Teets v. Great-West Life

FILED
United States Court of Appeals
PUBLISH Tenth Circuit
UNITED STATES COURT OF APPEALS April 22, 2019
Elisabeth A. Shumaker
FOR THE TENTH CIRCUIT Clerk of Court
_________________________________
JOHN TEETS,
Plaintiff - Appellant,
v. No. 18-1019
(D.C. No. 1:14-CV-02330-WJM-NYW)
GREAT-WEST LIFE & ANNUITY (D. Colo.)
INSURANCE COMPANY,
Defendant - Appellee,
------------------------------
AARP; AARP FOUNDATION;
AMERICAN COUNCIL OF LIFE
INSURERS,
Amici Curiae.
_________________________________
ORDER
_________________________________
Before MATHESON, BACHARACH, and McHUGH, Circuit Judges.
_________________________________
This matter is before the court on the appellant’s Petition for Panel Rehearing and
Rehearing En Banc.
Upon consideration, the request for panel rehearing is denied by the original panel
members. The panel has, however, made small sua sponte clarifications to the original
opinion at pages 24 through 28. That amended version is attached to this order. The Clerk
is directed to file the clarified decision nunc pro tunc to the original filing date of March
27, 2019.
In addition, the Petition was circulated to all members of the court who are in
regular active service and who are not recused. See Fed. R. App. P. 35(a). As no member
of the original panel or the full court called for a poll, the request for en banc
reconsideration is likewise denied.
Entered for the Court
ELISABETH A. SHUMAKER, Clerk
2
FILED
United States Court of Appeals
PUBLISH Tenth Circuit
UNITED STATES COURT OF APPEALS March 27, 2019
Elisabeth A. Shumaker
FOR THE TENTH CIRCUIT Clerk of Court
_________________________________
JOHN TEETS,
Plaintiff - Appellant,
v. No. 18-1019
GREAT-WEST LIFE & ANNUITY
INSURANCE COMPANY,
Defendant - Appellee,
------------------------------
AARP; AARP FOUNDATION;
AMERICAN COUNCIL OF LIFE
INSURERS,
Amici Curiae.
_________________________________
Appeal from the United States District Court
for the District of Colorado
(D.C. No. 1:14-CV-02330-WJM-NYW)
_________________________________
Peter K. Stris, Stris & Maher LLP, Los Angeles, California (Rachana A. Pathak, John
Stokes, Stris & Maher LLP, Los Angeles, California; Nina Wasow, Todd F. Jackson,
Feinberg, Jackson, Worthman & Wasow LLP, Oakland, California; Todd Schneider,
Mark Johnson, James Bloom, Schneider Wallace Cottrell Konecky Wotkyns LLP,
Emeryville, California; Scot Bernstein, Law Offices of Scot D. Bernstein, P.C., Folsom,
California; Garret W. Wotkyns, Michael McKay, Schneider Wallace Cottrell Konecky
Wotkyns LLP, Scottsdale, Arizona; Erin Riley, Matthew Gerend, Keller Rohrback LLP,
Seattle, Washington; Jeffrey Lewis, Keller Rohrback LLP, Oakland, California, with him
on the brief), for the Plaintiff - Appellant.
Carter G. Phillips, Sidley Austin LLP, Washington, D.C. (Michael L. O’Donnell, Edward
C. Stewart, Wheeler Trigg O’Donnell LLP, Denver, Colorado; Joel S. Feldman, Mark B.
Blocker, Sidley Austin LLP, Chicago, Illinois, with him on the brief), for the Defendant -
Appellee.
William Alvarado Rivera, (Mary E. Signorille, AARP Foundation Litigation,
Washington, D.C. with him on the brief) for AARP and AARP Foundation Litigation,
Amici Curiae.
James F. Jorden, (Waldemar J. Pflepsen, Jr., Carlton Fields Jorden Burt, P.A.,
Washington D.C.; and Michael A. Valerio, Carlton Fields Jorden Burt, P.A., Hartford,
Connecticut with him on the brief), for American Council of Life Insurers, Amicus
Curiae.
Nancy G. Ross, Mayer Brown LLP, Chicago, Illinois, (Jed W. Glickstein, Mayer Brown
LLP, Chicago, Illinois; Brian D. Netter, Mayer Brown LLP, Washington, D.C.; Steven P.
Lehotsky, U.S. Chamber Litigation Center, Washington, D.C.; Janet M. Jacobson,
Washington, D.C., with her on the brief), for the Chamber of Commerce of the United
State of America and the American Benefits Council, Amici Curiae.
_________________________________
Before MATHESON, BACHARACH, and McHUGH, Circuit Judges.
_________________________________
MATHESON, Circuit Judge.
_________________________________
Great-West Life Annuity and Insurance Company (“Great-West”) manages an
investment fund that guarantees investors will never lose their principal or the interest
they accrue. It offers the fund to employers as an investment option for their employees’
retirement savings plans, which are governed by the Employee Retirement Income
Security Act (“ERISA”), 29 U.S.C. § 1001 et seq.
John Teets—a participant in an employer retirement plan—invested money in
Great-West’s fund. He later sued Great-West under ERISA, alleging Great-West
2
breached a fiduciary duty to participants in the fund or that Great-West was a non-
fiduciary party in interest that benefitted from prohibited transactions with his plan’s
assets.
After certifying a class of 270,000 plan participants like Mr. Teets, the district
court granted summary judgment for Great-West, holding that (1) Great-West was not a
fiduciary and (2) Mr. Teets had not adduced sufficient evidence to impose liability on
Great-West as a non-fiduciary party in interest. Exercising jurisdiction under 28 U.S.C.
§ 1291, we affirm.
I. BACKGROUND
Great-West is a Colorado-based insurance company that provides “recordkeeping,
administrative, and investment services to 401(k) plans.” Aplt. App., Vol. II at 149. It
qualifies as a service provider—a “person providing services to [a] plan”—under ERISA.
See ERISA § 3(14)(B), 29 U.S.C. § 1002(14)(B).
Mr. Teets participated through his employment in the Farmer’s Rice Cooperative
401(k) Savings Plan (“the Plan”). Under the Plan, employees contribute to their own
retirement accounts and choose how to allocate their contributions among the investment
options offered. When employees invest in a particular fund, they become “participants”
in that fund. Great-West contracts with the Plan and other comparable employer plans to
offer the investment fund that is the subject of this case. Great-West is not in a
contractual relationship with participants.
3
In this section, we first provide an overview of the ERISA legal framework
governing this appeal. We then detail the factual background of the case and the
proceedings in the district court.
A. Statutory Background
ERISA Protections Against Benefit Plan Mismanagement
ERISA regulates employee benefit plans, including health insurance plans,
pension plans, and 401(k) savings plans. It 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) (quotations omitted). It
governs employers that create and administer benefit plans as well as third parties that
provide services for plans. See 29 U.S.C. § 1002(1), (4), (14), (16).
ERISA seeks to protect employees against mismanagement of their benefit plans.
See Fort Halifax Packing Co., Inc. v. Coyne, 482 U.S. 1, 15 (1987) (“The focus of the
statute thus is on the administrative integrity of benefit plans.”). “[T]o ensure that
employees will not be left empty-handed,” Lockheed Corp. v. Spink, 517 U.S. 882, 887
(1996), ERISA imposes fiduciary duties on those responsible for plan management and
administration. See ERISA §§ 404, 406, 29 U.S.C. §§ 1104, 1106. “Congress
commodiously imposed fiduciary standards on persons whose actions affect the amount
of benefits retirement plan participants will receive.” John Hancock Mut. Life Ins. Co. v.
Harris Tr. & Sav. Bank, 510 U.S. 86, 96 (1993) (“Harris Trust”).
4
ERISA Fiduciaries
a. Establishing fiduciary status—named and functional fiduciaries
Under ERISA, a party involved in managing a benefit plan takes on fiduciary
obligations in one of two ways. See In re Luna, 406 F.3d 1192, 1201 (10th Cir. 2005).
First, the instrument establishing a plan must specify at least one fiduciary—typically the
employer or a trustee—that will have the “authority to control and manage the operation
and administration of the plan.” ERISA § 402(a), 29 U.S.C. § 1102(a). These are
“named fiduciaries.” See Maez v. Mountain States Tel. & Tel., Inc., 54 F.3d 1488, 1498
(10th Cir. 1995) (defining “named fiduciary”). Second, a party not named in the
instrument can nonetheless be a “functional fiduciary” by virtue of the authority the party
holds over the plan. See Santomenno v. Transamerica Life Ins. Co., 883 F.3d 833, 837
(9th Cir. 2018) (“Transamerica Life Insurance”); David P. Coldesina, D.D.S., P.C., Emp.
Profit Sharing Plan & Tr. v. Estate of Simper, 407 F.3d 1126, 1132 (10th Cir. 2005)
(“Coldesina”) (describing the “functional” approach to evaluating fiduciary status).
Under § 3(21)(A) of ERISA, 1 a party becomes a functional fiduciary when
(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
1
We refer to the relevant portions of ERISA by the section number of the Act.
ERISA is codified at 29 U.S.C. § 1001 et seq. We provide the corresponding U.S. Code
sections for ease of reference.
5
authority or discretionary responsibility in the administration
of such plan.
29 U.S.C. § 1002(21)(A) (emphasis added). 2
Functional fiduciaries’ obligations are limited in scope: “Plan management or
administration confers fiduciary status only to the extent the party exercises discretionary
authority or control.” Coldesina, 407 F.3d at 1132. And they must actually exercise their
authority or control over the plan’s assets. 3 Leimkuehler v. Am. United Life Ins. Co., 713
F.3d 905, 914 (7th Cir. 2013) (explaining that a decision not to exercise control over a
plan’s assets does not confer fiduciary status). Any alleged breach of a functional
fiduciary’s obligations must arise out of an exercise of that authority or control. See id. at
913; Assocs. in Adolescent Psychiatry, S.C. v. Home Life Ins. Co., 941 F.2d 561, 569 (7th
Cir. 1991).
2
Section 3(21)(A) lists three bases for a party to be a functional fiduciary.
Because Mr. Teets rests his fiduciary status argument on only the first one, Aplt. Br. at
17, we have italicized that part of the provision here.
3
ERISA § 3(21)(A) creates functional fiduciary status for those who exercise
“discretionary authority or discretionary control” in the management of a plan or who
exercise “authority or control” over plan assets. ERISA § 3(21)(A), 29 U.S.C.
§ 1002(21)(A). Although only one of these clauses uses the modifier “discretionary,” the
parties use these phrases interchangeably and do not ask us to distinguish between them.
See Aplt. Br. at 18 (stating both that “‘to the extent’ [Great-West] wields ‘any
discretionary authority or discretionary control’ over the plan or its assets, it owes
fiduciary duties” and “[t]he ‘authority or control’ inquiry is complicated in many cases”);
Aplee. Br. at 15 (“The test of Great-West’s fiduciary status is whether Great-West
exercises authority or control over a plan or plan assets . . . .”); Aplee. Br. at 31 (“Great-
West’s ‘compensation’ thus is not determined at its own discretion . . . .”). Because the
parties do not argue otherwise, we assume without deciding that the difference in these
clauses does not affect the functional fiduciary analysis in this case.
6
As the following discussion illustrates, although named fiduciaries and functional
fiduciaries obtain fiduciary status in different ways, they are bound by the same
restrictions and duties under ERISA. 4
b. Fiduciary duties and prohibited transactions
Section 404 of ERISA imposes general duties of loyalty on fiduciaries, requiring
them to “discharge [their] duties with respect to a plan solely in the interest of the
participants and beneficiaries” and “for the exclusive purpose of . . . [1] providing
benefits as to participants and their beneficiaries; and [2] defraying reasonable expenses
of administering the plan.” 29 U.S.C. § 1104(a)(1).
In addition to imposing general duties, ERISA prohibits fiduciaries from engaging
in certain specific transactions. First, it restricts transactions between plans and
fiduciaries. Under § 406(b)(1), a fiduciary may not “deal with the assets of the plan in
his own interest or for his own account.” 29 U.S.C. § 1106(b)(1). Second, ERISA
restricts transactions between fiduciaries and non-fiduciary third parties, referred to as
4
Courts occasionally also use the term “plan fiduciaries” to distinguish plan-
affiliated fiduciaries (typically named fiduciaries) from fiduciaries that are third parties.
See, e.g., Hecker v. Deere & Co., 556 F.3d 575, 586 (“We see nothing in the statute that
requires plan fiduciaries to include any particular mix of investment vehicles in their
plan.”); Zang and Others Similarly Situated v. Paychex, Inc., 728 F. Supp. 2d 261, 271
(W.D.N.Y. 2010) (explaining that a service provider is not a functional fiduciary if “the
appropriate plan fiduciary in fact makes the decision to accept or reject the change”
(quoting Dept. of Labor Advisory Op. 97-16A, 1997 WL 277979, at *5 (May 22, 1997))).
The term “plan fiduciary,” however, can be somewhat misleading. Third parties, such as
service providers, that qualify as functional fiduciaries are also fiduciaries of a plan, and
the relevant ERISA provisions use “fiduciary” as a catch-all term that does not
distinguish between named fiduciaries and functional fiduciaries. See, e.g., ERISA
§ 404(a), 29 U.S.C. § 1104(a).
7
“parties in interest.” The latter can include service providers. See ERISA § 3(14)(B),
29 U.S.C. § 1002(14)(B). Under § 406(a), a fiduciary may not allow a plan to engage in
a transaction the fiduciary knows or should know is (1) a “sale or exchange, or leasing, of
any property between the plan and a party in interest”; (2) “lending of money or other
extension of credit between the plan and a party in interest”; (3) “furnishing of goods,
services, or facilities between the plan and a party in interest”; (4) “transfer to, use by or
for the benefit of, a party in interest, of any assets of the plan”; or (5) “acquisition, on
behalf of the plan, of any employer security or employer real property in violation of
[§] 1107(a).” 29 U.S.C. § 1106(a)(1)(A)-(E).
If a fiduciary engages in one of these prohibited transactions under § 406,
ERISA’s civil enforcement provision, § 502, allows plan participants to sue the fiduciary
“to enjoin any act or practice which violates any provision of this subchapter or the terms
of the plan” or “to obtain other appropriate equitable relief.” ERISA § 502(a)(3), 29
U.S.C. § 1132(a)(3). Fiduciaries can avoid liability for a prohibited transaction if they
qualify for certain exemptions under § 408 of ERISA.
ERISA Non-Fiduciary Parties in Interest and Prohibited Transactions
Although parties in interest have no fiduciary obligations to a plan or its
participants, the Supreme Court has read § 502(a)(3) to allow a suit against a party in
interest for its participation in a prohibited transaction. Harris Tr. & Sav. Bank v.
Salomon Smith Barney, Inc., 530 U.S. 238, 241 (2000) (“Salomon”) (“[Section] 502(a)(3)
admits of no limit . . . on the universe of possible defendants.”). A party in interest is
liable if it “had actual or constructive knowledge of the circumstances that rendered the
8
transaction unlawful”—that is, prohibited under § 406(a). Id. at 251. We discuss this
standard in detail below.
B. Factual Background
The Key Guaranteed Portfolio Fund
a. Overview
Great-West offers an investment product called the Key Guaranteed Portfolio
Fund (“KGPF”). The KGPF is a stable-value fund. It “guarantees capital preservation.”
Aplt. App., Vol. II at 150. This means KGPF participants will never lose the principal
they invest or the interest they earn, which is credited daily to their accounts. Id. The
KGPF was one of 29 investment options the Farmer’s Rice Cooperative Plan’s fiduciaries
chose to offer participants like Mr. Teets.
b. Great-West’s management of the KGPF and the Credited Interest Rate
Great-West deposits the money that participants have invested in the KGPF into
its general account. That account, in turn, is invested in fixed-income instruments such
as treasury bonds, corporate bonds, and mortgage-backed securities. Great-West
employs a self-described “conservative investment strategy.” Id. at 157, 173. Its
investments earn lower interest rates than some higher-risk instruments or funds.
Money invested in the KGPF earns interest at the “Credited Interest Rate” (the
“Credited Rate”). Under the contracts it executes with employer plans, Great-West sets
the Credited Rate quarterly, announcing the new rate at least two business days before the
start of each quarter. Its contract with Mr. Teets’s Plan provides, “Interest earned on the
Key Guaranteed Portfolio Fund value is compounded daily to the effective annual interest
9
rate. The interest rate to be credited to the Group Contractholder [the Plan] will be
determined by [Great-West] prior to the last day of the previous calendar quarter.” Aplt.
App., Vol. I at 129. “The effective annual interest rate will never be less than 0%.” Id.
Great-West retains as revenue the difference between the total yield on the
KGPF’s monetary instruments and the Credited Rate, also known as the “margin” or the
“spread.” Some portion of the margin goes toward Great-West’s operating costs. Great-
West publicly discloses an administrative fee of .89 percent, but claims that figure does
not capture all the costs associated with maintaining the KGPF. Great-West retains as
profit whatever portion of the margin exceeds its costs. The parties dispute the total
KGPF-associated profit Great-West has earned, but all agree that as of 2016 it was
greater than $120 million.
The Credited Rate dropped from 3.55 percent before the financial crisis in 2008 to
1.10 percent in 2016. During that time, the Credited Rate increased only once, in 2013.
At the same time, Great-West’s margin remained relatively constant, between
approximately two and three percent. 5
c. Exiting the KGPF
Plans may terminate their relationship with Great-West based on changes to the
Credited Rate. If they do, Great-West “reserves the right to defer payment” of
participants’ KGPF money back to the plan—presumably to reinvest with another
This figure is drawn from a report Mr. Teets’s expert prepared at the summary
5
judgment stage. Great-West does not disclose its margins as a matter of course.
10
provider—“not longer than 12 months.” 6 Id. There is no evidence Great-West has ever
exercised the option to impose that waiting period.
Participants who have placed their money in the KGPF may withdraw their
principal and accrued interest at any time without paying a fee. Great-West does,
however, prohibit plans offering the KGPF from also offering any other stable value
funds, money market funds, or certain bond funds—in other words, products with
comparable risk profiles. 7
C. Procedural Background
Mr. Teets sued Great-West in the United States District Court for the District of
Colorado on behalf of all employee benefit plan participants who had invested in the
KGPF since 2008, as well as those participants’ beneficiaries. The district court certified
the class under Federal Rule of Civil Procedure 23(b)(3). See Teets v. Great-West Life &
Annuity Ins. Co., 315 F.R.D. 362, 374 (D. Colo. 2016). At certification, the class
included approximately 270,000 KGPF participants spread across more than 13,000
6
The KGPF is offered to participants in defined contribution retirement plans. In
such plans, either the employee participant or the employer (or both) contribute funds to a
participant’s retirement account. See Edward A. Zelinsky, The Defined Contribution
Paradigm, 114 Yale L.J. 451, 456 (2004). In a 401(k) plan, one type of defined
contribution plan, participants typically allocate the funds in their own accounts. Id. at
484. It is thus not clear that the Plan in this case invested any of its own funds into the
KGPF. But according to the Plan contract, if the Plan terminates its relationship with
Great-West and stops offering the KGPF, the Plan can opt to have the total of the
participants’ accounts paid to it, presumably for reinvestment in another fund.
7
Our review of the record supports this statement, and counsel for Great-West
admitted as much at oral argument. Oral Arg. at 28:30-28:55.
11
plans. 8 Id. at 369. None of the plans’ named fiduciaries is a named plaintiff or a member
of the class.
1. Mr. Teets’s ERISA Claims
Mr. Teets alleged three ERISA violations. His first two claims alleged Great-West
had violated ERISA’s fiduciary duty provisions. First, Mr. Teets claimed that Great-
West had breached its general duty of loyalty under § 404 by (1) setting the Credited Rate
for its own benefit rather than for the plans’ and participants’ benefit, (2) setting the
Credited Rate artificially low and retaining the difference as profit, and (3) charging
excessive fees. Second, he claimed that Great-West, again acting in its fiduciary
capacity, had engaged in a prohibited transaction under § 406(b) by “deal[ing] with the
assets of the plan in [its] own interest or for [its] own account.” 29 U.S.C. § 1106(b).
As a prerequisite to bring both of these claims, Mr. Teets alleged that Great-West
is an ERISA fiduciary because it exercises authority or control over the quarterly
Credited Rate and, by extension, controls its compensation. The district court limited its
review of these two fiduciary duty claims by addressing only this prerequisite—that is,
whether Mr. Teets had sufficiently established Great-West’s fiduciary status. Because
the court found that Great-West was not a fiduciary, it did not address whether Great-
West had breached any fiduciary obligations. Great-West’s fiduciary status is thus the
focus of our review of Mr. Teets’s fiduciary duty claims.
8
The class period runs “until the time of trial.” Teets, 315 F.R.D. at 374.
12
Mr. Teets’s third claim, raised in the alternative, was based on Great-West’s
having non-fiduciary status. He alleged that Great-West was a non-fiduciary party in
interest to a non-exempt prohibited transaction under § 406(a) insofar as it had used plan
assets for its own benefit.
On all three claims, Mr. Teets sought declaratory and injunctive relief and “other
appropriate equitable relief,” including restitution and an accounting for profits. Aplt.
App., Vol. I at 37.
2. Summary Judgment Ruling
After discovery, the parties filed cross-motions for summary judgment. The
district court denied Mr. Teets’s motion and granted summary judgment for Great-West.
It disposed of Mr. Teets’s first two claims at the same time, concluding that Great-West
was not acting as a fiduciary of the Plan or its participants. It held that Great-West’s
contractual power to choose the Credited Rate did not render it a fiduciary under ERISA
because participants could “veto” the chosen rate by withdrawing their money from the
KGPF. Id. at 99. As to Great-West’s ability to set its own compensation, the court held
that Great-West did not have control over its compensation and thus was not a fiduciary
because the ultimate amount it earned depended on participants’ electing to keep their
money in the KGPF each quarter. 9
9
Having concluded Great-West was not an ERISA fiduciary, the district court did
not address whether, if it were a fiduciary, its conduct would amount to a breach of its
duties.
13
The district court also granted summary judgment on Mr. Teets’s third claim,
concluding that Great-West was not liable as a non-fiduciary party in interest because Mr.
Teets had failed to establish a genuine dispute as to whether Great-West had “actual or
constructive knowledge of the circumstances that rendered the transaction unlawful.” Id.
at 105 (quoting Salomon, 530 U.S. at 251). Mr. Teets timely appealed.
Our review thus focuses on (1) whether Great-West is a functional fiduciary
because it “exercises . . . authority or control” over Plan assets, ERISA § 3(21)(A), 29
U.S.C. § 1002(21)(A), when its sets the Credited Rate or its compensation; and (2)
whether, if Great-West is not a fiduciary, it is liable as a non-fiduciary party in interest
for its participation in a transaction prohibited under ERISA.
We will add further factual and procedural background as it becomes relevant.
D. Summary Judgment Background
“We review a grant of summary judgment de novo, applying the same legal
standard as the district court.” Coldesina, 407 F.3d at 1131. “The court shall grant
summary judgment if the movant shows that there is no genuine dispute as to any
material fact and the movant is entitled to judgment as a matter of law.” Fed. R. Civ. P.
56(a); see Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986). We view the evidence
and draw reasonable inferences in the light most favorable to the nonmoving party.
Bryant v. Farmers Ins. Exch., 432 F.3d 1114, 1124 (10th Cir. 2005).
“The movant bears the initial burden of making a prima facie demonstration of the
absence of a genuine issue of material fact and entitlement to judgment as a matter of
law.” Libertarian Party of N.M. v. Herrera, 506 F.3d 1303, 1309 (10th Cir. 2007) (citing
14
Celotex, 477 U.S. at 323). A movant that does not bear the burden of persuasion at trial
may satisfy this burden “by pointing out to the court a lack of evidence on an essential
element of the nonmovant’s claim.” Id. (citing Celotex, 477 U.S. at 325).
“If the movant meets this initial burden, the burden then shifts to the nonmovant to
set forth specific facts from which a rational trier of fact could find for the nonmovant.”
Id. (quotations omitted). To satisfy this burden, the nonmovant must identify facts “by
reference to affidavits, deposition transcripts, or specific exhibits incorporated therein.”
Id. (citation omitted). These facts “must establish, at a minimum, an inference of the
presence of each element essential to the case.” Bausman v. Interstate Brands Corp., 252
F.3d 1111, 1115 (10th Cir. 2001).
“Where, as here, we are presented with cross-motions for summary judgment, we
must view each motion separately, in the light most favorable to the non-moving party,
and draw all reasonable inferences in that party’s favor.” United States v. Supreme Ct. of
N.M., 839 F.3d 888, 906-07 (10th Cir. 2016) (quotations omitted).
II. DISCUSSION
Mr. Teets argues that (A) Great-West is a fiduciary because it has the authority to
set the Credited Rate each quarter and, by extension, to determine its own compensation;
and (B) even if Great-West is not a fiduciary, it is nonetheless liable as a party in interest
because it benefitted from a transaction prohibited under ERISA.
A. Fiduciary Duty Claims—Great-West’s Fiduciary Status
The threshold question for the two fiduciary duty claims is whether Great-West is
a functional fiduciary under ERISA. Mr. Teets argues it is because Great-West exercises
15
“authority or control” over the Plan or its assets by changing the Credited Rate without
plan or participant approval. Aplt. Br. at 17-19, 25-26. He also contends Great-West has
sufficient control over its own compensation to render it an ERISA fiduciary. We
conclude that Mr. Teets did not make an adequate showing in response to Great-West’s
summary judgment motion to support these points.
The following discussion describes the pertinent legal background, summarizes
the district court’s ruling, and analyzes the evidence of Great-West’s authority in relation
to plans and participants.
Legal Background
As noted above, a service provider can be a functional fiduciary under § 3(21)(A)
of ERISA when it exercises authority or control over plan management or plan assets.
See 29 U.S.C. § 1002(21)(A). Courts consider an employee benefit plan contract—like
the one between Mr. Teets’s Plan and Great-West—to be an asset of the plan, such that a
service provider’s authority or control over the plan contract can give rise to fiduciary
status. See Chicago Bd. Options Exch., Inc. v. Conn. Gen. Life Ins. Co., 713 F.2d 254,
260 (7th Cir. 1983) (“CBOE”) (“[T]he policy itself is a plan asset.”); accord ERISA
§ 401(b)(2), 29 U.S.C. § 1101(b)(2) (providing that a contract for a guaranteed-benefit
policy is an asset of the plan to which it is issued).
The case law points to a two-step analysis to determine whether a service provider
is a functional fiduciary when a plaintiff alleges it has acted to violate a fiduciary duty. 10
10
This court has not decided any cases to determine whether a service provider
exercised discretionary authority or control beyond the terms of a negotiated contract.
16
First, courts decide whether the service provider’s alleged action conformed to a specific
term of its contract with the employer plan. By following the terms of an arm’s-length
negotiation, the service provider does not act as a fiduciary. See, e.g., Schulist v. Blue
Cross of Iowa, 717 F.2d 1127, 1132 (7th Cir. 1983) (holding service provider was not
fiduciary where its compensation was established through successive negotiations).
Second, if the service provider took unilateral action beyond the specific terms of the
contract respecting the management of a plan or its assets, 11 the service provider is a
fiduciary unless the plan or perhaps the participants in the plan (see below) have the
unimpeded ability to reject the service provider’s action or terminate the relationship with
the service provider. See, e.g., Midwest Cmty. Health Serv., Inc. v. Am. United Life Ins.
Co., 255 F.3d 374, 377-78 (7th Cir. 2001) (holding service provider was fiduciary when
it could make changes to plan contract without plan approval and would assess a fee for
plans withdrawing funds).
Thus, to establish a service provider’s fiduciary status, an ERISA plaintiff must
show the service provider (1) did not merely follow a specific contractual term set in an
Accordingly, we must look outside the Tenth Circuit for guidance. Although our review
includes cases dealing with pension and insurance plans in addition to 401(k) plans like
Mr. Teets’s, the lessons we draw from these cases about functional fiduciary status apply
to the various types of benefit plans subject to ERISA regulation.
11
Ministerial tasks alone do not qualify a service provider for fiduciary status. See
Olson v. E.F. Hutton & Co., 957 F.2d 622, 625 n.3 (8th Cir. 1992) (“It is well established
that one who performs only ministerial tasks is not cloaked with fiduciary status.”); see
also 29 C.F.R. § 2509.75-8 (2018) (listing examples of ministerial actions that do not
qualify as “discretionary authority or discretionary control respecting management of [a]
plan”).
17
arm’s-length negotiation; and (2) took a unilateral action respecting plan management or
assets without the plan or its participants having an opportunity to reject its decision.
a. Arm’s-length negotiation of contract terms
When a service provider adheres to a specific contract term that is the product of
arm’s-length negotiation, courts have held that the service provider is not a fiduciary.
Schulist provides a useful example. 717 F.2d at 1132. In Schulist, a service provider
won a contract to administer an employer’s health care plan by submitting the winning
bid—the lowest premium price—in a competitive bidding process. Id. at 1129. During
the first year of operating under the contract, premium payments resulted in a large
surplus. Id. The parties agreed to a lower premium for the second year, but the surplus
returned. In the third year, the parties negotiated a new contract whereby any surplus
would be returned to the plan. Id. The employer’s trustees sued the service provider for
breach of contract and breach of fiduciary duty. Id. at 1130. The Seventh Circuit
concluded that the service provider was not a fiduciary because, during the initial auction
and at every subsequent renewal, “[the insurer] entered into an arm’s length bargain
presumably governed by competition in the marketplace.” Id. at 1132.
A service provider similarly does not owe a fiduciary duty regarding its
compensation when compensation is fixed during an arm’s-length negotiation. In
Transamerica Life Insurance, for example, the Ninth Circuit held that the manager of an
employee retirement plan was not an ERISA fiduciary as to its compensation because the
plan contract set the manager’s compensation at a fixed percentage of the plan’s assets,
and it also provided a specific schedule for fees the manager could collect. 883 F.3d at
18
836; see also F.H. Krear & Co. v. Nineteen Named Trs., 810 F.2d 1250, 1254-55, 1259
(2d Cir. 1987) (holding service provider was not a fiduciary when the contract that
defined the amount of its compensation was the product of an arm’s-length negotiation).
b. Unilateral decisions regarding plan or asset management
When a service provider acts with authority or control beyond the contract’s
specific terms, the service provider may be a fiduciary. And when the plan or the plan
participants cannot reject the service provider’s action or terminate the contract without
interference or penalty, the service provider is a functional fiduciary. See, e.g., Charters
v. John Hancock Life Ins. Co., 583 F. Supp. 2d 189, 199 (D. Mass. 2008) (holding service
provider was fiduciary where plan attempting to terminate contract faced “built-in”
monetary penalties). Fiduciary status turns on whether the service provider can force
plans or participants to accept its choices about plan management or assets. See, e.g.,
CBOE, 713 F.2d at 260 (finding fiduciary status where service provider “determined
what type of investment the Plan must make”). The cases discussed in this section
address whether plans faced impediments to rejecting service providers’ actions.
In some cases, the service provider’s unilateral decision changes a term of the plan
contract. For example, in CBOE, a service provider provided investment services for an
employee retirement benefit plan. Id. at 255-56. Under the contract, contributions made
on behalf of each plan participant were deposited into an individual account. Id. at 256.
The service provider announced that it was going to restructure the investment options it
provided to the plan by creating a new account for each participant and annually
transferring 10 percent of the balance from the participant’s original account to the new
19
one, which was supposed to yield a higher rate of return. Id. This “unilateral”
restructuring effectively amended the original terms of the contract. Id. If the plan
disagreed with this approach and sought to terminate the contract and withdraw its
participants’ funds to reinvest them elsewhere, the service provider could limit the plan’s
withdrawal of funds to 10 percent of the total balance per year, effectively requiring 10
years to withdraw all of the funds. Id. The Seventh Circuit held that this restriction
“lock[ed] [the plan] in” and made the service provider a functional fiduciary. Id. at 260.
In other cases, the contract may “grant[] [a service provider] discretionary
authority” over an aspect of plan or asset management. Ed Miniat, Inc. v. Globe Life Ins.
Grp., Inc., 805 F.2d 732, 737 (7th Cir. 1986). In those cases, too, the service provider’s
discretionary decision making—though authorized by contract—is “cabined by ERISA’s
fiduciary duties” unless plans or participants can freely reject the service provider’s
choices or terminate the contract. Edmonson v. Lincoln Nat’l Life Ins. Co., 725 F.3d 406,
422 (3d Cir. 2013). For example, in Ed Miniat, the service provider contracted with an
employer to provide investment services for an employee insurance plan. Under the plan
contract, the employer paid premiums to make life insurance available to employees upon
their retirement. See 805 F.2d at 733-34. The service provider had the “apparent
unilateral right to reduce the rate of return” it paid on the employer’s contributions. Id. at
734. Before it issued any insurance under the plan, the service provider reduced the rate
of return from 10 percent to 4 percent (the lowest value allowed by the contract) and
increased premiums. Id. When the employer sought to terminate the contract, the service
provider refused to reimburse half of the premiums the employer had paid. The Seventh
20
Circuit held the service provider was a fiduciary, reasoning that it had the power to
unilaterally amend the contract. Id. at 738. 12
In contrast to the foregoing cases holding a service provider to be a fiduciary,
when plans and participants have a “meaningful opportunity” to reject a service
provider’s unilateral decision, courts have held the service provider is not a fiduciary.
Charters, 583 F. Supp. 2d at 199. For example, in Hecker v. Deere & Co., 556 F.3d 575(7th Cir. 2009), the Seventh Circuit declined to impose fiduciary duties on a fund
manager that was retained to advise a plan on which investment options to include in the
plan. Id. at 578, 584. It reasoned that the plan contract gave the plan, not the fund
manager, “final say on which investment options [would] be included.” Id. at 583; see
Santomenno ex rel. John Hancock Tr. v. John Hancock Life Ins. Co., 768 F.3d 284, 295
(3d Cir. 2014) (“John Hancock”) (holding no fiduciary relationship arose from service
provider providing suggested list of funds where “trustees still exercised final authority
over what funds would be included”).
In Zang and Others Similarly Situated v. Paychex, Inc., the employee benefit plan
selected mutual funds to offer its participants from a list composed by a service provider.
12
See also Midwest Cmty. Health Serv., Inc., 255 F.3d at 377 (holding that service
provider was a fiduciary when it reserved the right to change terms without plan or
participant approval and would assess a fee upon withdrawal of funds); Charters, 583 F.
Supp. 2d at 198-99 (recognizing fiduciary duty where employee benefit plan sponsor
faced “built-in penalties” for transferring assets to a different account or cancelling its
contract if it was dissatisfied with how service provider exercised its contractual right to
substitute investment options); Rosen v. Prudential Ret. Ins. & Annuity Co., 718 F. App’x
3, 5 (2d Cir. 2017) (“[F]iduciary status attaches to the party empowered to make
unilateral changes to the investment menu by its contractual arrangement with the plan.”).
21
728 F. Supp. 2d 261, 263 (W.D.N.Y. 2010). The service provider “reserve[d] the right to
modify” the list of mutual funds the plan selected. Id. The contract required at least 60
days’ notice of a proposed modification and an opportunity for the plan to reject the
change or terminate the contract. Id. at 263-64. The court held that the service
provider’s ability to amend the list of available mutual funds did not give rise to fiduciary
status because the contract gave the plan the ultimate say over whether the change would
take effect. Id. at 271 n.6 (“Paychex could not force the employer to accept any
particular deletion or substitution.”).
The foregoing analysis applies to determining whether a service provider’s control
over its own compensation may make it a fiduciary. A contract might give a service
provider “control over factors that determine the actual amount of its compensation.”
Krear, 810 F.2d at 1259. If the service provider exercises unilateral control over those
factors, it can be a fiduciary. In Pipefitters Local 636 Insurance Fund v. Blue Cross and
Blue Shield of Michigan, the Sixth Circuit held an insurer was a fiduciary as to its
compensation. 722 F.3d 861 (6th Cir. 2013). State law required the service provider to
pay one percent of its total income to the state, and its contract with the plan entitled it to
pass along that cost to the plan. Id. at 864 (detailing provision allowing “any cost transfer
subsidies or surcharges ordered by the State Insurance Commissioner . . . [to] be reflected
in the . . . Amounts Billed”). But “the state did not fix the rate that Defendant charged
each customer, and crucially, neither did the [contract] between Plaintiff and Defendant.”
Id. at 867 (emphasis added). Because the contract “in no way cabin[ed] [the provider’s]
22
discretion” to decide how much of the fee to collect from each plan, the court held the
service provider was an ERISA fiduciary. Id. 13
District Court Ruling
The district court evaluated whether Great-West is a fiduciary based upon its
changes to the Credited Rate and control over its compensation.
a. Change to the Credited Rate
The district court held that Great-West is not a fiduciary when it sets the Credited
Rate. It acknowledged that “in some sense,” Great-West “undoubtedly” exercises some
control when it sets the Credited Rate. Aplt. App., Vol. I at 92. But the court recognized
“a number of cases favoring the theory that a pre-announced rate of return prevents
fiduciary status from attaching to the decision regarding the what [sic] rate to set, at least
when the plan and/or its participants can ‘vote with their feet’ if they dislike the new
rate.” Id. “Thus,” the court stated, “if the all the [sic] circumstances of the alleged
ERISA-triggering decision show that the defendant does not have power to force its
decision upon an unwilling objector, the defendant is not acting as an ERISA fiduciary
13
See also Abraha v. Colonial Parking, Inc., 243 F. Supp. 3d 179, 186 (D.D.C.
2017) (exercise of contractual authority to change from a flat per-participant fee to a
percentage-of-contributions fee was an exercise of discretion over service provider’s own
compensation and therefore subject to ERISA fiduciary obligations); Golden Star, Inc. v.
Mass Mut. Life Ins. Co., 22 F. Supp. 3d 72, 80-82 (D. Mass. 2014) (insurer had discretion
to set a “management fee” anywhere between zero and one percent and therefore was a
fiduciary); Glass Dimensions, Inc. ex rel. Glass Dimensions, Inc. Profit Sharing Plan &
Tr. v. State St. Bank & Tr. Co., 931 F. Supp. 2d 296, 304 (D. Mass. 2013) (bank had
discretionary authority to set a “lending fee” anywhere from zero to 50 percent and was
therefore a fiduciary).
23
with respect to that decision.” Id. at 98. The court discussed this issue separately as it
concerned plans and participants.
First, as to Great-West’s ability to bind plans to its Credited Rate decisions, the
district court rejected Mr. Teets’s argument that plans cannot readily withdraw from the
KGPF because Great-West has a right to impose a waiting period of up to one year. The
court stated, “This is not an argument that the Court can consider in the present posture.
The Contract does not mandate a one-year waiting period, so whether it would actually
be imposed in any particular instance is speculative.” Id. at 99.
Second, as to individual participants’ ability to reject the Credited Rate, the district
court concluded that participants do have a “real ability” to reject Great-West’s choice of
the Credited Rate by withdrawing their funds from the KGPF without fee or penalty. Id.Although it had “given serious thought to” the argument that participants cannot easily
withdraw from the KGPF because Great-West prohibits plans from offering other
comparable investment products, the court concluded that imposing a fiduciary duty on
that basis would “introduce[] a host of other considerations individual to each
participant.” Id. As a result, it would be “too attenuated” to say that a given participant
could not reject the Credited Rate each quarter. Id.b. Control over compensation
The district court also concluded Great-West is not a fiduciary as to setting its
compensation. Although it acknowledged that a service provider’s control over
compensation factors can give rise to fiduciary obligations, the court said this principle
“has only been applied in cases where the alleged fiduciary has some form of direct
24
contractual authority to establish its fees and other administrative charges, or has
authority to approve or disapprove the transactions from which it collects a fee.” Id. at
100.
The court also reasoned that Great-West does not have control over its
compensation because, even though it could use the Credited Rate to “influence its
possible margins,” the ultimate amount it earns depends on whether participants elect to
keep their money in the KGPF each quarter. Id. at 101.
Analysis
Mr. Teets argues that Great-West’s ability to set the Credited Rate renders it an
ERISA fiduciary because neither the Plan nor its participants can reject changes to the
Credited Rate. 14 He focuses on Great-West’s (1) contractual right to impose a 12-month
waiting period on withdrawing plans and (2) prohibition on plans’ offering comparable
investment options to participants. We conclude that Mr. Teets has not adduced
sufficient evidence to create an issue of material fact as to whether either of the foregoing
has prevented plans or participants from rejecting a change in the Credited Rate.
14
The parties do not dispute that changing the Credited Rate is the kind of
decision that might qualify Great-West for fiduciary status. Changing the rate of return
on participants’ investments cannot fairly be considered “ministerial” in the same way
that calculating benefits or maintaining records can. See In re Luna, 406 F.3d at 1205(holding that an employer’s duty to make plan contributions pursuant to collective
bargaining agreement was ministerial); 29 C.F.R. § 2509.75-8 (listing examples of
ministerial functions). On the contrary, it is exactly the kind of action that would “affect
the amount of benefits retirement plan participants will receive.” Harris Tr., 510 U.S. at
96.
25
Mr. Teets separately argues that Great-West’s control over the Credited Rate gives
it control over its compensation and thereby renders it an ERISA fiduciary. We conclude
that because Great-West does not have unilateral authority or control over the Credited
Rate, it also lacks such control over its compensation. We therefore affirm the district
court’s summary judgment ruling that Great-West is not a functional fiduciary.
a. Change to the Credited Rate
The contract between the Plan and Great-West does not set a Credited Rate or
prescribe a Credited Rate formula. Instead, it authorizes Great-West to set the Credited
Rate on a quarterly basis without input from the Plan or its participants. Accordingly, the
Credited Rate is not the product of an arm’s-length negotiation, and Great-West’s
fiduciary status therefore depends on whether the Plan or its participants can reject a
change in the Credited Rate. To make that determination, we address Great-West’s (1)
right to impose a 12-month waiting period on departing plans and (2) prohibition on plans
offering comparable investment options to their participants.
i. Potential 12-month waiting period for withdrawing plans
As discussed above, a service provider’s unilateral decision regarding
management of a plan or its assets can give rise to functional fiduciary status if the
service provider can prevent or penalize plans for withdrawing funds from the service
provider or terminating the contract. See, e.g., CBOE, 713 F.2d at 260; Charters, 583 F.
Supp. 2d at 199. When Great-West changes the Credited Rate, its contractual option to
delay a plan’s ability to receive funds from the KGPF upon termination of the contract, if
exercised, may make it a fiduciary.
26
Mr. Teets contends that Great-West, like service providers held to be fiduciaries in
CBOE, Ed Miniat, and Midwest Community Health, has “unhampered discretion” under
ERISA because it has “the ability”—even if never used—“to force plans to accept the
Credited Rate for up to a year.” Aplt. Reply Br. at 7 (quotations omitted); see Aplt. Br. at
21-23.
Great-West argues that its contractual option to delay the return of a departing
plan’s funds does not establish fiduciary status. Aplee. Br. at 29. It relies on ERISA’s
text, which confers fiduciary status on a service provider only to the extent it “exercises
any discretionary authority or discretionary control” over a plan or its assets. ERISA
§ 3(21)(A), 29 U.S.C. § 1002(21)(A); see also Leimkuehler, 713 F.3d at 911 (declining to
recognize fiduciary status where service provider “reserve[d] the right to make
substitutions to the funds” but “ha[d] never exercised this contractual right in a way that
could give rise to a claim”).
We agree with Great-West that its contractual option to impose a 12-month
waiting period on plan withdrawal is different from the penalties and fees that gave rise
to fiduciary status in the cases cited by Mr. Teets. In those cases, the penalties either had
been or were certain to be enforced on the plans. See, e.g., Ed Miniat, 805 F.2d at 734
(service provider actually “deducted ‘front end load’ charges” upon contract
cancellation); Midwest Cmty. Health Serv., Inc., 255 F.3d at 375 (service provider “would
assess a withdrawal or ‘surrender charge’ and make an ‘investment liquidation
adjustment’” upon withdrawal); Charters, 583 F. Supp. 2d at 191 (plan was “subject to
administrative charges” and “termination fees” upon cancellation or transfer of funds). In
27
other words, the service providers’ rights to impose penalties in those cases had been or
were certain to be “exercised.” See ERISA § 3(21)(A), 29 U.S.C. § 1002(21)(A). But in
this case, a plan’s attempt to terminate its KGPF contract in response to a change in the
Credited Rate does not trigger the waiting period. Great-West must exercise its option to
impose it.
We are not aware of any case finding fiduciary status under § 3(21)(A) of ERISA
based on a service provider’s unexercised contractual option to restrict or penalize
withdrawal. But even if a potential restriction or penalty could make Great-West a
fiduciary, it cannot do so in this case. This is so because Mr. Teets not only has provided
no evidence that Great-West has ever imposed the waiting period on a plan’s withdrawal,
he has provided no evidence that even the potential of Great-West’s imposing a waiting
period has affected any plan’s choice to continue with or withdraw from the KGPF
contract. More than 3,000 plans have terminated the KGPF as a plan offering during the
class period. Mr. Teets has not provided a single example showing the potential waiting
period has deterred any of the 13,000 plans represented by participants in the class from
withdrawing from the KGPF. Unlike in CBOE, there is no evidence a plan has actually
been or is likely to be locked in to a Credited Rate for up to 12 months. See 713 F.2d at
260. Without any evidence that Great-West has exercised its right or that the right has
deterred any plan from exiting the KGPF, summary judgment in favor of Great-West on
this issue was appropriate. 15
15
In his opposition to Great-West’s motion for summary judgment, Mr. Teets
raised other penalties Great-West imposes on a departing plan. For example, he stated:
28
ii. Prohibition on comparable investment options for participants
We next turn to whether plan participants—the class members in this case—can
reject the quarterly Credited Rate by withdrawing from the KGPF. When Great-West
moved for summary judgment contesting fiduciary status, it argued that “[t]he evidence
shows that” when it changes the Credited Rate, “participants, not Great-West, have the
‘final say’ on whether any Credited Interest Rate will apply to their investments in the
[KGPF].” Aplt. App., Vol. II at 176. Great-West contended that this was so because
participants who have invested in the KGPF “can reject any new Credited Interest Rate
by transferring their accounts out of the [KGPF] at any point, without penalty.” Id.; see
also id. at 151, 282-83. 16 In response, Mr. Teets made two arguments, both unavailing.
The default “cessation option” under [Great-West’s
contract with the Plan] is the “participant maintenance
option,” in which Great-West continues to hold participants’
money in the KGPF until it is all transferred or distributed by
the participants. . . . Further, the Contract provides for a
“Contract Termination Charge” if the Contract is terminated
before Great-West’s recovery of all Start-Up Costs.
Aplt. App., Vol. II at 283. But Mr. Teets did not raise this argument on appeal until his
rebuttal at oral argument. Oral Arg. at 38:20-39:27. It is therefore waived. See United
States v. Dahda, 852 F.3d 1282, 1292 n.7 (10th Cir. 2017) (“[I]ssues raised for the first
time at oral argument are considered waived.” (quotations omitted)), aff’d, 138 S. Ct.
1491 (2018).
16
To support its argument, Great-West pointed to paragraph 15 of its statement of
material facts, which asserted, in part, “Participants who allocate money to the [KGPF]
can withdraw that money, both principal and any accrued earnings, at any time—even
prior to the expiration of the 90-day guarantee period—without paying any fee or
incurring any penalty.” Aplt. App., Vol. II at 151. Paragraph 15, in turn, cited to the
contract between the Plan and Great-West, which states that “[a]mounts may be
transferred from the Participant’s account balance in the Key Guaranteed Portfolio Fund
29
First, he disagreed that Great-West’s fiduciary status may turn on whether
participants can freely withdraw from the KGPF. 17 He repeats this contention on appeal:
“participants’ ability to ‘accept’ or ‘reject’ Great-West’s Credited Rate decision is legally
irrelevant.” Aplt. Reply Br. at 9. It is not clear to us why Mr. Teets would take this
position, but if this were his only argument and we have understood it properly, he would
have effectively conceded that participants’ ability to leave the KGPF, impeded or
unimpeded, has no effect on whether Great-West is a fiduciary.
Second, Mr. Teets argued, alternatively, in his opposition to summary judgment,
that Great-West is a fiduciary because “Great-West precludes plans from offering
alternative low-risk investments alongside the KGPF” and therefore participants are not
free to leave. Aplt. App., Vol. II at 301. He noted that when his Plan contracted with
Great-West, it agreed that no stable value fund—effectively, no fund with a similar risk
at any time,” Aplt. App., Vol. I at 129, and to other evidence allegedly establishing that
participants’ withdrawals from the KGPF were “unrestricted.” Aplt. App., Vol. II at 151.
Unlike the concurrence, we think this was enough for Great-West, the “party
seeking summary judgment,” to “inform[] the district court” of why “it believe[d]” there
was an “absence of a genuine issue of material fact.” Celotex Corp. v. Catrett, 477 U.S.
317, 323 (1986). As described below, Mr. Teets, after being put on notice that he needed
to “present evidence opposing the argument[]” that participants could freely leave the
KGPF, see Bonney v. Wilson, 817 F.3d 703, 710 (10th Cir. 2016), responded only by
pointing to Great-West’s policy against competing funds without showing that it
restricted withdrawal.
17
Mr. Teets asserted, “Great-West does not cite a single case supporting its
contention that a service provider to an individual account defined contribution plan can
avoid fiduciary status merely because participants have the ability to invest in or divest
from the product offered by the service provider, and Plaintiff is aware of no such case.”
Aplt. App., Vol. II at 299-300.
30
profile—would be offered that is comparable to the KGPF. Id. at 292-93, 301. As a
result, “participants who divest from the KGPF in response to a change in Credited Rate
are forced to alter the risk profile of their retirement accounts.” Id. at 301. It follows, he
asserted, that Great-West is a fiduciary as to setting the Credited Rate. See id.Mr. Teets’s opposition to summary judgment on this alternative ground lacked
supporting law or facts. He has not cited, and we have not found, a case in which a court
has deemed a service provider to be a fiduciary based on participants’ lack of alternative
investment options, or on anything other than imposing a penalty or fee for withdrawal.
Moreover, Mr. Teets has not cited, and we have not found, a case finding fiduciary status
based solely on restrictions on participants’ ability to leave a fund. 18
Even if the ability of participants to reject service provider actions is relevant to
the fiduciary status, Mr. Teets failed to provide factual support to counter Great-West’s
assertion in district court that participants can freely transfer their money out of the
KGPF. See id. at 176. He pointed only to Great-West’s policy against competing funds.
18
Although service providers in the life insurance context have been held to be
ERISA fiduciaries in their dealings with beneficiaries—as opposed to plans—these cases
do not help Mr. Teets. Vander Luitgaren v. Sun Life Assurance Co. of Canada, 966 F.
Supp. 2d 59 (D. Mass 2012), provides a useful illustration. In that case, a service
provider administering a life insurance policy was held to be an ERISA fiduciary when it
paid benefits to a plaintiff beneficiary using a retained-asset account and had unilateral
control over the rate of return on the account. Id. at 61-62, 70. But even if life insurance
beneficiaries (who do not themselves pay for life insurance) were analogous to 401(k)
plan participants (who invest their own money in various funds), the plaintiff in Vander
Luitgaren could not have cancelled his relationship with the service provider without
suffering a penalty—namely, losing the potential benefits under the life insurance policy.
31
He adduced no evidence that this policy forced participants to accept a Credited Rate or
that they felt effectively locked in to the KGPF. See CBOE, 713 F.2d at 260.
Like the 12-month waiting period’s potential effect on plans, the restriction on
competing investment options may impede participants from exiting the KGPF. But as
with the waiting period, Mr. Teets offered no evidence that the competing fund provision
has affected any of the 270,000 participants’ decisions to stay with or leave the KGPF.
Mr. Teets has not even alleged that the competing fund provision has affected his own
choice about participation in the KGPF.
In sum, in response to Great-West’s contention that it should receive summary
judgment because the plan participants are free to leave the KGPF after a change in the
Credited Rate, Mr. Teets said (1) the participants’ freedom to leave the KGPF is not
relevant to fiduciary status and (2) if it were, Great-West is a fiduciary because the limit
on competing funds restricted participants’ ability to leave. The first point seems to
concede the issue to Great-West. On the second, Mr. Teets failed to provide legal
support or “‘set forth specific facts’ from which a rational trier of fact could find” in his
favor. Libertarian Party of N.M., 506 F.3d at 1309 (citing Celotex, 477 U.S. at 323).
* * * *
Summary judgment on the issue of Great-West’s authority or control over the
Credited Rate was proper.
32
b. Control over compensation
Mr. Teets’s failure to show Great-West has authority or control over the Credited
Rate means he cannot show Great-West has authority or control over its compensation. 19
Great-West argues, and Mr. Teets does not contest, that its compensation is a function not
only of the Credited Rate, but also of “(1) the willingness of plans and participants to
accept the Credited Interest Rates that Great-West offers; and (2) the performance of the
volatile financial markets in which Great-West invests its general account.” Aplee. Br. at
31. Of these variables, Mr. Teets contends Great-West has control over the Credited
Rate. He acknowledges any control Great-West has over its compensation “will always
be cabined by external realities and limitations like the market’s actual performance. . . .
And plans and participants entering and leaving the [KGPF] will have some impact on
the total amount of Great-West’s compensation.” Aplt. Br. at 26 n.7. But, he argues,
“when Great-West exercises its authority to set the Credited Rate, it also determines the
amount of its own compensation.” Id. at 26.
19
A Department of Labor (“DOL”) rule cited by Great-West appears to suggest
that Great-West’s margin may not be compensation at all: “For purposes of [the
reasonable compensation] exemption, the ‘spread’ is not treated as compensation.” Final
Amendment to and Partial Revocation of Prohibited Transaction Exemption (PTE) 84-24,
81 Fed. Reg. 21147, 21167 & n.62 (Apr. 8, 2016). The rule is somewhat ambiguous,
however. It also states that “compensation” under § 408(b)(2) includes “indirect
compensation received from any source other than the plan or IRA in connection with the
recommended transaction,” id. at 21167, which could conceivably include the money
Great-West earns on KGPF investments. We do not resolve this tension and instead
conclude that even if Great-West’s margin were compensation, Mr. Teets has not shown
that Great-West has sufficient control over it to be a fiduciary.
33
Mr. Teets’s argument that Great-West exercises authority or control over its
compensation because it exercises authority or control over the Credited Rate is self-
defeating. As we have already discussed, Mr. Teets has not shown that Great-West has
discretion over the Credited Rate. It follows that Great-West similarly lacks discretion or
control over its compensation. Accord Insigna v. United of Omaha Life Ins. Co., No.
8:17CV179, 2017 WL 6884626, at *4 (D. Neb. Oct. 26, 2017) (finding a service provider
did not exercise control over its compensation where its compensation was “too
attenuated” from its choice of monthly interest rate). Accordingly, summary judgment
was proper on Mr. Teets’s claims of fiduciary liability. 20
20
Great-West also argued in the district court that it was not a fiduciary because
ERISA’s guaranteed-benefit policy (“GBP”) exemption covers the KGPF. A GBP is “an
insurance policy or contract to the extent that such policy or contract provides for benefits
the amount of which is guaranteed by the insurer.” ERISA § 401(b)(2)(B), 29 U.S.C.
§ 1101(b)(2)(B). A key feature of GBPs is that they “allocate[] investment risk to the
insurer.” Harris Tr., 510 U.S. at 106. For plans incorporating GBPs, ERISA provides
that “the assets of such plan shall be deemed to include such policy, but shall not, solely
by reason of the issuance of such policy, be deemed to include any assets of such
insurer.” § 1101(b)(2). A company that issues a GBP cannot become a functional
fiduciary by exercising authority or control over plan funds because the funds are not
plan assets under the statute.
The district court found the KGPF allocates risk to Great-West because it
guarantees participants’ principal and all earned interest and because Great-West fixes
the rate of return in advance. Accordingly, it could not be a fiduciary in its
administration of the assets participants allocated to the KGPF. The court concluded that
the GBP exemption did not free Great-West of all fiduciary obligations because the
“contract by which the insurer obtained [participants’] contributions remains a part of the
plan,” and Great West’s management of the contract (as opposed to the money) could be
subject to fiduciary duties. Aplt. App., Vol. I at 91-92 (emphasis added).
On appeal, Great-West does not contend the GBP exemption shields it from
fiduciary status.
34
B. Non-Fiduciary Prohibited Transaction Claim
Having affirmed summary judgment that Great-West is not a fiduciary, we turn to
whether the district court properly granted summary judgment to Great-West on Mr.
Teets’s non-fiduciary party-in-interest claim. Because Mr. Teets failed to carry his
burden to show that he qualified for “appropriate equitable relief” under ERISA
§ 502(a)(3), we affirm summary judgment for Great-West. 21
1. Legal Background—ERISA
Section 406(a) of ERISA lists transactions that are prohibited between fiduciaries
and non-fiduciary parties in interest. 29 U.S.C. § 1106(a). Section 408(b) recognizes
exemptions to the prohibitions in § 406(a). 29 U.S.C. § 1108(b). Section 502(a)(3)
authorizes participants to bring civil suits to obtain equitable relief for violations of
ERISA. 29 U.S.C. § 1132(a)(3). We describe these provisions below and discuss how
they apply to fiduciaries and to non-fiduciary parties in interest, such as Great-West.
a. Prohibited transactions under ERISA § 406(a)
Section 406(a) of ERISA prohibits fiduciaries like the Farmer’s Rice Cooperative
from engaging in certain transactions with “part[ies] in interest,” such as service
21
The parties spent most of their summary judgment briefing in district court on
the fiduciary duty claims and devoted limited attention to this claim. Great-West’s
motion, Mr. Teets’s opposition, and Great-West’s reply each addressed the non-fiduciary
claim in less than three pages. Aplt. App., Vol. II at 181-83, 316-18, 366-68. As
explained below, Mr. Teets’s cursory treatment of this claim prevents him from
overcoming summary judgment.
35
providers like Great-West. 29 U.S.C. §§ 1106(a), 1002(14)(B). The transactions listed in
§ 406(a) “create some bright-line rules, on which plaintiffs are entitled to rely.” Allen v.
GreatBanc Trust Co., 835 F.3d 670, 676 (7th Cir. 2016). Congress enacted § 406(a)’s
“per se violations,” Chao v. Hall Holding Co., 285 F.3d 415, 441 n.12 (6th Cir. 2002), to
bar transactions “deemed likely to injure the . . . plan.” Salomon, 530 U.S. at 242(quotations omitted). Violation of § 406(a) can lead to liability for fiduciaries or
non-fiduciary parties in interest. See id. at 241.
Under § 406(a), a fiduciary may not allow a plan to engage with a non-fiduciary
party in interest in a transaction that the fiduciary knows or should know is (1) a “sale or
exchange, or leasing, of any property between the plan and a party in interest”;
(2) “lending of money or other extension of credit between the plan and a party in
interest”; (3) “furnishing of goods, services, or facilities between the plan and a party in
interest”; (4) “transfer to, or use by or for the benefit of a party in interest, of any assets
of the plan”; or (5) “acquisition, on behalf of the plan, of any employer security or
employer real property in violation of [§] 1107(a).” 29 U.S.C. § 1106(a)(1)(A)-(E). On
its face, § 406(a) covers wide swaths of plan activity. But as the following section
explains, certain § 406(a) transactions are exempt from ERISA liability under § 408(b).
36
The § 406(a) 22 prohibition most relevant to this case is the “transfer to, or use by
or for the benefit of a party in interest, of any assets of the plan.” Id. § 1106(a)(1)(D). 23
b. Exemptions under ERISA § 408(b)
Although § 406(a) broadly delineates prohibited transactions, § 408(b) provides
exemptions for parties engaged in those transactions. 29 U.S.C. § 1108(b). “ERISA
plans engage in transactions nominally prohibited by § [406] all the time, while also
taking steps to comply with ERISA by relying on one or more of the many exceptions
under § [408].” Fish v. GreatBanc Tr. Co., 749 F.3d 671, 685-86 (7th Cir. 2014). These
exemptions allow plans to do business with parties in interest if certain conditions are
met. ERISA § 408(b), 29 U.S.C. § 1108(b).
22
Although Mr. Teets’s amended complaint alleged Great-West also violated
§ 406(b), that violation was premised on Great-West’s acting as a fiduciary.
Section 406(b) prohibits fiduciaries from benefitting from transactions with their plans,
and § 406(b) claims can only be brought against fiduciaries. See 29 U.S.C. § 1106(b).
23
Great-West contends Mr. Teets forfeited his argument that Great-West was a
party to a prohibited transaction under § 406(a) because he relied upon different
subsections of that statute to support his theory of liability in the district court. In the
district court, Mr. Teets argued Great-West engaged in a prohibited transaction when it
“use[d] . . . a plan asset . . . for [its] benefit,” invoking § 406(a)(1)(D). Aplt. App., Vol. II
at 217. He then stated in his opening brief that “Section [406](a) generally prohibits
parties in interest from ‘furnishing . . . services’ to a plan,” paraphrasing § 406(a)(1)(C).
Aplt. Br. at 41. His reply brief explains that his opening brief “plainly refers to activity
prohibited by Section [406](a)(1)(A) and (D),” and that he merely “quoted
[§ 406(a)(1)C)] as an example.” Aplt. Reply Br. at 19 (citations omitted). At oral
argument, counsel for Mr. Teets stated the prohibited transaction at issue was Great-
West’s use of plan assets for its own benefit, as prohibited under § 406(a)(1)(D). Oral
Arg. at 0:58-2:19. Mr. Teets thus has consistently contended that Great-West conducted
a prohibited transaction under § 406(a)(1)(D) and has not forfeited that argument. We
evaluate his non-fiduciary liability claim based on that provision.
37
The § 408(b) exemption pertinent to this case allows parties in interest to provide
“services necessary for the establishment or operation of the plan”—otherwise prohibited
under § 406(a)—so long as “no more than reasonable compensation is paid therefor.”
29 U.S.C. § 1108(b)(2). 24
c. Non-fiduciary party-in-interest liability for prohibited transactions
To be liable for a § 406(a) prohibited transaction, a non-fiduciary party in interest
such as Great-West must have engaged in such a transaction and “have had actual or
constructive knowledge of the circumstances that rendered the transaction unlawful.”
Salomon, 530 U.S. at 251. “Those circumstances, in turn, involve a showing that the
plan fiduciary, with actual or constructive knowledge of the facts satisfying the elements
of a § 406(a) transaction, caused the plan to engage in the transaction.” Id. But as
discussed above, even if the plaintiff can prove these § 406(a) elements, the party in
interest may not be liable if it qualifies for a § 408(b) exemption. 25 See 29 U.S.C.
§ 1108(b)(2); Salomon, 530 U.S. at 251.
24
As discussed in more detail in footnote 16 above, DOL rules suggest the
compensation that Mr. Teets claims was unreasonable—the margin Great-West retained
after paying participants according to the Credited Rate—is not “compensation” at all for
purposes of § 408(b).
25
The parties dispute whether the plaintiff or the non-fiduciary party in interest
bears the burden of establishing the party in interest’s eligibility for a § 408(b)
exemption. We need not resolve this dispute because we affirm the district court’s grant
of summary judgment as to Mr. Teets’s non-fiduciary claim on another ground.
38
d. Appropriate equitable relief
In addition to satisfying the requirements of Salomon, a plaintiff bringing suit
against a non-fiduciary party in interest must show that equitable relief can be granted.
ERISA’s civil enforcement provision, § 502(a)(3), allows a “participant, beneficiary, or
fiduciary” to bring a civil suit “to enjoin any act or practice” that violates ERISA or “to
obtain other appropriate equitable relief . . . to redress such violations.” 29 U.S.C.
§ 1132(a)(3). Satisfying § 502(a)(3) functions as an element of the ERISA claim. If a
plaintiff cannot demonstrate that equitable relief is available, the suit cannot proceed. For
example, in Central States, Southeast & Southwest Areas Health & Welfare Fund v.
Gerber Life Insurance Co., 771 F.3d 150 (2d Cir. 2014), the Second Circuit affirmed
dismissal of a plaintiff’s complaint under Federal Rule of Civil Procedure 12(b)(6)
because it failed to seek appropriate equitable relief. Id. at 154-58; see also Great-West
Life & Annuity Ins. Co. v. Knudson, 534 U.S. 204, 206 (2002) (“The question presented is
whether § 502(a)(3) of [ERISA] authorizes this action by petitioners . . . .”); accord
Pender v. Bank of Am. Corp., 788 F.3d 354, 361-65 (4th Cir. 2015) (treating the
§ 502(a)(3) inquiry as a threshold requirement at summary judgment stage).
In the remainder of this section we explain (1) how the Supreme Court has
interpreted the scope of § 502(a)(3), (2) the requirement that plaintiffs seeking equitable
restitution under § 502(a)(3) identify a specific res 26 from which they seek to recover,
26
The Latin term “res” generally refers to an “object, interest, or status, as
opposed to a person.” Res, Black’s Law Dictionary (10th ed. 2014). In the trust context,
it denotes the property that is the subject matter of a trust. See id.; Begier v. I.R.S., 496
U.S. 53, 70 (1990) (“[N]o trust exists until a res is identified.” (Scalia, J., concurring)).
39
(3) the modification of that requirement for claims seeking the restitutionary remedies of
accounting for profits and disgorgement of profits, and (4) the effect of a defendant’s
commingling assets with the plaintiff’s property on the availability of equitable relief.
i. Scope of equitable relief under § 502(a)(3)
The Supreme Court has interpreted “appropriate equitable relief” under
§ 502(a)(3) to include equitable remedies that only historical courts of equity were
empowered to award. It has excluded remedies typically available in historical courts of
law, such as compensatory damages.
In Mertens, the Supreme Court said that § 502(a)(3) of ERISA encompasses
“those categories of relief that were typically available in equity (such as injunction,
mandamus, and restitution, but not compensatory damages).” 508 U.S. at 256. “[A]t
common law, the courts of equity had exclusive jurisdiction over virtually all actions by
beneficiaries for breach of trust.” Id. “[T]here were many situations . . . in which an
equity court could ‘establish purely legal rights and grant legal remedies which would
otherwise be beyond the scope of its authority.’” Id. (quoting 1 Spencer W. Symons,
Pomeroy’s Equity Jurisprudence § 181 at 257 (5th ed. 1941)). But “appropriate equitable
relief” does not encompass all forms of “relief a court of equity [would be] empowered to
provide in the particular case at issue, including ancillary legal remedies.” Montanile v.
Bd. of Trs. of Nat’l Elevator Indus. Health Benefit Plan, 136 S. Ct. 651, 660 (2016)
(quotations omitted). Instead, it includes remedies that could be awarded only by equity
courts. See Mertens, 508 U.S. at 258 (“Regarding ‘equitable’ relief in § 502(a)(3) to
mean ‘all relief available for breach of trust at common law’ would . . . deprive of all
40
meaning the distinction Congress drew between . . . ‘equitable’ and ‘legal’ relief.”).
Thus, “legal remedies—even legal remedies that a court of equity could sometimes
award—are not ‘equitable relief’ under § 502(a)(3).” Montanile, 136 S. Ct. at 661.
Certain remedies can be equitable or legal, depending on the circumstances.
“Equitable remedies ‘are, as a general rule, directed against some specific thing; they
give or enforce a right to or over some particular thing . . . rather than a right to recover a
sum of money generally out of the defendant’s assets.’” Id. at 658-59 (alteration in
original) (quoting 4 Symons, § 1234 at 694). “[T]he fact that . . . relief takes the form of
a money payment does not remove it from the category of traditionally equitable relief.”
CIGNA Corp v. Amara, 563 U.S. 421, 441 (2011).
ii. Tracing requirement for equitable restitution
Payment of restitution, which Mr. Teets seeks, can be equitable or legal. See
Knudson, 534 U.S. at 212. A plaintiff can recover equitable restitution, “ordinarily in the
form of a constructive trust or an equitable lien, where money or property identified as
belonging in good conscience to the plaintiff could clearly be traced to particular funds or
property in the defendant’s possession.” 27 Id. at 213. In those circumstances, “[a] court
27
The Salomon Court explained a constructive trust:
Whenever the legal title to property is obtained through
means or under circumstances which render it
unconscientious for the holder of the legal title to retain and
enjoy the beneficial interest, equity impresses a constructive
trust on the property thus acquired in favor of the one who is
truly and equitably entitled to the same . . . .
530 U.S. at 250-51 (quoting Moore v. Crawford, 130 U.S. 122, 128 (1889)); see also 1
Dan B. Dobbs, Dobbs Law of Remedies § 4.3(1) at 587 (2d ed. 1993) (“In the
41
of equity could . . . order a defendant to transfer title (in the case of the constructive trust)
or to give a security interest (in the case of the equitable lien) to a plaintiff who was, in
the eyes of equity, the true owner.” Id. Accordingly, “[f]or restitution to lie in equity, the
action generally must seek not to impose personal liability on the defendant, but to
restore to the plaintiff particular funds or property in the defendant’s possession.” Id.
at 214.
In contrast, when the plaintiff cannot “assert title or right to possession of
particular property, but in which nevertheless he might be able to show just grounds for
recovering money to pay for some benefit the defendant had received from him,” the
plaintiff has a right to legal restitution. Knudson, 534 U.S. at 213 (quoting 1 Dan B.
Dobbs, Dobbs Law of Remedies § 4.2(1) at 571 (2d ed. 1993)). Such claims are
considered legal because the plaintiff is seeking “to obtain a judgment imposing a merely
personal liability upon the defendant to pay a sum of money.” Id. (quoting Restatement
(First) of Restitution § 160 cmt. a (Am. Law Inst. 1937)); accord Montanile, 136 S. Ct.
at 659 (describing “a personal claim against the wrongdoer” as “a quintessential action at
constructive trust case the defendant has legal rights in something that in good conscience
belongs to the plaintiff. The property is ‘subject to a constructive trust.’”).
An equitable lien “is simply a right of a special nature over the thing . . . so that
the very thing itself may be proceeded against in an equitable action.” Montanile, 136 S.
Ct. at 659 (alteration in original) (quoting 4 Symons, § 1233 at 692). An equitable lien
can arise out of a contract between the parties or can be “imposed, not as a matter of
contract, but to prevent unjust enrichment.” 1 Dobbs, § 4.3(3) at 601. In such a case, the
equitable lien “is essentially a special, and limited, form of the constructive trust.” Id.
42
law”). As we have explained, under § 502(a)(3), legal restitution is not available for
ERISA claims.
iii. Modified tracing requirement for accounting and disgorgement of
profits
Accounting for profits (also referred to as an “accounting”) and disgorgement of
profits are forms of restitution. See Knudson, 534 U.S. at 214 n.2 (“[A]n accounting for
profits [is] a form of equitable restitution.”); Tull v. United States, 481 U.S. 412, 424
(1987) (“An action for disgorgement of improper profits . . . is a remedy only for
restitution.”). 28 “The ground of this liability is unjust enrichment.” 1 Dobbs, § 4.3(5) at
611. A court order for an accounting or disgorgement of profits allows the plaintiff to
“recover a judgment for the profits due from use of his property,” id. at 608, and thus
“holds the defendant liable for his profits, not for damages,” id. at 611.
The tracing requirement described above for equitable restitution also applies to
accounting and disgorgement of profits but may be modified in certain limited
circumstances. See Knudson, 534 U.S. at 214 n.2. “If, for example, a plaintiff is entitled
to a constructive trust on a particular property held by the defendant, he may also recover
profits produced by the defendant’s use of that property, even if he cannot identify a
particular res containing the profits sought to be recovered.” Id.; Pender, 788 F.3d at
28
See also Edmonson, 725 F.3d at 419 (“[D]isgorgement and accounting for
profits are essentially the same remedy.” (citing Restatement (Third) of Restitution and
Unjust Enrichment § 51(4) & cmt. a (Am. Law Inst. 2011))).
43
364 29; 1 Dobbs, § 4.3(5) at 614 (“If the accounting seeks to recover a fund that has been
traced, so that it is in effect a constructive trust on a fund of money, the case might be
classed as an equitable suit.”).
To qualify for this remedy in equity, the plaintiff still must show entitlement “to a
constructive trust on particular property held by the defendant” that the defendant used to
generate the profits. Knudson, 534 U.S. at 214 n.2; see also In re Unisys Corp. Retiree
Med. Benefits ERISA Litig., 579 F.3d 220, 238 (3d Cir. 2009) (“[P]laintiffs cannot
recover under [an accounting or a disgorgement of profits] theory without first
identifying the profit generating property or money wrongly held by [the defendant].”);
Urakhchin v. Allianz Asset Mgmt. of Am., L.P., No. SACV 15-1614-JLS (JCGx), 2016
WL 4507117 (C.D. Cal. Aug. 5, 2016). 30 Accordingly, without a particular profit-
29
In Pender, the Fourth Circuit held that retirement plan participants seeking
disgorgement of profits satisfied § 502(a)(3)’s “appropriate equitable relief” requirement.
788 F.3d at 365. The participants invested in a retirement plan managed by their
employer. The employer offered participants the option to transfer existing investments
into a new account that, unlike the original account, guaranteed they would not lose their
principal. See id. at 358. The new account appeared to allow participants to select from a
list of investment options with declared rates of return, but in reality, the employer
invested participants’ money in higher-return instruments and pocketed any returns
leftover after paying participants according to the declared rates. Id. at 358-59. The IRS
declared the transfers unlawful and the participants sued under ERISA for disgorgement
of the employer’s profits. Id. at 358. The Fourth Circuit held the participants could bring
their claims under § 502(a)(3) of ERISA because they were “seek[ing] profits generated
using assets that belonged to them.” Id. at 365.
30
In Urakhchin, participants in a 401(k) retirement plan sought under § 502(a)(3)
to recover profits from non-fiduciary defendants who allegedly “improperly receive[d]
Plan assets as profits at the expense of the Plan and its beneficiaries.” 2016 WL
4507117, at *2. The court dismissed the complaint, explaining that the complaint was
missing an allegation that the plaintiffs would “be able to trace the exact transactions and
44
generating res, a claim for payment out of the defendant’s general assets is a request for
legal relief rather than for equitable accounting or disgorgement of profits and cannot be
awarded under § 502(a)(3).
iv. Commingled funds and traceability
If a defendant disposes of all of the particular property that allegedly should
belong to the plaintiff under equitable principles, the plaintiff no longer has a specifically
identifiable res. The Supreme Court said in Montanile that § 502(a)(3) does not
authorize “a suit to attach the [defendant’s] general assets” as a substitute for the
previously identifiable property. 136 S. Ct. at 655; see also Knudson, 534 U.S. at 213-14.
Montanile further recognized “that commingling a specifically identified fund—to which
a lien attached—with a different fund of the defendant’s did not destroy the lien. Instead,
that commingling allowed the plaintiff to recover the amount of the lien from the entire
pot of money.” 136 S. Ct. at 661. In other words, “[t]he person whose money is
wrongfully mingled with money of the wrongdoer does not thereby lose his interest in the
money, . . . but he acquires an interest in the mingled fund.” Restatement (First) of
Restitution § 209 cmt. a (Am. Law Inst. 1937).
2. Additional Procedural Background
Because we review summary judgment based on the “materials adequately
brought to the attention of the district court by the parties,” Adler v. Wal-Mart Stores,
entities related to each fiduciary breach, and thus [that] the property is sufficiently
traceable for purposes of an equitable restitution claim.” Id. at *8.
45
Inc., 144 F.3d 664, 671 (10th Cir.1998), we recount Mr. Teets’s response to Great-West’s
summary judgment motion. We then summarize the district court’s ruling.
a. Great-West’s motion for summary judgment on the non-fiduciary claim and Mr.
Teets’s response
Great-West’s sole argument for summary judgment on Mr. Teets’s non-fiduciary
claim was that he did not seek “appropriate equitable relief” available under ERISA.
Great-West contended that Mr. Teets was seeking “as damages the margin on Great-
West’s general account assets” and claimed he “[could not] point to any evidence that
Great-West’s general account investment returns form a specifically-identifiable res that
properly can be traced to any plan.” Aplt. App., Vol. II at 182-83.
Mr. Teets did not attempt to rebut Great-West’s argument by identifying the funds
in Great-West’s possession that generated the alleged profits he sought to recover. In his
response, Mr. Teets stated that accounting and disgorgement of profits are recognized
forms of equitable relief, id. at 317, and that “disgorgement of profits does not require the
recovered funds to be traceable to a res or particular funds.” Id. at 318.
b. District court ruling
The district court started with whether equitable relief was a possible remedy for
Mr. Teets’s claim and whether summary judgment could be granted because it was not.
It recognized that “an order to pay money, even if functionally equivalent to a judgement
awarding damages, qualifies as ‘appropriate equitable relief’ in some ERISA cases.”
Aplt. App., Vol. I at 102. Citing Knudson, 534 U.S. at 212-21, the court explained that
an accounting for profits could be one such type of monetary equitable relief. But the
46
court ultimately declined to decide whether the relief Mr. Teets requested was equitable,
pointing to the hazy “distinction between money-awarding remedies at law and money-
awarding remedies in equity.” Id. at 104.
Instead, the district court granted summary judgment for Great-West on a ground
Great-West had not raised in its motion, concluding that Mr. Teets had not adduced
sufficient evidence of Great-West’s liability for its participation in a prohibited
transaction. Id. at 106-08. The court rejected Mr. Teets’s argument that Salomon
required him to show only that Great-West as a party in interest had knowledge of “facts
satisfying the elements” of ERISA § 406(a). Id. at 105-06. The court compared
Salomon’s description of the knowledge that defendant fiduciaries must have to be
liable—“facts satisfying the elements of a § 406(a) transaction,” Salomon, 530 U.S. at251—with Salomon’s requirement that defendant non-fiduciary parties in interest have
knowledge of the “circumstances that render the transaction unlawful,” observing that the
latter “appears aimed at exploring not just knowledge of the underlying facts, but
knowledge of their potential unlawfulness.” Aplt. App., Vol. I at 106. Accordingly, the
court concluded that Mr. Teets must prove that Great-West, as a non-fiduciary party in
interest, “knew or should have known that the transaction violated ERISA.” Id. at 107.
Because Mr. Teets “ha[d] not attempted to make this showing,” his claim could not
survive summary judgment. Id.
3. Analysis
To prevail on his non-fiduciary claim, Mr. Teets must show, among other things,
that he seeks equitable relief under § 502(a)(3) of ERISA. We conclude summary
47
judgment was properly granted because Mr. Teets failed to identify the particular
property in Great-West’s possession over which he can “assert title or right to
possession.” Knudson, 534 U.S. at 213. He therefore failed to meet his burden to
demonstrate the relief he seeks is equitable under § 502(a)(3).
a. Summary judgment standard—review of materials presented to district court
When this court reviews a district court’s grant of summary judgment, “we
conduct that review from the perspective of the district court at the time it made its
ruling, ordinarily limiting our review to the materials adequately brought to the attention
of the district court by the parties.” Adler, 144 F.3d at 671. The district court may “go
beyond the referenced portions” of the plaintiffs’ evidentiary materials, “but is not
required to do so.” Id. at 672.
This court also may “more broadly review the record on appeal,” but we ordinarily
do not do so because “we, like the district courts, have a limited and neutral role in the
adversarial process, and are wary of becoming advocates who comb the record of
previously available evidence and make a party’s case for it.” Id.; see SIL-FLO, Inc. v.
SFHC, Inc., 917 F.2d 1507, 1513 (10th Cir. 1990) (holding that the court of appeals
“need not ‘sift through’ the record to find [the appellant’s] evidence” in the absence of
citations in the appellant’s brief). “Thus, where the burden to present such specific facts
by reference to exhibits and the existing record was not adequately met below, we will
not reverse a district court for failing to uncover them itself.” Adler, 144 F.3d at 672.
48
b. Waiver of request for injunction
Mr. Teets did not preserve an argument that his amended complaint’s request for
an injunction satisfies § 502(a)(3)’s allowance for suits seeking “to enjoin any act or
practice” that violates ERISA. 29 U.S.C. § 1132(a)(3). His amended complaint asked
the court to “[e]njoin Defendant from further prohibited transactions,” Aplt. App., Vol. I
at 38, which appears to satisfy § 502(a)(3). But Mr. Teets failed to rely on this remedy to
overcome summary judgment.
Mr. Teets has not mentioned injunctive relief in any filing since the amended
complaint. When prompted by Great-West’s motion, he relied on other remedies—
namely, accounting and disgorgement of profits. Great-West’s motion stated not only
that Mr. Teets could not satisfy the “appropriate equitable relief” standard, but also that
“the relief Plaintiff seeks is not available under [§ 502(a)(3)]” at all. Aplt. App., Vol. II
at 181. In response, Mr. Teets did not mention an injunction, instead asserting only that
he sought “Appropriate Equitable Relief,” and even quoting that distinct portion of the
statute. Id. at 316-17.
Even if Mr. Teets had done enough in the district court to preserve his argument
that his request for an injunction satisfied § 502(a)(3), he has abandoned any such
argument on appeal. In this court, Mr. Teets argues that “ERISA provides [him] a
remedy for Great-West’s violation,” but he never mentions the injunction. Aplt. Br.
49
at 50. He explains, “Restitution of property and disgorgement are the central remedies
Mr. Teets seeks here.” Aplt. Reply Br. at 26. 31
Thus, although § 502(a)(3) authorizes injunctive relief, Mr. Teets did not rely on
this form of relief to contest summary judgment, and he does not even do so on appeal.
He has waived this basis to overcome summary judgment. See Tran v. Trs. of State
Colls. in Colo., 355 F.3d 1263, 1266 (10th Cir. 2004) (“Issues not raised in the opening
brief are deemed abandoned or waived.” (quotations omitted)); see also Paycom Payroll,
LLC v. Richison, 758 F.3d 1198, 1203 (10th Cir. 2014) (holding appellant had waived
challenge to one element of copyright infringement claim by urging district court to rule
on a separate element).
c. Failure to specify particular profit-generating property
Mr. Teets’s amended complaint requested monetary relief in the form of
(1) disgorgement of the profits Great-West obtained through knowing participation in
prohibited transactions; (2) imposition of a constructive trust or equitable lien on funds
Great-West received through those transactions; and (3) “other appropriate equitable
relief,” including restitution and an accounting for profits. Aplt. App., Vol. I at 38.
As discussed above, to be eligible for “appropriate equitable relief” in the form of
restitution, Mr. Teets must show that Great-West possesses particular property that
31
The reply brief elaborates on the remedies Mr. Teets sought in the district court,
but injunctive relief is conspicuously absent: “Great-West claims Mr. Teets sought only
an accounting for profits below. This is incorrect: he also specifically requested
‘disgorge[ment],’ ‘constructive trust,’ ‘equitable lien,’ and ‘restitution.’” Aplt. Reply Br.
at 26 n.11 (alteration in original) (citation omitted) (quoting Aplt. App., Vol. I at 38).
50
rightfully belongs to him. Knudson, 534 U.S. at 213. For an accounting or disgorgement
of profits, he still must show that Great-West possesses particular property over which he
can “assert title or right to possession,” though the profit generated from the property
need not be contained in a specifically identifiable res. See id. at 213, 214 n.2.
Great-West may possess such “particular property,” but Mr. Teets failed to
identify any such property in his response to Great-West’s summary judgment motion.
Id. at 213. In its motion, Great-West argued that the report prepared by Mr. Teets’s
damages expert showed that Mr. Teets sought “as damages the margin on Great-West’s
general account assets.” Aplt. App., Vol. II at 182. Great-West asserted that Mr. Teets
“[could not] point to any evidence that Great-West’s general account investment returns
form a specifically-identifiable res that properly can be traced to any plan.” Id. at 183.
In response, Mr. Teets did not attempt to identify the funds in Great-West’s possession
that rightfully belonged to him—that is, the funds that generated the unlawful profits he
sought to recover. Instead, he made a legal argument that “disgorgement of profits does
not require the recovered funds to be traceable to a res or particular funds.” Id. at 318.
As explained below, his legal argument was wrong.
As a result, the district court was left to guess what particular property Mr. Teets
would assert (1) rightfully belonged to him and (2) was used to generate unlawful profits.
It might have been, to borrow Great-West’s phrasing, the “amounts [participants]
contributed to the plans,” which are “automatically credited to the accounts of individual
participants.” Id. at 167. Or it might have been, as the district court assumed, “the
margin Defendant earned on Fund contributions.” Aplt. App., Vol. I at 103. It could also
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have been any “compensation” Great-West retained beyond an amount that was
“reasonable” in relation to its services under ERISA § 408(b). See Aplt. Br. at 45-50; 29
U.S.C. § 1108(b)(2). But Mr. Teets neither identified the property or res nor explained
why it would qualify for equitable relief.
d. Mr. Teets’s arguments fail
Mr. Teets’s primary argument, both in the district court and on appeal, see Aplt.
App., Vol. II at 318, is that ERISA does not require him to point to a specific res to be
eligible for disgorgement as an equitable remedy. First, he contends that Salomon
“endorsed” disgorgement of profits as an equitable remedy under ERISA. Aplt. Br.
at 51-52. Second, he argues that trust law treatises and restatements confirm that
accounting and disgorgement of profits are equitable remedies, even without an
identifiable res. Id. at 52-53. He states, “[W]hen a third-party transferee takes with
knowledge of the breach”—here, when Great-West participates in a prohibited
transaction—“‘the seller takes the purchase money subject to the trust and can be
compelled to restore it.’” Id. at 52 (quoting Austin W. Scott & William F. Fratcher, Law
of Trusts § 291.1 (4th ed. 1989)). Furthermore, under such a framework, if “the
transferee has disposed of the property, the beneficiary can charge him with the value of
the property.” Id. (quoting Scott & Fratcher, § 291.2); accord Restatement (Second) of
Trusts § 291 (Am. Law Inst. 1959). Mr. Teets thus contends that he may sue Great-West
for any funds Great-West obtained through its participation in a prohibited transaction,
including profits, and can recover a “money judgment as to the balance,” even if it is not
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identifiable. Aplt. Br. at 53 (quoting George G. Bogert, George T. Bogert & Amy Morris
Hess, Law of Trusts & Trustees § 868 (2018)).
Mr. Teets’s argument overlooks how the Supreme Court has limited the remedies
available under § 502(a)(3). As stated above, the fact that equity courts at common law
could award a particular remedy does not mean the remedy is necessarily equitable for
purposes of ERISA. Rather, “legal remedies—even legal remedies that a court of equity
could sometimes award—are not ‘equitable relief’ under§ 502(a)(3).” Montanile, 136 S.
Ct. at 661.
Mr. Teets relies on authorities that discuss what remedies an equity court could
award for a breach of trust, not whether those remedies are legal or equitable in nature.
As the Salomon Court stated:
[W]hen a trustee in breach of his fiduciary duty to the
beneficiaries transfers trust property to a third person, the
third person takes the property subject to the trust . . . . The
trustee or beneficiaries may . . . maintain an action for
restitution of the property (if not already disposed of) or
disgorgement of proceeds (if already disposed of), and
disgorgement of the third person’s profits derived therefrom.
530 U.S. at 250. But unless the profits Mr. Teets seeks to recover were generated from
particular property over which Mr. Teets can “assert title or right to possession,”
Knudson, 534 U.S. at 213, an order to disgorge them is a legal remedy, even if a court
sitting in equity would have had jurisdiction to order that remedy. And a legal remedy is
not allowed under § 502(a)(3).
Mr. Teets also argues that his attempt to recover from the commingled profits in
Great-West’s general account does not bar equitable relief. This assertion, however,
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skips a critical step to establish appropriate equitable relief under § 502(a)(3)—namely,
identifying the property that Great-West has commingled with its other assets. He has
not specified the assets he alleges were commingled with Great-West’s general account
to generate the profits he seeks to disgorge, which is fatal to his claim under § 502(a)(3).
See In re Unisys Corp., 579 F.3d at 238 (holding that because “plaintiffs [were] unable to
identify ‘money or property . . . belonging in good conscience’ to them and clearly
‘trace[able] to particular funds or property in the defendant’s possession,’ they [could
not] recover profits from [defendants] as a form of equitable relief.” (second and third
alterations in original) (citation omitted) (quoting Knudson, 534 U.S. at 213)). As a
result, summary judgment was proper.
III. CONCLUSION
Great-West was entitled to summary judgment on both the fiduciary and non-
fiduciary claims. Because Mr. Teets has not provided evidence that contractual
restrictions on withdrawal from the KGPF actually constrained plans or participants,
Great-West does not act as an ERISA fiduciary when it sets the KGPF’s Credited Rate
each quarter. As a result, it also lacks sufficient authority or control over its
compensation to render it a fiduciary. As to liability as a party in interest, Great-West
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was entitled to summary judgment because Mr. Teets failed in the district court to carry
his burden of showing that the relief he sought was equitable. 32
32
Because we affirm the grant of Great-West’s summary judgment motion, we
also conclude the district court properly denied Mr. Teets’s motion for summary
judgment. See Phila. Indem. Ins. Co. v. Lexington Ins. Co., 845 F.3d 1330, 1336 n.4
(10th Cir. 2017).
We grant the parties’ motions to seal their appellate briefs and appendices in light
of their submission at the court’s request of publicly-available redacted versions of those
filings.
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