Walsh v. CSX Transportation, Inc. et al
Filing
60
ORDER denying 55 Defendants' Request for Oral Argument; overruling 54 Defendants' Objections to Report and Recommendation; adopting 51 Report and Recommendation; denying 47 Defendants' Motion to Dismiss. Defendants shall answer the Second Amended Complaint by 4/10/2024 and file an Amended Joint Uniform Case Management Report by 4/17/2024. See Order for details. Signed by Judge Marcia Morales Howard on 3/27/2024. (WT)
UNITED STATES DISTRICT COURT
MIDDLE DISTRICT OF FLORIDA
JACKSONVILLE DIVISION
JULIE A. SU, Acting Secretary of
Labor, United States Department of
Labor,
Plaintiff,
v.
Case No. 3:22-cv-849-MMH-JBT
CSX TRANSPORTATION, INC.,
PLAN ADMINISTRATION
COMMITTEE, INVESTMENT
COMMITTEE, CSX
CORPORATION MASTER
PENSION TRUST, MERGED UTU
PENSION PLAN, GREENBRIER
FROZEN UNION PENSION PLAN,
and CSX PENSION PLAN,
Defendants.
ORDER
THIS CAUSE is before the Court on the Report and Recommendation
(Doc. 51; Report) entered by the Honorable Joel B. Toomey, United States
Magistrate Judge, on October 11, 2023.
In the Report, Judge Toomey
recommends that the Court deny Defendants’ Motion to Dismiss Second
Amended Complaint and Memorandum of Law in Support Thereof (Doc. 47;
Motion) filed July 17, 2023.
Report at 1. 1
Defendants timely filed their
objections to the Report on October 25, 2023. See Objections to Report and
Recommendation (Doc. 54; Objections).
Objections.
Plaintiff has responded to the
See Acting Secretary’s Response to Defendants’ Objections to
Report and Recommendation and Memorandum of Law (Doc. 57; Response),
filed November 8, 2023. In addition, Defendants filed Defendants’ Notice of
Supplemental Authority (Doc. 59; Supplemental Authority) on November 29,
2023. Accordingly, this matter is ripe for review. 2
I.
Standard of Review
The Court “may accept, reject, or modify, in whole or in part, the findings
or recommendations made by the magistrate judge.”
28 U.S.C. § 636(b).
Pursuant to Rule 72 of the Federal Rules of Civil Procedure (Rule(s)), the Court
“must determine de novo any part of the magistrate judge’s disposition that has
been properly objected to.” See Rule 72(b)(3); see also 28 U.S.C. § 636(b)(1).
However, a party waives the right to challenge on appeal any unobjected-to
factual and legal conclusions.
See 11th Cir. R. 3-1. 3
As such, the Court
For ease of reference, the Court’s citations to page numbers in documents in this
record refer to the CM-ECF-stamped page numbers located at the top of each page, rather
than a document’s internal page numbers, if any.
2 Defendants have requested oral argument.
See Defendants’ Request for Oral
Argument on Their Objections to the Report and Recommendation on the Motion to Dismiss
the Second Amended Complaint (Doc. 55; Motion for Oral Argument). However, upon review
of the record, the Court determines that oral argument will not assist the Court in this
instance. Accordingly, the Motion for Oral Argument is due to be denied.
3 The Magistrate Judge properly informed the parties of the time period for objecting
and the consequences of failing to do so. See Report at 14.
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reviews those portions of the Magistrate Judge’s findings to which no objection
was filed for plain error and only if necessary, in the interests of justice. See
id.; see also Thomas v. Arn, 474 U.S. 140, 150 (1985) (“It does not appear that
Congress intended to require district court review of a magistrate [judge’s]
factual or legal conclusions, under a de novo or any other standard, when
neither party objects to those findings.”); Dupree v. Warden, 715 F.3d 1295,
1304–05 (11th Cir. 2013) (recommending the adoption of what would become
11th Circuit Rule 3-1 so that district courts do not have “to spend significant
amounts of time and resources reviewing every issue—whether objected to or
not.”).
II.
Discussion
In their Motion, Defendants CSX, the Plan Administration Committee,
and the Investment Committee seek dismissal of Plaintiff’s Second Amended
Complaint (Doc. 46; Second Amended Complaint), filed on June 26, 2023, for
failure to state a claim upon which relief can be granted. 4 See Motion at 1–2.
Judge Toomey recommends that the Court deny the Motion in its entirety
because “accepting [the] well-pled allegations as true, Plaintiff has plausibly
Plaintiff also names the CSX Corporation Master Pension Trust, Merged UTU
Pension Plan, Greenbrier Frozen Union Pension Plan, and CSX Pension Plan as Defendants.
However, these entities are joined in this action “solely to ensure that complete relief may be
granted.” Second Amended Complaint ¶ 16. Accordingly, unless otherwise indicated, the
Court’s use of the word “Defendants” in this Order refers to CSX, the Plan Administration
Committee, and the Investment Committee.
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alleged that Defendants are liable under ERISA” as to each of the claims in the
Second Amended Complaint. See Report at 13. Because the Court finds that
Defendants’ Objections are due to be overruled, and the Report adopted as the
Court’s opinion, the Court will not repeat the factual and procedural history of
the case here. Instead, the Court writes briefly only to address Defendants’
specific objections to the Report.
As an initial matter, the Court notes that Judge Toomey previously
observed that the first amended complaint “appear[ed] to be a shotgun
pleading” because it “contain[ed] ‘multiple counts where each count adopts the
allegations of all preceding counts.’” See Order (Doc. 39) at 2, entered April 20,
2023 (quoting Weiland v. Palm Beach Cnty. Sheriff’s Off., 792 F.3d 1313, 1321
(11th Cir. 2015)).
Despite this, in filing the Second Amended Complaint,
Plaintiff continues to incorporate all preceding allegations into each count of
the Second Amended Complaint. See Second Amended Complaint ¶¶ 47, 51,
54, 58, 61 (incorporating “all preceding allegations”).
While the Court
reasonably might have ordered a re-pleader, the Court is not convinced that
Plaintiff’s pleading error is fatal under the circumstances of this case. Indeed,
“this is not a situation where a failure to more precisely parcel out and identify
the facts relevant to each claim materially increase[s] the burden of
understanding the factual allegations underlying each count.” See Weiland,
792 F.3d at 1324. Notably, Defendants have not “move[d] for a more definite
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statement . . . or otherwise assert[ed] that they were having difficulty knowing
what they were alleged to have done and why they were liable for doing it.”
See id. And the arguments presented by Defendants in the Motion show that
they have had no difficulty identifying the claims Plaintiff seeks to pursue or
the factual basis of those claims. 5
Accordingly, rather than require that
Plaintiff replead, the Court will construe each Count in the Second Amended
Complaint as incorporating only those allegations in Paragraphs 1–42, and not
the allegations in any preceding Count.
Defendants’ primary objection to the Report is that Judge Toomey “seems
to infer that Defendants had a motive and opportunity to over-charge for their
services, and the alleged lack of records showing that they did not over-charge
somehow makes it plausible that they in fact did.” 6
See Objections at 9
(asserting that this is “the primary basis for Defendants’ Objection”).
In
support, Defendants argue that the alleged “motive and the opportunity [for
Although Defendants opposed Plaintiff’s request to file the Second Amended
Complaint based on the shotgun nature of the pleading, they did not seek dismissal on that
basis.
6 The parties disagree about whether Plaintiff must allege a loss to the plans in order
to bring the claims she asserts in this action. See Objections at 4 (stating that loss to the
plans and payment of unreasonable compensation “are necessary elements of Plaintiff’s stated
legal theories”); Response at 14–17 (arguing that the reasonableness of compensation is an
affirmative defense to the prohibited transaction claims). In the Report, Judge Toomey
observes that “it is not clear that it is Plaintiff’s burden to allege that more than reasonable
compensation was paid” to CSX, but he does not resolve the issue because he concludes that
“even if Plaintiff has this burden . . . she has satisfied it.” See Report at 12. In adopting the
Report the Court need not (and does not) determine whether Plaintiff must plead a loss to the
plans or the unreasonableness of compensation in bringing any of the claims she asserts,
because she has sufficiently plead such a loss.
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CSX] to overcharge” are not sufficient to establish that Defendants caused any
loss to the plan or charged unreasonable fees, id. at 12, and that CSX’s alleged
failure to keep “contemporaneous time records” is equally insufficient because
ERISA does not require such documentation. Id. at 13. The problem with
these arguments, of course, is that Judge Toomey does not conclude that either
allegation is sufficient to plausibly allege a loss to the plans.
Indeed, he
specifically explains that “Plaintiff does much more than complain about CSX’s
failure to keep detailed time records” in her Second Amended Complaint. See
Report at 10.
Judge Toomey also bases his recommendation on “the
allegations that CSX’s system of fee calculation was based on its convenience,
rather than the interests of Plan participants and beneficiaries, and that there
was no oversight by any fiduciary,” which supports the “reasonable inference”
that “the amount billed favored CSX and harmed the plans.” 7 See id. at 12–
13. Accordingly, Defendants’ argument does not undermine Judge Toomey’s
recommended resolution as to this issue. 8
Defendants also assert that Judge Toomey incorrectly reasons that several pertinent
facts are in Defendants’ sole control because Plaintiff, as the Secretary of Labor, “has the
power to conduct investigations, including by sending subpoenas for records and depositions.”
See Objections at 17. But in her Second Amended Complaint, Plaintiff alleges that the
relevant documentation does not exist. See Second Amended Complaint ¶¶ 25–27. And
Defendants provide no authority supporting the proposition that Plaintiff’s ability to
investigate requires her to plead more specific information than would otherwise be required
in order to state a claim for relief. Accordingly, this argument is not persuasive.
8 In the Supplemental Authority, Defendants attempt to bolster this argument by
citing Cunningham v. Cornell Univ., 86 F.4th 961 (2d Cir. 2023). In that case, the Second
Circuit affirmed the dismissal of a prohibited transaction claim where the plaintiff alleged
only that the defendant “failed to seek bids from other recordkeepers” and that “the fees were
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Defendants next argue that Plaintiff fails to plausibly allege that CSX or
the Investment Committee were fiduciaries with respect to the payment of
administrative expenses.
See Objections at 17–21.
As to the Investment
Committee, Judge Toomey concludes that this entity was a fiduciary with
respect to the payment of administration expenses because Plaintiff alleges that
the Investment Committee is responsible for approving reasonable expenses
related to administration of the plans, and the 2018 CSX Investment
Committee Policies & Procedures Manual (Doc. 15-1; Committee Policies)
corroborates this. 9
See Report at 9–10. Additionally, Judge Toomey notes
that even if the plan documents contradicted the allegation, “it is plausible that
Defendants were acting inconsistently with the Plan documents.” Id. at 10.
While the Committee Policies reflect that the Investment Committee may
“ensure that fees paid to service providers and other expenses of the Plans are
reasonable as required by law,” see Committee Policies at 5, Defendants point
higher than some theoretical alternative service.” See Cunningham, 86 F.4th at 978. The
specific procedural deficiencies in that case were insufficient to “plausibly allege that the
compensation was itself unreasonable” for purposes of a prohibited transactions claim
(although the court noted that they “may well be sufficient to state [a] claim for a breach of
the duty of prudence”). Id. Here, however, Plaintiff alleges that CSX charged fees to the
plans based on “annual estimates rather than actual time,” and allocated those estimated
hours among the plans based on the amount of funds in each plan, not the actual services
provided. See Report at 11. Because of these significant factual differences, Defendants’
reliance on Cunningham is unavailing.
9 According to Plaintiff’s Opposition to Defendants’ Motion to Dismiss Second
Amended Complaint for Failure to State a Claim and Memorandum of Law (Doc. 49; Motion
Response), the Second Amended Complaint “incorporates relevant sections of” this document.
See Motion Response at 4. Defendants do not argue that Judge Toomey erred in considering
this document in the Report.
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out that this document also says that “‘[t]he Investment Committee and Plan
Administrator will consider the fees and expenses applicable to their oversight
areas[.]’” 10 Objections at 18 (quoting Committee Policies at 16 (alterations in
original)). Defendants argue that the “Plaintiff herself describes the expenses
as being related to ‘administrative services,’ which certainly suggests that they
fall under the ‘Administration’ Committee’s scope of authority,” as opposed to
that of the Investment Committee. See id. at 18–19.
But while the names of the two committees may “suggest[ ]” that the Plan
Administration Committee (as opposed to the Investment Committee) exercised
control over the administrative services fees, see id. at 19, the Court must draw
all reasonable inferences in Plaintiff’s favor in resolving the Motion. See Omar
ex rel. Cannon v. Lindsey, 334 F.3d 1246, 1247 (11th Cir. 2003) (per curiam);
see also Pledger v. Reliance Trust Co., 240 F. Supp. 3d 1314, 1324 (N.D. Ga.
2017) (noting that courts “have been hesitant to resolve breach of fiduciary
claims under ERISA due to a purported lack of fiduciary status at
the motion to dismiss stage, particularly where, as here, the plaintiffs allege
Defendants represent that this language comes from “the same Charter.” See
Objections at 18. But while it comes from the same document which Judge Toomey quotes,
the 2018 Charter is only part of that document. See Committee Policies at 2 (reflecting that
the first portion of the document is the Management Charter, which is followed by the
Investment Committee Administration Guidelines). The language Judge Toomey quotes in
the Report comes from the Charter, while the language Defendants quote comes from the
Administration Guidelines which follow the Charter. See id. at 5; id. at 16. But because the
discrepancy does not affect the Court’s analysis, the Court will assume that these provisions
are equally relevant to the scope of the Investment Committee’s responsibilities.
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the various defendants are interrelated” (collecting cases)). 11 The Committee
Policies appear to reflect that the Investment Committee had authority to
ensure that all administrative fees were reasonable. See Committee Policies
at 5; see also Master Pension Trust Agreement of CSX Corporation and
Affiliated Companies (Doc. 10-3; Trust Agreement) at 6 (“The Investment
Committee . . . shall be responsible for the administration and management of
the Fund held by the Trustee under this Agreement . . . .”). 12 Even assuming
that the administrative services fees were outside the Investment Committee’s
normal oversight area, the Investment Committee’s obligation to “‘consider the
fees and expenses applicable to [its] oversight area,’” Objections at 18 (quoting
Committee Policies at 16), does not contradict the allegation that it also had
authority with respect to other fees and expenses—regardless of whether other
entities had concurrent authority in this area. Accordingly, this argument is
unavailing.
Judge Toomey also concludes that Plaintiff plausibly alleges “that CSX
acted as a functional fiduciary regarding the payment of administrative
expenses” based on allegations that it “controlled, directed, and engaged in the
The Court notes that although decisions of other district courts are not binding, they
may be cited as persuasive authority. See Stone v. First Union Corp., 371 F.3d 1305, 1310
(11th Cir. 2004) (noting that, “[a]lthough a district court would not be bound to follow any
other district court’s determination, the decision would have significant persuasive effects”).
12 As with the Committee Policies, no party argues that Judge Toomey erred in
considering this document in his Report. See Report at 10 (quoting this provision).
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subject transactions despite what the Plan documents said.” See Report at 8–
9.
Defendants argue that this was an error because “merely requesting
payment for its services” is not a fiduciary function, and because the ability to
appoint fiduciaries makes CSX “a fiduciary only with respect to the exercise of
this appointment power.”
See Objections at 20. These arguments miss the
mark. The Court does not read the Report to suggest that the act of “charging
for services”—standing alone—was a fiduciary act, see id. at 20 n.3, or that the
“allegations about the power to appoint fiduciaries were sufficient to plausibly
allege that CSX was itself a fiduciary” with respect to the payment of
administrative fees. 13 See id. at 21. Rather, Plaintiff alleges that (1) CSX had
absolute authority to appoint committee members, (2) those committee
members did not review the reasonableness of CSX’s fees despite their
obligation to do so, and instead of appointing new committee members, (3) CSX
On this point, Defendants contend that Judge Toomey “erred in disregarding [the]
persuasive authority” of Carolinas Elec. Workers Ret. Plan v. Zenith Am. Sols., Inc., 658 F.
App’x 966, 971 (11th Cir. 2016). See Objections at 20 n.3. The Court disagrees. It is true
that, in Carolinas, billing fees to an ERISA plan was insufficient to establish that the
defendant exercised authority or control over those funds because that defendant “was not a
signatory on the plan’s bank account and . . . could not dispose of plan assets without the
trustees’ approval.” See Carolinas, 658 F. App’x at 971. But the Eleventh Circuit in that
case did not determine that “regardless of who is charging for services, . . . the act of charging
[for services] is not a fiduciary act.” Objections at 20 n.3. Rather, the court determined that
the act of submitting a bill for services was not sufficient on its own to establish “actual
authority or control over the plan’s assets.” See Carolinas, 658 F. App’x at 971. Here, unlike
in Carolinas, Plaintiff' alleges that CSX had broad authority “to appoint, retain and remove”
the very fiduciaries who failed to exercise oversight over the fees CSX billed. See Second
Amended Complaint ¶ 10; see also Report at 9 n.6 (rejecting Defendants’ reliance on Carolinas
because “CSX is distinguishable from the third-party administrator” in that case). Because
of this significant factual difference, the Court is not persuaded by Defendants’ reliance on
Carolinas.
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“streamlined [its] fees calculations to the detriment of the Plans.” See Report
at 3, 9; Second Amended Complaint ¶ 24. Accepting these allegations as true
(as the Court must), Plaintiff plausibly alleges that CSX did not simply charge
for its services or appoint members of the committees, but “caused the Master
Pension Trust to pay itself Service Fees without any oversight.” 14 See Second
Amended Complaint ¶ 12; Report at 9.
Accordingly, Plaintiff sufficiently
alleges “that CSX acted as a functional fiduciary regarding the payment of
administrative expenses.” See Report at 9.
For these reasons, Defendants’ Objections are unavailing.
Upon
independent review of the file and for the reasons set forth above, the Court will
overrule Defendants’ Objections and accept and adopt the Report as the opinion
of the Court. Accordingly, it is
ORDERED:
1.
Defendants’ Request for Oral Argument on their Objections to the
Report and Recommendation on the Motion to Dismiss the Second
Amended Complaint (Doc. 55) is DENIED.
Defendants rely on In re Merck & Co., Inc. Sec. Derivative & ERISA Litig., No. 052369(SRC), 2006 WL 2050577, at *10 (D.N.J. July 11, 2006), where a court concluded that an
entity’s mere power to appoint fiduciaries does not plausibly suggest that the entity leveraged
that power to “exercise[ ] actual control” over the plan in question. But that case did not
involve allegations that plan fiduciaries failed to review the reasonableness of fees charged by
the defendant that appointed them (to the benefit of that same defendant). See generally id.
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2.
Defendants’ Objections to Report and Recommendation (Doc. 54)
are OVERRULED.
3.
The Report and Recommendation (Doc. 51) is ADOPTED as the
opinion of the Court.
4.
Defendants’ Motion to Dismiss Second Amended Complaint and
Memorandum of Law in Support Thereof (Doc. 47) is DENIED.
5.
Defendants are DIRECTED to file an answer to the Second
Amended Complaint on or before April 10, 2024.
6.
The parties shall file an Amended Joint Uniform Case Management
Report no later than April 17, 2024.
DONE AND ORDERED in Jacksonville, Florida on March 27, 2024.
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Copies to:
Counsel of Record
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