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Malone v. Teachers Insurance and Annuity Insurance Association of America

United States District Court, S.D. New York

March 7, 2017

ELAINE MALONE and PATRICIA MCKEOUGH, on Behalf of The University of Chicago Retirement Income Plan for Employees, Nova Southeastern University 403b Plan, and All Other Similarly Situated Plans, Plaintiffs,


          P. Kevin Castel United States District Judge

         Plaintiffs Elaine Malone and Patricia McKeough bring this action on behalf of The University of Chicago Retirement Income Plan for Employees (the “UC Plan”) and the Nova Southeastern University 403(b) Plan (the “Nova Plan, ” and, along with the UC Plan, “the Plans”) alleging that Defendant Teachers Insurance and Annuity Association of America (“TIAA”) breached its fiduciary duty to the Plans under section 404(a) of the Employee Retirement Income Security Act of 1974 (“ERISA”), 29 U.S.C. § 1104(a) and engaged in prohibited transactions in violation of sections 406(a)(1) and 406(b), 29 U.S.C. § 1106(a)(1) & 1106(b). This putative class action seeks monetary and equitable relief for the Plans and all similarly situated defined contribution pension plans. Based on the facts alleged in the Amended Complaint (“AC”), the Court concludes that TIAA is not a fiduciary of the Plans, thus foreclosing the legal and equitable relief requested. Defendant's motion to dismiss the AC is granted.


         Malone is a member of the UC Plan for Employees and McKeough is a member of the Nova Plan. (AC ¶¶ 1, 15-16.) The Plans are designed to provide participants, like plaintiffs, income in retirement. (Def.'s Mem. in Supp., May 6, 2016, Dkt. No. 44 at 3.) The employers who sponsor the Plans, the University of Chicago and Nova Southeastern University, entered into agreements under which TIAA agreed to perform certain services for the Plans. (Id.) TIAA provides two types of services to the Plans: (1) investment services; and (2) custodial and record keeping services. (AC ¶ 3.) The custodial and recordkeeping services are administrative services necessary to the operation of the Plans, while the investment services involve the actual investment of Plan assets. (Id.) TIAA is paid an investment fee by the Plans for its investment services. (Id.) As part of the investment services that TIAA provides to the Plans, TIAA offers Group Annuity Contracts to Plan members, which include various pooled fund investment offerings, such as pooled accounts and mutual funds, all of which have a ten-year contract period. (AC ¶¶ 3, 31.) All of Malone's assets in her UC Plan account are invested in a TIAA Traditional Annuity (Contract D055634-2). (AC ¶ 33). Almost all of McKeough's assets in her Nova Plan account are invested in a TIAA Traditional Annuity (Contract D123535-9). (AC ¶ 34).

         Payment for the recordkeeping associated with these Group Annuity Contracts is provided for with a “recordkeeping offset, ” whereby TIAA allocates a portion of the investment fee to pay for these recordkeeping services. (AC ¶ 3.) This practice is common throughout the industry and is known as “revenue sharing.” (Id.) This “recordkeeping offset” is paid to defendant pursuant to the Custodial and Recordkeeping Agreements (“RSAs”), which have a five-year contract period. (AC ¶ 27.)

         Contrary to what is allegedly common practice, TIAA will not allow this revenue sharing to be paid to a recordkeeper other than itself. (AC ¶ 4.) Thus, if the Plans were to change recordkeepers for the Group Annuity Contracts, they would no longer have the benefit of revenue sharing, i.e., they would continue to pay the investment fee to TIAA, none of which would be used to offset the recordkeeping fees charged by the new recordkeeper, such that the Plans would be required to pay the new recordkeeper in full. (See AC ¶ 4.) In essence, the Plans would have to pay double fees for recordkeeping, both to the new recordkeeper and to TIAA as part of its investment fee. (See id.)

         This allegedly makes it financially infeasible for the Plans to switch to a different recordkeeper and as a practical matter locks the Plans into using TIAA as recordkeeper for the duration of the Group Annuity Contracts. (AC ¶ 41.) Consequently (and allegedly), the Plans are prevented from receiving the most competitively priced recordkeeping services on the market and the Plans' participants and their beneficiaries thereby suffer monetary injury. (AC ¶¶ 46, 47.)

         TIAA's practice of refusing to share revenue with a potential third party recordkeeper was not a subject of negotiation with the Plans and was not disclosed to the Plans at the time the RSAs were agreed to. (AC ¶¶ 4, 38.) The RSAs themselves are silent on the matter. (AC ¶ 4.) Plaintiffs allege that TIAA denied the Plans access to information needed to evaluate the presence of a conflict of interest arising from TIAA providing the Group Annuity Contracts as well as recordkeeping services. (AC ¶ 42.) In 2012, while preparing for a meeting with a different retirement plan client who was considering alternative vendors, senior relationship managers allegedly instructed employees to tell the representatives of the retirement plan that the plan did not pay fees. (AC ¶ 51.) Defendant allegedly failed to disclose that it charges individual Plan members a fee for wealth management services after representing that those services were part of the overall package of services provided to the Plans and included in those fees. (AC ¶ 52.)


         Rule 12(b)(6), Fed. R. Civ. P., requires a complaint to “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 Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007)). In assessing the sufficiency of a complaint, a court must disregard legal conclusions, which are not entitled to the presumption of truth. Id. Instead, the Court must examine the well-pleaded factual allegations and “determine whether they plausibly give rise to an entitlement to relief.” Id. at 679. “Dismissal is appropriate when ‘it is clear from the face of the complaint, and matters of which the court may take judicial notice, that the plaintiff's claims are barred as a matter of law.'” Parkcentral Global Hub Ltd. v. Porsche Auto. Holdings SE, 763 F.3d 198, 208-09 (2d Cir. 2014) (quoting Conopco, Inc. v. Roll Int'l, 231 F.3d 82, 86 (2d Cir. 2000)).


         I. The Court has Subject Matter Jurisdiction.

         Defendant contends that plaintiffs' complaint should be dismissed for lack of subject matter jurisdiction because the harm complained of is speculative and plaintiffs' theory of liability is premised on actions defendant may or may not take in the future. “Standing is a federal jurisdictional question ‘determining the power of the court to entertain the suit.'” Carver v. City of New York, 621 F.3d 221, 225 (2d Cir. 2010) (quoting Warth v. Seldin, 422 U.S. 490, 498 (1975)). “Constitutional standing refers to the requirement that parties suing in federal court establish that a ‘Case' or ‘Controversy' exists within the meaning of Article III of the United States Constitution.” Am. Psychiatric Ass'n v. Anthem Health Plans, Inc., 821 F.3d 352, 358 (2d Cir. 2016).

         There are three Article III standing requirements: (1) the plaintiff must have personally suffered an injury-in-fact, i.e., an invasion of a judicially cognizable interest which is concrete and particularized as well as actual or imminent, rather than conjectural or hypothetical; (2) there must be a causal connection between the injury and the conduct at issue such that the injury is fairly traceable to the challenged conduct; and (3) the injury must be likely to be redressed by a favorable decision. Lujan v. Defenders of Wildlife, 504 U.S. 555, 560-61 (1992); Valley Forge Christian Coll. v. Ams. United for Separation of Church and State, Inc., 454 U.S. 464, 472 (1982). The requirements of Article III standing necessarily extend to claims brought by ERISA plaintiffs suing for a breach of fiduciary duty. These plaintiffs “must establish . . . constitutional standing, meaning the plan participant must . . . assert a constitutionally ...

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