McCaffree Fin. Corp. v. Principal Life Ins. Co., 15–1007.

• Decision Date: 08 January 2016
• Docket Number: No. 15–1007.,15–1007.
• Citation: 811 F.3d 998
• Parties: McCAFFREE FINANCIAL CORP., on behalf of a class of those similarly situated, on behalf of The McCaffree Financial Corp. Employee Retirement Program, Plaintiff–Appellant v. PRINCIPAL LIFE INSURANCE COMPANY, Defendant–Appellee Thomas E. Perez United States Secretary of Labor, Amicus on Behalf of Appellant(s) American Council of Life Insurers, Amicus on Behalf of Appellee(s).
• Court: U.S. Court of Appeals — Eighth Circuit

811 F.3d 998

McCAFFREE FINANCIAL CORP., on behalf of a class of those similarly situated, on behalf of The McCaffree Financial Corp. Employee Retirement Program, Plaintiff–Appellant

v. PRINCIPAL LIFE INSURANCE COMPANY, Defendant–AppelleeThomas E. Perez United States Secretary of Labor, Amicus on Behalf of Appellant(s)American Council of Life Insurers, Amicus on Behalf of Appellee(s).

No. 15–1007.

United States Court of Appeals, Eighth Circuit.

Submitted: Sept. 21, 2015.

Filed: Jan. 8, 2016.

Rehearing and Rehearing En Banc Denied Feb. 17, 2016.^*

Jason H. Kim, argued Emeryville, CA, (Joseph R. Gunderson, Des Moines, IA, John M. Edgar, Kansas City, MO, Garrett W. Wotkyns, Scottsdale, AZ, on the brief), for Appellant.

Stephen Silverman, argued, Megan Doyle Hansen, on the brief, Washington, DC, for Amicus Thomas E. Perez.

Eric S. Mattson, argued Chicago, IL, (Angel A. West, Des Moines, IA, Joel S. Feldman, Chicago, IL, Robert N. Hochman, Chicago, IL, on the brief), for Appellee.

Waldemar Jacob Pflepsen, Jr., argued Washington, DC, (Lisa Tate, Washington, DC, Michael A. Valerio, Hartford, CT, John C. Pitblado, Hartford, CT.), for Amicus American Council of Life Insurers.

Before RILEY, Chief Judge, BYE and GRUENDER, Circuit Judges.

GRUENDER, Circuit Judge.

McCaffree Financial Corp. ("McCaffree") sponsors for its employees a retirement plan governed by the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. §§ 1001 –1461. McCaffree brought a class action lawsuit on behalf of those participating employees against Principal Financial Group ("Principal"), the company with whom McCaffree had contracted to provide the plan's investment options. McCaffree alleged that Principal had charged McCaffree's employees excessive fees in breach of a fiduciary duty Principal owed to plan participants under ERISA. The district court¹ granted Principal's motion to dismiss for failure to state a claim. We affirm.

I.

McCaffree and Principal entered into a contract on September 1, 2009. Pursuant to this contract, Principal agreed to offer investment options and associated services to McCaffree employees participating in the McCaffree retirement plan. The contract, which we consider as an "exhibit [ ] attached to the complaint whose authenticity is unquestioned," Miller v. Redwood Toxicology Lab., Inc., 688 F.3d 928, 931 n. 3 (8th Cir.2012), provided plan participants with a number of investment options. First, participants could maintain retirement contributions in a "general investment account" offering guaranteed interest rates. Alternatively, participants could allocate those contributions among various "separate accounts," which Principal had created to serve as vehicles for retirement-plan customers to invest in Principal mutual funds. Principal assigned each separate account to a different Principal mutual fund, meaning that contributions to a separate account would be invested in shares of the associated mutual fund. Principal reserved the right to limit which separate accounts (and therefore which mutual funds) it would make available to plan participants. In addition, McCaffree also maintained the ability to limit, via written notice to Principal, the accounts in which its employees could invest. Pursuant to these provisions, the full list of sixty-three accounts included in the plan contract was narrowed down to twenty-nine separate accounts (and associated Principal mutual funds) eventually made available to plan participants.

The contract provided that, in return for Principal providing access to these separate accounts, participants would pay to Principal both management fees and operating expenses. Principal assessed the management fees as a percentage of the assets invested in a separate account, and this percentage varied for each account according to its associated mutual fund. In addition, Principal could unilaterally adjust the management fee for any account, subject to a cap (generally 3 percent) specified in the contract. The contract required Principal to provide participants at least thirty days' written notice of any such change. The operating expenses provision did not place a limit on the amount that Principal could charge for such expenses, but it restricted Principal to passing through only those expenses necessary to maintain the separate account, such as various taxes and fees Principal paid to third parties. Principal assessed both the management fee and operating expenses in addition to any fees charged by the mutual fund assigned to each separate account.

Five years after entering into this contract, McCaffree filed this class action lawsuit on behalf of all employees participating in the McCaffree plan. The complaint alleged that Principal charged participants who invested in the separate accounts "grossly excessive investment management and other fees" in violation of Principal's fiduciary duties of loyalty and prudence under sections 404(a)(1)(A) and (B) of ERISA, 29 U.S.C. §§ 1104(a)(1)(A), (B). McCaffree claimed that the separate accounts served no purpose other than to invest in shares of various Principal mutual funds and therefore involved minimal additional expense for Principal. Because each Principal mutual fund charged its own layer of fees, McCaffree alleged, the additional separate account fees were unnecessary and excessive. McCaffree's suit sought to recover for plan participants these separate account fees as well as the diminution of investment returns that had occurred as a result of the fees.

Principal moved to dismiss the complaint under Federal Rule of Civil Procedure 12(b)(6). Principal argued that McCaffree had failed to state a claim under ERISA because McCaffree had agreed to the disputed charges explicitly in its contract with Principal and because Principal was not a fiduciary at the time the parties agreed upon the allegedly excessive fees. The district court granted this motion, holding that Principal was not acting as a fiduciary at the time the fees and expenses were negotiated, and that any subsequent fiduciary duty Principal owed lacked a sufficient nexus with McCaffree's excessive fee allegations. McCaffree now appeals.

II.

We review de novo a district court's dismissal for failure to state a claim, taking all facts alleged in the complaint as true. Trooien v. Mansour, 608 F.3d 1020, 1026 (8th Cir.2010). Rule 12(b)(6) allows a defendant to move for dismissal based on a plaintiff's "failure to state a claim upon which relief can be granted." Fed.R.Civ.P. 12(b)(6). To survive a motion to dismiss under Rule 12(b)(6), "a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’ " Braden v. Wal–Mart Stores, Inc., 588 F.3d 585, 594 (8th Cir.2009) (quoting Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) ). A claim is plausible on its face "when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Iqbal, 556 U.S. at 678, 129 S.Ct. 1937. In making this determination, we must draw all reasonable inferences in favor of plaintiffs. Crooks v. Lynch, 557 F.3d 846, 848 (8th Cir.2009).

In order to state a claim that a service provider to an ERISA-governed plan breached a fiduciary duty by charging plan participants excessive fees, a plaintiff first must plead facts demonstrating that the provider owed a fiduciary duty to those participants. Mertens v. Hewitt Assocs., 508 U.S. 248, 251, 253, 113 S.Ct. 2063, 124 L.Ed.2d 161 (1993) (confirming that the "detailed duties and responsibilities" imposed by ERISA are "limited by their terms to fiduciaries"). According to ERISA, a party not specifically named as a fiduciary of a plan owes a fiduciary duty only "to the extent" that party (i) exercises any discretionary authority or control over management of the plan or its assets; (ii) offers "investment advice for a fee" to plan members; or (iii) has "discretionary authority" over plan "administration." 29 U.S.C. § 1002(21)(A). The phrase "to the extent" at the beginning of this provision demonstrates that fiduciary status under ERISA "is not an all-or-nothing concept." Trs. of the Graphic Commc'ns Int'l Union Upper Mw. Local 1M Health & Welfare Plan v. Bjorkedal, 516 F.3d 719, 732 (8th Cir.2008) (quoting Darcangelo v. Verizon Commc'ns, Inc., 292 F.3d 181, 192 (4th Cir.2002) ). Therefore, courts assessing claims under ERISA must ask "whether [a] person was acting as a fiduciary ... when taking the action subject to complaint. " Pegram v. Herdrich, 530 U.S. 211, 226, 120 S.Ct. 2143, 147 L.Ed.2d 164 (2000) (emphasis added). In a recent case involving excessive fee claims similar to those asserted here, the Third Circuit aptly described this provision as requiring a "nexus" between the alleged basis for fiduciary responsibility and the wrongdoing alleged in the complaint. Santomenno ex rel. John Hancock Tr. v. John Hancock Life Ins. Co., 768 F.3d 284, 296 (3d Cir.2014).

Because Principal is not a named fiduciary of the plan, McCaffree needed to plead facts demonstrating that Principal acted as a fiduciary "when taking the action subject to complaint." See Pegram, 530 U.S. at 211, 120 S.Ct. 2143. McCaffree makes five arguments in support of its claim that Principal breached a fiduciary duty to charge reasonable fees. None of these arguments, however, demonstrates that McCaffree stated a valid claim under ERISA. The first fails because Principal owed no duty to plan participants during its arms-length negotiations with McCaffree, and the remaining four fail because McCaffree did not plead a connection between any fiduciary duty Principal may have owed and the excessive fees Principal allegedly charged.

First, McCaffree argues that Principal's selection of the sixty-three separate accounts in the initial investment menu constituted both an exercise of discretionary authority over plan management under 29...