Jaclyn Santomenno v. Transamerica Life Ins. Co.
883 F.3d 833
| 9th Cir. | 2018Background
- Plaintiffs are participants in employer‑sponsored 401(k) plans; employers contracted with Transamerica Life Insurance Company (TLIC) to provide plan administration under a Services Agreement and Group Annuity Contract (GAC).
- TLIC proposed investment menus (including funds managed by affiliates TAM and TIM), structured chosen options as pooled separate accounts, and disclosed fee arrangements (including revenue sharing and not always offering lowest share classes).
- TLIC’s compensation was a fixed, formulaic percentage set in the GAC and collected daily by withdrawing fees from the separate accounts; employers had the opportunity to accept or reject those terms.
- Plaintiffs sued under ERISA alleging (a) fiduciary breaches in negotiating fees and investment options before TLIC became a plan fiduciary, (b) prohibited self‑dealing by collecting fees from plan assets, and (c) revenue‑sharing and failure to use lowest share classes.
- The district court denied TLIC’s motion to dismiss and certified three classes; the Ninth Circuit accepted an immediate appeal from the denial of dismissal and class certification.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Was TLIC an ERISA fiduciary when negotiating compensation and menu terms? | Negotiating fee and menu terms affects plan assets and beneficiaries, so fiduciary duties attach during negotiations. | No — fiduciary status attaches only when exercising discretionary control over plan management or assets; negotiations are arm’s‑length and controlled by the employer. | TLIC was not a fiduciary during pre‑contract negotiations; discretionary control remained with employer. |
| Did TLIC breach ERISA by selecting non‑lowest share classes for menu funds? | Offering higher‑cost share classes harmed participants and violated duty of prudence/loyalty. | Employers approved the menu and share‑class selections before TLIC became fiduciary; selection alone does not create fiduciary status. | No breach; selection/offer of share classes before fiduciary status attached is not ERISA fiduciary conduct. |
| Did TLIC violate ERISA by accepting revenue‑sharing payments from underlying managers? | Revenue sharing created conflicts and constituted prohibited transactions or breaches. | Revenue sharing was fully disclosed and agreed to by employers prior to administration; payments did not come from plan assets in a way that imposed fiduciary liability. | Revenue sharing did not create fiduciary liability under these facts because it was disclosed and agreed before fiduciary status attached. |
| Did TLIC’s routine withdrawal of contractually set fees from plan accounts constitute prohibited self‑dealing? | Withdrawing plan assets for its own compensation is dealing with plan assets in its own interest, violating §1106(b). | Fee withdrawals were ministerial under a pre‑negotiated, formulaic contract; collecting bargained‑for, nondiscretionary compensation is not fiduciary misconduct. | Collecting definitively calculable, nondiscretionary contract fees from plan accounts was not a breach of fiduciary duty; complaint dismissed and class certifications vacated. |
Key Cases Cited
- Mertens v. Hewitt Assocs., 508 U.S. 248 (1993) (ERISA’s remedial and fiduciary framework described)
- Lockheed Corp. v. Spink, 517 U.S. 882 (1996) (fiduciary duties exist to protect plan beneficiaries)
- Pegram v. Herdrich, 530 U.S. 211 (2000) (inquiry focuses on whether party was acting as fiduciary when taking the complained‑of action)
- Leimkuehler v. Am. United Life Ins. Co., 713 F.3d 905 (7th Cir. 2013) (selecting funds and share classes for a menu alone does not make a provider a fiduciary)
- Hecker v. Deere & Co., 556 F.3d 575 (7th Cir. 2009) (service provider not a fiduciary regarding terms negotiated at arm’s length)
- McCaffree Fin. Corp. v. Principal Life Ins. Co., 811 F.3d 998 (8th Cir. 2016) (no fiduciary duty while negotiating fee terms with prospective customers)
- McLemore v. Regions Bank, 682 F.3d 414 (6th Cir. 2012) (routine contractual fee withdrawals do not create fiduciary liability)
- Barboza v. Cal. Ass'n of Prof'l Firefighters, 799 F.3d 1257 (9th Cir. 2015) (assumed fiduciary status and addressed self‑dealing issues)
- IT Corp. v. Gen. Am. Life Ins. Co., 107 F.3d 1415 (9th Cir. 1997) (depository performing ministerial duties within others’ rules may not act as fiduciary in every respect)