Patrico v. Voya Financial, Inc. et al
OPINION AND ORDER: re: 73 MOTION for Leave to File First Amended Complaint, filed by Lisa Patrico. Plaintiff's motion for leave to file the FAC is DENIED as futile because none of the claims could survive a motion to dismiss. T he Clerk of Court is directed to close the motion at Docket No. 73 and close the case, and as further set forth in this order. Motions terminated: 73 MOTION for Leave to File First Amended Complaint, filed by Lisa Patrico. (Signed by Judge Lorna G. Schofield on 3/13/2018) (ap)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
VOYA FINANCIAL, INC., et al.,
16 Civ. 7070 (LGS)
OPINION AND ORDER
LORNA G. SCHOFIELD, District Judge:
Plaintiff Lisa Patrico initiated this putative class action on behalf of all participants and
beneficiaries of the Nestle 401(k) Savings Plan (the “Plan”) and “All Other Similarly Situated
Individual Account Plans” against Defendants Voya Financial, Inc. (“Voya Financial”); Voya
Institutional Plan Services, LLC (“Voya Institutional”); Voya Investment Management, LLC;1
and Voya Retirement Advisors, LLC (“VRA”). Plaintiff’s Complaint was dismissed in its
entirety for failure to state a claim. See Patrico v. Voya Fin., Inc., No. 16 Civ. 7070, 2017 WL
2684065, at *1 (S.D.N.Y. June 20, 2017). Plaintiff moves for leave to file the First Amended
Complaint (the “FAC”) under Federal Rule of Civil Procedure 15(a)(2). Plaintiff’s motion is
The following alleged facts are based on the FAC and documents that are integral to the
FAC, and all factual allegations are assumed to be true for purposes of this motion. See Trs. of
Upstate N.Y. Eng’rs Pension Fund v. Ivy Asset Mgmt., 843 F.3d 561, 566 (2d Cir. 2016). The
FAC elaborates on Defendants’ conduct alleged in the dismissed Complaint, but the gravamen of
Plaintiff’s claims is unchanged.
The FAC no longer names Voya Investment Management, LLC as a Defendant in this action.
A. Factual Background
Plaintiff is a participant in the Plan. The Plan permits participants to invest the funds in
their accounts using various investment vehicles. The “menu” of investment options is selected
by the Plan’s sponsor and named fiduciary, Nestle USA (“Nestle”).
Under an agreement between Nestle and Defendant Voya Institutional (the
“Administrative Services Agreement”), Voya Institutional provides recordkeeping and platform
services to the Plan, including keeping track of Plan participants’ assets, maintaining a call center
and online web portal and preparing periodic account statements. The Administrative Services
Agreement makes clear that Voya Institutional does not provide investment advisory services,
including managed account services, to Plan participants.2
To provide Plan participants access to investment advice, Nestle entered into a separate
Investment Advisory Services Agreement with Voya Institutional’s subsidiary, Defendant VRA
(the “Nestle-VRA Agreement”). Under the Nestle-VRA Agreement, VRA offers Plan
participants two options for investment advice: a self-service, online program called “Personal
Online Advisor,” for which Nestle pays VRA a fixed “Platform Fee,” and a managed account
service called “Professional Account Manager,” for which Nestle pays VRA both the Platform
Fee and an additional fee based on the value of each participant’s account.
Although VRA offers these programs, Financial Engines Advisors, LLC (“Financial
Engines”) provides the investment advice pursuant to an agreement between VRA and Financial
Engines. Under that agreement, VRA agreed to “provide its discretionary managed account
portfolio management service, the Personal Asset Manager Program, to enable Advisor to brand
The Administrative Services Agreement states that Voya Institutional is not “a fiduciary within
the meaning of ERISA, the Investment Advisor’s Act of 1940 or any state law with respect to
and offer the same as the Professional Account Manager to Program and potential Program
Participants.” VRA’s sub-advisory agreement with Financial Engines is disclosed in the NestleVRA Agreement and in a brochure for Plan participants about the program.
The FAC alleges that by structuring its investment advisory program in this way, VRA
received a fee for services that it did not provide and to which it was not entitled. Based on this
alleged conduct, the FAC alleges that VRA and the other Defendants, including Voya
Institutional and its parent Voya Financial, breached their fiduciary duties and engaged in
prohibited transactions in violation of ERISA.
B. Procedural Background
Although the proposed FAC alleges seven more causes of action than the Complaint for a
total of nine, both the Complaint and the FAC are based on substantially the same allegations of
wrongdoing on the part of Defendants and Nestle, a non-party.
In an Opinion and Order dated June 20, 2017, the Court granted Defendants’ motion to
dismiss the Complaint, holding that it failed adequately to allege that any Defendant was an
ERISA fiduciary with respect to the fees charged for the investment advice service, or that any
ERISA fiduciary caused the Plan to pay those fees with actual or constructive knowledge that
they were excessive. Patrico, 2017 WL 2684065, at *4. The Court further held that the
Complaint failed to make any specific allegations as to Voya Financial, Voya Institutional and
Voya Investment Management, LLC, and therefore that it failed to state a claim against them.
Pursuant to the June 20, 2017, Order, Plaintiffs were permitted to file a motion for leave
to file a proposed amended complaint, which is the subject of this Opinion.
“Although Rule 15(a) of the Federal Rules of Civil Procedure provides that leave to
amend ‘shall be freely given when justice so requires,’ it is within the sound discretion of the
district court to grant or deny leave to amend.” Kim v. Kimm, No. 16 Civ. 2944, 2018 WL
1054751, at *5 (2d Cir. Feb. 27, 2018) (internal quotation marks omitted). “Leave to amend may
be denied for good reason, including futility, bad faith, undue delay, or undue prejudice to the
opposing party.” Id. (internal quotation marks omitted). “A proposed amendment to a complaint
is futile when it could not withstand a motion to dismiss.” F5 Capital v. Pappas, 856 F.3d 61, 89
(2d Cir. 2017). In considering such a motion, a court accepts as true all factual allegations and
draws all reasonable inferences in the plaintiff’s favor. See Trs. of Upstate N.Y. Eng’rs Pension
Fund, 843 F.3d at 566. The Court may “consider the facts alleged in the complaint, documents
attached to it or incorporated by reference, and matters subject to judicial notice.” N.Y. Pet
Welfare Ass’n v. City of New York, 850 F.3d 79, 86 (2d Cir. 2017). “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.
A. Alleged Breach of Fiduciary Duties and Engaging in Prohibited Transactions
Against Voya Institutional and VRA in Connection with Alleged Excessive Fees -Counts II, IV, V and VI
Proposed Counts II, IV, V and VI allege that Voya Institutional and VRA breached their
fiduciary duties, or in their capacity as Plan fiduciaries, engaged in prohibited transactions in
violation of ERISA. Each of these Counts would be futile as a matter of law because the FAC
does not adequately allege that Voya Institutional or VRA were Plan fiduciaries with respect to
the challenged conduct.
1. Applicable Law
“‘In every case charging breach of ERISA fiduciary duty . . . the threshold question is . . .
whether that person was acting as a fiduciary (that is, was performing a fiduciary function) when
taking the action subject to complaint.’” Coulter v. Morgan Stanley & Co., 753 F.3d 361, 366
(2d Cir. 2014) (quoting Pegram v. Herdrich, 530 U.S. 211, 226 (2000)). ERISA fiduciaries are
either named under the plan or exercise discretionary functions. In re Citigroup ERISA Litig.,
104 F. Supp. 3d 599, 613 (S.D.N.Y. 2015).
Under ERISA, a person who is not named as a fiduciary in the plan is a fiduciary “to the
extent” that she: (1) “exercises any discretionary authority or discretionary control respecting
management of such plan or exercises any authority or control respecting management or
disposition of its assets,” (2) “renders investment advice for a fee or other compensation, direct
or indirect, with respect to any moneys or other property of such plan, or has any authority or
responsibility to do so,” or (3) possesses “any discretionary authority or discretionary
responsibility in the administration of such plan.” 29 U.S.C. § 1002(21)(A); see also Coulter,
753 F.3d at 366. The Supreme Court has recognized that an ERISA fiduciary “may wear
different hats” and is not necessarily acting as a fiduciary whenever her acts affect
beneficiaries. Pegram, 530 U.S. at 225; accord Coulter, 753 F.3d at 366 (“‘[A] person may be
an ERISA fiduciary with respect to certain matters but not others.’”) (quoting F.H. Krear & Co.
v. Nineteen Named Trs., 810 F.2d 1250, 1259 (2d Cir. 1987)).
With respect to a service provider’s fees, in F.H. Krear & Co. v. Nineteen Named
Trustees, the Second Circuit explained, “When a person who has no relationship to an ERISA
plan is negotiating a contract with that plan, he has no authority over or responsibility to the plan
and presumably is unable to exercise any control over the trustees’ decision whether or not, and
on what terms, to enter into an agreement with him.” 810 F.2d at 1259. “[A]fter a person has
entered into an agreement with an ERISA-covered plan, the agreement may give [that person]
such control over factors that determine the actual amount of [that person’s] compensation that
the person thereby becomes an ERISA fiduciary with respect to that compensation.” Id.; accord
Hannan v. Hartford Fin. Servs., Inc., 688 F. App’x 85, 89 (2d Cir 2017) (summary order). In
either case, fiduciary status depends on the service provider’s ability to control unilaterally the
amount of compensation it receives. “[A]n agent with a contractually-established commission
rate is not, without other indicia, a fiduciary to the plan.” United States v. Glick, 142 F.3d 520,
528 (2d Cir. 1998); accord United Teamster Fund v. MagnaCare Admin. Servs., LLC, 39 F.
Supp. 3d 461, 470 (S.D.N.Y. 2014). “Even unreasonable compensation does not make a
contractor a fiduciary if the rate is set by contract.” United Teamster Fund, 39 F. Supp. 3d at
470 (citing Schulist v. Blue Cross of Iowa, 717 F.2d 1127, 1131–32 (7th Cir. 1983)).
The viability of Counts II, IV, V and VI depends on whether Voya Institutional and VRA
were acting as fiduciaries with respect to the challenged conduct -- negotiating and
paying/receiving VRA’s fees under the Nestle-VRA Agreement. Specifically, Count II alleges
that Voya Institutional and VRA breached their fiduciary duties (as co-fiduciaries with Nestle)
by knowingly participating in Nestle’s alleged breach of fiduciary duty; Counts IV and VI allege
that Voya Institutional and VRA engaged in a prohibited transaction as fiduciaries by paying
themselves excessive fees in accordance with the Nestle-VRA Agreement; and Count V alleges
that VRA breached its fiduciary duty of loyalty by failing to disclose to Plan participants that its
fee was excessive.
Despite these claims, the proposed FAC fails to allege any facts that would result in Voya
Institutional or VRA being a fiduciary with respect to VRA’s fees, either during the negotiation
or after the execution of the Nestle-VRA Agreement. As a matter of law, neither Defendant was
acting as a fiduciary while negotiating VRA’s fees. “Under 29 U.S.C. §§ 1002(21)(A)(i) and
(iii), “‘[o]nly discretionary acts of plan . . . management trigger fiduciary duties.’” Santomenno
v. Transamerica Life Ins., --- F.3d ----, 2018 WL 1022460, at *4 (9th Cir. 2018) (quoting
Santomenno ex rel. John Hancock Tr. v. John Hancock Life Ins., 768 F.3d 284, 293) (3d Cir.
2014) (alterations in original)). “A service provider is plainly not involved in plan management
when negotiating its prospective fees or compiling a list of proposed investment options.” Id.
Section 1002(A)(21)(ii) similarly is unavailing because neither Defendant was rendering
investment advice while negotiating the Nestle-VRA Agreement. Any claim based on VRA’s
allegedly excessive fee arrangement lies against only Nestle, which retained ultimate authority to
accept or reject the proposed terms. See, e.g., id. (holding that “claims that fully disclosed fee
arrangements are unreasonable lie against the employer, not the service provider”); John
Hancock Life Ins., 768 F.3d at 293 (same).
Similarly, neither Defendant was acting as a Plan fiduciary when it paid and/or accepted
Plan assets as payment for services rendered under the Nestle-VRA Agreement because neither
Defendant exercised any discretion or control over the amount of VRA’s fees, which was set by
a pre-determined formula over whose inputs neither Voya Institutional nor VRA had any control.
See F.H. Krear, 810 F.2d at 1259 (holding that a person may become a fiduciary with respect to
their compensation if “the agreement . . . give[s] [that person] such control over factors that
determine the actual amount of [that person’s] compensation”); see also Transamerica Life Ins.,
2018 WL 1022460, at *6 (holding that “with respect to withdrawing its formula-driven fee from
the pooled accounts,” a service provider’s actions were “purely ministerial” and “do not give rise
to fiduciary liability under ERISA”); McLemore v. Regions Bank, 682 F.3d 414, (6th Cir. 2012)
Plaintiff’s arguments that Voya Institutional and VRA were acting as fiduciaries with
respect to VRA’s fees are unpersuasive. First, Plaintiff argues that under the terms of the NestleVRA Agreement, VRA was an express fiduciary, i.e., that the Nestle-VRA Agreement expressly
required VRA to act in compliance with ERISA, as if it were a fiduciary. Under the Nestle-VRA
Agreement, however, VRA is designated as a fiduciary only “with respect to the services
provided” in its capacity as an investment manager for the Plan. This language cannot
reasonably be construed as conferring on VRA fiduciary status with respect to its own fees.
Second, the proposed FAC alleges that Voya Institutional and VRA exercised discretion
or control over the amount of VRA’s fees based on a provision in VRA’s agreement with
Financial Engines that states VRA “will be responsible for the payment of any compensation due
to Financial Engines.” Based on this provision, Plaintiff argues that “VRA’s fiduciary
responsibility included determining how much to not pay to Financial Engines and keep for
itself.” Neither this provision nor any provision in the Nestle-VRA Agreement supports
Plaintiff’s argument that Voya Institutional or VRA exercised discretion or control over the
amount of VRA’s fees under the Nestle-VRA Agreement, or undermines the conclusion that
Nestle was the ultimate decision-maker with respect to VRA’s fees. Nor does the FAC allege
that Voya Institutional or VRA paid themselves more than the amount to which they were
entitled under the Nestle-VRA Agreement. See United Teamster Fund, 39 F. Supp. 3d at 470
(“[R]etaining payments in excess of costs does not create a fiduciary duty where the contract
expressly authorizes the withholding, or where the contract simply does not require a contractor
‘to pass along all of the savings.” (internal citations omitted)); see also Harris Tr. & Sav. Bank v.
John Hancock Mut. Life Ins. Co., 302 F.3d 18, 28–29 (2d Cir. 2002) (holding that a service
provider that adheres to the agreed-upon terms of an employee retirement plan is not bound to
deviate from those terms against its own interests simply because doing so could result in gains
to plan participants); Chendes v. Xerox HR Sols., No. 16 Civ. 13980, 2017 WL 4698970, at *4
(E.D. Mich. Oct. 19, 2017) (rejecting argument that defendant was a fiduciary with respect to its
compensation where plaintiffs “refer[ed] not to [d]efendant’s discretion in retaining funds from
[p]laintiffs, but rather to [d]efendant’s ‘discretion over the compensation it received from
F[inancial]E[ngines]’” (emphasis in original)).
Third, Plaintiff argues that Voya Institutional and VRA were fiduciaries with respect to
the Plan and VRA’s fees because each played a role in the appointment of a fiduciary, which is
itself a fiduciary act. Specifically, Voya Institutional and VRA allegedly engaged Financial
Engines, and Voya Institutional allegedly played a role in the appointment of VRA. As
explained above, Voya Institutional and VRA did not owe a duty to the Plan during the
negotiation of the Administrative Services Agreement or the Nestle-VRA Agreement and
therefore they cannot be held liable for any role they played in the appointment of Financial
Engines and/or VRA under those Agreements. Even if Voya Institutional and VRA were
fiduciaries by virtue of their appointment of another fiduciary, the challenged conduct -- their
payment and/or receipt of excessive fees -- is not sufficiently related to give rise to fiduciary
liability. See Renfro v. Unisys Corp., 671 F.3d 314, 321 (3d Cir. 2011) (“[W]e must ask whether
the entity is a fiduciary with respect to the particular activity in question”); Pegram, 530 U.S. at
226 (“[T]he threshold question is . . . whether [the] person was acting as a fiduciary . . . when
taking the action subject to complaint.”); see also Howell v. Motorola, Inc., 633 F.3d 552, 562
(7th Cir. 2011) (noting that an entity’s involvement in the appointment of a fiduciary can give
rise to fiduciary duties, including “a duty to choose appointees wisely and to monitor their
Lastly, even if, as the FAC alleges, Voya Institutional and VRA leveraged the difficulty
and expense of switching Plan recordkeepers to influence Nestle’s decision to engage VRA and
Financial Engines, the FAC does not allege any facts to support the inference that the decision to
engage VRA and Financial Engines was not ultimately Nestle’s to make. Chendes, 2017 WL
4698970, at *5 (citing Hecker v. Deere & Co., 556 F.3d 575, 584 (7th Cir. 2009)) (“There is an
important difference between an assertion that a firm exercised ‘final authority’ over the choice
of funds, on the one hand, and an assertion that a firm simply ‘played a role’ in the process, on
the other hand.”); Fleming v. Fidelity Mgmt. Tr. Co., No. 16 Civ. 10918, 2017 WL 4225624, at
*7 (D. Mass. Sept. 22, 2017) (rejecting argument that defendant was a fiduciary by virtue of its
appointing Financial Engines where the Master Trust Agreement between the plan sponsor and
defendant “compel[led] the conclusion” that the plan sponsor appointed Financial Engines). As
the FAC fails to allege that either Voya Institutional or VRA was a fiduciary with respect to the
challenged conduct, Counts II, IV, V and VI fail as a matter of law.
B. Alleged Breach of Fiduciary Duty Against VRA for Marketing Financial Engines’
Services -- Count III
Count III alleges that VRA engaged in a prohibited transaction under ERISA § 406(b)(2)
based on VRA’s “conduct in marketing Financial Engines’ services” to the Plans for a fee. This
claim also would be futile because the FAC does not plead sufficiently that VRA was a fiduciary
with respect to the challenged action.
1. Applicable Law
“Section 406 of ERISA supplements the general fiduciary obligations set forth in § 404
by prohibiting certain categories of transactions believed to pose a high risk of fiduciary selfdealing.” Henry v. Champlain Enters., Inc., 445 F.3d 610, 618 (2d Cir. 2006). VRA’s liability
in Count III is based on § 406(b)(2), which in relevant part prohibits a plan fiduciary from
“act[ing] in any transaction involving the plan on behalf of a party . . . whose interests are
adverse to the interests of the plan or the interests of its participants or beneficiaries . . . .” The
Second Circuit has construed § 406(b)(2) “narrowly, holding that a transaction between the plan
and a party having an adverse interest is required.” Leber v. Citigroup, No. 07 Civ. 9329, 2010
WL 935442, at *12 (S.D.N.Y Mar. 16, 2010) (internal quotation marks omitted; citing Donovan
v. Bierwirth, 680 F.2d 263, 270 (2d Cir. 1982) (holding that § 406(b)(2) “[did] not apply” to a
plan fiduciary’s decision to invest in the stock of the plan’s sponsor company because the
sponsor company did not have “adverse” interests for purposes of ERISA). The FAC asserts that
VRA’s conduct violated this provision because VRA marketed Financial Engines’ fee-based
services to the Plans for which Voya Institutional was recordkeeper, and therefore, VRA
marketed the services of an entity whose interests were “adverse” to the Plan’s.
The FAC fails plausibly to allege that VRA engaged in a prohibited transaction under
§ 406(b)(2) for multiple reasons. First, the FAC fails to allege that VRA was acting as a
fiduciary while engaged in the challenged conduct -- marketing Financial Engines’ services to
plans for which Voya Institutional served as recordkeeper. As explained above, fiduciary
liability attaches to the extent that a person exercises discretion in relation to a plan. 29 U.S.C.
§ 1002(21)(A); see also Coulter, 753 F.3d at 366. Additionally, a court must determine whether
the person was a fiduciary with respect to the specific activity in question. See Renfro, 671 F.3d
at 321; Pegram, 530 U.S. at 225. Here, the FAC does not allege sufficient facts to support an
inference that VRA had discretion with respect to the decision of the plan sponsor to engage
Financial Engines. As the FAC does not plausibly allege that the decision to engage Financial
Engines was VRA’s (as opposed to Nestle’s), the FAC does not allege adequately that VRA
exercised discretion in relation to a plan. Nor does Plaintiff cite any law to support the assertion
that marketing a provider’s services itself gives rise to fiduciary duties. See Black v. Bresee’s
Oneonta Dep’t Store, Inc. Sec. Plan, 919 F. Supp. 597, 606 (N.D.N.Y. 1996) (stating that “the
mere marketing of the . . . plan does not implicate fiduciary conduct”) (internal quotation marks
omitted and ellipses in original); Olivet Boys’ & Girls’ Club of Reading v. Wachovia Bank, N.A.,
No. 08 Civ. 4702, 2009 WL 1911049, at *1 (E.D. Pa. July 1, 2009) (holding that “Wachovia
cannot be a fiduciary under ERISA because it did not render investment advice” and noting that
“[p]laintiffs describe[d] Wachovia’s actions with respect to the new fund as marketing”).
Second, the FAC fails to plead sufficient facts that Financial Engines’ interests were
“adverse” to those of the Plan. Merely providing its services to the Plan for a fee is insufficient
to render Financial Engines an adverse party. See Leber, 2010 WL 935442, at *13 (“With
respect to plaintiffs’ mutual fund claims, the complaint can be read to allege at most that
Citigroup sold investment securities to the Plan at prevailing market rates, conduct Donovan
instructs is insufficient to render the Plan’s interests ‘adverse’ to those of the sponsor
company.”). The FAC’s unsupported allegation that Financial Engines sought to obtain a
prohibited kickback for VRA likewise is insufficient. Accordingly, Count III fails as a matter of
C. Alleged Knowing Participation in Nestle’s Breach of Fiduciary Duty Against All
Defendants -- Count I
Count I alleges that Voya Financial, Voya Institutional and VRA knowingly participated
in Nestle’s violation of ERISA § 406(a). This claim fails because the FAC fails to allege
sufficient facts that Nestle engaged in a prohibited transaction by paying allegedly excessive fees
1. Applicable Law
Generally, § 406(a) concerns “commercial bargains that present a special risk of plan
underfunding because they are struck with plan insiders, presumably not at arm’s length.”
Lockheed Corp. v. Spink, 517 U.S. 882, 893 (1996). Defendants’ liability in Count I is premised
on an allegation that Nestle engaged in a prohibited transaction in violation of ERISA
§ 406(a)(1)(C) and (D), which provide:
A fiduciary with respect to a plan shall not cause the plan to engage in a transaction, if he
knows or should know that such transaction constitutes a direct or indirect . . . (C)
furnishing of goods, services, or facilities between the plan and a party in interest; [or]
(D) transfer to, or use by or for the benefit of a party in interest, of any assets of the plan
. . . .”
(Emphasis added). ERISA defines a “party in interest” to include any “person providing
services” to a plan. See 29 U.S.C. § 1022(14)(B).
Count I against all Defendants is predicated on Nestle’s allegedly engaging in a
prohibited transaction under § 406(a)(1). Specifically, the FAC alleges that Nestle engaged in a
prohibited transaction because VRA was a “party in interest” within the meaning of ERISA, and
Nestle caused the Plan to pay VRA’s excessive fees. This claim would be futile as a matter of
The proposed FAC alleges that Nestle had knowledge of VRA’s allegedly excessive fees
because it was apparent on the face of the Nestle-VRA Agreement that VRA was to be
compensated for investment advisory services that only Financial Engines was to offer.
Therefore, according to the FAC, any payments of fees to VRA were excessive because VRA
provided no compensable services under the Nestle-VRA Agreement.
Plaintiff’s contention that Nestle engaged in a prohibited transaction by paying a party in
interest -- VRA -- for services rendered to the Plan is unpersuasive. “[I]t is circular to suggest
that an entity which becomes a party in interest by providing services to the Plan has engaged
in a prohibited transaction simply because the Plan ha[s] paid for those services.” Sacerdote v.
N.Y.U., No. 16 Civ. 6284, 2017 WL 3701482, at *13 (S.D.N.Y. Aug. 25, 2017). And the FAC’s
allegation that Voya Institutional purposefully interposed VRA between Voya Institutional and
Financial Engines to justify higher fees is entirely speculative and not supported by facts alleged
in the FAC. See Cunningham v. Cornell Univ., No. 16 Civ. 6525, 2017 WL 4358769, at *10
(S.D.N.Y. Sept. 29, 2017) (“[A]bsent some evidence of self-dealing or other disloyal conduct,
allegations that the Plans violated § 406(a) by paying Fidelity and TIAA-CREF for
recordkeeping services -- even allegations that the Plans paid too much for those services -- do
not, without more, state a claim.”).
The FAC also fails to cure the deficiency identified in the original Complaint -- that it
failed to plead Nestle’s knowledge -- because the FAC pleads in a conclusory manner that Nestle
had actual or constructive knowledge that VRA’s fees were excessive. Drawing all reasonable
inferences in Plaintiff’s favor, the FAC alleges that Nestle knew VRA’s fees were excessive
because Nestle could have obtained the same level of services that VRA nominally provided,
either directly from Financial Engines, or in the market. This allegation is entirely conclusory.
The FAC fails to plead any facts to suggest that VRA’s fees exceeded the prevailing market rate
for the services Financial Engines’ actually provided, or that a prudent fiduciary would have
known that it could obtain same level of services for the price that VRA negotiated with
Financial Engines. A complaint is insufficient “if it tenders ‘naked assertion[s]’ devoid of
‘further factual enhancement.’” Pension Ben. Guar. Corp. ex rel. St. Vincent Catholic Med.
Ctrs. Ret. Plan v. Morgan Stanley Inv. Mgmt. Inc., 712 F.3d 705, 717 (2d Cir. 2013) (quoting
Twombly, 550 U.S. at 557).
Nor does Plaintiff cite any case holding that VRA’s advisor-sub-advisor relationship with
Financial Engines was per se improper, such that Nestle should have recognized it as
unreasonable. To endorse Plaintiff’s position in effect would prohibit service providers from
engaging third parties to manage their costs, or at a minimum, require plan sponsors to monitor
not only their own agreements with service providers but also their service providers’
agreements with third parties. Plaintiff has not presented any law to suggest that ERISA imposes
such a heavy burden on plan sponsors. Because the FAC fails to allege adequately any
underlying breach by Nestle, Count I based on Defendants’ knowing participation in Nestle’s
alleged breach fails as a matter of law.
D. Prohibited Kickback Claim Against Voya Institutional -- Count VII
Count VII alleges that that Voya Institutional received a prohibited “kickback” in
violation of ERISA § 406(b)(3) because it received dividend payments from VRA, its subsidiary,
in connection with Financial Engines’ services. This claim would be futile because the FAC
does not allege that Voya Institutional was a fiduciary with respect to the challenged conduct.
1. Applicable Law
Under ERISA § 406(b)(3), a plan fiduciary “shall not . . . receive any consideration for
his own personal account from any party dealing with such plan in connection with a transaction
involving assets of the plan.” 29 U.S.C. § 1106(b)(3). Section 406(b)(3) “applies only to
transactions between a plan and a fiduciary . . . and explicitly contemplates and bars fiduciaries
from receiving ‘any consideration for [their] own personal account from any party dealing with
such a plan in connection with a transaction involving assets of the plan.” Skin Pathology
Assocs., Inc. v. Morgan Stanley & Co., 27 F. Supp. 3d 371, 375 (S.D.N.Y. 2014) (alterations and
emphasis in original). Therefore, § 406(b)(3) “prohibits payment to a plan fiduciary of
kickbacks or other consideration by persons having an interest in a transaction involving plan
assets.” Id. “Fee-sharing arrangements between service providers and third party managers do
not in-and-of-themselves create a violation of ERISA.” Rosen v. Prudential Ret. Ins. & Annuity
Co., --- F. App’x ----, 2017 WL 4534782, at *3 (2d Cir. 2017) (summary order) (internal
quotation marks omitted).
Count VII is premised on Voya Institutional’s receipt of dividend payments from VRA -not the Plan. Accordingly, even if Voya Institutional were a fiduciary with respect to the Plan,
Count VII fails as a matter of law because the FAC does not allege that the transfer of payments
from VRA to Voya Institutional involved “assets of the plan.” See Chendes, 2017 WL 4698970,
at *9 (relying on Hecker, 556 F.3d at 584, for the proposition that plan assets once “lawfully paid
as fees to a service provider” cease to be plan assets and rejecting plaintiffs’ § 406(b)(3) claim
because “payments from F[inancial] E[ngines] to Defendant do not constitute ‘plan assets’”).
E. Knowing Participation in Conduct in Violation of ERISA Against Voya Financial
and Voya Institutional -- Counts VIII and IX
Counts VIII and IX seek equitable relief under ERISA § 502(a)(3) from Voya Financial
and Voya Institutional based on their allegedly benefiting from VRA’s “ill-gotten” fees. Section
502(a)(3) allows a “participant, beneficiary, or fiduciary” to obtain an injunction or “other
appropriate equitable relief” to redress an act that violates ERISA. 29 U.S.C. § 1332(a)(3); see
also Harris Tr. & Sav. Bank v. Salomon Smith Barney Inc., 530 U.S. 238, 246 (2000). The
Supreme Court has explained that the equitable relief permitted under this section is not
equitable relief “at large,” but only that which will enforce the terms of a plan or ERISA itself.
U.S. Airways, Inc. v. McCutchen, 569 U.S. 88, 100 (2013).
Here, the FAC’s claims for equitable relief under § 502(a)(3) are derivative of its breach
of fiduciary duty and prohibited transaction claims. Because the FAC fails to allege that any
ERISA fiduciary violated ERISA, the FAC’s claims for equitable relief necessarily fail. See
Fleming, 2017 WL 4225624, at *9 (dismissing claim for equitable relief where the complaint’s
underlying prohibited transaction claims failed).
Plaintiff’s motion for leave to file the FAC is DENIED as futile because none of the
claims could survive a motion to dismiss. The Clerk of Court is directed to close the motion at
Docket No. 73 and close the case.
Dated: March 13, 2018
New York, New York
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