McCaffree Financial Corp. v. Principal Life Insurace Co.
811 F.3d 998
8th Cir.2016Background
- McCaffree Financial Corp. sponsored an ERISA retirement plan and contracted with Principal Financial Group (Sept. 1, 2009) to provide investment options via 63 “separate accounts” tied to Principal mutual funds.
- The contract explicitly set management fees (varied by account) and allowed Principal to pass through operating expenses; Principal could unilaterally adjust management fees (subject to a cap) with notice.
- The parties ultimately made 29 separate accounts available to plan participants; McCaffree retained the contractual right to reject funds Principal selected.
- Five years later McCaffree sued on behalf of plan participants, alleging Principal breached ERISA fiduciary duties of loyalty and prudence by charging excessive separate-account fees layered on top of mutual‑fund fees.
- Principal moved to dismiss under Rule 12(b)(6), arguing (inter alia) that McCaffree agreed to the charges in an arm’s-length contract and Principal was not a fiduciary when fees were negotiated.
- The district court granted dismissal; the Eighth Circuit affirmed, holding Principal’s contractual enforcement and related actions did not give rise to a fiduciary duty connected to the alleged fee wrongdoing.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Principal was an ERISA fiduciary when negotiating and setting fee terms | Principal’s selection and fee-setting created fiduciary obligations to ensure fees were reasonable | Parties negotiated fees at arm’s length; McCaffree consented to and could reject terms, so Principal had no fiduciary authority during negotiation | No fiduciary duty during arm’s-length negotiations; contract terms govern fees |
| Whether Principal’s post-contract selection (winnowing to 29 accounts) made it a fiduciary for excessive fees | Winnowing was discretionary and thus created fiduciary duties to avoid selecting higher-fee options | Even if Principal selected, plaintiff failed to connect that selection to the specific fee misconduct alleged | Selection not the action subject to complaint; no nexus to fee allegations |
| Whether Principal’s contractual discretion to change fees/charge operating expenses created fiduciary liability | Authority to adjust fees and pass through expenses implies fiduciary duty to charge reasonable amounts | Complaint does not allege Principal actually exercised that discretion abusively or beyond contract authorization | No pleaded abuse of discretion; allegations target contractually agreed fees, not post-contract misuse |
| Whether Principal’s investment‑manager role or nondisclosure of underlying mutual‑fund fees creates fiduciary liability | Principal’s investment role and alleged nondisclosure of layered mutual-fund fees show fiduciary conduct and breach | Fund management is distinct from the fee-setting action complained of; nondisclosure not shown to be the action at issue | No nexus between investment-management activities or nondisclosure and the fee claim; court declines to decide nondisclosure issue |
Key Cases Cited
- Pegram v. Herdrich, 530 U.S. 211 (ERISA fiduciary status must be assessed with respect to the specific action challenged)
- Mertens v. Hewitt Assocs., 508 U.S. 248 (ERISA duties are limited to fiduciaries)
- Trs. of the Graphic Commc’ns Int’l Union Upper Mw. Local 1M Health & Welfare Plan v. Bjorkedal, 516 F.3d 719 (ERISA fiduciary status is not all-or-nothing)
- Santomenno ex rel. John Hancock Tr. v. John Hancock Life Ins. Co., 768 F.3d 284 (requires nexus between fiduciary act and alleged wrongdoing)
- Hecker v. Deere & Co., 556 F.3d 575 (adherence to arm’s-length contract terms does not create fiduciary liability)
- Renfro v. Unisys Corp., 671 F.3d 314 (contract negotiation and agreement at arms length do not implicate fiduciary duties)
- Ashcroft v. Iqbal, 556 U.S. 662 (complaint must plead facts making liability plausible)
- Braden v. Wal-Mart Stores, Inc., 588 F.3d 585 (12(b)(6) plausibility standard applied in Eighth Circuit)
- Trooien v. Mansour, 608 F.3d 1020 (de novo review of dismissal under Rule 12(b)(6))
- Olson v. E.F. Hutton & Co., Inc., 957 F.2d 622 (subsection identifying fiduciaries covers those granted discretionary authority even if not exercised)