Bass, Berry & Sims attorney Chris Lazarini commented on a putative ERISA class action case brought against several banks and their affiliates alleging breach of fiduciary duty or for knowing participation in prohibited transactions as non-fiduciary parties-in-interest. The court dismissed the claims finding based on the following three points:
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the transactions were initiated by the Plans' independent investment managers, not by defendant
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plaintiffs did not allege that defendants exercised control over the Plans' trustees' or investment managers' decisions
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the Court rejects plaintiffs' reliance on their allegations of fraud to support their fiduciary claims
Chris provided the analysis for Securities Online Litigation Alert (SOLA). The full text of the analysis is below and used with permission from the publication.
Allen vs. Credit Suisse Securities (USA), LLC, No. 16-3237-cv (2nd Cir., 7/10/18)
An entity has a fiduciary duty to an ERISA plan if the entity has or exercises actual control over disposition of plan assets.
In this putative ERISA class action, Plaintiffs, acting on behalf of trustees, beneficiaries and participants in various ERISA plans, sued a group of banks and their affiliates (several of them broker-dealers) for breach of fiduciary duty or, in the alternative, for knowing participation in prohibited transactions as non-fiduciary parties-in-interest (the "party-in-interest" claim). Plaintiffs alleged that Defendants colluded to manipulate and profit from foreign currency exchange transactions on the FX market – a market dominated by Defendants. After Plaintiffs filed their Third Amended Complaint, the district court denied a request for additional time to file further amendments and granted Defendants' FRCP 12(b)(6) motion to dismiss. Plaintiffs appealed, arguing that Defendants acquired functional fiduciary status under ERISA by exercising control over the disposition of Plan assets. Specifically, Plaintiffs argued that Defendants manipulated the benchmark rates to which FX transactions were tied, effectively setting their own compensation for the transactions.
Conducting a de novo review of the Rule 12(b)(6) dismissal, the Court frames the issue in the fiduciary duty and party-in-interest claims as whether Plaintiffs pleaded facts sufficient to demonstrate Defendants' control or authority over Plaintiffs' Plan assets. Such control was necessary, the Court explains, to establish ERISA functional fiduciary status, but rejects Plaintiffs' control arguments for several reasons. First, the FX transactions were initiated by the Plans' independent investment managers, not by Defendants. Second, Plaintiffs did not allege that Defendants exercised control over the Plans' trustees' or investment managers' decisions. Nor did Plaintiffs allege that the managers' instructions for execution of the FX transactions gave Defendants control. Third, the Court rejects Plaintiffs' reliance on their allegations of fraud to support their fiduciary claims. Here, while the fraud allegations could raise other legal concerns, wrongdoing in performing non-fiduciary services does not make the alleged fraudster a fiduciary absent the element of control, which does not exist.
On the denial of the motion for leave to further amend, the Court finds no abuse of discretion. It agrees with the district court's finding of futility, given the number of prior amendments and the speculative nature of Plaintiffs' counsel's "belief" that further investigation "may reveal" contracts between Defendants and the Plans showing indicia of control over Plan assets. The Court refuses to excuse Defendants' lack of due diligence in not searching for such contracts earlier; their significance was foreseeable because courts regularly consider contract terms as indicators of control over ERISA plan assets.
Defendants included these banks and/or their affiliates: Credit Suisse, Deutsche Bank, Morgan Stanley, Bank of America, Barclays, Citibank, Goldman Sachs, HSBC, JP Morgan Chase, Royal Bank of Scotland, UBS, Merrill Lynch, BNP Paribas.
