United States District Court, S.D. New York
OPINION AND ORDER
PAUL OETKEN, District Judge
initiated two actions, which were consolidated by the Court
on April 12, 2016 (Dkt. No. 53), against Defendants the Bank
of New York Mellon and BNY Mellon, National Association
(“Defendants” or “BNYM”), pursuant to
the Employee Retirement Income Security Act of 1974
(“ERISA”), as amended, 29 U.S.C. § 1001,
et seq. Plaintiffs sue on behalf of seven ERISA
employee benefit plans in which they are participants or for
which they serve as a trustee. The operative First Amended
Complaint (“Complaint”) was filed on May 3, 2016.
(FAC ¶ 1.)
claim that BNYM breached its fiduciary duty to ERISA plans
that held American Depositary Receipts (“ADRs”)
for which BNYM served as depositary. Specifically, they
allege that BNYM breached its duties of prudence and loyalty
under 29 U.S.C. §§ 1104 and 1109 (id.
¶¶ 197-204); engaged in self-interested prohibited
transactions in violation of 29 U.S.C. § 1106(b)
(id. ¶¶ 205-11); and caused the plans to
engage in party-in-interest prohibited transactions in
violation of 29 U.S.C. § 1106(a) (id.
pending before the Court is a motion to dismiss the
Complaint, pursuant to Federal Rules of Civil Procedure
12(b)(1), for lack of standing, and 12(b)(6), for failure to
state a claim. (Dkt. No. 61.) The Court heard oral argument
on March 17, 2017. For the reasons that follow, the motion to
dismiss is denied.
employee benefit plans seeking to diversify their investments
may choose to enter into overseas securities markets. (FAC
¶ 31.) Instead of holding foreign securities directly,
however, some ERISA plans have chosen to purchase American
Depositary Receipts (“ADRs”). (Id.
¶ 32.) ADRs, which were first introduced in 1927,
represent a specified number of shares in a foreign
corporation. (Id.) Typically, a
“depositary” bank directly purchases foreign
securities from a foreign issuer and deposits those
securities in a “custodian” bank for safekeeping.
(Id.) The “depositary” then issues ADRs
in the United States based on those foreign securities.
(Id.) ADRs are governed by deposit agreements
(“DAs”) and related documents and can be traded
on the domestic markets. (Id.)
provide a convenient way for domestic investors to purchase
foreign securities without the hassle of foreign currency
exchange (“FX”) and with all the protections
afforded to domestic entities holding a United States
security. (Id. ¶ 33.) In return for this
convenience, banks typically charge ADR holders fees for
various related services, including custody services,
dividend distributions, voting shares, and conducting FX
transactions. (Id. ¶ 35.)
gravamen of Plaintiffs' complaint is that BNYM breached
its fiduciary duty to the ERISA plans when it conducted FX
transactions. (Id. ¶ 5.) When a foreign entity
issues a dividend or interest payment, for example, the
payment is typically converted to U.S. Dollars
(“USD”) by the depositary bank and remitted to
the downstream ADR holder, here the Plans. (Id.
¶ 37.) Plaintiffs allege that, when converting the
foreign currency to USD, BNYM selected an exchange rate at or
near the worst rate for the ADR holders, increasing
Defendants' profits at the expense of the Plans.
(Id. ¶ 5.) Plaintiffs further allege that such
dividends and interest payments “at all times belonged
to the ADR Owner” and were “at all times ERISA
plan assets.” (Id. ¶ 38.) This FX
transaction methodology led Defendants to charge excessive,
unauthorized, and undisclosed rates when executing ADR FX
transactions, breaching their fiduciary duty to the Plans
under ERISA. (Id. ¶¶ 48-63; 197-204.)
also allege that BNYM's FX methodology constitute a
self-interested prohibited transaction with plan assets under
29 U.S.C. § 1106(b) (id. ¶¶ 205-11),
and a party-in-interest prohibited transaction under §
1106(a) (id. ¶¶ 212-18). Plaintiffs
further allege that they are entitled to ERISA's fraud or
concealment limitations period, which allows for an action to
commence within six years of the discovery of a breach in the
case of fraud or concealment. (Id. ¶¶
178-86.) They demand a trial by jury. (Id. ¶
survive a motion to dismiss pursuant to Federal Rule of Civil
Procedure 12(b)(6), “a complaint must contain
sufficient factual matter . . . to ‘state a claim to
relief that is plausible on its face.'”
Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting
Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570
(2007)). “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.” Id. When
evaluating whether a complaint meets these requirements,
courts assume that all “factual allegations contained
in the complaint” are true, Twombly, 550 U.S.
at 572 (quoting Swierkiewicz v. Sorema N. A., 534
U.S. 506, 508 n.1 (2002)), and “draw all inferences in
the light most favorable to the non-moving party[ ], ”
In re NYSE Specialists Sec. Litig., 503 F.3d 89, 95
(2d Cir. 2007) (citation omitted).
Rule 12(b)(6) motion must be resolved by looking only to the
complaint; documents that are attached as exhibits to,
incorporated by reference, or integral to the complaint; and
matters of which judicial notice may be taken.”
Rhee-Karn v. Burnett, No. 13 Civ. 6132, 2014 WL
4494126, at *3 (S.D.N.Y. Sept. 12, 2014) (citing Samuels
v. Air Transp. Local 504, 992 F.2d 12, 15 (2d Cir.
resolving a 12(b)(1) motion, however, a court may refer to
evidence outside the pleadings, such as affidavits.
Zappia Middle E. Constr. Co. v. Emirate of Abu
Dhabi, 215 F.3d 247, 253 (2d Cir. 2000). Moreover, under
12(b)(1), the Court must accept as true all the material
factual allegations contained in the complaint, but is
“not to draw inferences from the complaint favorable to
plaintiffs.'” J.S. ex rel. N.S. v. Attica Cent.
Sch., 386 F.3d 107, 110 (2d Cir. 2004). “Dismissal
for lack of subject matter jurisdiction is proper ‘when
the district court lacks the statutory or constitutional
power to adjudicate' a case.” Sokolowski v.
Metro. Transp. Auth., 723 F.3d 187, 190 (2d Cir. 2013)
(quoting Makarova v. United States, 201 F.3d 110,
113 (2d Cir. 2000)).
Court first addresses constitutional standing, as standing
“is the threshold question in every federal
case.” Warth v. Seldin, 422 U.S. 490, 498
(1975). Because the Court finds that Plaintiffs have standing
to assert their claims in a representative or derivative
capacity on behalf of the Plans, the Court next addresses the
parties' dispute as to whether ADRs held by the Plans are
plan assets, as alleged by the complaint, such that BNYM owes
a fiduciary duty to the Plans under ERISA. The Court then
turns to Plaintiffs' prohibited transaction claims before
addressing the timeframe over which Plaintiffs claims may be
asserted. And finally, the Court addresses the propriety of
Plaintiffs' jury demand.
has three elements: first, the plaintiff must have suffered
an injury in fact; second, the injury must be ‘fairly
traceable' to the defendant's actions that the
plaintiff challenges; and third, it must be likely that a
decision in the plaintiff's favor would redress her
injury.” Wells Fargo Bank N.A. v. Ullah, No.
13 Civ. 0485, 2014 WL 470883, at *5 (S.D.N.Y. Feb. 6, 2014)
(quoting Lujan v. Defenders of Wildlife, 504 U.S.
555, 560-61 (1992)).
argues that all but one of the Plaintiffs lack constitutional
standing in this case. BNYM distinguishes between Plaintiffs
Anselman, Carver, Day, Fletcher, Garrett, Hartline, Kellen,
Kenny, Parker, and Watkins-the “Participant Plaintiffs,
” who are participants in either defined benefit
plans or defined contribution
plans-and Plaintiff Baumann-the “Trustee
Plaintiff, ” who is a trustee of the Teamsters Local
945 Plan. BNYM does not challenge the Trustee Plaintiff's
Article III standing at this stage of the proceedings (Dkt.
No. 62 at 30 n.22), but does challenge the standing of the
Participant Plaintiffs (id. at 24-30).
argues that the Participant Plaintiffs who are participants
in defined benefit plans lack Article III standing
because they fail to allege an individualized injury in the
form of a reduction in their defined benefits, as opposed to
an injury to the plan generally, that is traceable to the
alleged ERISA violation and redressable by the relief sought.
(Id. at 25-29.) BNYM contends that the Participant
Plaintiffs who are participants in defined
contribution plans lack Article III standing because
the complained-of injury is merely a “de
minimis individualized injury.” (Dkt. No. 62 at
30.) Yet the Second Circuit has recently affirmed that
similarly situated plaintiffs have constitutional standing
when suing on behalf of an ERISA plan in a
derivative or representative capacity, as opposed to in their
argument that the Participant Plaintiffs who are participants
in the defined benefit plan lack standing is based on
Fletcher v. Convergex Grp. LLC, 164 F.Supp.3d 588
(S.D.N.Y. 2016). There, the district court held that
“Defendants' overcharges increased the plan's
deficiency by less than one hundred-thousandth of one
percent, ” which is an injury “so minute as to be
imaginary and inconsequential” and insufficient to
satisfy the injury-in-fact requirement for constitutional
standing as to an individual plan participant. Id.
after briefing of BNYM's motion to dismiss was completed,
Fletcher was vacated by Second Circuit.
(See Dkt. No. 77.) On appeal in Fletcher,
the Second Circuit issued a summary order, concluding that
the defendant's alleged “breach of fiduciary duties
of prudence and loyalty under ERISA, its violation of
ERISA's prohibited transactions provision, and the
resulting financial loss sustained by the [Plan] are
sufficient to confer Article III standing on [plaintiff] in
his representative capacity as a Plan
participant.” Fletcher v. Convergex Grp.
L.L.C., No. 16-734-cv, 2017 WL 549025, at *1 (2d Cir.
Feb. 10, 2017) (emphasis added). In so concluding, the Second
Circuit relied on L.I. Head Start Child Dev. Servs., Inc.
v. Econ. Opportunity Comm'n of Nassau Cty., Inc.,
710 F.3d 57 (2d Cir. 2013), where it “reject[ed] the
[defendants'] argument that [plaintiffs] lack
constitutional standing because they have not suffered an
injury-in-fact, ” finding instead that plaintiffs had
“asserted their claims in a derivative
capacity, to recover for injuries to the Plan caused by
the [defendants'] breach of their fiduciary duties,
” which “is injury-in-fact sufficient for
constitutional standing.” Id. at 67 n.5
however, all Participant Plaintiffs bring this action not in
their individual capacity, but “on behalf of
seven ERISA employee benefit plans in which they are
participants.” (FAC ¶ 1 (footnote omitted)
(emphasis added); see also Id. ¶¶ 95, 113,
124, 132, 145, 157, 168 (alleging which Plaintiffs are
bringing the present case on behalf of each of the seven
Plans).) As one court put it, where claims are brought
“exclusively on behalf of the plan, not for the
individual and direct benefit of the plaintiffs, ”
courts “do not require plaintiffs to demonstrate
individualized injuries for purposes of Article III
standing.” Banyai v. Mazur, No. 00 Civ. 9806,
2007 WL 959066, at *5 (S.D.N.Y. Mar. 29, 2007). Where, as
here, Plaintiffs are suing in their representative or
derivative capacities on behalf of the Plans, Plaintiffs need
not demonstrate individualized injury when they have alleged
injury to the Plans caused by Defendants.
respect to traceability and redressability, moreover,
Plaintiffs have satisfied their burden at the pleading stage.
Under Second Circuit law, at the pleading stage, “for
purposes of satisfying Article III's causation
requirement, we are concerned with something less than
the concept of proximate cause.” Rothstein v.
UBS AG, 708 F.3d 82, 92 (2d Cir. 2013) (quoting
Connecticut v. Am. Elec. Power Co., 582 F.3d 309,
345 (2d Cir. 2009), rev'd, 564 U.S. 410 (2011)).
At the pleading stage, “the plaintiffs'
‘burden . . . of alleging that their injury is
“fairly traceable” to' the challenged act
‘is relatively modest.'” Id.
(alteration in original) (quoting Bennett v. Spear,
520 U.S. 154, 171 (1997)). Plaintiffs have alleged that the
FX scheme “increased [BNYM's] revenues and profits
by millions of dollars annually at the expense of the
Plans.” (FAC ¶ 4; see also Id. ¶ 203
(“As a direct and proximate result of these breaches of
fiduciary duty, the Plans and their participants suffered
tens of millions of dollars of losses.”).) Here,
Plaintiffs have met that modest burden by alleging that the
FX pricing methodology directly contributed to the Plans'
satisfy the redressability requirement, there need only be a
“‘likel[ihood]' that the injury ‘will
be redressed by a favorable decision.'” Susan
B. Anthony List v. Driehaus, 134 S.Ct. 2334, 2341 (2014)
(alteration in original) (quoting Lujan, 504 U.S. at
560-61). Here, Plaintiffs allege that “Defendants are
liable to restore all losses suffered by the Plans caused by
the Defendants' breaches of fiduciary duty and to
disgorge the profits obtained from the ADR FX Dividend