671 F.3d 314 (3rd Cir. 2011), 10-2447, Renfro v. Unisys Corp.

Docket Nº:10-2447.
Citation:671 F.3d 314
Opinion Judge:SCIRICA, Circuit Judge.
Party Name:Mark RENFRO; Gerald Lustig, as Representatives of a Class of Similarly Situated Persons, and on Behalf of the Plan v. UNISYS CORPORATION; Unisys Corporation Employee Benefit Administrative Committee; Unisys Corporation Savings Plan Manager; Pension Investment Review Committee; Fidelity Management Trust Company; Fidelity Management and Research Comp
Attorney:Michael A. Wolff, Esquire (Argued), Jerome J. Schlichter, Esquire, Schlichter Bogard & Denton LLP, St. Louis, MO, for Appellants. Louise M. Betts, Esquire (Argued), Elizabeth Hopkins, Esquire, United States Department of Labor, Washington, D.C., for Amicus Curiae-Appellant, the Secretary of Labor...
Judge Panel:Before: SCIRICA, AMBRO and VANASKIE, Circuit Judges.
Case Date:August 19, 2011
Court:United States Courts of Appeals, Court of Appeals for the Third Circuit
 
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671 F.3d 314 (3rd Cir. 2011)

Mark RENFRO; Gerald Lustig, as Representatives of a Class of Similarly Situated Persons, and on Behalf of the Plan

v.

UNISYS CORPORATION; Unisys Corporation Employee Benefit Administrative Committee; Unisys Corporation Savings Plan Manager; Pension Investment Review Committee; Fidelity Management Trust Company; Fidelity Management and Research Company; Fidelity Investments Institutional Operations Company, Inc.; J.P. Bolduc; Matthew J. Espe; Gail D. Fosler; Randall J. Hogan; Clayton M. Jones; Clay B. Liflander; Theodore E. Martin; Charles B. McQuade; FMR LLC Mark Renfro; Gerald Lustig, Appellants.

No. 10-2447.

United States Court of Appeals, Third Circuit.

August 19, 2011

Argued March 7, 2011.

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Michael A. Wolff, Esquire (Argued), Jerome J. Schlichter, Esquire, Schlichter Bogard & Denton LLP, St. Louis, MO, for Appellants.

Louise M. Betts, Esquire (Argued), Elizabeth Hopkins, Esquire, United States Department of Labor, Washington, D.C., for Amicus Curiae-Appellant, the Secretary of Labor, Hilda L. Solis.

Claire Prestel, Esquire, Public Justice, P.C., Washington, D.C., for Amicus Curiae-Appellant, Public Justice.

Jay E. Sushelsky, Esquire, AARP Foundation Litigation, Washington, D.C., for Amicus Curiae-Appellant, AARP.

Gregory Y. Porter, Esquire, Bailey & Glasser LLP, Washington, D.C., for Amici Curiae-Appellants, Richard Kopcke and Francis Vitagliano.

Brian T. Ortelere, Esquire (Argued), Joseph J. Costello, Esquire, Azeez Hayne, Esquire, Melissa D. Hill, Esquire, Morgan Lewis & Bockius LLP, Philadelphia, PA, Joseph A. Teklits, Esquire, Unisys Corporation, Blue Bell, PA, for Appellees, Unisys Corporation, Unisys Corporation Employee Benefit Administrative Committee, Unisys Corporation Savings Plan Manager, Pension Investment Review Committee, J.P. Bolduc, Matthew J. Espe, Gail D. Fosler, Randall J. Hogan, Clayton M. Jones, Clay B. Liflander, Theodore E. Martin, Charles B. McQuade.

Jonathan D. Hacker, Esquire (Argued), Meaghan McLaine Vergow, Esquire, O'Melveny & Myers LLP, Washington, D.C., John S. Summers, Esquire, Hangley Aronchick Segal & Pudlin, Philadelphia, PA, for Appellees, Fidelity Management Trust Company, Fidelity Management and Research Company, Fidelity Investments Institutional Operations Company Inc., FMR LLC.

Thomas L. Cubbage III, Esquire, Covington & Burling LLP, Washington, D.C., for Amicus Curiae-Appellee, the Investment Company Institute.

Nancy G. Ross, Esquire, McDermott Will & Emery LLP, Chicago, IL, for Amicus Curiae-Appellee, Securities Industry and Financial Markets Association.

Howard Shapiro, Esquire, Proskauer Rose LLP, New Orleans, LA, for Amicus Curiae-Appellee, the Chamber of Commerce of the United States of America.

Before: SCIRICA, AMBRO and VANASKIE, Circuit Judges.

OPINION

SCIRICA, Circuit Judge.

Plaintiffs Mark Renfro and Gerald Lustig, representatives of a putative class of participants in a 401(k) defined contribution plan, sued defendants Unisys Corp. and Fidelity Management Trust Co. and its related corporate entities under the Employment Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. § 1001 et seq., for breach of fiduciary duty. Plaintiffs

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alleged defendants inadequately selected a mix and range of investment options to include in the plan. The District Court dismissed the Fidelity entities, holding they were not fiduciaries with reference to the challenged conduct, dismissed the action holding plaintiffs' claims were implausible because the plan's mix and range of options was reasonable, and, in the alternative, granted Unisys's summary judgment motion holding the ERISA safe-harbor provisions exempted it from liability. We will affirm the dismissal of the Fidelity entities and the dismissal of the action. We will not reach the grant of summary judgment.

I.

A.

The Unisys Corporation Savings Plan is a " defined contribution plan" within the meaning of 29 U.S.C. § 1002(34), which is tax qualified under 26 U.S.C. § 401(k). " [A] ‘ defined contribution plan’ ... promises the participant the value of an individual account at retirement, which is largely a function of the amounts contributed to that account and the investment performance of those contributions." LaRue v. DeWolff, Boberg & Assocs., 552 U.S. 248, 250 n. 1, 128 S.Ct. 1020, 169 L.Ed.2d 847 (2008). These plans " dominate the retirement plan scene today." Id. at 255, 128 S.Ct. 1020.

The Unisys plan consists of several investment options (seventy-three as of the filing of the complaint) into which non-union Unisys employees may allocate contributions. An employee-participant may contribute up to 30%, but no more than $15,000 per year, of his or her pre-tax wages into the plan. Unisys then matches half of the participant's contribution, capped at 2% of the participant's wages, which it invests in the Unisys Stock Fund. Participants are fully vested in their accounts.

Of the seventy-three options included in the plan, participants could invest in either of a stable value fund or the Unisys Stock Fund, or one of seventy-one options provided under trust agreement with Fidelity. Of the seventy-one options provided by Fidelity, four were commingled pools. Commingled pools consist of funds commingled from different sources owning shares in the pool. They are part of a group trust owned by a bank. Of the commingled pools included in the Unisys plan, one commingled pool invested in an S & P 500 index, and three commingled pools invested in bonds.

The remaining sixty-seven investment options were mutual funds. " ‘ A mutual fund is a pool of assets, consisting primarily of [a] portfolio [of] securities, and belonging to the individual investors holding shares in the fund.’ " Jones v. Harris Assocs. L.P., --- U.S. ----, 130 S.Ct. 1418, 1422, 176 L.Ed.2d 265 (2010) (alterations in original) (quoting Burks v. Lasker, 441 U.S. 471, 480, 99 S.Ct. 1831, 60 L.Ed.2d 404 (1979)). Mutual funds are organized as investment companies, which are governed by the Securities Act of 1933, 15 U.S.C. § 77a et seq., and the Investment Company Act of 1940, 15 U.S.C. § 80a-1 et seq. See Jones, 130 S.Ct. at 1422. Accordingly, they are subject to a variety of reporting, governance, and transparency requirements that do not apply to other investment vehicles such as commingled pools.

The Unisys plan's mutual funds were added in 1993 by way of a trust agreement with Fidelity. Fidelity, as a directed trustee of the plan, agreed to provide administrative services bundled with the investment options. In return, Unisys agreed that any additions to the funds to be managed by Fidelity would be Fidelity funds.

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The agreement did not prohibit Unisys from adding non-Fidelity options to its plan, and administering them itself, or from contracting with another company to administer non-Fidelity investments. In fact, in its recitals, the trust agreement stated certain investments were to be held in trust and administered by CoreStates, a trustee unaffiliated with Fidelity.

Each mutual fund included in the plan incurred fees for investment management. These fees are set for each mutual fund in an expense ratio— a percentage of each contributor's assets invested in a particular fund. The plan had a wide variety of risk and expense ratios; the expense ratios on the funds included in the Unisys plan ranged from 0.1% to 1.21%. Renfro v. Unisys Corp., No. 07-2098, 2010 WL 1688540, at *2 n. 2, 2010 U.S. Dist. LEXIS 41563, at *7 n. 2 (E.D.Pa. April 26, 2010) (taking judicial notice of the fees because they were disclosed in prospectuses filed with the Securities and Exchange Commission). These fees pay for, among other things, management of the investments and compliance with securities laws. All fees were disclosed in materials distributed to the participants.1 Regardless of these fees, the Unisys plan participants appear to strongly prefer mutual fund investments. As of the filing of the complaint, nearly $1.9 billion of the plan's roughly $2 billion worth of assets were invested in these mutual funds.

B.

Plaintiffs sued Unisys and the Fidelity entities in the United States District Court in the Central District of California alleging breach of fiduciary duty under 29 U.S.C. §§ 1104 and 1132(a)(2), and for equitable relief under § 1132(a)(3) relating to defendants' selection for inclusion and maintenance of investment options in the Unisys plan. The case was transferred to the Eastern District of Pennsylvania.

While the case was pending, the Supreme Court issued its decisions in Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007), and Ashcroft v. Iqbal, 556 U.S. 662, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009), addressing pleading standards. Plaintiffs sought and were granted leave to file an amended complaint and a second amended complaint, which was filed on September 3, 2009.2

In the complaint, plaintiffs allege that Unisys and the Fidelity entities breached their duties of loyalty and prudence by selecting and retaining retail mutual funds in the range of investment options. Specifically, plaintiffs contend the administrative fees governed by the trust agreement, and the fees associated with each retail mutual fund, are excessive in light of the services rendered as compared to other, less expensive, investment options not included in the plan. These allegations focus on the inclusion of so-called retail mutual funds, which are available to individual investors with small investments as well as to large ERISA funds such as Unisys's. Plaintiffs allege Unisys could have...

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