SANTOMENNO et al v. TRANSAMERICA LIFE INSURANCE COMPANY et al
Filing
411
ORDER DENYING DEFENDANTS MOTION FOR RECONSIDERATION AND CERTIFYING QUESTIONS FORINTERLOCUTORY REVIEW UNDER 28 U.S.C. 1292(b) 395 by Judge Dean D. Pregerson (lc)
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UNITED STATES DISTRICT COURT
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CENTRAL DISTRICT OF CALIFORNIA
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JACLYN SANTOMENNO; KAREN
POLEY; BARBARA POLEY,
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Plaintiffs,
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v.
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TRANSAMERICA LIFE INSURANCE
COMPANY; TRANSAMERICA
INVESTMENT MANAGEMENT, LLC;
TRANSAMERICA ASSET
MANAGEMENT INC.,
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Defendants.
___________________________
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Case No. CV 12-02782 DDP (MANx)
ORDER DENYING DEFENDANTS’ MOTION
FOR RECONSIDERATION AND
CERTIFYING QUESTIONS FOR
INTERLOCUTORY REVIEW UNDER 28
U.S.C. § 1292(b)
[Dkt. No. 395]
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Presently before the Court is Defendants’ Motion for
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Reconsideration.
(Dkt. No. 395.)
After hearing oral argument and
21
considering the parties’ submissions, the Court adopts the
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following Order.
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I.
BACKGROUND
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The facts of this case are well-known to the Court and the
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parties as recounted in the Court’s Order Granting Class
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Certification.
(Order, Dkt. No. 393.)
After the Court certified
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two classes in this case, Defendants have filed this Motion for
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Reconsideration.
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II.
LEGAL STANDARD
Under Federal Rule of Civil Procedure 60(b), a party may seek
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reconsideration of a final judgment or court order for any reason
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that justifies relief, including:
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(1)
mistake, inadvertence, surprise, or excusable neglect;
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(2)
newly discovered evidence that, with reasonable
diligence, could not have been discovered in time to
move for a new trial under Rule 59(b);
(3)
fraud (whether previously called intrinsic or
extrinsic), misrepresentation, or misconduct by an
opposing party;
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(4)
the judgment is void;
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(5)
the judgment has been released or discharged; it is
based on an earlier judgment that has been reversed or
vacated; or applying it prospectively is no longer
equitable; or
(6)
any other reason that justifies relief.
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Fed. R. Civ. P. 60(b)(1)-(6).1
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In their Motion, Defendants raise the standards of FRCP
59(e) and 54(b), which are not applicable here because there is no
judgment in this case. (See Mot. Reconsideration at 2.) The Court
construed the Motion under FRCP 60(b)(6) in reaching the merits of
the Motion.
A party can request a true interlocutory appeal from the Court
of Appeals when a district court issues an order granting or
denying class certification. Fed. R. Civ. P. 23(f). The party
must file such a request for an appeal within fourteen days of the
district court’s Order. Id.
Further, the district court on its own motion or as requested
can certify an interlocutory appeal to the Court of Appeals under
28 U.S.C. § 1292(b). This is appropriate where the district judge
finds the civil order “involves a controlling question of law as to
which there is substantial ground for difference of opinion and
that an immediate appeal from the order may materially advance the
ultimate termination of the litigation.” Id. The district court
states such a finding in the order and the Court of Appeals has the
discretion to permit the appeal “if application is made to it
within ten days after the entry of the order.” Id.
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Central District of California Local Rule 7-18 further
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explains that reasons to support a motion for reconsideration
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include:
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(a) a material difference in fact or law from that
presented to the Court . . . that . . . could not have been
known to the party moving for reconsideration at the time
of such decision, or (b) the emergence of new material
facts or a change of law occurring after the time of such
decision, or (c) a manifest showing of a failure to
consider material facts presented to the Court before such
decision.
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C.D. Cal. L.R. 7-18.
A motion for reconsideration may not,
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however, “in any manner repeat any oral or written argument made in
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support of or in opposition to the original motion.”
Id.
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III. DISCUSSION
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Defendants raise four arguments in their Motion for
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Reconsideration:
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(1)
The Court committed clear error in ignoring Department of
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Labor (“DOL”) regulations and binding case law holding
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that a prohibited transaction under 29 U.S.C. § 1106(b)
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only occurs when a fiduciary “uses the authority that
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makes it a fiduciary to cause the transaction at issue.”
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(Mot. Reconsideration, Dkt. No. 395, at 1 (emphasis
20
removed).)
As Defendants state, “the Court erred in
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concluding that TLIC engaged in [prohibited transactions]
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by honoring its clients’ directions to place plan assets
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in pooled separate accounts and to withdraw agreed-upon
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annual fees.”
(Id.)
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(2)
The court committed clear error in holding that, for
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purposes of class certification, the “reasonable
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3
1
compensation” exemption in 29 U.S.C. § 1108(b)(8) does
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not apply when a fiduciary withdraws such compensation
3
from assets placed in investment vehicles even where
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independent plan fiduciaries agree to such an
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arrangement.
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Court “neglected ample record evidence that no pooled
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investment vehicle in the industry levies its fees in any
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other fashion.”
(Id.)
Further, Defendants claim that the
(Id.)
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(3)
The Court committed clear error and manifestly failed to
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consider material facts that show that the determination
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of profits that TLIC gained from each plan is plan-
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specific.
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determining damages, which cuts against class
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certification because Plaintiffs seek disgorgement of
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profits as a remedy for the prohibited transaction
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classes.
Thus, individual issues predominate in
(Id.)
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(4)
The Court committed clear error and manifestly failed to
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consider material facts in certifying the TIM and TAM
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classes because the Court did not consider the
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predominance requirement or the facts in the record that
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any fees — whether charged by TLIC or TIM and TAM — are
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charged as a total, bundled product offering and thus are
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subject to individualized defenses.
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examined as a total fee, “there is overwhelming evidence
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in the record establishing that such defenses are
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(Id. at 1-2.)
When
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dependent on plan-specific proof” and thus fail the
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predominance analysis.
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1.
(Id.)
Court’s Holding that 29 U.S.C. § 1106 Forbids TLIC from
Directly Withdrawing its Fees from Plan Assets
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The Court’s prior Order held that the Prohibited Transaction
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classes were certifiable because 29 U.S.C. § 1106(b), as applied in
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the Ninth Circuit cases Patelco and Barboza, forbids a fiduciary
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from taking the fiduciary’s fee from the assets over which it
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exercises its fiduciary duties — even where an independent
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fiduciary accepts or contracts to allow such a taking.
(Order,
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Dkt. No. 393, at 23-34.)
The Court noted that causation did not
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appear to be a requirement in the § 1106(b) part of the statute, in
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contrast to § 1106(a) that explicitly states a causation
13
requirement.
(Id. at 24-25.)
The Ninth Circuit in Barboza also
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did not discuss causation in its analysis of a fiduciary
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administrator’s practice of taking agreed-upon fees directly from
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the plan assets it was administering.
Barboza v. Cal. Ass’n of
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Prof’l Firefighters, 799 F.3d 1257, 1269-70 (9th Cir. 2015).
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Defendants argue that the Court failed to address 29 C.F.R. §
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2550.408b-2(e)(2) in its Order and that this regulation shows that
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causation is required for a § 1106(b)(1) prohibited transaction:
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(2) Transactions not described in section 406(b)(1). A
fiduciary does not engage in an act described in section
406(b)(1) of the Act if the fiduciary does not use any of
the authority, control or responsibility which makes such
person a fiduciary to cause a plan to pay additional fees
for a service furnished by such fiduciary or to pay a fee
for a service furnished by a person in which such fiduciary
has an interest which may affect the exercise of such
fiduciary’s best judgment as a fiduciary.
This may occur, for example, when one fiduciary is
retained on behalf of a plan by a second fiduciary to
provide a service for an additional fee.
However,
because
the
authority,
control
or
responsibility which makes a person a fiduciary may be
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exercised “in effect” as well as in form, mere approval of
the transaction by a second fiduciary does not mean that
the first fiduciary has not used any of the authority,
control or responsibility which makes such person a
fiduciary to cause the plan to pay the first fiduciary an
additional fee for a service. See paragraph (f) of this
section.
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29 C.F.R. § 2550.408b-2(e)(2) (paragraphing added).
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provides examples of prohibited and acceptable transactions.
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Paragraph (f)
Defendants also cite Wright v. Oregon Metallurgical Corp., 360
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F.3d 1090, 1100-01 (9th Cir. 2004) in support, quoting the Ninth
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Circuit quoting Lockheed Corp. v. Spink, 517 U.S. 882, 888 (1996):
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“Lockheed specifically states that to establish liability under §
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1106, a party must prove that ‘a fiduciary caused the plan to
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engage in the allegedly unlawful transaction.’”
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in Wright then held that the party at issue in that case was not a
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fiduciary, which defeated the prohibited transaction claim.
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Wright, 360 F.3d at 1101.
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analyzing § 1106(a), which was also the primary focus in Wright.
The Ninth Circuit
In Lockheed, the Court was only
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Defendants also cite Acosta v. Pacific Enterprises, 950 F.2d
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611, 621 (9th Cir. 1991), which did address a § 1106(b)(1) claim.
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There, the Ninth Circuit held that the plaintiff had not alleged
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sufficient facts at summary judgment to support a claim that the
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defendant had committed a prohibited transaction.
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that Defendants here focus on is:
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Id.
The holding
All fiduciaries have the inherent power that would enable
them to deal with the assets of ERISA plans for their own
benefit or account.
However, we know of no rule that
permits a plaintiff to bootstrap a claim for the actual
commission of a wrong merely by alleging that the defendant
has the power to commit it. In order to state a claim for
self-dealing
under
ERISA,
[Plaintiff]
Acosta
must
demonstrate that [Defendant] Pacific Enterprises actually
used its power to deal with the assets of the plan for its
own benefit or account.
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Id.
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“inherent power to use the participant-shareholder list to its
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benefit” was the self-dealing transaction “because such a power
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‘has a continuing deterrent effect on anyone considering whether to
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oppose management in corporate elections.’”
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Acosta did not involve the question of whether a fiduciary paying
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itself fees from the assets over which it exercises its fiduciary
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control is a self-dealing transaction.
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The plaintiff in Acosta had argued that the defendant’s
Id.
The facts in
This case does not involve § 1106(a), which is why the Court
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did not find Wright or Lockheed to provide the answer regarding
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causation in its prior analysis.
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consider the regulation or Acosta in its Order.
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now, the Court finds that as alleged in the Complaint and argued in
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the certification briefing, TLIC used the “authority, control [and]
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responsibility” over plan assets that makes it a fiduciary “to
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cause [the] plan[s] to pay additional fees for a service furnished
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by such fiduciary,” namely, the allegedly excessive fees charged
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for TLIC’s services as well as the allegedly excessive fees charged
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by TIM and TAM for their services through TLIC.
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the “authority, control [and] responsibility” that made it a
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fiduciary to pay itself out of the plan assets over which it
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exercises that authority, control, and responsibility, which is a
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per se prohibited transaction.
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However, the Court did not
Considering them
Further, TLIC used
Defendants also argue that beyond the causation issue, the
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Court committed clear error in its understanding of § 1106(b)
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transactions.
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Defendants argue this in a footnote, stating:
This Court’s broad reading of Patelco . . . and Barboza .
. . could only be accurate if those decisions were intended
to abrogate the existing regulations and case law on §
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406(b) transactions, but nothing
suggests such a radical result.
in
either
decision
2
(Mot. Reconsideration at 4 n.1 (citations omitted).)
The Court
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would welcome an analysis of Patelco and Barboza as well as an
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indication of what case law on § 406(b) transactions the Court’s
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reading abrogates, but Defendants’ briefing does not explain that
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argument and therefore the Court does not find clear error in its
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analysis of the cases.2
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Lastly, the Court did examine the Department of Labor advisory
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opinions raised by Defendants in their Motion but did not find any
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of them warrant a change to the above analysis or the analysis in
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the second class certification order.
See DOL Adv. Op. No. 2003-
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09A, 2003 WL 21514170 (June 25, 2003); DOL Adv. Op. No. 99-03A,
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1999 WL 64919 (Jan. 25, 1999); DOL Adv. Op. No. 97-15A, 1997 WL
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277980 (May 22, 1997).
The Court also took into consideration the
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parties’ supplemental briefing as to Judge Hatter’s recent decision
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in Perez v. City National Corp., —F. Supp. 3d— , 2016 WL 1397872
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(C.D. Cal. Apr. 5, 2016).
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Essentially, the Court cannot see where its previous analysis
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committed clear error.
Section 1106(b)(1) prohibits self-dealing,
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or dealing with the assets of the fund in the fiduciary’s own
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interest.
29 U.S.C. § 1106(b)(1) (“A fiduciary with respect to a
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plan shall not — (1) deal with the assets of the plan in his own
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interest or for his own account[.]”).
Plaintiffs argue, based on
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Ninth Circuit precedent in Barboza and Patelco, that Defendant
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2
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See also John L. Utz, Trusts, Unfunded Plans, and SelfDoubt: Barboza v. California Ass’n of Prof’l Firefighters, 24 No. 1
ERISA Litig. Rep. NL 2 (Feb. 2016) (discussing the holding in and
potential impacts of the Ninth Circuit’s Barboza case).
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TLIC, as a fiduciary, dealt with assets of the plans in TLIC’s own
2
interest by paying TLIC’s fees out of the assets of the plans over
3
which TLIC was exercising its fiduciary control — even if those
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fees were reasonable compensation for services rendered to the
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plans.3
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paying itself is not dealing with the plans’ assets in its own
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self-interest.
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properly owed from the plan assets, Defendants claim that that
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action — the taking of money from the funds — is not an action that
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The Court understands Defendants’ argument to be that TLIC
That is, by taking the money TLIC alleges it is
deals with the plans’ assets in TLIC’s interest.
But the Court cannot understand the argument that getting paid
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is not in one’s interest.
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dealing with those assets for one’s own interest.
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point — to benefit from providing the services for which you are
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charging.
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services and a fiduciary can contract in advance to set its fees.
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However, those fees have to be continually monitored for
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reasonableness and the fiduciary cannot pay itself directly.
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Paying oneself from the plans’ assets is
That is the
It is acceptable for a fiduciary to be paid for such
The logic of these requirements — that compensation be
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reasonable and not be taken directly out of plan assets by a
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fiduciary — can be illustrated as follows.
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management of a retirement plan for a business, which contains the
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retirement savings of the employees.
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another fiduciary, B, to administer the plan.
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the start of that relationship that the second fiduciary, B, can
The context is the
A plan fiduciary, A, may hire
A and B may agree at
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Of course, Plaintiffs do not concede that the fees were
reasonable, as argued they argue TLIC’s fees are excessive in their
Motion to Correct TLIC Excessive Fee Class Definition. (See Dkt.
No. 391.)
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take $100 out of the fund per month for payment of B’s reasonable
2
compensation for the services B is performing.
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exclusive control over the fund and is the holder of the fund’s
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assets.
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by simply withdrawing $100 from the fund and moving it to another
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account — B’s own account.
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fiduciary not pay itself directly, what is to ensure that only $100
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is withdrawn each time?
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B has essentially
And every month, B takes the $100 out of the fund’s assets
Without the requirement that the
The nub of the issue for the Court is that the fiduciary,
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because it is a fiduciary, has elevated duties, and that means that
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getting paid appears to require additional burdens than exist in
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ordinary commercial transactions.
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controlling issue of law and one where there is substantial ground
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for difference of opinion, as shown by the vigorous briefing in
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this case, the Court does certify its decision under 28 U.S.C. §
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1292(b), incorporating the discussion and briefing from the Court’s
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Order Granting Class Certification.
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2.
But because this is a
(Dkt. No. 393.)
Court’s Holding that the Exception in 29 U.S.C. §
1108(b)(8) Does Not Apply in This Case
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Defendants argue that the Court erred by failing to realize
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that 29 U.S.C. § 1108(b)(8) does apply to this case and allow TLIC
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to collect its fees from the plan assets that it holds.
(Mot.
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Reconsideration at 8-11.)
Defendants state the issue as:
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The Court correctly recognized in its order certifying the
PT classes that ERISA § 408(b)(8), 29 U.S.C. § 1108(b)(8),
may exempt regulated insurers from PT liability in
connection with client investments in pooled separate
accounts when they receive no more than reasonable
compensation and either the plan permits such investments
or the investment are approved by a fiduciary independent
of the insurer. Nevertheless, the Court erred when it held
that payment of fees out of plan assets as compensation for
the aforementioned permissible conduct was itself a
10
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2
separate PT that is not sheltered by the exemption. (Dkt.
393 at 28.)
Such a holding — that § 408(b)(8) permits
‘reasonable compensation,’ while prohibiting a party from
collecting that compensation, is clear error.
3
(Id. at 8-9.)
Thus, Defendants understand this exemption as not
4
only permitting “reasonable compensation” for the transaction with
5
the fund, but also allowing the fiduciary to collect that
6
reasonable compensation by taking the reasonable compensation out
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the plan assets that the fiduciary holds.
(See id. at 9.)
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The Court first corrects a misunderstanding Defendants have of
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the Court’s prior Order.
The Court did not hold that a fiduciary
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can receive reasonable compensation but not collect that
11
compensation.
Instead, the Court held that a fiduciary can receive
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reasonable compensation but cannot pay itself that reasonable
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compensation out of the plan assets over which the fiduciary
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exercises its fiduciary control — whether for the type of
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transaction referenced in § 1108(b)(8) or for some other activity
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for which a fiduciary is entitled to reasonable compensation.
17
(Order, Dkt. No. 393, at 27-34.)
18
The Court starts with the language of the statute:
19
(b)
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21
Enumeration of transactions exempted from section
1106 prohibitions
The prohibitions provided in section 1106 of this title
shall not apply to any of the following transactions:
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(8)
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Any transaction between a plan and (i) a common
or collective trust fund or pooled investment
fund maintained by a party in interest which is
a bank or trust company supervised by a State
or Federal agency or (ii) a pooled investment
fund of an insurance company qualified to do
business in a State, if -
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(A)
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the transaction is a sale or purchase of
an interest in the fund,
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1
(B)
the bank, trust company, or insurance
company receives not more than reasonable
compensation, and
(C)
such transaction is expressly permitted by
the instrument under which the plan is
maintained, or by a fiduciary (other than
the bank, trust company, or insurance
company or an affiliate thereof) who has
authority to manage and control the assets
of the plan.
2
3
4
5
6
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29 U.S.C. § 1108(b)(8).
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9
The main problem here is that the issue of the prohibited
transaction alleged by Plaintiffs and analyzed by the Court in the
10
second class certification Order is not a “transaction” that fits
11
under § 1108(b)(8)(A): “a sale or purchase of an interest in the
12
fund.”
13
cannot make such a transaction.
14
the Court.
15
even reasonable compensation from the plan assets over which it is
16
exercising its fiduciary duties no matter what reason for that
17
reasonable compensation — i.e., no matter what transaction that
18
incurs a fee by TLIC or what service TLIC provides for which it is
19
entitled to reasonable compensation as a fiduciary.
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it’s not that you can’t do it, it’s how you do it that’s at issue
21
here.
22
Neither Plaintiffs nor the Court state that Defendants
That is not the question before
Instead, the question is whether TLIC can pay itself
Put simply,
Thus, Defendants do not provide an argument on how this
23
statutory exemption — which is not about fees or how fees are
24
properly collected — applies here so as to make the Court’s
25
decision clearly erroneous as a matter of law in holding that a
26
fiduciary cannot pay itself from plan assets over which it is
27
exercising that control that makes it a fiduciary.
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the Court held in the previous Order:
12
This is what
1
Defendants explain that this exemption “expressly allows
2
regulated insurers to invest client assets in pooled
3
separate accounts like TLIC’s separate accounts here —
4
even in circumstances involving alleged self-dealing —
5
where the insurer receives no more than reasonable
6
compensation, and either the plan document permits such
7
investments or the investment is approved by fiduciary
8
independent of the insurer.”
9
Brief, at 1.)
10
(Dkt. No. 385, Def. Supp.
Perhaps this reading of the exemption is correct,
11
but it seems that Defendants are missing Plaintiffs’
12
allegation, which is not that TLIC invested client assets
13
in pooled separate accounts, but rather that TLIC paid
14
its fees — which TLIC had the discretion to change at
15
thirty days notice — out of the plan assets that TLIC was
16
holding.
17
(b)(8) exemption, assuming it applies to § 1106(b) based
18
on the plain reading of § 1108 described above, clears
19
Defendants from the prohibited transaction at issue in
20
this case.
21
Thus, it is not clear to the Court how the
Subsection (b)(8) appears concerned with exempting
22
transactions that are “a sale or purchase in the fund”
23
for which “the bank, trust company, or insurance company
24
receives not more than reasonable compensation,” and if
25
“such transaction is expressly permitted by the
26
instrument under which the plain is maintained, or by a
27
fiduciary (other than the bank, trust company, or
28
insurance company or an affiliate thereof) who has
13
1
authority to manage and control the assets of the plan.”
2
Id. § 1108(b)(8)(A)-(C).
3
challenge is not “a sale or purchase in the fund,” but
4
instead the act of TLIC taking its own fees out of the
5
plan assets over which TLIC exercises fiduciary
6
management.
7
not apply to the prohibited transaction Plaintiffs are
8
alleging in this case, even if it can in theory apply to
9
other prohibited transactions under § 1106(b).
10
11
The transaction Plaintiffs
Therefore, the Court finds § 1108(b)(8) does
(Order, Dkt. No. 393, at 28-29.)
At no point do Defendants explain how their cited legislative
12
history or DOL advisory opinions require a different holding or
13
understanding in this case than that discussed in the Court’s
14
Order.
15
First, the Court has examined the cited Committee Report that
16
Defendants argue stands for the proposition that “otherwise
17
prohibited transactions were permissible so long as ‘no more than
18
reasonable compensation may be paid by the plan in the purchase (or
19
sale) and no more than reasonable compensation may be paid by the
20
plan for investment management by the pooled fund.’”
21
Reconsideration at 9 (citing H.R. Rep. No. 93-1280, pt. 1, at 316
22
(1974), reprinted in 1974 U.S.C.C.A.N. 5038, 5096 (emphasis
23
added)).)
24
means not just “paid by the plan,” but “paid by the plan by the
25
fiduciary taking the reasonable compensation out of the plan’s
26
assets over which it exercises fiduciary control.”
27
state as much in their Motion.
28
does not understand the legislative history to say that a fiduciary
(Mot.
Defendants’ argument is that the emphasized language
(Id. at 9-10.)
14
Defendants
However, the Court
1
can take its reasonable compensation directly out of the plan’s
2
assets even if the fiduciary can be paid by the plan.
3
Court does not understand Defendants’ argument that “[i]f Congress
4
did not intend for ‘reasonable compensation’ to be paid from plan
5
assets under the exemption, the Committee Report’s inclusion of the
6
phrase ‘paid by the plan’ would be superfluous.”
7
case?
8
compensation by the beneficiary (the plan) be the same as saying
9
that the fiduciary can pay itself reasonable compensation for the
That is, the
How is that the
How would saying that a fiduciary can be paid reasonable
10
services it provides to the beneficiary out of the beneficiary’s
11
assets over which the fiduciary exercises its control?
12
Second, Defendants cite several DOL advisory opinions.
(Mot.
13
Reconsideration at 10-11 (citing DOL Adv. Op. No. 2005-09A, 2005 WL
14
1208696 (May 11, 2005); DOL Adv. Op. No. 82-22A, 1982 WL 21206 (May
15
12, 1982).)
16
state anything controversial — the Court agrees that reasonable
17
compensation may be paid by the plan, the question is how the plan
18
pays those fees.
19
advisory opinions.
20
The Court did not find that any of these opinions
This latter question is not addressed in the DOL
The Court also looked at cases explaining or applying this
21
exemption, of which it found few.
22
N.A., 62 F. Supp. 3d 879 (D. Minn. 2014); Krueger v. Am. Fin. Inc.,
23
No. 11-cv-02781 (SRN/JSM), 2012 WL 5873825 (D. Minn. Nov. 20,
24
2012); Martin v. Nat’l Bank of Alaska, 828 F. Supp. 1427 (D. Alaska
25
1992).
26
exemption is for:
27
See, e.g., Adedipe v. U.S. Bank
The court in Krueger explained what the § 1108(b)(8)
In support of their argument, Defendants cite ERISA §
408(b)(8), codified at 29 U.S.C. § 1108(b)(8), which
28
15
1
permits plans under certain circumstances to invest in
affiliated funds.
2
3
4
5
6
7
8
9
10
11
12
13
14
Specifically, ERISA § 408(b)(8) exempts a plan’s
purchase or sale of an interest in a common or collective
trust fund maintained by a regulated bank or trust company
or a pooled investment fund of an insurance company
maintained by a party in interest if the transaction is
expressly permitted by the plan’s governing documents and
the bank, trust company, or insurance company receives no
more than reasonable compensation.
ERISA § 408(b)(8) was enacted to allow “banks, trust
companies and insurance companies” to continue their
“common practice” of investing their plans’ assets in their
own pooled investment funds. See H.R. Conf. Rep. No.
93–1280 (Aug. 12, 1974), reprinted in 1974 U.S.C.C.A.N.
5038, 5096; see also U.S. Dep’t of Labor Adv. Op. 82–022 A,
1982 ERISA LEXIS 47 (May 12, 1982) (§ 408(b)(8) exempts
fees charged for managing investments in pooled separate
accounts and collective trusts).
As the Department of Labor has recognized, it would be
“contrary to normal business practice for a company whose
business is financial management to seek financial
management services from a competitor.” Notice of Proposed
Rulemaking, Participant Directed Individual Account Plans,
56 Fed. Reg. 10724 (Mar. 13, 1991).
15
Krueger, No. 11-cv-02781 (SRN/JSM), 2012 WL 5873825, at *14
16
(paragraphing added).
Thus, the House Report clarifies that
17
§ 1108(b)(8) is meant to permit the transaction that is investing
18
plan assets in a fiduciary’s own pooled investment fund, which
19
otherwise would be a prohibited transaction.
This type of
20
transaction is not at issue in this case.
21
Defendants have not provided persuasive support for its
22
position that this exemption is applicable in this case, although
23
it is conceivable that the answer is as Defendants argue and a
24
fiduciary can, in fact, pay itself directly out of plan assets
25
without violating the self-dealing prohibition in 29 U.S.C. §
26
1104(b)(1).
Thus, the Court also certifies this issue for appeal
27
under 29 U.S.C. § 1292(b) as a controlling question of law.
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16
1
3.
Court’s Holding that Individualized Damages Do Not
Prevent Class Certification in This Case
2
Defendants argue the Court committed clear error in failing to
3
consider the individualized evidence that would be necessary to
4
determine the profits to disgorge from the alleged prohibited
5
transactions.
(Mot. Reconsideration at 11-12.)
According to
6
Defendants, “[t]he question whether TLIC, TI[M], or TA[M] retained
7
any profits from the alleged prohibited transactions is decidedly a
8
plan-specific inquiry.”
(Id. at 12.)
Defendants state that the
9
answer would require looking at every single plan over time and
10
determining when TLIC would earn a profit over servicing the plan
11
as a whole and how much that profit is, after considering the plan12
specific costs incurred by TLIC.
(Id. at 12.)
13
However, merely disgorging profits is not the standard.
The
14
statute says:
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16
17
18
19
20
(a) Any person who is a fiduciary with respect to a plan
who breaches any of the responsibilities, obligations, or
duties imposed upon fiduciaries by this subchapter shall be
personally liable to make good to such plan any losses to
the plan resulting from each such breach, and to restore to
such plan any profits of such fiduciary which have been
made through use of assets of the plan by the fiduciary,
and shall be subject to such other equitable or remedial
relief as the court may deem appropriate, including removal
of such fiduciary. A fiduciary may also be removed for a
violation of section 1111 of this title.
21
29 U.S.C. § 1109(a) (emphasis added).
Thus, profits are just one
22
part of the analysis.
Any loss to the plan from the breach of duty
23
would require an accounting by Defendants to Plaintiffs of the fees
24
charged, the facts necessary to determine the reasonableness of
25
those fees, and evidence that the fees actually removed from the
26
plans’ assets were what was agreed upon and were reasonable.
27
28
17
And
1
the Court would have discretion to impose other equitable or
2
remedial relief as is appropriate for the class.
3
But all that this analysis would require is for Defendants to
4
account for the losses and profits related to the plans.
That is,
5
this is essentially a class definition and damages calculation that
6
requires formulaic analysis, which does not destroy predominance.
7
Therefore, the prohibited transaction classes are not predominated
8
by individualized issues through the need to calculate damages.
9
However, to the extent that further litigation demonstrates that
10
there is no formulaic analysis to determine damages for the
11
Prohibited Transaction classes, then Defendants may seek to
12
decertify the classes on that basis.
13
4.
Court’s Holding Regarding Predominance of the TIM and TAM
Classes
14
Defendants argue that the Court failed to address the
15
predominance factor of the TIM and TAM classes.
(Mot.
16
Reconsideration at 12-13; Reply at 9-11.)
However, the Court did
17
address predominance as to both TIM and TAM subclasses.
See Order,
18
Dkt. No. 393, at 34-38 (analyzing predominance in the subheadings
19
“(A) TIM and TAM Prohibited Transactions” and “(B) TIM and TAM
20
Excessive Fees,” both of which were under the subheading “ii. TIM
21
and TAM Class,” under the subheading “a. Predominance,” after the
22
Court analyzed predominance for “i. TLIC Prohibited Transaction
23
Class”).
24
Further, Defendants did not extensively brief these issues in
25
the second class certification motion.
Defendants relegated
26
analysis of the TIM and TAM excessive fee class to footnote 18,
27
where Defendants stated that this class is just an excessive fee
28
18
1
class “by another label.”
(Opp’n to Second Mot. Class Cert., Dkt.
2
No. 370, at 24 n.18.)
3
the TIM and TAM Prohibited Transaction subclass separately at all,
4
but if the same analysis and arguments as Defendants made for the
5
TLIC Prohibited Transaction class were to apply to the TIM and TAM
6
Prohibited Transaction subclass, then the Court would still find
7
that the class met predominance for the reasons stated in its
8
Order.
9
the predominance factor of the TIM and TAM classes in the second
It is not clear that Defendants engaged with
Therefore, the Court did not provide extensive analysis of
10
class certification order, but the Court did determine that
11
predominance was satisfied.
12
decision.
13
IV.
14
15
The Court declines to reconsider that
CONCLUSION
For all the reasons discussed above, the Court DENIES
Defendants’ Motion for Reconsideration.
16
This case has potential industry-wide implications and the
17
cost to the parties of proceeding further without guidance from the
18
court of appeals will be substantial.
19
certifies controlling questions of law for appellate review.4
20
Therefore, the Court
First, the Court certifies the fundamental question of whether
21
Defendant TLIC can be considered a fiduciary at all under the law,
22
as the Court held in a Motion to Dismiss Order.
23
137.)
24
fundamental to all other questions in the case, as no classes would
(Order, Dkt. No.
The question of whether TLIC could be a fiduciary is
25
4
26
27
28
The Court discussed at the last hearing the issue of
interlocutory review. The Court did not find further briefing on
this issue necessary. The Court did not consider Defendants’
Motion to Certify Questions for Interlocutory Review in certifying
these questions. (See Dkt. No. 407.) The Court hereby VACATES the
hearing date for that Motion.
19
1
be certified and no legal dispute over prohibited transactions
2
would arise if there were no fiduciary duty owed by Defendants.
3
Thus, the Court certifies for interlocutory appeal the legal issue
4
of fiduciary status, as well as the certification of and the
5
specific questions regarding the prohibited transaction classes
6
discussed above.
7
Order, Dkt. No. 354 (First Class Certification); Order, Dkt. No.
8
373 (Second Class Certification).
(See Order, Dkt. No. 137 (Motion to Dismiss);
9
10
IT IS SO ORDERED.
11
12
Dated: May 13, 2016
DEAN D. PREGERSON
United States District Judge
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