HUFFMAN et al v. THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
MEMORANDUM/OPINION THAT PLAINTIFF'S MOTION FOR PARTIAL SUMMARY JUDGMENT, ECF NOS. 149-50 IS GRANTED IN PART AND DENIED IN PART; AND DEFENDANT'S MOTION FOR SUMMARY JUDGMENT, ECF NO. 151 IS GRANTED IN PART AND DENIED IN PART.SIGNED BY HONORABLE JOSEPH F. LEESON, JR ON 12/6/17. 12/6/17 ENTERED AND COPIES E-MAILED. (ky, )
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF PENNSYLVANIA
CLARK R. HUFFMAN;
PATRICIA L. GRANTHAM;
LINDA M. PACE; and
BRANDI K. WINTERS, individually and
on behalf of a class of all others similarly situated,
THE PRUDENTIAL INSURANCE COMPANY :
Plaintiffs’ Motion for Partial Summary Judgment, ECF Nos. 149-50-Granted in Part and
Denied in Part
Defendant’s Motion for Summary Judgment, ECF No. 151-Granted in Part and Denied in
Joseph F. Leeson, Jr.
United States District Judge
December 6, 2017
This case hinges on a narrow but subtle question: when the terms of a life insurance
policy included in an ERISA 1 plan provide that payment shall be made to the beneficiary in “one
sum,” does the insurer violate ERISA by choosing to pay the beneficiary by giving him or her
access to a retained asset account, which allows the insurer to retain funds and earn interest on
them until the beneficiary withdraws them? Plaintiffs are the beneficiaries of life insurance plans
obtained by deceased family members, who worked for two separate companies, JPMorgan Bank
See Employee Retirement Income Security Act (hereafter “ERISA”), 29 U.S.C. §§ 1001-
and Con-way Incorporated. Defendant Prudential Insurance Company of America contracted to
provide the plans for both companies. When benefits became due, Prudential’s default practice
was not to send the beneficiaries a single check for the amount of benefits due, but instead to
open a bank account, called an Alliance Account, 2 containing the amount of benefits due against
which the beneficiaries could draw checks. This arrangement allowed Prudential to retain and
invest the funds until drawn upon, and thereby make a profit. Plaintiffs contend that this means
of payment violated Prudential’s fiduciary duties under ERISA or, in the alternative, state law,
and also violated ERISA’s prohibited transaction provisions. The parties present cross-motions
for summary judgment as to each of the three counts. First, the Court finds that the unambiguous
language of the plan documents required payment in “one sum,” that payment by giving the
beneficiary access to a bank account does not satisfy this requirement, and that Prudential
breached its fiduciary duties by establishing the accounts. Therefore, the Court grants summary
judgment on liability in favor of Plaintiffs with respect to the breach of fiduciary duty claims
under ERISA. Second, because issues of fact remain as to whether Prudential’s arrangement
violated ERISA’s prohibited transaction provisions, this Court denies both parties’ motions for
summary judgment as to that claim. Third, the ERISA claim preempts the state law breach of
fiduciary duty claims, and summary judgment is granted in favor of Prudential on that claim.
A. Procedural Background
Plaintiffs filed their Complaint on September 30, 2010, as a putative class action alleging
ERISA violations. ECF No. 1. This case was placed in civil suspense from April 20, 2012,
Alliance Account is Prudential’s proprietary name for the generic term “retained asset
through August 22, 2014, pending the decision of the Third Circuit Court of Appeals in
Edmonson v. Lincoln Nat’l. Life Ins. Co., 725 F.3d 406 (3d Cir. 2013). Afterward, Plaintiffs filed
an amended class action complaint on July 22, 2015. ECF No. 103. In the three-count amended
class action complaint, Plaintiffs allege first that Prudential violated its fiduciary duties under
ERISA Section 404(a)(1), 29 U.S.C. § 1104(a)(1). Second and in the alternative in the event that
ERISA does not apply, Plaintiffs allege that Prudential breached common law fiduciary duties.
Third, Plaintiffs allege that Prudential engaged in a prohibited transaction under ERISA Section
406(a)(1)(C), 29 U.S.C. § 1106(a)(1)(C). The Plaintiffs moved to certify a class, and the Court
denied certification on September 30, 2016, ECF Nos. 138-39, and denied reconsideration of its
decision on December 13, 2016. ECF No. 146. Plaintiff moved for partial summary judgment on
the issue of liability on February 16, 2017, ECF Nos. 149-50, and Defendant filed a motion for
summary judgment on the same date. ECF No. 151. After another period of civil suspense
culminating in an unsuccessful private mediation, the motions are ripe for decision.
B. Factual Background
Prudential contracted with two companies, JPMorgan Bank and Con-way Inc. to provide
group life insurance benefits to the two companies’ employees. Plaintiff Clark R. Huffman and
his sister Plaintiff Brandi K. Winters were the beneficiaries of the life insurance benefits that
their mother received through the JPMorgan program. Statement of Material Facts (SMF) ¶ 2,
ECF No. 154-1. 3 The remaining two plaintiffs were beneficiaries under the Con-way plan:
Plaintiff Patricia L. Grantham and Plaintiff Linda M. Pace were the beneficiaries of the life
insurance benefits that their deceased husbands each received from Con-way. SMF ¶¶ 3-4.
“Statement of Material Facts” generally refers to Plaintiffs’ Responses to Prudential’s
Statement of Material Facts, which incorporate Prudential’s facts with identical paragraph
numbering. For simplicity’s sake, the Court draws the undisputed facts from that document.
1. The JPMorgan Plan
The terms of the JPMorgan plan were established through a written plan document, called
the Health & Income Protection Program for JPMorgan Chase Bank and Certain Affiliated
Companies. SMF ¶ 6. As part of the plan, Prudential issued two group life insurance policies to
JPMorgan. SMF ¶ 19. With respect to the means by which beneficiaries will be paid, or
“settlement method,” the JPMorgan Group Insurance certificates provide:
MODE OF SETTLEMENT RULES
The rules in this section apply to Employee Life Insurance payable on account of
your death. But these rules are subject to the Limits on Assignments section.
“Mode of Settlement” means payment other than in one sum.
Employee Life Insurance is normally paid to the Beneficiary in one sum. But a
Mode of Settlement may be arranged with Prudential for all or part of the
insurance, as stated below.
Arrangements for Mode of Settlement: You may arrange a mode of Settlement by
proper written request to Prudential. If, at your death, no Mode of Settlement has
been arranged for an amount of your Employee Life Insurance, the Beneficiary
and Prudential may then mutually agree on a Mode of Settlement for that amount.
SMF ¶ 20 (emphasis added); Def.’s Exs. 18-19. Pls.’ Exs. 1-2, ECF No. 150.
One mode of settlement was the establishment of a retained asset account, which
Prudential called an Alliance Account, for life insurance beneficiaries. SMF ¶ 13. When paid
through an Alliance Account, the beneficiary receives a draft book that she can use to write
drafts against the funds in the account; a beneficiary can obtain the full value of the account at
any time by writing a draft to herself for the full account balance. SMF ¶ 14. Interest accrues on
the account daily and is credited monthly. SMF ¶¶ 13, 15. Until the drafts written by
beneficiaries clear, Prudential can invest the funds it holds, the “retained assets,” and retain any
profit or loss, minus the interest credited to the Alliance Accounts. ¶ 17.
JPMorgan updated the summary plan description (SPD) that applied to its plans effective
January 1, 2008, to reflect the use of the Alliance Account:
How Benefits Are Paid
Generally, benefits will be paid to your beneficiary through Prudential’s
Alliance Account. The Alliance Account® is a personalized interest-bearing
account for beneficiaries of group life or AD&D [accidental death &
dismemberment] insurance. Prudential will open an interest-bearing account in
your beneficiary’s name (or your name in the event of the accelerated benefit
option) the next business day after the claim is paid. An Alliance Account® is
not available for payments less than $10,000, payments to individuals residing
outside the United States and its territories, and certain other payments. Such
payments will be paid in a single lump-sum check.
SMF ¶ 24 (emphasis added); Def.’s Ex. 23, ECF No. 151-14. The JPMorgan Plan
Document governing the JPMorgan plans states that “Each Plan shall be evidenced
by an SPD describing its terms and conditions, which are hereby incorporated into
the Program by reference.... To the extent that terms of this Program document and
an SPD or Plan document conflict, the terms of this document shall apply.” SMF ¶
25; Def.’s Ex. 1, ECF No. 151.
Upon Susan Winters’ death, her beneficiaries, Plaintiffs Huffman and Winters
each became entitled to $96,666.66 in benefits under the JPMorgan plan. SMF ¶ 42.
Winters received two Alliance Payment Notifications reflecting establishment of the
Alliance Account benefits due, which explained that Winters could withdraw the
entire amount immediately, that her Alliance Account would earn interest, and that
her Alliance Account was a “contractual obligation of The Prudential Insurance
Company of America.” SMF ¶ 45. After Winters received an Alliance Account Kit,
which included a settlement confirmation, book of blank drafts, and further
information about the account, she wrote one draft for the balance of the account.
SMF ¶¶ 46, 48. Huffman also received the Alliance Account Kit, and wrote a total of
eleven drafts from his account. SMF ¶¶ 51, 54.
2. The Con-Way Plan
Con-way also contracted with Prudential to provide group life insurance benefits
for the Con-way plan, and Prudential issued a group life insurance contract to Con-way.
SMF ¶ 35; Def.’s Ex. 35, ECF No. 151-19. The Con-way Group Insurance Certificate
contains the same Mode of Settlement rules as the JPMorgan Certificates quoted above,
which provide that insurance “is normally paid to the Beneficiary in one sum.” SMF ¶
36; Def.’s Ex. 34, ECF No. 151-18. The Con-way Summary Plan Description does not
mention an exact mode of settlement. SMF ¶ 37.
After her husband’s death, Plaintiff Patricia Grantham received a form that stated
that the proceeds of the claim on her husband’s policy were available by Alliance
Account. SMF ¶ 58. She called Prudential customer support twice and did not object to
an Alliance Account on either occasion. SMF ¶ 59. Grantham kept her Alliance Account
open for four months and wrote over thirty drafts. SMF ¶ 60.
Plaintiff Linda Pace received an Alliance Payment Notification following her
husband’s death; the Notification informed her that her benefits under her husband’s
policy had been settled through an Alliance Account, that she could withdraw the entire
amount or write checks as needed, that her account would earn interest, and that the
Alliance Account was a “contractual obligation of The Prudential Insurance Company of
America.” SMF ¶ 64. Pace withdrew over ninety-nine percent of the Alliance Account
balance within two weeks of when it was opened. SMF ¶ 66.
STANDARD OF REVIEW
Summary judgment “should be rendered if the pleadings, the discovery and disclosure
materials on file, and any affidavits show that there is no genuine issue as to any material fact
and that the movant is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(c); Turner v.
Schering-Plough Corp., 901 F.2d 335, 340 (3d Cir. 1990). A disputed fact is “material” if proof
of its existence or nonexistence would affect the outcome of the case under applicable
substantive law, and a dispute is “genuine” if the evidence is such that a reasonable jury could
return a verdict for the nonmoving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248,
257 (1986). The party moving for summary judgment bears the burden of showing the absence
of a genuine issue as to any material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986).
Once such a showing has been made, the non-moving party must go beyond the
pleadings with affidavits, depositions, answers to interrogatories or the like in order to
demonstrate specific material facts which give rise to a genuine issue. Fed. R. Civ. P. 56;
Celotex, 477 U.S. at 324; Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586
(1986) (stating that the non-moving party “must do more than simply show that there is some
metaphysical doubt as to the material facts”). The party opposing the motion must produce
evidence to show the existence of every element essential to its case, which it bears the burden of
proving at trial, because “a complete failure of proof concerning an essential element of the
nonmoving party’s case necessarily renders all other facts immaterial.” Celotex, 477 U.S. at 323;
see also Harter v. G.A.F. Corp., 967 F.2d 846, 851 (3d Cir. 1992). “Inferences should be drawn
in the light most favorable to the non-moving party, and where the non-moving party’s evidence
contradicts the movant’s, then the non-movant’s must be taken as true.” Big Apple BMW, Inc. v.
BMW of N. Am. Inc., 974 F.2d 1358, 1363 (3d Cir. 1992), cert. denied, 507 U.S. 912 (1993).
A. Count I—Breach of Fiduciary Duty under ERISA Section 404(a)(1)
Plaintiffs claim that Prudential owed them fiduciary duties under ERISA and violated
those duties when it chose to pay their benefits through the Alliance Accounts and invest the
balances of those accounts for itself. ERISA defines a fiduciary with respect to a plan as any
entity that “(i) 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, . . . or (iii)  has any discretionary authority or discretionary
responsibility in the administration of such plan.” 29 U.S.C. § 1002(21)(A). Any entity that
meets this definition must comply with various fiduciary duties, including a duty of loyalty to
plan beneficiaries and the duty to act in accordance with the documents governing the plan:
(1) …a fiduciary shall discharge his duties with respect to a plan solely in the
interest of the participants and beneficiaries and-(A) for the exclusive purpose of:
(i) providing benefits to participants and their beneficiaries; and
(ii) defraying reasonable expenses of administering the plan;…and
(D) in accordance with the documents and instruments governing the plan
insofar as such documents and instruments are consistent with the provisions of
this subchapter and subchapter III.
29 U.S.C. § 1104. The parties dispute whether Prudential was a fiduciary with respect to the
plans, and thus whether the statutory duties apply. Therefore, this Court must determine (1)
whether Prudential was acting as a plan fiduciary when it established the Alliance Accounts and
invested the balances and, if so, (2) whether Prudential breached its fiduciary duties under
1. Prudential’s Status as a Fiduciary under ERISA
As this Court recognized in its Opinion denying class certification on September 30,
2016, a trilogy of cases from the Courts of Appeals for the First, Second, and Third Circuits
establishes that the question of whether Prudential was acting as a fiduciary when it decided to
make payments through the Alliance Accounts depends upon whether making payment via the
account fulfilled Prudential’s obligations to the beneficiaries under the plan documents. See ECF
No. 138 at 6-8; Huffman v. Prudential Ins. Co. of Am., No. 2:10-CV-05135, 2016 WL 5724293,
at *4-6 (E.D. Pa. Sept. 30, 2016). If Prudential acted in accordance with the plan documents by
establishing the Alliance Accounts, then it fully satisfied its obligations under ERISA when it
created the Plaintiffs’ accounts and credited them with the benefits due, and was no longer
subject to any fiduciary duties under ERISA. See Faber v. Metropolitan Life Insurance Co., 648
F.3d 98, 104-05 (2d Cir. 2011); Edmonson, 725 F.3d 406 (3d Cir. 2013). But if Prudential acted
contrary to the plan documents, its decision to establish Alliance Accounts did not discharge its
obligations under the plans, and ERISA’s fiduciary obligations still applied when Prudential
chose to pay the claims through the Alliance Accounts and invest the balances. See Mogel v.
UNUM Life Insurance Co. of America, 547 F.3d 23, 25 (1st Cir. 2008). Prudential admits that the
inquiry hinges upon the plan documents and states that “[a]s instructed by Edmondson, [sic]
Prudential’s use of an Alliance Account constitutes a breach only if it is inconsistent with plan
language.” Def.’s Mot. Summ. Judg. 26. 4 This Court concludes that Prudential’s choice to
This admission reveals that Prudential employs a red herring when it emphasizes that
plan sponsors have the authority to determine the mode of settlement. Def.’s Mot. Summ. Judg.
20, ECF No. 151 (citing Vander Luitgaren v. Sun Life Assur. Co. of Canada, 765 F.3d 59, 64
(1st Cir. 2014)). Plan sponsors do have “considerable latitude” to set the terms of the plan.
Vander Luitgaren v. Sun Life Assur. Co. of Canada, 765 F.3d 59, 64 (1st Cir. 2014). But here,
Prudential and JPMorgan/Con-way already set the terms of the plans when they negotiated the
establish accounts for beneficiaries (Alliance Accounts) was inconsistent with the plan language,
which instead required payment (in “one sum”). ERISA’s fiduciary duties still applied to
Prudential after it established the accounts. Although the beneficiaries admittedly had access to
the funds with the establishment of the Alliance Accounts, Prudential essentially was retaining
possession of the funds until such time as the beneficiaries drew the funds out in whole or in
part. This is in contrast to the issuance of payment in “one sum” by which Prudential would not
retain possession of any funds.
Courts interpret ERISA plan documents according to general principles of contract law.
Burstein v. Ret. Account Plan For Employees of Allegheny Health Educ. & Research Found., 334
F.3d 365, 381 (3d Cir. 2003), as amended (Aug. 1, 2003). Plaintiffs contend that the plan
documents do not permit Prudential to make payment through Alliance Accounts: they point to
documents called the Booklets, part of the Group Insurance Certificates, which state that
“Employee Life Insurance is normally paid to the Beneficiary in one sum. But a Mode of
Settlement may be arranged with Prudential for all or part of the insurance….” Pls.’ Exs. 1-2,
Def.’s Ex. 34. 5 The documents define “Mode of Settlement” as “payment other than in one sum.”
Id. Plaintiffs argue that establishing an Alliance Account is not payment “in one sum.”
plan documents: discretion in setting the terms of the plan does not translate to discretion in
interpreting the plan contrary to those terms.
Prudential does not contend that any of the Plaintiffs’ family members who enrolled in
the plans “arranged” a Mode of Settlement with Prudential by written request under the terms of
the Booklets. The Booklets also allow a beneficiary to “mutually agree” on a Mode of Settlement
with Prudential. Pls.’ Exs. 1-2, Def.’s Ex. 34. Prudential argues that Plaintiff Grantham and
Prudential mutually agreed upon the use of an Alliance Account, but does not argue that any of
the other beneficiaries agreed to Modes of Settlement. Furthermore, this Court rejects
Prudential’s argument as to Plaintiff Grantham below. Absent an agreement by covered
employees or their beneficiaries to receive payment by a Mode of Settlement, the default
requirement of payment in “one sum” controls.
The plain language of the plan document and the bulk of the case law interpreting “one
sum” and similar terms support Plaintiffs’ position. The Certificates define a “Mode of
Settlement,” as any payment “other than in one sum.” The parties do not dispute that establishing
the Alliance Accounts was a Mode of Settlement. See SMF ¶ 13. Therefore, by the simplest of
syllogisms, establishing the Alliance Accounts was payment “other than in one sum.” Previous
courts interpreting “one sum” and similar language have reached the same conclusion. In Mogel,
the First Circuit evaluated whether an insurer’s use of a retained asset account satisfied its
obligation under the plan to pay in “one lump sum.” 6 547 F.3d at 25. The court concluded that
delivering a checkbook did not satisfy the insurer’s obligations because the insurer retained the
funds for its own use until the beneficiary drew checks on the account. Id. See also Phillips v.
Prudential Ins. Co. of Am., 714 F.3d 1017, 1023 (7th Cir. 2013) (“Mogel certainly stands for the
proposition that a retained asset account is not equivalent to a lump-sum payment.”); Lucey v.
Prudential Ins. Co. of Am., 783 F. Supp. 2d 207, 212 (D. Mass. 2011) (“A lump-sum payment by
check (which actually transfers the funds to the beneficiary) is simply not the same as a lumpsum payment by checkbook (which allows the insurance company to retain the funds and earn
interest on them).” (citing Mogel)).
Another district court analyzed an analogous provision in Owens v. Metropolitan Life
Insurance Company and concluded that “one sum” was unambiguous and did not include
retained asset accounts. 201 F. Supp. 3d 1344 (2016). In Owens, the plan documents provided
that the insurer “will pay the Life Insurance in one sum. Other modes of payment will be
available upon request.” Id. at 1352. The court cited another case which found that the plain
Although the plan document in Mogel required payment in “one lump sum,” and the plan
documents here established “one sum” as the norm, the Court does not consider the slight
difference in language significant.
meaning of “payment in one sum” required “delivery of possession or control of a quantity of
money to the beneficiary, and that because a retained asset account involves the insurer keeping
possession and control over the proceeds, such accounts are not “payment in one sum,” even
though the beneficiary may access the funds. Id. (quoting Garrison v. Jackson Nat. Life Ins. Co.,
908 F. Supp. 2d 1293, 1298 (N.D. Ga. 2012)). The Owens court found that the “one sum”
provision was unambiguous and required “delivery of possession or control of a quantity of
money to the beneficiary:”
A lay person would read this language as requiring a single check be sent to the
beneficiary, not as permitting a [retained asset account.] While the [retained asset
account] might provide effective possession of the benefits due, it does not give
the beneficiary actual possession. Defendant maintained actual possession of the
benefits in its general account. It had control over where the benefits in its general
account would be invested. Plaintiff did not have possession or control of the
Id. at 1353. Accordingly, establishing a retained asset account did not comply with the terms of
the plan documents. Id. This Court finds the reasoning of Owens persuasive and concludes
similarly: the provision that payment will ordinarily be made in “one sum” is unambiguous and
does not include establishing an Alliance Account. 7
Prudential contends that establishing the Alliance Accounts did satisfy its obligations
under the plan documents, which permitted settlement by Alliance Account. It points to the SPD
Prudential leans heavily on the word “normally” in the plan documents, and argues that
the statement that payment will “normally” be paid in one sum “specifically contemplates” other
modes of settlement. Def.’s Mot. Summ. Judg. 29. This reading does not help Prudential.
Adopting Prudential’s understanding, the terms of the plan establish “one sum” as the default
method of payment without foreclosing others. But Prudential replaced payment in one sum with
a new default, the Alliance Account. This clearly violated the terms of the plan.
Prudential argues further that JPMorgan and Con-way had the discretion to interpret
ambiguous provisions of the plan and thus had the authority to permit settlement by Alliance
Account. Def.’s Mot. Summ. Judg. 29. But this argument is irrelevant because the plan
documents unambiguously foreclose payment by Alliance Account as the default mode of
for the JPMorgan Plan, which informs enrolled employees that “[g]enerally, benefits will be paid
to your beneficiary through Prudential’s Alliance Account.” Def.’s Ex. 23. Prudential argues that
the SPD documents became part of the JPMorgan plan, and that the SPD provision does not
conflict with the requirement of payment in “one sum.” Def.’s Opp. Summ. Judg. 15-16, ECF
No. 153. Plaintiffs argue that the SPD does not bind Prudential because it is not encompassed by
the integration clause in the insurance contract between Prudential and JPMorgan, and in fact
directly conflicts with the “one sum” requirement in Prudential’s certificate. Pls.’ Opp. Summ.
Judg. 12, ECF No. 154.
Prudential’s point is well taken that the JPMorgan SPD should be interpreted as part of
the JPMorgan Plan. For as this Court recognized when denying reconsideration of the denial of
class certification, “the task at hand is not to interpret the Group Contract; it is to interpret the
JPMorgan ERISA plan.” ECF No.146 at 2 n.3. To the extent that Plaintiffs rest their argument on
the integration clause in the JPMorgan group contract, they overlook the forest and focus on a
few trees. A court interpreting an ERISA plan needs a view of the whole forest: in many cases a
series of documents together comprise the plan, because “ERISA certainly permits more than one
document to make up a benefit plan’s required written instrument.” Tetreault v. Reliance
Standard Life Ins. Co., 769 F.3d 49, 55 (1st Cir. 2014).
Multiple seemingly independent documents comprise the JPMorgan plan at issue here.
The document entitled “Health & Income Protection Program for JPMorgan Chase Bank and
Certain Affiliated Companies,” the “wrap-plan” for all of JPMorgan’s employee benefit plans,
acts as a sort of master plan for the benefit programs. See Shaw v. Prudential Ins. Co. of Am., 556
F. App’x 536, 539 (8th Cir. 2014) (discussing the same JPMorgan “Health & Income Protection
Program” document). The wrap-plan lists the following items as stating the terms of “the
Program:” 8 (1) the wrap-plan document itself; (2) the “Plan documents and/or summary plan
descriptions (“SPDs”)” 9 for specifically enumerated plans; and (3) the terms of any insurance
contracts or policies purchased to provide benefits under any Plan. ECF No. 151 at 98 (wrapplan Section 1.1).
This list includes all the documents the parties rely upon. The wrap-plan expressly
incorporates the SPDs for the listed plans, and the JPMorgan SPD contains the provision that
payment is “generally” made through an Alliance Account. The provision that Plaintiffs
emphasize, which states that payment will “normally” be made in “one sum,” occurs in a
document called the Booklet; according to its terms, the Booklet is part of the Group Insurance
Certificate. Pls.’ Exs. 1-2. The Group Insurance Certificate in turn forms part of the Group
Contract, see id., which is incorporated into the plan through the wrap plan as “the terms of any
insurance contracts.” Thus, the JPMorgan plan contains both provisions: that payment will be
made in one sum, and that it will be made through an Alliance Account. As discussed above,
“one sum” cannot be read to mean payment through an Alliance Account, so these provisions
directly conflict. The question becomes which governs.
The SPD itself governs because it states that it “does not include all of the details
contained in the applicable insurance contracts, plan documents, and trust agreements. If there is
a discrepancy between the official plan documents and this summary, the official plan documents
will govern.” Def.’s Ex. 23. The SPD conflicts with the “applicable insurance contract” as to the
default means of payment, and therefore, by the terms of the SPD, the insurance contract
In defining the “Program,” the wrap-plan states that “references herein to the Program
shall include each individual Plan designated as part of the Program in Exhibit A hereto.” ECF
No. 151 at 102 (wrap plan Section 2.27).
The wrap-plan defines “Plan” as “any one of the employee benefit plans listed on Exhibit
A [of the wrap-plan] (and set forth in an SPD) which is maintained for the benefit of Eligible
Employees and their Dependents. ECF No. 151 at 102 (wrap plan Section 2.23).
governs. Prudential cannot rely on the JPMorgan SPD to justify using the Alliance Accounts
under the terms of the plan documents.
Thwarted by the plain language of the JPMorgan plan, Prudential turns to the course of
dealing between the parties to show that JPMorgan and Con-way contemplated payment by
Alliance Account, regardless of the terms of the plan documents. Prudential argues that
JPMorgan “expressly directed Prudential to implement Alliance Accounts as the default method”
for settling claims, and cites to a 2005 email to Prudential’s representative. Def.’s Opp. Summ.
Judg. 8. With respect to Con-way, Prudential argues that “Con-way and Prudential agreed to the
Con-Way Contract with the explicit expectation that Prudential would settle benefits through
establishment of an Alliance Account as the default method of settlement.” Id. at 9. Prudential
cites communications during the solicitation and negotiation of the contract between Con-way
and Prudential in an attempt to demonstrate that the use of Alliance Accounts was “in accordance
with the expectation upon which the Con-way contract was entered.” Id. at 10. But the Third
Circuit does not endorse accepting parol evidence, such as extrinsic evidence of prior agreements
or statements between parties, to vary the terms of an ERISA plan. See In re New Valley
Corp., 89 F.3d 143, 149 (3d Cir. 1996) (holding that ERISA’s requirement of a written
instrument operates as a “strong integration clause” that makes the plan document the entire
agreement of the parties and bars parol evidence). As discussed above, payment in “one sum” is
unambiguous. Prudential may not rely on evidence extrinsic to the contracts to vary the meaning
of that term. See Taylor v. Cont’l Grp. Change in Control Severance Pay Plan, 933 F.2d 1227,
1234 (3d Cir. 1991) (observing that the parol evidence rule bars extrinsic evidence to interpret a
document unless evidence offered to clarify an ambiguity); Murren v. Am. Nat. Can Co., No. 99CV-3136, 2000 WL 960262, at *5 (E.D. Pa. July 11, 2000), (rejecting evidence of oral
statements as ground for ERISA claim where written terms of plan controlled), aff’d, 262 F.3d
404 (3d Cir. 2001).
To summarize, the plan documents require that Prudential pay in one sum. Prudential did
not do that, so it had not yet satisfied its obligations under the plans, and acted as a fiduciary
under ERISA when it established the Alliance Accounts and invested the balances. See Mogel,
547 F.3d at 25.
2. Prudential’s Breach of Fiduciary Duty
The question then becomes whether Prudential’s decision to create Alliance Accounts and
invest the proceeds breached their fiduciary duties, a question of law. See Milwaukee Area Joint
Apprenticeship Training Comm. for Elec. Indus. v. Howell, 67 F.3d 1333, 1338 (7th Cir. 1995)
(noting that breach of fiduciary duties under ERISA was a question of law); In re Main, Inc., No.
98-158, 1999 WL 330239, at *3 (E.D. Pa. May 24, 1999) (stating that breach of fiduciary duty is
question of law).
The Court finds that Prudential breached its fiduciary duties to Plaintiffs. ERISA requires
plan fiduciaries to act for the “exclusive purpose” and “solely in the interest of [a plan’s]
participants and beneficiaries.” 29 U.S.C. § 1104(a)(1)(A). The Third Circuit Court of Appeals
has held that “[T]rustees violate their duty of loyalty when they act in the interests of [any other
actor] rather than ‘with an eye single to the interests of the participants and beneficiaries of the
plan.’” Reich v. Compton, 57 F.3d 270, 291 (3d Cir. 1995), amended (Sept. 8, 1995) (quoting
Donovan v. Mazzola, 716 F.2d 1226, 1238 (9th Cir. 1983)). Here, Prudential chose to ignore its
obligations under the plan documents and create the Alliance Accounts to generate a profit for
itself. 10 In doing so, Prudential had its own interests in mind, not those of its beneficiaries.
The parties dispute whether, even assuming that Prudential did breach its fiduciary duties,
Plaintiffs may recover. Prudential, citing Edmonson, argues that any profit it made from the
funds in Plaintiffs’ Alliance Accounts is “wholly dependent,” upon the Plaintiffs’ actions: they
had the option to withdraw the entire balance of their accounts, but did not do so. Def. Mot.
Summ. Judg. 32-33. Plaintiffs argue that Edmonson misunderstood the nature of a retained asset
account: the account is established and the assets are invested simultaneously, such that there is
no “later act of investing the assets for [the insurer’s] own profit.” Pls.’ Opp. Summ. Judg. 24.
Edmonson did find that, even if the defendant breached its fiduciary duty by establishing a
retained asset account, the plaintiff could not recover “because the breach did not directly cause
the injury for which she seeks relief, [the insurer’s] investment for its own profit, and “ERISA
requires a plaintiff to show that the injury was a proximate cause of the breach of duty.” 725 F.3d
at 424. It is important to note that the Edmonson court analyzed the issue according to a
somewhat artificial distinction between the insurer’s choice to establish the retained asset
accounts and the investment of the retained funds. Id. at 421-24. The plaintiff there drew that
This Court wishes to emphasize that it is not holding that the use of a retained asset
account or another means of payment that generates a profit for the insurer per se violates
fiduciary duties under ERISA. As the Third Circuit Court of Appeals has recognized, “the
retained-asset account method of payment is not in itself necessarily inconsistent with ERISA.”
Edmonson, 725 F.3d at 423–24 (citing Vander Luitgaren v. Sun Life Assurance Co. of Canada,
No. 09–11410, 2012 WL 5875526, at *11 (D. Mass. Nov. 19, 2012)). As a matter of fact, it “is
inconsistent with ERISA’s goals to prohibit this type of arrangement.” Id. (citing Merrimon v.
Unum Life Ins. Co. of Am., 845 F. Supp. 2d 310, 320 (D. Me. 2012)). Rather, Prudential violated
its duties here because it selected a method of payment that profited itself in contravention of the
plan documents. This fact distinguishes this case from Edmonson, where the plan documents
were silent on payment methods: the Third Circuit Court of Appeals held that the insurer had the
discretion to determine the payment method, and that payment via a retained asset account
satisfied its fiduciary obligations. Id. at 423-24.
distinction because she argued that the two actions were each a separate breach of fiduciary duty.
Edmonson can be fairly read as holding that any damages the plaintiff sustained resulted from the
second breach of fiduciary duty—the investment of the retained funds—and thus did not result
from the first breach of fiduciary duty—the insurer’s decision to create a retained asset account.
This distinction made sense in Edmonson, because the court found that the insurer had
the discretion to pay through a retained asset account and that establishing that account
discharged the insurer’s fiduciary duties, such that any subsequent investment did not involve
“plan assets,” and thus, ERISA’s fiduciary duties. Id. at 426-27. This Court does not draw the
same distinction because, as discussed above, Prudential did not satisfy its obligations under the
plan documents. Thus its actions continue to implicate fiduciary duties under ERISA, regardless
of whether establishing the accounts and investing the proceeds are considered a single action or
two successive actions.
ERISA does require a plaintiff to show that a breach of fiduciary duty proximately caused
the injury when the plaintiff seeks to recover for a loss. Edmonson, 725 F.3d at 424 (citing Willett
v. Blue Cross and Blue Shield of Alabama, 953 F.2d 1335, 1343 (11th Cir. 1992)). But a plaintiff
does not need to show a loss to recover for a breach of fiduciary duty under ERISA—the plaintiff
may also show that the fiduciary profited through the use of plan assets. See 29 U.S.C. § 1109
(providing that a fiduciary who breaches a duty “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” (emphasis added)).
Here, Plaintiffs do not seek to recover an out-of-pocket loss, as they have suffered none,
but instead to disgorge the profits Prudential made from impermissibly investing the plan assets.
ERISA authorizes a court to order equitable relief “as the court may deem appropriate,” which
includes disgorgement of profits obtained by breach of fiduciary duty. See 29 U.S.C. § 1109;
Cigna Corp. v. Amara, 536 U.S. 421, 441 (2011) (“Equity courts possessed the power to provide
relief in the form of monetary ‘compensation’ for a loss resulting from a trustee’s breach of duty,
or to prevent the trustee’s unjust enrichment.”) Disgorgement of profits, a traditional equitable
remedy, does not require a showing of harm to the plaintiff, as the Third Circuit Court of Appeals
stated in National Security Systems, Inc. v. Iola: “[W]here a fiduciary in violation of his duty to
the beneficiary receives or retains a bonus or commission or other profit, he holds what he
receives upon a constructive trust for the beneficiary. This rule applies even when the fiduciary’s
disloyal enrichment causes the beneficiary no harm.” 700 F.3d 65, 101 (3d Cir. 2012) (discussing
“appropriate equitable relief” under ERISA) (citing Restatement of Restitution § 197 at 808
(1937)) (internal citations and quotations omitted). See also Leigh v. Engle, 727 F.2d 113, 121–
22 (7th Cir. 1984) (“ERISA clearly contemplates actions against fiduciaries who profit by using
trust assets, even where the plan beneficiaries do not suffer direct financial loss.”). Therefore,
Plaintiffs may recover even though they did not withdraw the funds from their accounts.
Prudential argues that Plaintiff Grantham’s claims fail because she explicitly agreed with
Prudential to the settlement of her claim through an Alliance Account. Def.’s Mot. Summ. Judg.
33. Prudential cites a claim form Grantham used to obtain benefits under the Con-way plan,
which provided that Prudential would pay benefits through an Alliance Account “unless you
elect an alternative payment or settlement option. Id. at 34. Prudential also points to two phone
calls Grantham made to Prudential customer support, during which she was informed that her
claims would be settled by Alliance Account. Prudential states that Grantham “was directly
informed that an Alliance Account would be used to disburse her claim funds, agreed to the use
of an Alliance Account, and did not question or object to the use of this method….” Def.’s Mot.
Summ. Judg. 34. Prudential argues that these facts satisfy this Court’s finding when denying
class certification that “[i]f…a beneficiary called Prudential to inquire about how their benefits
would be paid, and, after hearing the various payment options, the beneficiary agreed to be paid
through an Alliance Account, that person would not have a claim that Prudential breached the
plan terms….” Id. (citing ECF No. 139 at 10).
The Court disagrees. The evidence Prudential cites does not show that Grantham
requested or selected an Alliance Account as a mode of settlement. It shows only that Prudential
represented to Grantham that the Alliance Account was the default method of payment—in
violation of the clear language of the plan documents—and that Grantham did not object. This
evidence does not establish “the Beneficiary and Prudential…mutually agree[d]” on a method of
payment, as provided for in the plan booklet, see Def.’s Ex. 34, so Prudential cannot establish
that they acted in accordance with the plan terms in paying Grantham.
Nor does the evidence establish Grantham’s acquiescence or consent, affirmative
defenses to Prudential’s breach of fiduciary duty. Courts use the common law of trusts as a guide
to interpreting fiduciary duties under ERISA, and stating an affirmative defense of acquiescence
or consent to a breach of trust under common law requires full disclosure of material facts. See
Ream v. Frey, 107 F.3d 147, 153-54 (3d Cir. 1997); In re Cumberland Farms, Inc., 284 F.3d 216,
231 (1st Cir. 2002) (“For a cestui que trust to ‘ratify’ or confirm a breach of trust, he must be
apprised of all the material facts and as well of their legal effect. No half-hearted disclosure or
partial discovery is sufficient in either respect.”); Restatement (Second) of Trusts § 216 (1959)
(“The mere fact ...that the beneficiary does not object to a deviation from the terms of the trust is
not consent to such deviation.”). Prudential did not disclose to Grantham that the plan documents
required settlement by one sum and obtain her consent to deviate from that requirement and
establish an Alliance Account. Prudential therefore cannot establish a defense of Grantham’s
acquiescence or consent to Prudential’s breach of fiduciary duty.
Accordingly, Prudential violated its fiduciary duties under ERISA, and Plaintiffs are
entitled to summary judgment with respect to liability on Count I.
B. Count II—Prohibited Transaction under ERISA Section 406(a)(1)(C)
Plaintiffs allege that Prudential violated ERISA Section 406(a)(1)(C), which states that 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 furnishing of goods, services,
or facilities between the plan and a party in interest.” 29 U.S.C. § 1106(a)(1)(C). This section
“supplements the fiduciary’s general duty of loyalty to the plan’s beneficiaries ... by categorically
barring certain transactions deemed ‘likely to injure the pension plan.’” Harris Tr. & Sav. Bank v.
Salomon Smith Barney, Inc., 530 U.S. 238, 241 (2000) (quoting Comm’r Internal Revenue v.
Keystone Consol. Indus., Inc., 508 U.S. 152, 160 (1993)). The definition under ERISA of “party
in interest” with respect to an employee benefit plan includes both “any fiduciary” and “a person
providing services to such plan.” 29 U.S.C. § 1002(14). As determined above, Prudential is a
fiduciary with respect to the JPMorgan and Con-way plans, so it is therefore also a party in
A plaintiff can state a claim under Section 1106(a)(1)(C) when an entity providing
management and administrative services to a plan receives undisclosed amounts of shared
revenue in exchange for services rendered to the plan. See Braden v. Wal-Mart Stores, Inc., 588
F.3d 585, 601 (8th Cir. 2009) (finding that allegations that employer and manager of employee
retirement plan caused plan to enter into arrangement under which trustee received undisclosed
amounts of revenue sharing payments in exchange for services rendered to plan stated Section
406(a)(1)(C) claim); Skin Pathology Assocs., Inc. v. Morgan Stanley & Co. Inc., 27 F. Supp. 3d
371, 378 (S.D.N.Y. 2014) (“Fee-sharing arrangements or kickbacks do not in-and-of themselves
create a violation, but their non-disclosure does.”). In a recent opinion, the United States District
Court for the Southern District of New York recognized that “it is circular to suggest that an
entity which becomes a party in interest by providing services to the Plans has engaged in a
prohibited transaction simply because the Plans have paid for those services,” but recognized that
when such revenue sharing arrangements are undisclosed, they “raise the reasonable inference
that the plan’s fiduciaries caused the plan to engage in the type of transactions ERISA § 406(a)
was intended to avoid.” Sacerdote v. New York Univ., No. 16-CV-6284 (KBF), 2017 WL
3701482, at*13–14 (S.D.N.Y. Aug. 25, 2017), reconsideration denied, No. 16-CV-6284 (KBF),
2017 WL 4736740 (S.D.N.Y. Oct. 19, 2017) (distinguishing Braden and holding that the plaintiff
could not state a Section 406(a)(1)(C) claim where conclusory allegations did not suggest
undisclosed revenue sharing agreement).
ERISA includes an exception to liability under Section 406(a)(1)(C) which permits
“[c]ontracting or making reasonable arrangements with a party in interest for office space, or
legal, accounting, or other services necessary for the establishment or operation of the plan, if no
more than reasonable compensation is paid therefor.” 29 U.S.C. § 1108(b)(2). Like the defendant
in Owens, Prudential has taken the position that it owed no fiduciary duties, and issues of fact
remain as to whether the reasonable compensation exception applies. See Owens, 210 F. Supp.
3d at 1356-57. Issues of fact also exist as to whether Prudential disclosed to plan beneficiaries or
sponsors the arrangement whereby it would profit from investing the Alliance Account funds and
the degree to which Prudential did profit. Therefore, Plaintiffs’ and Prudential’s motions for
summary judgment as to the Section 406(a)(1)(C) claim are denied.
C. Count III—Common Law Breach of Fiduciary Duty
Because, as discussed above, Plaintiffs can prevail on their breach of fiduciary duty claim
under ERISA, their common law breach of fiduciary duty claims pleaded in the alternative
cannot survive summary judgment. See Schirmer v. Principal Life Ins. Co., No. 08-CV-2406,
2008 WL 4787568 at *3 (E.D. Pa. Oct. 29, 2008) (observing that, because ERISA preempts state
law breach of fiduciary duty claims, they may not both survive summary judgment).
Accordingly, this Court grants Prudential’s motion for summary judgment as to Count III.
For the foregoing reasons, Plaintiff’s Motion for Partial Summary Judgment is granted in
part with respect to Count I, and denied with respect to Count II. Defendant’s Motion for
Summary Judgment is denied with respect to Count I and Count II, and granted with respect to
Count III. A separate Order will issue.
BY THE COURT:
/s/ Joseph F. Leeson, Jr._________
JOSEPH F. LEESON, JR.
United States District Judge
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?