary
duty of managing the separate account.” But, as the Third
Circuit correctly noted, “any plan sponsor who agreed to a
99% fee arrangement would itself be liable for breaching its
fiduciary duty.” Santomenno, 768 F.3d at 295 n.6. The
employer has the express duty under § 1104(a)(1)(A)(ii) of
“defraying reasonable expenses of administering the plan,”
and, absent some sort of conduct not alleged in plaintiffs’
complaint, claims that fully disclosed fee arrangements are
unreasonable lie against the employer, not the service
provider. Santomenno, 768 F.3d at 295 & n.6. 3
3
The district court also found that the negotiations between TLIC
and the employers were not arm’s length because the real parties in
interest—the plan beneficiaries—“are absent and vulnerable.” But,
12 SANTOMENNO V. TRANSAMERICA LIC
Indeed, any other outcome would lead to absurd results.
If service providers were fiduciaries while negotiating fees,
they would have to promise that its fees were no higher than
those of any competitor, rather than negotiate at arm’s length
with an employer. And, an employer who knowingly agreed
to a fee structure could nonetheless later sue to lower it,
invoking the administrator’s fiduciary obligation. We agree
with the Third Circuit that “a service provider owes no
fiduciary duty with respect to the negotiation of its fee
compensation” because “[n]othing prevented the trustees
from rejecting [the provider’s] product and selecting another
service provider; the choice was theirs.” Id. at 295 (internal
quotation marks omitted); see also F.H. Krear & Co. v.
Nineteen Named Trs., 810 F.2d 1250, 1259 (2d Cir. 1987)
(holding that although a service provider may “become an
ERISA fiduciary at some point after entering into the
[c]ontracts, it plainly held no such status prior to the
execution of the [c]ontracts”). 4
For the same reason, TLIC did not have a fiduciary duty
to provide plan beneficiaries with the option to invest in the
lowest priced share class of each of the mutual funds that
fiduciary duties attach to the employer precisely because the plan
beneficiaries are absent from the negotiation.
4
Plaintiffs cite provisions in the GAC providing that the
“Investment Management Charge may be withdrawn daily” and
reserving “the right to change the Investment Management Charge or the
Administrative Charge upon advance written notice to the
Contractholder of at least 30 days.” But, TLIC could not withdraw funds
or alter its fees until negotiations were successfully completed. And, it
makes no difference to the plaintiffs whether the fees are withdrawn on
a daily basis or otherwise; the fees accrue daily in any event. Moreover,
plaintiffs have not alleged that TLIC ever changed its fees; indeed, if it
did, the employer is free under the GAC to find another provider.
SANTOMENNO V. TRANSAMERICA LIC 13
underlie the separate investment options. See Leimkuehler,
713 F.3d at 912 (“[S]tanding alone, the act of selecting both
funds and their share classes for inclusion on a menu of
investment options offered to 401(k) plan customers does
not transform a provider of annuities into a functional
fiduciary . . . .”). And, Plaintiffs’ contention that the revenue
sharing payments violate TLIC’s fiduciary duty fails for the
same reason—they were fully disclosed and agreed to by the
fiduciary-employer before any fiduciary status attached. See
id. at 911–12 (quoting Hecker, 556 F.3d at 583) (noting that
the employer has “the final say on which investment options
will be included”). 5
C. Alleged Breaches after TLIC Became a Plan Service
Provider
Plaintiffs also allege that TLIC engaged in prohibited
self-dealing after becoming a plan administrator by
(1) receiving revenue sharing payments from investment
managers; and (2) withdrawing its fees from the separate
accounts. Because the district court found that TLIC
breached fiduciary duties before the relevant agreements
were signed, it did not fully explore these allegations.
The first contention is easily dismissed. TLIC is not a
fiduciary with respect to the revenue sharing payments,
5
Plaintiffs argue that TLIC was a fiduciary when selecting the
investment options because it retains the right to delete or substitute the
funds the employer has selected for the Plan. But, there can be no breach
of that duty absent deletion or substitution, which can only occur after
the service provider is hired. Leimkuehler, 713 F.3d at 914. And,
plaintiffs do not allege that TLIC ever exercised its discretion. Indeed,
TLIC can only alter investment options upon six months’ notice, and the
GAC allows the employer opportunity to terminate the contract if
displeased with any change.
14 SANTOMENNO V. TRANSAMERICA LIC
because they were fully disclosed before the provider
agreements were signed and do not come from plan assets.
See Leimkuehler, 713 F.3d at 913–14.
The second contention requires more analysis. Plaintiffs
argue that TLIC was a fiduciary because it “exercises any
authority or control respecting management or disposition
of” the pooled accounts. 29 U.S.C. § 1002(21)(A)(i); see IT
Corp., 107 F.3d at 1421 (internal quotation marks omitted)
(“‘Any’ control over disposition of plan money makes the
person who has the control a fiduciary.”). As a fiduciary,
plaintiffs argue, TLIC “dealt with the assets of the plan in
[its] own interest” when withdrawing fees, and thus violated
29 U.S.C. § 1106(b)(1). Plaintiffs rely heavily on Barboza
v. California Association of Professional Firefighters, which
held that a plan fiduciary engaged in prohibited self-dealing
by withdrawing expenses and compensation from plan assets
pursuant to its agreement with the employer-fiduciary.
799 F.3d 1257, 1270 n.5 (9th Cir. 2015).
But, in Barboza the parties did not dispute that the
service provider was an ERISA fiduciary and the panel so
assumed without deciding. Id. at 1269. Thus, the critical,
but narrow, question is whether TLIC was acting as a
fiduciary when withdrawing precise, preset fees from the
pooled accounts. We have never directly confronted that
issue, but the Third Circuit has, finding the provider is not
exercising fiduciary duties under precisely these facts.
Danza v. Fidelity Mgmt. Tr. Co., 533 F. App’x 120, 126 (3d
Cir. 2013). In Danza, the plaintiffs argued that Fidelity, the
plan administrator, violated 29 U.S.C. § 1106(b) by “causing
the plan to disburse $1,200 of plan assets to itself as
compensation.” Id. The Third Circuit found no statutory
violation because the plan administrator acted as “a fiduciary
only for purposes of administering the plan, not for purposes
SANTOMENNO V. TRANSAMERICA LIC 15
of negotiating or collecting its compensation.” Id. Thus, the
court held that “[a] service provider cannot be held liable for
merely accepting previously bargained-for fixed
compensation that was not prohibited at the time of the
bargain.” Id. The Sixth Circuit has reached an identical
conclusion, finding no breach of fiduciary duty when a
service provider simply withdraws “routine contractual
fees” from ERISA plan accounts. McLemore v. Regions
Bank, 682 F.3d 414, 424 (6th Cir. 2012). 6
We agree. Notwithstanding the broad language of
§ 1002(21)(A)(i), we suggested in IT Corp. that a depository
of plan assets, whose ability to withdraw funds was governed
by contract, might not be acting in a fiduciary capacity in all
respects while holding plan assets. 107 F.3d at 1421–22.
We later held that a depository was not a fiduciary because
it performed “only ministerial services or administrative
functions within a framework of policies, rules, and
6
See also Chi. Dist. Council of Carpenters Welfare Fund v.
Caremark, Inc., 474 F.3d 463, 473 (7th Cir. 2007) (“Given that this
scheme was the very deal for which Carpenters bargained at arms’
length, Caremark owed no fiduciary duty in this regard.”); Seaway Food
Town, Inc. v. Med. Mut. of Ohio, 347 F.3d 610, 619 (6th Cir. 2003)
(“[W]here parties enter into a contract terms at arm’s length and where
the term confers on one party the unilateral right to retain funds as
compensation for services rendered with respect to an ERISA plan, that
party's adherence to the term does not give rise to ERISA fiduciary status
unless the term authorizes the party to exercise discretion with respect to
that right.”); Ed Miniat, Inc. v. Globe Life Ins. Grp., Inc., 805 F.2d 732,
737 (7th Cir. 1986) (“[I]f a specific [contract] term . . . is bargained for
at arm’s length, adherence to that term is not a breach of fiduciary
duty.”); Schulist v. Blue Cross of Iowa, 717 F.2d 1127, 1132 (7th Cir.
1983) (holding a plan service provider “was not a fiduciary under ERISA
with respect to . . . its compensation as a provider of Plan benefits”).
Although these cases arguably sweep more broadly than our holding
today, they support our conclusion that no breach of fiduciary duty
occurred in TLIC’s withdrawal of preset fees.
16 SANTOMENNO V. TRANSAMERICA LIC
procedures established by others.” Ariz. State Carpenters
Pension Tr. Fund v. Citibank (Ariz.), 125 F.3d 715, 721–22
(9th Cir. 1997). Similarly, at least with respect to
withdrawing its formula-driven fee from the pooled
accounts, TLIC’s actions were purely ministerial. See
McLemore, 682 F.3d at 424 (noting that plaintiffs did not
allege “that Regions did anything other than collect
contractually owed fees”).
The Supreme Court has instructed us to focus on the
“threshold question” of whether a party “was performing a
fiduciary function when taking the action subject to
complaint.” Pegram, 530 U.S. at 226 (parentheses omitted).
And, as we noted in Parker, “ERISA’s definition of
‘fiduciary’ is functional rather than formal.” 68 F.3d at 1139.
Here, the challenged action is the withdrawal of
predetermined fees, not TLIC’s management of the pooled
accounts. We agree with the Sixth Circuit that “[s]uch
transactions amount to ‘control respecting management or
disposition of [plan] assets,’ in only the hollowest sense of
‘control.’” McLemore, 682 F.3d at 424 (second alteration in
original) (quoting 29 U.S.C. § 1002(21)(A)). 7 We therefore
hold that TLIC’s actions do not give rise to fiduciary liability
under ERISA.
Our conclusion is buttressed by general trust law
principles, which inform ERISA interpretation. See Varity
Corp. v. Howe, 516 U.S. 489, 497 (1996). “The strict
prohibitions against transactions by trustees involving
conflicts between their fiduciary duties and personal
7
See also 29 C.F.R. § 2509.75-8 (Department of Labor regulation
noting that a service provider is not a fiduciary when it operates “within
a framework of policies, interpretations, rules, practices and procedures
made by other persons”).
SANTOMENNO V. TRANSAMERICA LIC 17
interests do not apply to the trustee’s taking of reasonable
compensation for services rendered as trustee.” Restatement
(Third) of Trusts § 78, cmt. c(4). Similarly, the Uniform
Trust Code excludes the “payment of reasonable
compensation to the trustee” from the trustee’s duty of
loyalty. Unif. Trust Code § 802(h)(2) (Unif. Law Comm’n
2000); see also John H. Langbein, Questioning the Trust
Law Duty of Loyalty: Sole Interest or Best Interest?,
114 Yale L. J. 929, 939–41 (2005) (recognizing trustee
compensation as an exception to the sole interest rule);
Equitable Tr. Co. v. Gallagher, 102 A.2d 538, 545 (Del.
1954) (“A trustee is permitted to acquire from his
beneficiary a conveyance or release of interests in the corpus
of the trust, provided that the beneficiary is sui juris . . . .”).
Our holding today is narrow. We simply conclude that
when a service provider’s definitively calculable and
nondiscretionary compensation is clearly set forth in a
contract with the fiduciary-employer, collection of fees out
of plan funds in strict adherence to that contractual term is
not a breach of the provider’s fiduciary duty. 8 If plaintiffs
had alleged that TLIC withdrew more than it was entitled to,
or if TLIC’s fee were based on self-reported hours worked,
or even if TLIC’s withdrawals involved expenses, this might
well be a different case. Cf. IT Corp., 107 F.3d at 1417–18
(finding that a service provider who “had checkwriting
authority” to “pay all claims which it has determined to be
8
Plaintiffs assert that TLIC’s ability to change its fees creates
discretion and, thus, fiduciary status. But plaintiffs did not allege that
TLIC ever changed its fees. See Flanigan v. Gen. Elec. Co., 242 F.3d
78, 87 (2d Cir. 2001) ([A] person . . . has [fiduciary] status only to the
extent that he has or exercises the described authority or responsibility.”)
(second and third alterations in original) (internal quotation marks
omitted) (quoting F.H. Krear & Co., 810 at 1259).
18 SANTOMENNO V. TRANSAMERICA LIC
payable under the agreement” was an ERISA fiduciary).
But, the complaint in this case makes no such claims, and
therefore does not state a claim upon which relief can be
granted. 9
III. Conclusion
The district court’s order denying TLIC’s motion to
dismiss is REVERSED, and we remand with instructions to
the district court to dismiss the complaint. Because the
district court should have dismissed the complaint, it is
unnecessary for us to address its subsequent class
certification orders, which we VACATE.
9
Plaintiffs’ claims that TAM and TIM knowingly participated in a
breach of fiduciary duty necessarily also fail.