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Nicholas Danza, Individually and On Behalf of Defined Honorable Joseph v. Fidelity Management Trust Company and Fidelity Investments


August 20, 2012


The opinion of the court was delivered by: Irenas, Senior District Judge:



Plaintiffs allege that Defendants charged excessive and unreasonable fees for services related to their ERISA governed defined contribution plans (hereinafter "401(k) Plans"). Presently before the Court is Defendants' Motion to Dismiss for failure to state a claim.


Great Atlantic & Pacific Tea Company, Inc. ("A&P") employed Plaintiff Danza whom participated in A&P's 401(k) Plan ("A&P Plan"). (Compl. ¶ 20) Generally, ERISA's anti-alienation provision prohibits the assignment of a 401(k) Plan participant's interest. (Compl. ¶ 2) One exception is the division of marital property pursuant to a qualified domestic relations order ("QDRO"). See 29 U.S.C. § 1056(d)(3). A QDRO is a domestic relations order ("DRO") that satisfies certain statutory criteria. 29 U.S.C. § 1056(d)(3)(B(ii). Upon receipt of a DRO, the 401(k) Plan administrator must review and qualify the DRO as a QDRO within a reasonable period of time.*fn1 See 29 U.S.C. 1056(d)(3)(G)(ii). DRO qualification may require significant work to comply with onerous statutory requirements. See 29 U.S.C. § 1056(d)(3) (listing requirements to qualify a DRO as a QDRO).

Defendant Fidelity Management Trust Company ("FMTC") served as trustee of the A&P Plan. (Compl. ¶¶ 25-26) Relevant to the instant dispute, A&P contracted with FMTC to provide QDRO services under the A&P Plan. (See Trust Agreement § 1(ll) & Sched. A) Fidelity Investments Institutional Operations Company ("FIIOC") is an agent or affiliate of FMTC, and is the entity that actually provided those services.*fn2 (See Trust Agreement § 18(a))

To qualify DROs, Defendants created an internet based DRO generator for plan participants. To review and qualify a DRO created on Defendants' website, Defendants charged $300. (See Trust Agreement, Def.'s Cert. Ex. 1, Sched. B at 110) To qualify a DRO created by a third party, Defendants charged $1,200. (Id.)

Lead class Plaintiff Danza used the third party All Pro QDRO, LLC to draft a DRO at a price of $475. (Id. at ¶ 86) In compliance with the fee schedule, Defendants charged Danza $1,200 to review and qualify the DRO. (Compl. ¶¶ 86-87) Plaintiffs allege that this fee was unreasonable.


Federal Rule of Civil Procedure 12(b)(6) provides that a court may dismiss a complaint "for failure to state a claim upon which relief can be granted." In order to survive a motion to dismiss, a complaint must allege facts that raise a right to relief above the speculative level. Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007); see also Fed. R. Civ. P. 8(a)(2).

While a court must accept as true all allegations in the plaintiff's complaint, and view them in the light most favorable to the plaintiff, Phillips v. County of Allegheny, 515 F.3d 224, 231 (3d Cir. 2008), a court is not required to accept sweeping legal conclusions cast in the form of factual allegations, unwarranted inferences, or unsupported conclusions. Morse v. Lower Merion Sch. Dist., 132 F.3d 902, 906 (3d Cir. 1997). The complaint must state sufficient facts to show that the legal allegations are not simply possible, but plausible. Phillips, 515 F.3d at 234. "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Ashcroft v. Iqbal, 566 U.S. 662, 129 S.Ct. 1937, 1949 (2009).

When evaluating a Rule 12(b)(6) motion to dismiss, the Court considers "only the allegations in the complaint, exhibits attached to the complaint, matters of public record, and documents that form the basis of a claim." Lum v. Bank of America, 361 F.3d 217, 221 n.3 (3d Cir. 2004). A document that forms the basis of a claim is one that is "integral to or explicitly relied upon in the complaint." Id. (quoting In re Burlington Coat Factory Sec. Litig., 114 F.3d 1410, 1426 (3d Cir. 1997)). Here, Plaintiff does not dispute that the Court should properly consider the Trust Agreement between A&P and FMTC attached as Exhibit 1 to Defendant's Motion to Dismiss.


In Counts I-III, Plaintiffs allege Defendants breached fiduciary and co-fiduciary duties under ERISA §§ 404-05. Counts IV-VIII allege claims for prohibited transactions pursuant to ERISA § 406.

The crux of Defendants' arguments in support of dismissal is that FMTC is not a fiduciary with respect to its service fees and, therefore, cannot be held liable to plan participants.*fn3 In response, Plaintiffs offer two reasons why FMTC is a fiduciary:

(1) FMTC is the trustee of the A&P Plan and (2) FMTC has discretion to administer the plan.

A person is a fiduciary with respect to a plan to the extent (i) he 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) he has any discretionary authority or discretionary responsibility in the administration of such plan.

29 U.S.C. § 1002(21)(A).

ERISA imposes upon a fiduciary strict duties to plan participants and beneficiaries. See 29 U.S.C. § 1104(a)(1)(A)-(D). For example, fiduciaries must "defray[] reasonable expenses of administering the plan." 29 U.S.C. § 1104(a)(1)(A)(ii). If FMTC is a fiduciary, then FMTC may not charge unreasonable service fees,*fn4 and Defendants offer no alternative argument for dismissal.*fn5

An entity is only a fiduciary, however, to the extent it exercises control over the particular activity at issue. See Renfro v. Unisys Corp., 671 F.3d 314, 321 (3d Cir. 2011). In other words, an entity can act both as a fiduciary and non-fiduciary depending on the particular function at issue.

Plaintiffs concede that FMTC was not a fiduciary when it negotiated QDRO service provider fees at arms-length with A&P before signing the Trust Agreement. (Pl.'s Br. Opp. 7) Plaintiffs also concede that Defendants competently performed the QDRO services. Instead, Plaintiffs argue that, upon becoming trustee, FMTC also became a fiduciary, which obligated FMTC to refuse to accept unreasonable service fees.

Renfro, however, forecloses this argument. 671 F.3d 314. There, the Third Circuit affirmed the dismissal of Fidelity corporate entities because they were not Plan fiduciaries with respect to the disputed conduct.*fn6 Prior to becoming trustee, Fidelity negotiated its service fees at arms-length with Unisys. Id. at 324. The Renfro Court determined that "Fidelity owes no fiduciary duty with respect to the negotiation of its fee compensation by Unisys." Id. Though not specifically mentioned in the Renfro decision, the obvious implication is that Fidelity may also charge and collect the negotiated service fee.

Here, Plaintiffs do not allege that the negotiations process was anything but arms-length. According to Renfro, Defendants owed no duty to Plaintiffs regarding the reasonableness of the QDRO service fees. Id. Plaintiffs' claims, without offering an opinion as to whether a claim would be meritorious, are properly against A&P - the named fiduciary who negotiated on behalf of the A&P Plan. Accordingly, Counts I-III alleging breaches of fiduciary and co-fiduciary duties will be dismissed.

Nor can Plaintiff sustain claims for prohibited transactions without establishing that Defendants were fiduciaries with respect to the allegedly unreasonable fees. "A fiduciary with respect to a plan shall not cause the plan to engage in a transaction" that fulfills certain prohibited criteria. 29 U.S.C. § 1106(a)(1); see also Schulist v. Blue Cross of Iowa, 717 F.2d 1127, 1130-31 (3d Cir. 1983) (describing that the purpose of the prohibited transaction section of ERISA is to "prohibit[] various types of self-dealing by fiduciaries."). Plaintiffs cannot maintain claims for prohibited transactions because Defendants were not fiduciaries with respect to the service fees negotiated at arms-length. Accordingly, Counts IV-VIII alleging prohibited transactions must also be dismissed.


For the foregoing reasons, the Defendants' Motion to Dismiss will be granted in full. Plaintiff will be granted leave to file a motion to amend the Complaint within 14 days of this Opinion. See Phillips v. County of Allegheny, 515 F.3d 224, 245 (3d Cir. 2008) (holding that district courts "must permit a curative amendment unless such an amendment would be inequitable or futile."). An appropriate Order accompanies this Opinion.


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