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Santomenno v. Transamerica Life Insurance Co.

United States Court of Appeals, Ninth Circuit

February 23, 2018

Jaclyn Santomenno; Karen Poley; Barbara Poley, individually and on behalf of Employee Retirement Income Security Act of 1974, etc.; as an investor in the Lommis Sayles Investment Grade Bond Ret. Opt. and the First American Mid Cap Growth Opportunities Inv. Opt., etc.; as an investor of Vanguard Target Ret., Plaintiffs-Appellees,
v.
Transamerica Life Insurance Company; Transamerica Investment Management, LLC; Transamerica Asset Management, Inc., Defendants-Appellants.

          Argued and Submitted November 17, 2017 Pasadena, California

         Appeal from the United States District Court for the Central District of California D.C. No. 2:12-cv-02782-DDP-MAN Dean D. Pregerson, District Judge, Presiding

          Brian D. Boyle (argued), Shannon Barrett, and Anton Metlitsky, O'Melveny & Myers LLP, Washington, D.C.; Catalina J. Vergara and Christopher B. Craig, O'Melveny & Myers LLP, Los Angeles, California; for Defendants-Appellants.

          Arnold C. Lakind (argued) and Stephen Skillman, Szaferman Lakind Blumstein & Blader P.C., Lawrenceville, New Jersey; Lynn Lincoln Sarko, Derek W. Loeser, Michael D. Woerner, and Gretchen S. Obrist, Keller Rohrback LLP, Seattle, Washington; for Plaintiffs-Appellees.

          Eric S. Mattson and Daniel R. Thies, Sidley Austin LLP, Chicago, Illinois; Lisa Tate, Vice President, Litigation & Associate General Counsel, American Council of Life Insurers, Washington, D.C.; Janet M. Jacobson, American Benefits Council, Washington, D.C.; Kate Comerford Todd and Janet Galeria, U.S. Chamber Litigation Center, Washington, D.C.; for Amici Curiae American Council of Life Insurers, American Benefits Council, and Chamber of Commerce of the United States of America.

          Mary Ellen Signorille and William Alvarado Rivera, AARP Foundation Litigation, Washington, D.C., for Amici Curiae AARP and AARP Foundation.

          Before: Jacqueline H. Nguyen and Andrew D. Hurwitz, Circuit Judges, and Richard Seeborg, [*] District Judge.

         SUMMARY[**]

         Employee Retirement Income Security Act

         The panel (1) reversed the district court's order denying defendants' motion to dismiss an ERISA case alleging breach of fiduciary duties in connection with a retirement plan, and (2) vacated the district court's subsequent class certification orders.

         The district court held that a plan service provider breached its fiduciary duties to plan beneficiaries first when negotiating with an employer about providing services to the plan and later when withdrawing predetermined fees from plan funds.

         An employer that forms an ERISA plan is a statutory fiduciary, and a plan service provider becomes a functional fiduciary under certain circumstances.

         Joining other circuits, the panel held that a plan administrator is not an ERISA fiduciary when negotiating its compensation with a prospective customer. As to alleged breaches after the defendant became a plan service provider, the panel held that the defendant was not a fiduciary with respect to its receipt of revenue sharing payments from investment managers because the payments were fully disclosed before the provider agreements were signed and did not come from plan assets. Agreeing with other circuits, the panel held that defendant also was not a fiduciary with respect to its withdrawal of preset fees from plan funds. The panel concluded that when a service provider's definitively calculable and nondiscretionary compensation is clearly set forth in a contract with the fiduciary-employer, collection of fees out of plan funds in strict adherence to that contractual term is not a breach of the provider's fiduciary duty.

         The panel remanded with instructions to the district court to dismiss the complaint.

          OPINION

          HURWITZ, Circuit Judge

         The Employee Retirement Income Security Act of 1974 ("ERISA"), Pub. L. 93-406, 88 Stat. 829 (codified at 29 U.S.C. § 1001 et seq.), imposes fiduciary duties on various parties in connection with retirement plans. This case turns on when and under what circumstances those duties attach. The district court found that a provider breached its fiduciary duties to plan beneficiaries first when negotiating with an employer about providing services to the plan and later when withdrawing predetermined fees from plan funds. The court accordingly denied defendants' motion to dismiss and certified three plaintiff classes. We disagree and reverse.

         I. Background

         A. TLIC's Relationship with 401(k) Plans

         The plaintiffs are members of employer-supported, defined-contribution 401(k) plans governed by ERISA. 29 U.S.C. § 1002(34). Because the daily administration of the plans often requires particularized expertise, employers ...


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