Moreno et al v. Deutsche Bank Americas Holding Corp. et al

Filing 57

OPINION AND ORDER re: 38 LETTER MOTION for Oral Argument addressed to Judge Lorna G. Schofield from James O. Fleckner dated June 21, 2016. filed by Deutsche Bank Americas Holding Corp. Executive Committee, DeAWM Service Company, Deutsche Bank Americas Holding Corp. Benefits Committee, Deutsche Investment Management Americas, Inc., Richard O'Connell, RREEF America, LLC, Deutsche Bank Matched Savings Plan Investment Committee, Deutsche Bank AG, Deutsche Bank Americas Holding Corp., 30 MOTION to Dismiss The First Amended Complaint. filed by Deutsche Bank Americas Holding Corp. Executive Committee, DeAWM Service Company, Deutsche Bank Americas Holding Corp. Benefits Committee, Deutsche Investment Management Americas, Inc., John Does 1-40, Richard O'Connell, RREEF America, LLC, Deutsche Bank Matched Savings Plan Investment Committee, Deutsche Bank Americas Holding Corp., Deutsche Bank AG. For the foregoing reasons, Defendants' Rule 12(b)(6) motion is DENIED in part and GRANTED in part. Count V is dismissed in its entirety, and Defendants DIMA, RREEF, DSC and DB AG are dismissed from this action. Plaintiffs' remaining claims against Defendants DBAHC , the Investment Committee, the Executive Committee and OConnell remain pending. Defendants' motion for oral argument is DENIED as moot. The Clerk of Court is directed to close the motions at Dkt. Nos. 30 and 38. (Signed by Judge Lorna G. Schofield on 10/13/2016) (kgo)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
-------------------------------------------------------------X
RAMON MORENO, et al.,
:
Plaintiffs, :
:
-against:
:
DEUTSCHE BANK AMERICAS HOLDING
:
CORP., et al.,
:
Defendants. :
------------------------------------------------------------ X

USDC SDNY
DOCUMENT
ELECTRONICALLY FILED
DOC #:
DATE FILED: 10/13/2016

15 Civ. 9936 (LGS)
OPINION AND ORDER

LORNA G. SCHOFIELD, District Judge:
Plaintiffs Ramon Moreno and Donald O’Halloran (“Plaintiffs”) bring this putative class
action, alleging that certain Deutsche Bank entities mismanaged their 401(k) plan in violation of
the Employee Retirement Income Security Act (“ERISA”), 29 U.S.C. § 1001 et seq. Defendants
Deutsche Bank Americas Holding Corp. (“DBAHC”), Deutsche Bank Matched Savings Plan
Investment Committee (the “Investment Committee”), Deutsche Bank Americas Holding Corp.
Executive Committee (the “Executive Committee”), Richard O’Connell, Deutsche Bank AG
(“DB AG”), Deutsche Investment Management Americas Inc. (“DIMA”), DeAWM Service
Company (“DSC”) and RREEF America, LLC (“RREEF”) (collectively, “Defendants”) move to
dismiss the First Amended Complaint (the “Complaint”) pursuant to Federal Rule of Civil
Procedure 12(b)(6). For the following reasons, the motion is denied in part and granted in part.
I.

BACKGROUND
A. Factual Allegations
The following facts are taken from the Complaint and assumed to be true for the purposes

of this motion. See Littlejohn v. City of New York, 795 F.3d 297, 306 (2d Cir. 2015).
Plaintiffs are former participants in the Deutsche Bank Matched Savings Plan (the
“Plan”). The Plan is a defined contribution plan, or 401(k) plan, that allows eligible Deutsche

Bank employees “to invest a percentage of their earnings on a pre-tax basis.” The Plan provides
its participants with a menu of investment options from which to choose when investing under
the Plan.
As of 2009, the Plan had roughly $1.9 billion in assets and offered participants 22
“designated investment alternatives,” ten of which were “proprietary Deutsche Bank mutual
funds.” In addition to the designated investment alternatives, the Plan offered participants “the
option of opening a self-directed brokerage account,” which gives participants “access to a broad
array of stocks, bonds, and mutual funds.” The core of the Complaint’s allegations concerns the
inclusion of Deutsche Bank proprietary mutual funds among the Plan’s offerings. According to
the Complaint, “Deutsche Bank earned millions of dollars in investment management fees by
retaining [these proprietary mutual funds] in the Plan.”
The Complaint specifically alleges that the Plan included three proprietary index funds
that charged excessive fees in relation to other comparable index funds managed by the
Vanguard Group (“Vanguard”). For instance, it asserts that from 2009 until February 2013, the
Plan included the Deutsche Equity 500 Index Fund, a “passive” investment vehicle that is
designed to track the performance of the S&P 500 Index. This proprietary fund is alleged to
have charged management and administrative fees that were more than eleven times higher than
an available Vanguard’s index fund that tracked the S&P 500 Index. The Complaint further
alleges that the expense ratio of this proprietary fund increased each year between 2010 and 2013
while the expense ratio associated with Vanguard’s index fund remained the same. During this
same period, the size of the Plan’s investment in the proprietary fund also increased each year.
In February 2013, the Deutsche Equity 500 Index Fund and other proprietary index funds were
removed from the Plan and replaced with Vanguard index funds. The Plan’s offering of the

2

Deutsche Equity 500 Index fund rather than the lower cost Vanguard index fund allegedly
resulted in Plan participants paying over $ 2 million in “excess fees.”
The Complaint also asserts that the Plan included actively-managed proprietary funds
that charged investment management fees two to five times higher than other “actively managed
funds in the same style.” As the Complaint avers, not only did these proprietary funds have
higher fees, but they also consistently underperformed as measured by benchmark indices. The
Complaint asserts that as to two proprietary funds in particular, the Plan was the only defined
contribution plan among roughly 1,400 such plans with more than $500 million in assets to hold
these funds.
The Complaint alleges that the Plan was mismanaged in two other ways. First, the Plan
failed to include the least expensive share class for each of its offered proprietary funds. The
Complaint alleges that, given the amount of assets it held, the Plan would have been eligible to
offer the share classes with the lowest expense ratios for several proprietary funds, but that the
Plan failed to make such options available. Second, Defendants “failed to adequately investigate
non-mutual fund alternatives such as collective trusts and separately managed accounts.” The
Complaint claims that Deutsche Bank offers its institutional clients these other types of
investment accounts, which are in “the same investment style” as the Plan’s proprietary funds
but have expense ratios that were 30 to 40% lower.
B. Defendants
Defendant DBAHC “provides the funding for the Plan” and is designated as the Plan
Administrator. Its “primary purpose” is to “serve as the vehicle” for “Deutsche Bank’s pension
and benefit plans.”
Defendant the Investment Committee is “named by the Plan as one of the parties

3

responsible for administering and managing the Plan.” Its duties include selecting and removing
investments that the Plan offers to its participants. The Investment Committee is monitored by
Defendant the Executive Committee, which has the authority to appoint and remove Investment
Committee members. Defendant O’Connell is the Plan Administrator whose responsibilities
include “establish[ing] and administer[ing] rules and procedures with respect to all matters
relating to the election and use of the Investment Funds.”
Defendant DIMA, which is owned by DBAHC, is a participating employer in the Plan,
meaning its eligible employees may invest in the Plan. DIMA also serves as an investment
advisor to the proprietary Deutsche Bank mutual funds included in the Plan. Similarly,
Defendant RREEF, which is owned by DBAHC, is a participating employer in the Plan and was
an investment sub-advisor to one proprietary mutual fund held by the Plan. Defendant DSC is a
participating employer in the Plan and serves as the “transfer agent, dividend-paying agent, and
shareholder service agent for the Deutsche Bank mutual funds in the Plan” and receives revenues
from the Plan’s investments in those mutual funds.
DB AG is the parent corporation of all Deutsche Bank entities, including DBAHC, and a
participating employer in the Plan. The Complaint alleges that “all revenues generated by
[DBAHC, DIMA, DSC and RREEF] are reported as revenues of [DB AG].” Lastly, the
Complaint also asserts claims against John Does 1–40. Because no Doe defendant has appeared
or joined the instant motion to dismiss, Plaintiffs’ claims against John Does 1–40 are not at issue.
C. Plaintiffs’ Causes of Action
On December 21, 2015, Plaintiffs filed this putative class action on behalf of “[a]ll
participants and beneficiaries of [the Plan] at any time on or after December 21, 2009, excluding
Defendants, any of their directors, and any officers or employees of Defendants with

4

responsibility for the Plan’s investment or administrative function.” The Complaint, which was
amended in March 2016, asserts five causes of action under ERISA.
Count One asserts that the defendants it alleges are Plan fiduciaries -- the Investment
Committee, the Executive Committee, O’Connell, DBAHC, DIMA and RREEF1 -- breached
their duties of care and loyalty in selecting, retaining and monitoring the Plan investments.
Counts Two and Three allege prohibited transactions. Count Two alleges that the inclusion of
proprietary mutual funds caused the Plan to engage in prohibited transactions with parties in
interest -- DIMA, RREEF and DSC -- because these entities were paid monthly fees for the
services they rendered to the proprietary funds. Count Three asserts that Defendants DBAHC,
DIMA and RREEF are Plan fiduciaries that engaged in prohibited self-dealing transactions
because they received consideration for the investment management services performed by
DIMA and RREEF, which are subsidiaries of DBAHC.
Count Four alleges that DBAHC, O’Connell and the Executive Committees breached
their fiduciary duties by failing to monitor the Plan’s decision-making process. Count Five seeks
equitable disgorgement from the Plan employers -- DB AG, DSC, DBAHC, DIMA and RREEF
(“Employer Defendants”) -- of any “ill-gotten proceeds” that resulted from the Plan’s offering
the proprietary funds.
Defendants move to dismiss the Complaint under Federal Rule of Civil Procedure
12(b)(6). They argue that (1) the suit is barred by ERISA’s statute of limitations, (2) Plaintiffs
have failed to state a claim upon which relief can be granted for each Count and (3) DIMA and

1

The Complaint alleges that these defendants are fiduciaries of the Plan under 29 U.S.C.
§ 1002(21)(A). It further alleges that the Investment Committee, the Executive Committee and
O’Connell also have fiduciary status pursuant to 29 U.S.C. § 1102(a) because they are named
fiduciaries of the Plan. As addressed below, Defendants contest only Plaintiffs’ assertion that
DIMA and RREEF are Plan fiduciaries.
5

RREEF lack fiduciary status as defined under 29 U.S.C. § 1002(21)(A).
II.

STANDARD
In deciding motions to dismiss under Rule 12(b)(6), “all factual allegations in the

complaint are accepted as true and all inferences are drawn in the plaintiff’s favor.” Littlejohn,
795 F.3d at 306. “To survive a motion to dismiss, a complaint must contain sufficient factual
matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’” Ashcroft v.
Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)).
“Threadbare recitals of the elements of a cause of action, supported by mere conclusory
statements, do not suffice.” Id. In reviewing a complaint, a court “may consider any written
instrument attached to the complaint, statements or documents incorporated into the complaint
by reference, . . . and documents possessed by or known to the plaintiff and upon which it relied
in bringing the suit.” ATSI Commc’ns, Inc. v. Shaar Fund, Ltd., 493 F.3d 87, 98 (2d Cir. 2007).
“Because the statute of limitations is an affirmative defense, Defendants carry the burden
of showing that Plaintiff[s] failed to plead timely claims.” Demopoulos v. Anchor Tank Lines,
LLC, 117 F. Supp. 3d 499, 507 (S.D.N.Y. 2015); see Staehr v. Hartford Fin. Servs. Grp., 547
F.3d 406, 425 (2d Cir. 2008) (“The lapse of a limitations period is an affirmative defense that a
defendant must plead and prove.” (citing Fed. R. Civ. P. 8(c)(1))). Accordingly, dismissal based
on an affirmative defense at the complaint stage is warranted only if “it is clear from the face of
the complaint, and matters of which the court may take judicial notice, that the plaintiff’s claims
are barred as a matter of law.” Staehr, 547 F.3d at 425 (emphasis omitted) (quoting Conopco,
Inc. v. Roll Int’l, 231 F.3d 82, 86 (2d Cir. 2000)).

6

III.

DISCUSSION
A. Statute of Limitations
Defendants assert that Plaintiffs’ suit is barred by the applicable statute of limitations.

See 29 U.S.C. § 1113. This argument is rejected.
ERISA provides “alternative limitations periods” that “depend[] on the underlying factual
circumstances.” Janese v. Fay, 692 F.3d 221, 227–28 (2d Cir. 2012). As pertinent here, “[t]he
first period, applicable in the absence of any special circumstances, is six years from the date of
the last action that was part of the breach” or violation. Id. at 228; see 29 U.S.C. § 1113(1).
“The second period is three years, applicable and beginning when a putative plaintiff has ‘actual
knowledge’ of the [breach or] violation . . . .”2 Janese, 692 F.3d at 228 (quoting Caputo v.
Pfizer, Inc., 267 F.3d 181, 193 (2d Cir. 2001)); see 29 U.S.C. § 1113(2). Whichever of the two
dates is earlier is the applicable bar date. See 29 U.S.C. § 1113.
1. The Three-Year Limitations Period
Defendants first contend that the three-year limitations period is triggered because
Plaintiffs had actual knowledge of the alleged ERISA violations. In support, they argue that
certain legally required Plan disclosures made clear to Plaintiffs that the Plan included
proprietary funds that allegedly charged high fees and performed poorly more than three years
prior to the filing of the initial complaint in December 2015. Even assuming, as courts have
done, that an ERISA plaintiff has actual knowledge of fees and performance data that are

2

Section 1113 also includes a tolling provision “in the case of fraud or concealment.” 29
U.S.C. § 1113. When a “complaint alleges fraud or concealment with the requisite
particularity,” a plaintiff must file suit within six years from the date that “plaintiff discovers, or
should with reasonable diligence have discovered, the breach.” Janese, 692 F.3d at 228.
Because the Complaint pleads timely claims, the tolling provision is inapplicable at this stage of
the litigation.
7

“clearly disclosed” by plan documents, see Young v. Gen. Motors Inv. Mgmt. Corp., 550 F. Supp.
2d 416, 420 (S.D.N.Y. 2008), Defendants’ argument is unavailing at this stage of the proceeding.
Actual knowledge requires the plaintiff to know “all material facts necessary to
understand” that a breached has occurred. Caputo, 267 F.3d at 193. “[I]t is not enough that [the
plaintiffs] had notice that something was awry; [the plaintiffs] must have had specific knowledge
of the actual breach of duty upon which [they sued].” Id. (quoting Brock v. Nellis, 809 F.2d 753,
755 (11th Cir. 1987)). The Complaint asserts that Defendants violated ERISA by offering
proprietary funds that charged fees that were excessive in relation to funds that were not included
in the Plan but readily available. Given this allegation, the data for these comparator funds’ fees
and performance are material to Plaintiffs understanding that ERISA has been violated. See
Leber v. Citigroup 401(k) Plan Inv. Comm., No. 07 Civ. 9329, 2014 WL 4851816, at *4
(S.D.N.Y. Sept. 30, 2014) (“Plaintiffs could not have known that the fees were excessive, and
thus a basis for an ERISA claim, without the relevant comparison point for assessing
excessiveness.”).
In this case, the Complaint explicitly alleges that Plaintiffs did not have knowledge of the
“comparison of Plan costs and investment performance versus other available alternatives,
comparison to other similarly-sized plans, information regarding other available share classes,
and information regarding separate and collective trusts” until “shortly before this suit was
filed.” This allegation must be accepted as true on this motion. Littlejohn, 795 F.3d at 306.
Defendants have not shown that it is clear from the face of the Complaint or any judicially

8

noticed court filings3 that Plaintiffs actually knew of the fee or performance data for the
comparable alternative funds more than three years before the commencement of this suit.
Accordingly, dismissal under Rule 12(b)(6) based on ERISA’s three-year statute of limitation is
denied.
2. The Six-Year Limitations Period
Defendants alternatively argue that Plaintiffs’ prohibited transaction claims -- Counts
Two and Three -- are barred by the six-year limitation period provided by 29 U.S.C. § 1113(1).
Section 1113(1) bars claims that are filed more than six years after “[t]he date of the last action
which constituted a part of the . . . violation.” Id. § 1113(1). Defendants argue that the claims
are time barred because the only transaction allegedly prohibited under § 1106 was the initial
decision to include the proprietary funds in the Plan and the proprietary funds were all initially
selected “well over six years ago.”
This argument fails as it does not accurately characterize the allegations in the Complaint.
The Complaint alleges that the relevant prohibited transactions were the “shareholder service
fees” paid to DSC and the monthly payments made to DIMA and RREEF in exchange for
investment management services, and not the selection of the proprietary funds. According to
the Complaint, these payments were deducted from “the assets being held for the Plan that were
invested in Deutsche Bank-affiliated mutual funds.”

3

Defendants attached to their motion to dismiss documents they claim can be considered
at the complaint stage because those documents “are either legally required disclosures, or are
documents possessed by or known to Plaintiffs and upon which Plaintiffs relied in bringing this
action.” See ATSI Commc’ns, Inc., 493 F.3d at 98. Because Plaintiffs do not dispute that such
documents can be judicially noticed and such documents are not dispositive to the statute of
limitation defense, the Court assumes -- without deciding -- that Defendants’ documents can be
properly considered.
9

Citing 29 U.S.C. § 1101(b)(1), Defendants respond that these monthly payments to “fund
advisors are not governed by ERISA because mutual fund assets are not plan assets.” At this
stage of the litigation, this argument is unpersuasive. Section 1106(a) covers transactions that
constitute an “indirect . . . furnishing of . . . services” or “indirect . . . transfer[s] to . . . a party in
interest, of any assets of the plan.” Id. § 1106(a)(1)(C), (D). By alleging that Defendants
included the proprietary funds for the purpose of increasing the amount of fees paid to DIMA,
RREEF and DSC, the Complaint sufficiently alleges that the challenged transactions were
indirect transfers to a party in interest.
Dismissal is not warranted based on Defendants’ statute of limitations affirmative
defense as it is not clear from the face of the Complaint or judicially noticed court filings that
Plaintiffs’ claims are time barred under 29 U.S.C. § 1113.
B. Failure to State a Claim
1. Breach of Fiduciary Duty (Count I)
The Complaint sufficiently pleads a claim for breach of fiduciary duty under 29 U.S.C.
§ 1104(a). Section 1104(a)(1) imposes both a duty of loyalty and a duty of care. See Cent.
States, Se. & Sw. Areas Pension Fund v. Cent. Transp., Inc., 472 U.S. 559, 570 (1985). The duty
of loyalty requires a fiduciary to “discharge his duties with respect to a plan solely in the interest
of the participants and beneficiaries and . . . for the exclusive purpose of[] providing benefits to
participants and their beneficiaries; and . . . defraying reasonable expenses of administering the
plan.” 29 U.S.C. § 1104(a)(1)(A).
The duty of care compels a fiduciary to act “with the care, skill, prudence, and diligence
under the circumstances then prevailing that a prudent [person] acting in a like capacity and
familiar with such matters would use in the conduct of an enterprise of a like character and with

10

like aims.” Id. § 1104(a)(1)(B). “[T]his standard focus[es] on a fiduciary’s conduct in arriving
at an investment decision, not on its results, and ask[s] whether a fiduciary employed the
appropriate methods to investigate and determine the merits of a particular investment.” Pension
Benefit Guar. Corp. ex rel. St. Vincent Catholic Med. Ctrs. Ret. Plan v. Morgan Stanley Inv.
Mgmt. Inc., 712 F.3d 705, 716 (2d Cir. 2013) (second and third alteration in original) (internal
quotation marks and citation omitted). Whether a fiduciary acted with the requisite care “is
measured according to the objective prudent person standard developed in the common law of
trusts.” Chao v. Merino, 452 F.3d 174, 182 (2d Cir. 2006). “[U]nder trust law, a fiduciary
normally has a continuing duty of some kind to monitor investments and remove imprudent
ones.” Tibble v. Edison Int’l, 135 S. Ct. 1823, 1828–29 (2015).
Even where a plaintiff’s allegations “do not directly address[] the process by which the
Plan was managed, a claim alleging a breach of fiduciary duty may still survive a motion to
dismiss if the court, based on circumstantial factual allegations, may reasonably infer from what
is alleged that the process was flawed.” Pension Benefit Guar. Corp., 712 F.3d at 718 (internal
quotation marks and citation omitted). “For instance, the complaint may allege facts sufficient to
raise a plausible inference that . . . a superior alternative investment was readily apparent such
that an adequate investigation would have uncovered that alternative.” Id. at 719.
The Complaint plausibly alleges that, by failing to remove excessively costly proprietary
mutual funds, the defendants who were Plan fiduciaries breached their duties to act in the best
interests of the Plan and with due care. The Complaint alleges that proprietary index funds
offered by the Plan charged fees that were excessive compared with similar investment products
offered by Vanguard. Specifically, the Complaint alleges that one proprietary index fund
charged fees that were more than eleven times higher than a comparable Vanguard index fund,

11

and that this fee differential increased each year as did the Plan’s investment in the proprietary
fund. Equally important, the Complaint alleges that Defendants stood to benefit from the alleged
excessive fees because Deutsche Bank entities were paid investment management fees by these
proprietary funds. These specific allegations regarding excessive fees from which Defendants
stood to gain is sufficient to support the inference that the process used by the defendants who
were Plan fiduciaries to select and maintain the Plan’s investment options was “tainted by failure
of effort, competence, or loyalty.” Braden v. Wal-Mart Stores, Inc., 588 F.3d 585, 596 (8th Cir.
2009).
Defendants offer their own facts to contest the plausibility of the allegation that the
proprietary funds were underperforming. Defendants’ assertions raise factual issues that cannot
be resolved at the motion to dismiss stage. In sum, Defendants’ contention that the Complaint
fails to state a claim for breach of fiduciary duty is rejected.
2. Prohibited Transaction Claims (Count II and III)
Defendants argue that Plaintiffs have failed to state prohibited transaction claims under
29 U.S.C. § 1106 because the alleged transactions are covered by certain statutory exemptions.
This argument is unavailing because it is not clear from the face of the Complaint or judicially
noticed court filings that any exemption applies.
A defendant bears the burden of showing that an exemption to § 1106 applies. See
Lowen v. Tower Asset Mgmt., Inc., 829 F.2d 1209, 1215 (2d Cir. 1987) (noting that a fiduciary
charged with engaging in a prohibited transaction “must prove by a preponderance of the
evidence that the transaction in question fell within an exemption”). Because the defendant has
the burden of proof, whether an exemption precludes a plaintiff’s prohibited transaction claim is
treated as an “affirmative defense[] for pleading purposes.” Allen v. GreatBanc Tr. Co., No. 15-

12

3569, 2016 WL 4474730, at *3 (7th Cir. Aug. 25, 2016). As such, on a Rule 12(b)(6) motion, it
must be clear from the face of the Complaint or judicially noticed court filings that the Plan’s use
of proprietary funds falls within an available exemption. See Staehr, 547 F.3d at 425.
Defendants first contend that the prohibited transaction claims are foreclosed under 29
U.S.C. § 1108(b)(8), which provides that § 1106’s prohibitions do not restrict “[a]ny transaction
between a plan and . . . 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”
if the following conditions are met:
(A) the transaction is a sale or purchase of an interest in the fund,
(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.
Defendants have not shown from the face of the Complaint that each of these requirements is
met. For instance, the exemption applies only to a “sale or purchase of an interest in the fund,”
but the alleged prohibited transactions are the payment of periodic fees to DIMA, RREEF and
DSC from the assets being held for the Plan. See Santomenno v. Transamerica Life Ins. Co., No.
12 Civ. 2782, 2016 WL 2851289, at *6 (C.D. Cal. May 13, 2016) (noting that § 1108(b)(8) “is
not about fees or how fees are properly collected”). At this stage of the litigation, § 1108(b)(8)
does not bar Plaintiffs’ claims.
Defendants also argue that the alleged transactions are exempt under Department of
Labor (“DOL”) Prohibited Transaction Exemption 77–3 (“PTE 77–3”), 42 Fed. Reg. 18,734
(Mar. 31, 1977). PTE 77–3 provides in pertinent part that “‘the restrictions of [29 U.S.C. §
1106] shall not apply to the acquisition or sale of shares of an open-end investment company

13

registered under the Investment Company of Act of 1940’ -- i.e., a mutual fund -- ‘by an
employee benefit plan covering only employees of such investment company.’” Leber v.
Citigroup, Inc., No. 07 Civ. 9329, 2010 WL 935442, at *10 (S.D.N.Y. Mar. 16, 2010) (quoting
PTE 77–3). This exemption applies only if certain requirements are met, including that “the plan
must pay no ‘investment management, investment advisory or similar fee’ to the mutual fund,
although the mutual fund itself may pay such fees to its managers.” Id. (quoting PTE 77–3(a)).
Further, “[a]ll other dealings between the plan and the investment company” must be “on a basis
no less favorable to the plan than such dealings are with other shareholders of the investment
company.” PTE 77–3(d).
Defendants have not shown from the face of the Complaint that the dealings between the
proprietary mutual funds and the Plan were not “less favorable to the [Plan] than such dealings
are with other shareholders” of those mutual funds. Specifically, the Complaint alleges that the
defendants who were Plan fiduciaries failed to include in the Plan the lowest-cost share classes
while such share classes were made available to Deutsche Bank’s institutional clients. See
Krueger v. Ameriprise Fin., Inc., No. 11 Civ. 2781, 2012 WL 5873825, at *17 (D. Minn. Nov.
20, 2012) (denying Rule 12(b)(6) motion based on PTE 77–3 where the plaintiffs claimed that
the defendants failed to make available “the lowest-cost share class of [certain] funds” that were
available to “similarly situated institutional shareholders, who could have invested in lower cost
shares”). Accordingly, Defendants have failed to show that an exemption precludes the
prohibited transaction claims.
3. Lack of Fiduciary Status
Counts I, II and III state a valid claim against some defendants, but not DIMA and
RREEF, which are dismissed from those claims. The Complaint fails to allege that DIMA and

14

RREEF are Plan fiduciaries under ERISA. Section 1002(21)(A)(ii) provides that “a person is a
fiduciary with respect to a plan to the extent . . . he renders investment advice for a fee or other
compensation, direct or indirect, with respect to any moneys or other property of such plan.”
Courts have incorporated the DOL’s regulations, 29 C.F.R. § 2510.3–21, when
interpreting § 1002(21)(A)(ii), explaining that:
to plead that a defendant is a fiduciary because it provided ‘investment advice for
a fee,’ a plaintiff must plead that (1) the defendant provided individualized
investment advice; (2) on a regular basis; (3) pursuant to a mutual agreement,
arrangement, or understanding that (4) the advice would serve as a primary basis
for the plan’s investment decisions; and (5) the advice was rendered for a fee.
Walker v. Merrill Lynch & Co., No. 15 Civ. 1959, 2016 WL 4775823, at *5 (S.D.N.Y. Mar. 25,
2016) (quoting F.W. Webb Co. v. State St. Bank & Tr. Co., No. 09 Civ. 1241, 2010 WL 3219284,
at *8 (S.D.N.Y. Aug. 12, 2010)); accord Santomenno ex rel. John Hancock Tr. v. John Hancock
Life Ins. Co., 768 F.3d 284, 297 (3d Cir. 2014) (applying the five-part test derived from 29
C.F.R. § 2510.3–21).4
The Complaint does not sufficiently allege that DIMA and RREEF provided investment
advice to the Plan for a fee. The Complaint asserts that DIMA and RREEF provided investment
advice to the mutual funds, but does not allege that it provided such advice to the Plan. Plaintiffs
also fail to allege any facts to support the inference that the advice rendered by DIMA and
RREEF served as the “primary basis” for the Plan’s investment decisions. See Walker, 2016 WL
4775823, at *7. Rather, the Complaint alleges that the decision to include or remove the
proprietary mutual funds was made by the Investment Committee, and does not allege that
4

Although the DOL has promulgated a regulation that amends its interpretation of the term
“fiduciary” as defined in 29 U.S.C. § 1103(21)(a)(ii), the interpretation in the text above remains
effective through April 2017. See 29 C.F.R. § 2510.3–21(j); see generally Definition of the
Term “Fiduciary”; Conflict of Interest Rule—Retirement Investment Advice, 81 Fed. Reg. 20,
946, 20,954–58 (Apr. 8, 2016) (to be codified at 29 C.F.R. § 2510.3–21) (discussing the five-part
test and DOL’s prospective amendments).
15

DIMA or RREEF provided any investment advice to the Investment Committee. Because the
Complaint fails to allege that DIMA and RREEF are fiduciaries, Counts I, II, and III are
dismissed as against them.
4. Failure to Monitor Claim (Count IV)
Defendants’ only argument as to why Count IV fails to state a claim is that the failure-tomonitor claim is “wholly derivative of Counts I-III and therefore falls on the same grounds.”
Because Plaintiffs have sufficiently alleged claims under Counts I, II and III, Defendants’
argument regarding the failure-to-monitor claim fails.
5. Equitable Restitution (Count V)
Defendants seek dismissal of Count V, which seeks equitable restitution under 29 U.S.C.
§ 1132(a)(3). This section permits plan participants to bring a civil action “to obtain other
appropriate equitable relief” to redress “any act or practice which violates” ERISA. 29 U.S.C. §
1132(a)(3). The Complaint alleges that the Employer Defendants “should be required to
disgorge all monies they received during the relevant class period as a result of the Plan’s
investments in Deutsche Bank-affiliated mutual funds.”
Under § 1132(a)(3), “equitable relief’ . . . refer[s] to those categories of relief that were
typically available in equity.” Great-W. Life & Annuity Ins. Co. v. Knudson, 534 U.S. 204, 210
(2002) (internal quotation marks and citation omitted). “[A] plaintiff could seek restitution in
equity, ordinarily in the form of a constructive trust or an equitable lien, where money or
property identified as belonging in good conscience to the plaintiff could clearly be traced to
particular funds or property in the defendant’s possession.” Id. at 213 (emphasis omitted). One
“limited exception” to the requirement that money be clearly traceable occurs when a party seeks
an “accounting for profits.” Id. at 214 n.2. As the Supreme Court explained, “[i]f, for example,
a plaintiff is entitled to a constructive trust on particular property held by the defendant, he may
16

also recover profits produced by the defendant’s use of that property, even if he cannot identify a
particular res containing the profits sought to be recovered.” Id.
Plaintiffs contend that they seek “an accounting for profits” and therefore the traceability
requirement does not apply. The Complaint, however, fails to state this “limited” equitable
claim. The Complaint demands “all monies . . . received” by the Employer Defendants “as a
result of the Plan’s investments in Deutsche Bank-affiliated mutual funds;” the request is not
limited to the profits on particular property held by Defendants. Moreover, to the extent that
Plaintiffs seek other kinds of equitable restitution, Plaintiffs fail to allege facts sufficient to meet
the traceability requirement. As the Complaint alleges, the fees sought were paid from a “pool of
assets.” See Urakhchin v. Allianz Asset Mgmt. of America, L.P., No. 15 Civ. 1614, 2016 WL
4507117, at *8 (C.D. Cal. Aug. 5, 2016) (dismissing claim for equitable restitution where the
“[p]laintiffs fail to allege that any of the money sought to be disgorged can be traced to particular
funds or property in the [d]efendants’ possession”). Thus, Plaintiffs have failed to state a claim
under 29 U.S.C. § 1132(a)(3).
IV.

CONCLUSION
For the foregoing reasons, Defendants’ Rule 12(b)(6) motion is DENIED in part and

GRANTED in part. Count V is dismissed in its entirety, and Defendants DIMA, RREEF, DSC
and DB AG are dismissed from this action. Plaintiffs’ remaining claims against Defendants
DBAHC, the Investment Committee, the Executive Committee and O’Connell remain pending.
Defendants’ motion for oral argument is DENIED as moot.
The Clerk of Court is directed to close the motions at Dkt. Nos. 30 and 38.
Dated: October 13, 2016
New York, New York

17