Del Castillo et al v. Community Child Care Council of Santa Clara County, Inc. et al, No. 5:2017cv07243 - Document 133 (N.D. Cal. 2018)

Court Description: ORDER GRANTING DEFENDANTS' MOTION TO DISMISS (In re: ECF Nos. 68 , 76 , 94 , 98 and 102 ). Signed by Magistrate Judge Susan van Keulen on 5/24/2018. (ofr, COURT STAFF) (Filed on 5/24/2018)
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Del Castillo et al v. Community Child Care Council of Santa Clara County, Inc. et al Doc. 133 1 2 3 4 UNITED STATES DISTRICT COURT 5 NORTHERN DISTRICT OF CALIFORNIA 6 7 MARIO DEL CASTILLO, et al., Plaintiffs, 8 9 10 United States District Court Northern District of California 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 ORDER GRANTING DEFENDANTS' MOTION TO DISMISS v. COMMUNITY CHILD CARE COUNCIL OF SANTA CLARA COUNTY, INC., et al., 11 12 Case No.17-cv-07243-SVK Re: Dkt. Nos. 68, 76, 94, 98, 102 Defendants. I. INTRODUCTION On December 21, 2017, Plaintiffs Mario Del Castillo, Puthea Chea, and Michael Rasche, (together, “Plaintiffs”) filed a putative class action alleging claims under the Employee Reitrement Income Security Act (“ERISA”). ECF 1. On February 16, 2018, Defendant Life Insurance Company of the Southwest (“LSW”) moved to dismiss Plaintiffs’ complaint. ECF 68. On February 20, 2018, Defendant Mary Chacon (“Chacon”) moved to dismiss Plaintiffs’ state law claims. ECF 76. On March 7, 2018, Defendant Alfredo Villasenor (“Villasenor”) moved to dismiss Plaintiffs’ claims against him. ECF 94. On March 9, 2018, Defendant Kevin Logan (“Logan”) moved to dismiss claims against him, largely joining in arguments made by LSW. ECF 98. On March 16, 2018, Board of trustees of Community Child Care Council of Santa Clara County, Inc. (“4Cs Board of Trustees”), Community Child Care Council of Santa Clara County, Inc. (“4Cs”), Julienne La Fitte, Clarence Madrilejos, James McDaniel, Ben Menor, and Xiaoyan Xu moved to dismiss Plaintiffs’ complaint, also joining in arguments made by LSW, Chacon, Villasenor, and Logan. ECF 102. On April 24, 2018, the Court heard oral arguments on the Defendants’ motions. After reviewing the parties’ submissions and hearing argument, the Court grants Defendants’ motions to dismiss for the reasons detailed below. 28 Dockets.Justia.com 1 II. 2 BACKGROUND a. The Parties 3 Plaintiffs are three current or former employees of Defendant 4Cs. ECF 1 at ¶¶ 4-6. 4Cs 4 is a non-profit that operates a Head Start program in Santa Clara County. ECF 1 at ¶ 8; ECF 102 5 at 5. 4Cs is operated by Defendant 4Cs Board of Trustees. ECF 1 at ¶ 8. Defendants Ben Menor, 6 Xiaoyan Xu, Clarence Madrilejos, James McDaniel, Julienne La Fitte, Jamie Gallardo, Connie 7 Jimenez, Maria Reyes and Faye Sears are now, and/or have been members of the 4Cs Board of 8 Trustees. ECF 1 at ¶ 9. From 1987 to approximately August 2017, Defendant Villasenor was the 9 Executive Director of 4Cs. ECF 1 at ¶ 12. Beginning in or about 1987, Defendant 4Cs Board of Trustees has been the plan sponsor 10 United States District Court Northern District of California 11 and plan administrator of the 4Cs Plans, consisting of (1) a “non-qualified” deferred compensation 12 plan, established pursuant to 26 U.S.C. § 409A et seq., (2) a defined contribution plan, and (3) a 13 profit sharing plan. ECF 1 at ¶ 10. Plaintiffs have not properly named the 4Cs Plans as a 14 defendant. The 4Cs Plans do not appear in the caption of the complaint, have not been served 15 with the complaint, and have not appeared in this action. Fed. R. Civ. P. 4, 10.1 Plaintiffs allege that Logan Group Securities have acted and continue to act as investment 16 17 advisors and brokers to the 4Cs Plans. ECF 1 at ¶¶ 14, 16. Defendant Kevin Logan was and is an 18 officer of Logan Group Securities. ECF 1 at ¶ 15. Defendant Mary Chacon, as a representative of 19 Defendant Cetera Financial Group, has acted and continues to act as an investment advisor and 20 broker to some or all of the 4Cs Plans. ECF 1 at ¶ 17. Defendant LSW is an insurer of the life annuity contracts that 4Cs purchased for Plaintiffs. 21 22 ECF 1 at ¶ 18. Defendant First Allied Retirement Services, Inc. (“ARS, Inc.”) has acted and 23 continues to act as an administrator to the 4Cs Plans. ECF 1 at ¶ 19. Defendant Unger is an 24 officer of ARS, Inc. ECF 1 at ¶ 20. 25 26 27 28 1 Even though the complaint states “Defendant 4Cs Plans is named as an individual Defendant in this action pursuant to Rule 19(a) of the Federal Rules of Civil Procedure,” (ECF 1 at ¶ 11) and refers to the 4Cs Plans in the subheadings to the claims for relief, these references, by themselves, do not make the 4Cs Plans a defendant. 2 1 b. Allegations Beginning in approximately 1987, 4Cs began offering pension benefits to its employees 2 3 (“4Cs Plans”). ECF 1 at ¶ 10. Plaintiffs are participants in the 4Cs Plans. ECF 1 at ¶¶ 4-6. 4 Plaintiffs allege that at a time unknown, but prior to 2003, 4Cs and its Board began converting 5 Plaintiffs’ vested retirement account balances into life annuity contracts underwritten and sold by 6 LSW. ECF 1 at ¶ 23. Plaintiffs allege that 4Cs management personnel presented them and other 7 employees with documents that “purported to be enrollment applications for the 4Cs retirement 8 plans,” but “in reality . . . were binding contracts” whereby participants “unknowingly agreed to 9 convert” vested balances into “highly restricted and financially imprudent life annuity” contracts. ECF 1 at ¶ 37. Plaintiffs allege that this transfer was improper because Plaintiffs were 11 United States District Court Northern District of California 10 misinformed about what they were signing (see, e.g., ECF 1 at ¶¶ 33–36), Plaintiffs were not 12 informed about “restrictions” on the LSW Annuities (see, e.g., ECF 1 at ¶¶ 41–43), ERISA 13 prohibits certain provisions in the LSW Annuities (see, e.g., ECF 1 at ¶¶ 80–83, 89–90), the LSW 14 Annuities were imprudent investments (see, e.g., ECF 1 at ¶¶ 97–98), and the purchase of the 15 LSW Annuities constituted prohibited transactions under ERISA (see, e.g., ECF 1 at ¶¶ 104–106). 16 i. Applications for Annuities Each Plaintiff filled out and signed a two-page form entitled “Application for Annuity.” 17 18 ECF 69, Request for Judicial Notice (“RJN”), Ex. A–C (the “Applications”).2 Plaintiffs Del 19 Castillo and Rasche signed and dated their Applications on April 3, 2003. ECF 69-1 at 3, 21. 20 Plaintiff Chea signed and dated his Application on December 6, 2012. ECF 69-1 at 18. Each 21 Application contains twelve Sections. Id. Plaintiffs Rasche and Del Castillo’s Applications 22 indicate that they were applying for the “SecurePlus Platinum Flexible Equity-Indexed and 23 Declared Interest Annuity” Plan (ECF 69-1 at 2 § IV, 20 § IV), and Plaintiff Chea’s Application 24 indicates that Chea applied for the “SecurePlus Platinum Plan” (ECF 69-1 at 17 § IV). Each 25 26 27 28 2 The Applications were submitted as part of Defendant LSW’s Request for Judicial Notice. ECF 69. While the Applications are not subject to judicial notice, the Court may consider the Applications because their authenticity is not contested (see ECF 91 at 14) and Plaintiffs “necessarily rely” on the Applications in the complaint. Lee v. City of L.A., 250 F.3d 668, 688 (9th Cir. 2001)(citing Parrino v. FHP, Inc., 146 F.3d 699, 705–06 (9th Cir.1998)); Thomas v. Bostwick, No. 13-CV-02544-JCS, 2013 WL 5289952, at *2 (N.D. Cal. Sept. 19, 2013) 3 1 Application indicates that premiums are payable by “Salary Reduction” on a “Monthly” basis. 2 ECF 69-1 at 2 § III, 20 § III, 17 § III. In the Disclosure Information section where each Plaintiff 3 signed and dated the Application, it states, “I have received a copy of the disclosure material and 4 understand that the results shown, other than the guaranteed minimum values, are not guarantees, 5 promises or warranties.” ECF 69-1 at 3 § XII, 18 § XII, 21 § XII. 6 ii. SecurePlus Platinum Disclosure Material Plaintiffs were also provided disclosure materials with their Applications.3 Plaintiffs Del 7 8 Castillo and Rasche signed and/or initialed pages of the SecurePlus Platinum 9 Summary/Application provided by LSW (ECF 69-1 at 4-9, 22-27), and Plaintiff Chea was given a SecurePlus Platinum Disclosure/Application form with the application (ECF 69-5 at 11-15) (the 11 United States District Court Northern District of California 10 “Summary Forms”). These Summary Forms disclosed, among other things: • “SecurePlus Platinum is an Equity-Indexed and Declared Interest Rate Annuity” that it is 12 13 a “fixed annuity with certain important insurance features . . .” • “ If you are the Annuitant and you die while this annuity is in force, LSW will pay the 14 15 greater of the Accumulation Value or the Policy Value (these are described later) to your 16 Beneficiary as a Death Benefit and will waive any remaining Withdrawal Charges.” • “Beginning in the second Policy Year and in each Policy Year thereafter, you may 17 18 withdraw up to 10% of your annuity’s Accumulation Value without a Withdrawal Charge (Free 19 Withdrawal Amount).” (Emphasis in original.) • There “are no Withdrawal Charges after the 15th Policy Year,” but “Withdrawal Charges 20 21 are applied as a percentage of the amount withdrawn in excess of the available Free Withdrawal 22 Amount.” Withdrawal Charges are: 23 24 25 26 27 28 3 See surpa at footnote 1. 4 1 2 • “You have a right to a complete refund of your total premium payments at any time 3 within 30 days of receiving your annuity Policy. To exercise this right, you must return your 4 Policy with a written request for a refund.” 5 c. Procedural Posture 6 i. The Complaint Plaintiffs filed this action on December 21, 2017, naming as Defendants 4Cs, the 4Cs 7 8 Board of Trustees, Julienne La Fitte, Clarence Madrilejos, James McDaniel, Ben Menor, Xiaoyan 9 Xu, Jaime Gallardo, Connie Jiminez, Maria Reyes, Faye Sears, Villa Senor, Robert C. Unger, Logan, Logan Group Securities, First Allied Retirement Services, Mary Chacon, Cetera Financial 11 United States District Court Northern District of California 10 Group, and LSW. On January 4, 2018, Plaintiffs consented to the jurisdiction of the undersigned 12 magistrate judge. ECF 36. On February 2, 2018, Plaintiffs voluntarily dismissed Defendant 13 Cetera Financial Group. ECF 55. On May 4, 2018, Plaintiffs voluntarily dismissed Defendants 14 Maria Reyes, Connie Jiminez, and Logan Group Securities. ECF 130, 131, 132. All of the 15 remaining Defendants have consented to the jurisdiction of the undersigned magistrate judge. 16 ECF 51, 75, 87, 95, 99, 128, 129. Plaintiffs’ complaint alleges nine causes of actions. The first six causes of action arise out 17 18 of ERISA. The final three causes of action are state law claims.4 19 Plaintiffs’ Claim One alleges a violation of ERISA § 103, 29 U.S.C. § 1023 against 20 Defendants 4Cs Plans, 4Cs Board of Trustees, and Villasenor. Plaintiffs seek civil penalties under 21 ERISA § 502(c)(1) based on the alleged failure to file the correct 5500 forms with the Department 22 of Labor as ERISA § 103 requires. Plaintiffs’ Claim Two alleges violation of ERISA §§ 101-105, 29 U.S.C. § 1021 against 23 24 Defendants 4Cs Plans, 4C Board of Trustees, Villasenor, Unger, ARS, Inc., and LSW. Plaintiffs 25 seek civil penalties under ERISA § 502(c)(1) based on the alleged failure to provide documents to 26 27 28 4 Plaintiffs misnumber the causes of actions in the complaint. The complaint contains two “Fourth Claim[s] for Relief.” See ECF 1 at 21:20, 23:6. For purposes of this order, the Court will refer to the claims according to their proper order, with a parenthetical reference to the number of the claim in the complaint (e.g., Claim Six (labeled Five)). 5 1 2 Plaintiffs both at certain times as required by the statute and upon request by Plaintiffs. Plaintiffs’ Claim Three alleges violations of ERISA §§ 202-203, 29 U.S.C. § 1052-1053 3 against Defendants 4Cs Plans, 4C Board of Trustees, Villasenor, and LSW. Plaintiffs seek 4 declaratory relief for Defendants’ alleged failure to provide a plan with the minimum participation 5 standards as required by ERISA. 6 Plaintiffs’ Claim Four alleges violations of ERISA § 206(d), 29 U.S.C. § 1056(d) against 7 Defendants 4Cs Plans, 4C Board of Trustees, and LSW. Plaintiffs allege that by using vested 8 retirement balances to purchase annuities, Defendants violated ERISA § 206(d), which prohibits 9 “alienation” of benefits. Plaintiffs’ Claim Five (labeled Four) alleges violations of ERISA § 404, 29 U.S.C. § 1104 11 United States District Court Northern District of California 10 against Defendants 4Cs Plans, 4C Board of Trustees, Logan, LSW, and Chacon. Plaintiffs allege 12 that Defendants breached their fiduciary obligations by failing to provide plan documents and by 13 allowing vested retirement account balances to be converted into life annuity contracts that allow 14 for an excessive degree of investment risk and lack reasonable investment diversification. ECF 1 15 at ¶¶ 95-101. 16 Plaintiffs’ Claim Six (labeled Five) alleges violations of ERISA § 406, 29 U.S.C. § 1106 17 against Defendants Logan, and LSW. Plaintiffs allege that Defendants breached their fiduciary 18 duties by engaging in or permitting prohibited financial transactions. ECF 1 at ¶¶ 102-110. 19 Plaintiffs’ Claim Seven (labeled Six) alleges a state law claim for breach of contract 20 against Defendants 4Cs, 4Cs Board of Trustees, 4Cs Plans, Logan, and Chacon. Plaintiffs claim 21 that Plaintiffs and Defendants entered into a contract wherein Defendants agreed to provide 22 Plaintiffs with a retirement benefit and that Defendants breached that contract by using 23 contributions to the Plans to pay compensation to other Defendants. ECF 1 at ¶¶ 111-119. 24 Plaintiffs’ Claim Eight (labeled Seven) alleges a state law claim for fraud in the 25 inducement, in concealment and intentional deceit against Defendants 4Cs, 4Cs Board of Trustees, 26 4Cs Plans, Villasenor, Logan, LSW, and Chacon. Plaintiffs claim that Defendants engaged in acts 27 of deceit by encouraging Plaintiffs to sign documents which purported to be “applications” but 28 were in fact binding life annuity contracts. ECF 1 at ¶¶ 120-125. 6 1 Plaintiffs’ Claim Nine (labeled Eight) alleges a state law claim for conversion against 2 Defendants 4Cs Plans, Logan, LSW, and Chacon. Plaintiffs claim that Defendants exercised 3 unlawful dominion and control over a sum of money consisting of retirement contributions 4 promised to Plaintiffs. ECF 1 at ¶¶ 126-131. ii. Defendants’ Motions to Dismiss 5 6 7 Defendants ARS, Inc. and Unger filed an answer on February 20, 2018. ECF 73. The remaining Defendants have filed five motions to dismiss on the grounds discussed below. 8 LSW Motion to Dismiss (ECF 68) 9 LSW moves to dismiss the following claims on the following grounds: 10 Statute of Limitations: LSW argues that Claims Two, Three, Four, Five (labeled United States District Court Northern District of California 11 Four), and Six (labeled Five) are barred by the statute of limitations provided for in 12 ERISA. 13 14 15 16 17 Preemption: LSW argues that Plaintiffs’ state law claims against LSW, Claims Eight (labeled Seven) and Nine (labeled Eight), are preempted by ERISA. Administrator: LSW argues that Claim Two must be dismissed because LSW is not an administrator and therefore cannot be liable. Fiduciary: LSW argues that Claims Five (labeled Four) and Six (labeled Five) 18 must be dismissed because LSW is not a fiduciary and therefore cannot be liable 19 under those claims. 20 Failure to State a Claim: LSW also argues that Claims Three, Four, Eight (labeled 21 Seven), and Nine (labeled Eight) must be dismissed because they fail to state a 22 claim. 23 24 Chacon Motion to Dismiss (ECF 76) Preemption: Chacon moves to dismiss Plaintiffs’ state law claims against Chacon, 25 Claims Seven (labeled Six), Eight (labeled Seven), and Nine (labeled Eight), 26 because they are preempted by ERISA. 27 28 Failure to State a Claim: Chacon moves to dismiss Claim Eight (labeled Seven) because it fails to state a claim. 7 1 Villasenor Motion to Dismiss (ECF 94) 2 Villasenor moves to dismiss the following claims on the following grounds: 3 4 5 6 7 8 9 Statute of Limitations: Villasenor argues that Claims One and Two are barred by the applicable state statute of limitations. Administrator: Villasenor argues that Claim Two must be dismissed because Villasenor is not a plan administrator and therefore cannot be liable. Preemption: Villasenor argues that the state law cause of action against him, Claim Eight (labeled Seven), must be dismissed because it is preempted by ERISA. Failure to State a Claim: Villasenor argues that Claim Three must be dismissed for failure to state a claim. 11 United States District Court Northern District of California 10 Logan Motion to Dismiss (ECF 98) 12 Logan moves to dismiss the following claims on the following grounds: 13 14 15 Statute of Limitations: Logan argues that Claims Five (labeled Four) and Six (labeled Five) are barred by the statute of limitations provided for in ERISA. Preemption: Logan moves to dismiss Plaintiffs’ state law claims against Logan, 16 Claims Seven (labeled Six), Eight (labeled Seven), and Nine (labeled Eight), 17 because they are preempted by ERISA. 18 Fiduciary: Logan argues that Claims Five (labeled Four) and Six (labeled Five) 19 must be dismissed because Logan is not a fiduciary and therefore cannot be liable 20 under those claims. 21 4Cs Motion to Dismiss (ECF 102): 22 Defendants 4Cs,5 4Cs Board of Trustees, Ben Menor, Xiaoyan Xu, Clarence Madrilejos, 23 James Mcdaniel, and Julienne LaFitte move to dismiss the following claims on the following 24 grounds: 25 Statute of Limitations: Defendants 4Cs and 4Cs Board of trustees join in LSW’s 26 27 28 5 Defendant 4Cs moves to dismiss as if it had been properly named in certain claims for relief, and the Court has accepted and herein rules on the 4Cs motion. Because 4Cs Plans is not a defendant, it has not moved to dismiss or otherwise responded to the complaint. See supra section II.a. n. 1. 8 1 motion to dismiss Claims One, Two, Three, Four, Five (labeled Four), and Six 2 (labeled Five) because they are barred by the statute of limitations. 3 Failure to State a Claim: Defendants 4Cs and 4Cs Board of Trustees move to 4 dismiss Claims One, Three, Four, and Six, Seven (labeled Six), Eight (labeled 5 Seven), and Nine (labeled Eight) for failure to state a claim. 6 Preemption: Defendants 4Cs and 4Cs Board of Trustees move to dismiss 7 Plaintiffs’ state law claims, Claims Seven (labeled Six), Eight (labeled Seven), and 8 Nine (labeled Eight), because they are preempted by ERISA. 9 Volunteer Protection Act: Ben Menor, Xiaoyan Xu, Clarence Madrilejos, James Mcdaniel, and Julienne LaFitte move to dismiss claims against them because they 11 United States District Court Northern District of California 10 were acting as volunteers and are therefore shielded from liability. 12 13 For the reasons discussed herein, the Court grants Defendants’ motions in part without leave to amend and in part with leave to amend. 14 III. 15 Under Federal Rule of Civil Procedure 12(b)(6), the Court must dismiss a complaint if it LEGAL STANDARD 16 fails to state a claim upon which relief can be granted. To survive a Rule 12(b)(6) motion to 17 dismiss, the plaintiff must allege “enough facts to state a claim to relief that is plausible on its 18 face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). This “facial plausibility” standard 19 requires the plaintiff to allege facts that add up to “more than a sheer possibility that a defendant 20 has acted unlawfully.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). Although courts do not 21 require “heightened fact pleading of specifics,” Twombly, 550 U.S. at 570, a plaintiff must provide 22 “more than labels and conclusions, and a formulaic recitation of the elements of a cause of action 23 will not do.” Id. at 555. Rather, the plaintiff must allege facts sufficient to “raise a right to relief 24 above the speculative level.” Id. 25 26 27 28 IV. DISCUSSION a. Statute of Limitations ERISA is a statutory framework set forth in ERISA §§ 1-4402, 29 U.S.C. §§ 1001-1461 that seeks “to ensure that employees will not be left empty-handed” by imposing requirements on 9 1 retirement plans and fiduciary duties on those responsible for management of retirement plans. 2 Lockheed Corp. v. Spink, 517 U.S. 882, 887 (1996). ERISA provides for a statute of limitations 3 period for those claims relating to fiduciary duties. 29 U.S.C. § 1113. Section 1113 provides that: 4 5 No action may be commenced under this subchapter with respect to a fiduciary’s breach of any responsibility, duty, or obligation under this part, or with respect to a violation of this part, after the earlier of-- 6 7 (1) six years after (A) the date of the last action which constituted a part of the breach or violation, or (B) in the case of an omission the latest date on which the fiduciary could have cured the breach or violation, or 8 9 (2) three years after the earliest date on which the plaintiff had actual knowledge of the breach or violation; 10 United States District Court Northern District of California 11 29 U.S.C. § 1113. When considering the statute of limitations for claims relating to breach 12 of fiduciary duties, the timeliness analysis hinges on when the alleged breach or violation occurred 13 and when the plaintiff had actual knowledge of the breach or violation. Ziegler v. Connecticut 14 Gen. Life Ins. Co., 916 F.2d 548, 550 (9th Cir. 1990). 15 The above ERISA statute of limitations, however, does not apply to all subsections of 16 ERISA. For example, 29 U.S.C. § 1132, which governs relief available under ERISA, does not 17 have a statutorily provided limitations period. Stone v. Travelers Corp., 58 F.3d 434, 438 (9th Cir. 18 1995). For such subsections, courts must apply the most analogous statute of limitations under 19 state law. Id. 20 As discussed below, Plaintiffs seek relief under ERISA § 502, 29 U.S.C. § 1132 for Claims 21 One and Two, and therefore the ERISA statute of limitations does not apply. Claim One is barred 22 by the analogous California statute of limitations and is dismissed without leave to amend. Claim 23 Two is barred in part by the analogous California statute of limitations and is dismissed without 24 leave to amend in part. Claims Three and Four are governed by the ERISA statute of limitations 25 and barred pursuant to § 1113 and are dismissed without leave to amend. 26 // 27 // 28 10 i. Claim One: Violation of ERISA § 103, 29 U.S.C. § 1023 Against Defendants 4Cs Plans (sic), 4Cs Board of Trustees, Villasenor 1 2 Plaintiffs allege Defendants 4Cs Plans, 4Cs Board of Trustees, and Villasenor violated 3 ERISA § 103, 29 U.S.C. § 1023, by filing the incorrect forms with the Department of Labor 4 between 2012-2014. ECF 1 at ¶¶ 60-65.6 Plaintiffs claim that defendants are liable under ERISA 5 § 502(c)(1), 29 U.S.C. § 1132(c)(1) because Defendants’ failure to file the proper form has 6 prevented Plaintiffs from ascertaining relevant information about the overall financial condition of 7 the 4Cs Plans. Plaintiffs claim damages from October 15, 2016 “continuing through the present.” 7 8 ERISA § 502, 29 U.S.C. § 1132 does not provide its own statute of limitations. Therefore, 9 the Court must apply the most analogous statute of limitations under state law. Stone, 58 F.3d at 438. California Code of Civil Procedure section 340(1) provides a one-year limitation for an 11 United States District Court Northern District of California 10 “action upon a statute for a penalty or forfeiture, when the action is given to an individual, or to an 12 individual and the state.” California Code of Civil Procedure section 338(a) provides a three-year 13 limitation for an “action upon a liability created by statute, other than a penalty or forfeiture.” To 14 determine which of these statutes to apply, the Ninth Circuit has provided that the relevant 15 question is whether the wrong is “more private” or “more public.” Stone, 58 F.3d at 438-39. A 16 plaintiff who sues for a remedy that is payable to him or her for his or her injury seeks to remedy a 17 wrong that is “more private.” Id. at 439. A plaintiff bringing suit as a “private attorney general” 18 to enforce a general policy seeks to right a wrong that is “more public.” Id. at 439. 19 20 Under Claim One, Plaintiffs argue that they were harmed by receiving incomplete information in response to their request to Defendants because Defendants did not provide the 21 22 23 24 25 26 27 28 6 Defendant 4Cs requests judicial notice of Early Heard Start Services Snapshot 2017 for 4Cs available on the U.S. Department of Health & Human Services’s website and Forms 5500 filed by 4Cs profit sharing plan for the years 2010 and 2011. ECF 102-1. Plaintiffs do not oppose the request or otherwise contend the documents are inaccurate. Plaintiffs rely on the Forms 5500 in both their complaint and opposition. See ECF 1 at ¶¶ 62-65; ECF 114 at 12-13. Therefore 4Cs’s request for judicial notice is granted. See Perkins v. LinkedIn Corp., 53 F.Supp.3d 1190, 1204–06 (N.D. Cal. 2014) (taking judicial notice of publicly accessible websites); Almont Ambulatory Surgery Ctr., LLC v. UnitedHealth Grp., Inc., 99 F.Supp.3d 1110, 1126 (C.D. Cal. 2015) (taking judicial notice of Form 5500 filings). 7 Plaintiffs allege the union requested information on September 25, 2016 and received a response October 25, 2016. ECF 1 at ¶ 46. Although not clear from the Complaint, it appears that the October 25, 2016 response date is the basis for the damages period. 11 1 correct forms to the Department of Labor in first instance. ECF 105 at 4-5.8 While Plaintiffs 2 argue that their claimed harm is seemingly “more private,” because they are harmed on an 3 individual level, the ERISA section to which Claim One is directed as pled requires a plan to 4 submit an annual report to the Department of Labor, not to plan beneficiaries or participants. 5 Compare ERISA § 103, 29 U.S.C. § 1023 (section alleged to be violated in Claim One) with 6 ERISA § 104, 29 U.S.C. §§ 1024 (provisions requiring certain documents be provided to 7 participants and beneficiaries, under which Claim Two is brought). Therefore, because Claim One 8 is pled as a violation of ERISA § 103, the Court concludes that Claim One is directed at a wrong 9 that is “more public.” See Stone, 58 F.3d at 439. Accordingly, the Court applies the one year 10 statute of limitation pursuant to California Code of Civil Procedure section 340(1). Plaintiffs filed their complaint on December 21, 2017. ECF 1. The complaint alleges the United States District Court Northern District of California 11 12 last incorrect filing that could have violated ERISA § 103, 29 U.S.C. § 1023, occurred on June 30, 13 2014, over three years prior to the date Plaintiffs filed their complaint. ECF ¶ 63. Therefore, 14 Claim One is time-barred and dismissed without leave to amend. 15 ii. Claim Two: Violation of ERISA §§ 101-105, 29 U.S.C. § 1021 Against Defendants 4Cs Plans (sic), 4C Board of Trustees, Villasenor, Unger, ARS, Inc., and LSW 16 17 Plaintiffs’ second claim for relief is brought pursuant to ERISA §§ 101-105, 29 U.S.C. 18 §§ 1021-1025. These sections require the administrator of employee benefit plans to provide each 19 participant and beneficiary with certain documents, including summary plan descriptions, financial 20 information, benefit accrual, and a statement of rights, at varying time periods. ERISA 21 § 104(b)(4) requires a plan administrator to provide certain documents on request. Similar to 22 Claim One, Plaintiffs seek damages pursuant to ERISA § 502(c)(1). ECF 1 at ¶ 77. Thus, to 23 determine which California statute of limitations to apply, the Court is again faced with the 24 question of whether the wrong is “more private” or “more public.” See Stone, 58 F.3d at 438-39. 25 Here, the relevant ERISA sections require that documents be provided to individuals as 26 27 28 8 Plaintiffs argue that the harm stems from a violation of ERISA § 104(b), 29 U.S.C. § 1024(b), not ERISA § 103, 29 U.S.C. § 1023. ECF 105 at 4-5. However, that is not how the claim is pled in the complaint. ECF 1 at ¶¶ 61-65. 12 1 opposed to the Department of Labor. Therefore, the Court concludes that the wrong is “more 2 private.” As such, the Court applies California Code of Civil Procedure section 338(a), under 3 which the statute of limitations is three years. The complaint was filed December 21, 2017. As a result, for claims relating to documents 4 5 that ERISA requires an administrator to provide annually or quarterly, any claims relating to 6 violations that occurred after December 21, 2014 are timely. See, e.g., ERISA § 103(a)(1)(B).9 Plaintiffs’ claim that Defendants violated ERISA § 104(b)(4) by failing to provide 7 8 documents requested on September 25, 2016, June 29, 2017, and September 12, 2017. These 9 claims are timely because the alleged violations occurred within three years of December 21, 10 2017, the date Plaintiffs filed their complaint.10 United States District Court Northern District of California 11 iii. Claim Three: Violation of ERISA §§ 202-203, 29 U.S.C. § 10521053 Against Defendants 4Cs Plans (sic), 4C Board of Trustees, Villasenor, and LSW 12 13 In their third claim for relief, Plaintiffs allege that Defendants 4Cs Plans, 4C Board of 14 Trustees, Villasenor, and LSW violated ERISA §§ 202-203, 29 U.S.C. §§ 1052-1053 by imposing 15 improper conditions of participation and improper vesting periods. Specifically, Plaintiffs argue 16 that the opportunity to “participate” in the plan must include the right to fully “vest” in the benefits 17 payable by the plan within specified periods of time. ECF 91 at 20. Plaintiffs further argue that 18 the withdrawal charges imposed on withdrawals taken within 15 years of the purchase of the 19 annuities improperly prevent a portion of the 4Cs contribution to the plans to vest and therefore 20 violate ERISA §§ 202-203. Id. In other words, the withdrawal charges prevent vesting, which in 21 turn impedes participation. Plaintiffs seek declaratory relief. ECF 1 at ¶ 85. 22 23 Unlike the ERISA sections governing the relief sought in Claims One and Two, ERISA §§ 202-203, 29 U.S.C. §§ 1052-1053, are subject to the ERISA statutory limitations period as they 24 25 26 27 28 9 Even though Plaintiffs may have claims pursuant to these sections of ERISA that are timely, as pled, Plaintiffs have failed to state a claim. Fed. R. Civ. P. 12(b)(6). Plaintiffs do not allege which documents were not received and when such documents were not received. On amendment, Plaintiffs must allege when, within the three years prior to December 21, 2017, appropriate defendants failed to comply with each section of ERISA alleged in Claim Two such that the Defendants have adequate notice of the claim. 10 Claim Two is subject to additional challenges addressed below. See infra section IV.c. 13 1 are included in the subchapter to which ERISA § 413, 29 U.S.C. § 1113 applies. 29 U.S.C. 2 § 1113. Thus, to determine when the limitations period began to run, the Court must analyze 3 when the alleged breach or violation occurred and when the plaintiff had actual knowledge of the 4 breach or violation to determine the underlying violation upon which Plaintiffs’ claim is founded. 5 See id.; supra section IV.a. Plaintiffs do not allege that they were actually denied benefits because 6 of the alleged participation period or that they have suffered losses as a result of the vesting 7 periods. Instead, Plaintiffs allege that the terms in the Annuity Applications themselves constitute 8 the violation. See ECF 1 at ¶¶ 81-83. Thus the violation occurred upon the adoption of the terms. Del Castillo and Rasche signed their LSW Annuity Applications, which contained the 10 allegedly unlawful terms, on April 3, 2003. Chea signed her LSW annuity application, which 11 United States District Court Northern District of California 9 contained the allegedly unlawful terms, on December 6, 2012. Each date represents the date the 12 contract was created and therefore the day the alleged violation occurred as to each plaintiff. See 13 Ziegler, 916 F.2d at 551. 14 The second step of the analysis under ERISA requires determining “actual knowledge” of 15 the breach or violation. 29 U.S.C. § 1113. Here, the dates when each Plaintiff had actual 16 knowledge are the same as the dates of the alleged violations. The Applications state that 17 withdrawal charges will be charged based on the policy year of the withdrawal. See, e.g., ECF 69- 18 1 at 8. The pages of Del Castillo’s and Rasche’s Applications that contain the withdrawal charge 19 disclosures are initialed by the respective Plaintiff. ECF 69-1 at 8, 26. In Chea’s Application, the 20 signature page contains the withdrawal charge. ECF 69-1 at 15. All three Plaintiffs signed their 21 Applications. ECF 69-1 at 9, 15, 27. These Applications, containing the term that allegedly 22 violates ERISA’s participation requirements, gave plaintiffs actual knowledge of the participation 23 and vesting provisions that are the basis of their claims. See Lorenz v. Safeway, 241 F.Supp.3d 24 1005, 1016 (N.D. Cal. Mar. 13, 2017) (plaintiff had actual knowledge of an ERISA violation when 25 a disclosure notice containing the facts that gave rise to plaintiff’s claim was made available to 26 plaintiff, regardless of whether plaintiff actually read the notice). 27 28 Based on the date that Plaintiffs had actual knowledge, 29 U.S.C. § 1113 bars any claims brought after the following dates: For Plaintiff Del Castillo, any claims after April 3, 2006 (three 14 1 years after the date of signature); for Plaintiff Rasche, any claims after April 3, 2006 (three years 2 after the date of signature); and for Plaintiff Chea, any claims after December 6, 2015 (three years 3 after the date of signature). Plaintiffs filed their complaint on December 21, 2017. ECF 1. 4 Therefore, Plaintiffs’ third claim is time-barred and dismissed without leave to amend.11 5 6 iv. Claim Four: Violation of ERISA § 206(d), 29 U.S.C. § 1056(d) Against Defendants 4Cs Plans (sic), 4C Board of Trustees, and LSW 7 In their Fourth Claim for Relief, Plaintiffs allege that Defendants 4Cs Plans, 4C Board of 8 Trustees, and LSW violated ERISA § 206(d), 29 U.S.C. § 1056(d), which provides that “[e]ach 9 pension plan shall provide that benefits provided under the plan may not be assigned or alienated.” Section 206(d), 29 U.S.C. § 1056(d) is governed by the ERISA-provided statute of limitations. 11 United States District Court Northern District of California 10 29 U.S.C. § 1113. Therefore, the Court must again assess when the violation occurred and when 12 Plaintiffs had actual knowledge of the violation. 13 Similar to Claim Three, Plaintiffs allege that the contract provision that “limits the right to 14 withdraw funds by imposing a 10% fee on any amount withdrawn within 12 years following the 15 inception of the contract,” is an unlawful alienation of benefits under ERISA § 206(d), 29 U.S.C. 16 § 1056(d). Thus, because the violation arises from the contract term, the analysis from above 17 applies equally here. The alleged violation occurred with the adoption of the withdrawal charge 18 term of the contract. Plaintiffs had actual knowledge of the violation when they signed the 19 contract. Based on the date that each Plaintiff signed his or her contract, Plaintiff’s Fourth Claim 20 for Relief is time-barred and dismissed without leave to amend. See supra section IV.a.iii. 21 b. ERISA Preemption of State Law Claims 22 Plaintiffs’ claims Seven (labeled Six), Eight (labeled Seven), and Nine (labeled Eight), are 23 state law claims for breach of contract, fraud in the inducement, and conversion. ECF 1 at 24, 27, 24 29. 25 A state law claim is preempted by ERISA, and therefore must be dismissed, if it has a 26 27 28 11 Defendants make other arguments regarding the sufficiency of the allegations in Plaintiffs’ third claim for relief. See, e.g., ECF 68 at 23-24. Because the Court concludes the claim is time-barred, the Court does not reach these arguments. 15 1 “connection with” or a “reference to” an ERISA-governed benefit plan. Metro. Life Ins. Co. v. 2 Massachusetts, 471 U.S. 724, 739 (1985); see Wise v. Verizon Commc’ns., Inc., 600 F.3d 1180, 3 1190-91 (2010). Stated another way, where “the existence of [an ERISA] plan is a critical factor 4 in establishing liability” under a state cause of action, the state law claim is preempted. See 5 Ingersoll–Rand Co. v. McClendon, 498 U.S.133, 136, 139–40 (1990). ERISA’s preemption 6 provision functions “even when the state action purport[s] to authorize a remedy unavailable under 7 the federal provision.” Id. at 144 (quoting Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 55 (1987)). 8 ERISA preemption is not limited to state statutes and rules; common law causes of action that 9 “relate to” ERISA plans are also preempted. Pilot Life, 481 U.S. at 47–48. A plaintiff’s state law claim that merely seeks an alternative enforcement mechanism of an ERISA provision is 11 United States District Court Northern District of California 10 preempted. Dishman v. UNUM Life Ins. Co. of Am., 269 F.3d 974, 983 (9th Cir. 2001). The 12 Ninth Circuit has applied a “but for” standard to assess the relationship between the harm alleged 13 and the ERISA-governed plan for purposes of determining whether a plaintiff is seeking such an 14 alternate enforcement mechanism. Id. 15 16 17 18 19 20 In Wise v. Verizon Communications, the Ninth Circuit affirmed the dismissal of the plaintiff’s state law claims against her employer, stating: Wise’s state law claims are preempted because her complaint necessarily references an ERISA plan. The state law theories of fraud, misrepresentation, and negligence all depend on the existence of an ERISA-covered plan to demonstrate that Wise suffered damages: the loss of insurance benefits. Because Wise must allege the existence of an ERISA plan to state her claims under Washington law, the claims are preempted. . . . 21 Wise, 600 F.3d at 1191. 22 At oral argument, Plaintiffs attempted to distinguish their claims from those ordinarily 23 preempted by ERISA by arguing that all of the state law claims relate to “pre-plan” behavior by 24 Defendants. Plaintiffs’ argument is contradicted by their factual allegations. Plaintiffs allege that 25 beginning “in or about 1987,” Defendant 4Cs Board of Trustees has been the plan sponsor and 26 plan administrator of employee benefit plans as defined by ERISA, suggesting the plans have 27 existed since 1987. ECF 1 at ¶ 10. Plaintiffs’ state law claims all relate to plan assets, namely in 28 the form of the life annuity contracts signed by Plaintiffs in 2003 and 2012, well after the 16 1 establishment of the plans in 1987. Therefore, Plaintiffs claims do not relate to “pre-plan” actions 2 by Defendants. Even if the actions were “pre-plan,” the analysis would not change. Plaintiffs’ claims are 3 4 all of the type ordinarily preempted by ERISA, regardless of whether the conduct occurred before 5 or after the inception of the ERISA plan. Plaintiffs’ claims for breach of contract, fraud in the 6 inducement, and conversion depend on the existence of the ERISA plan. As relief for their breach 7 of contract claim and fraud claim, Plaintiffs seek damages based on the value of their “accrued 8 retirement benefit.” ECF 1 at ¶¶ 118, 125. In their conversion claim, Plaintiffs seek injunctive 9 relief related to enforcement of the terms and conditions of the life annuity contracts. ECF 1 at ¶¶ 130, 131. As discussed more fully below, all of Plaintiffs’ state law claims depend on the 11 United States District Court Northern District of California 10 existence of an ERISA-covered plan to demonstrate damages and are therefore preempted. See 12 Wise, 600 F.3d at 1191. Therefore, Plaintiffs’ state law claims are dismissed without leave to 13 amend. 14 i. Claim Seven (labeled Six): Breach of Contract 15 Plaintiff’s Claim Seven (labeled Six) is for breach of contract. The contract that Plaintiffs 16 allege that Defendants 4Cs, 4Cs Board of Trustees, 4Cs Plans, Logan, and Chacon breached is a 17 contract “whereby the 4Cs Board of Trustees promised to provide Plaintiffs with a retirement 18 benefit consisting of contributions payable by 4Cs into an account held in the name of each 19 Plaintiff and member of the putative class.” ECF 1 at ¶ 112. In other words, the contract is the 20 retirement plan, governed by ERISA. Plaintiffs seek damages in the amount of the “loss in the 21 immediate and long-term value of their accrued retirement benefit.” ECF 1 at ¶ 118. The claim 22 relies on the existence of an ERISA plan and seeks damages related to the payment of benefits. 23 Therefore the breach of contract claim “necessarily references an ERISA plan” and is preempted. 24 Wise, 600 F.3d at 1191. 25 26 ii. Claim Eight (labeled Seven): Fraud in the inducement Plaintiff’s Claim Eight (labeled Seven) is for fraud in the inducement. Plaintiffs allege that 27 Defendants 4Cs, 4Cs Board of Trustees, 4Cs Plans, and Villasenor engaged in acts of deceit by 28 encouraging Plaintiffs to sign documents “which purported to be ‘applications’ for participation in 17 1 the 4Cs Plans, but, in truth . . . were binding life annuity contracts.” ECF 1 at ¶ 121. As to 2 Defendants Logan and LSW, Plaintiffs alleged that these Defendants participated in the “acts of 3 deceit” by accepting the applications and fraudulently concealing the “true marketable value of 4 these life annuity contracts.” ECF 1 at ¶ 122. Plaintiffs further allege they have suffered a 5 “significant loss in the immediate and long-term value of their accrued retirement benefit.” ECF 1 6 at ¶ 125. 7 In addition to the preemption precedent addressed above, the Ninth Circuit also precludes 8 an individual fraud action based on representations about the benefits due. Olson v. General 9 Dynamics Corp., 960 F.2d 1418, 1423 (9th Cir.1991), cert. denied, 504 U.S. 986 (1992); see also Davidian v. S. Cal. Meat Cutters Union, 859 F.2d 134, 135 (9th Cir.1988) (claims alleging 11 United States District Court Northern District of California 10 incorrect description of insurance benefits of ERISA plan preempted). In Davidian, the plaintiff 12 alleged that when he was planning to retire, the employee benefit fund gave him an option of 13 continuing to participate and a choice of three benefit plans. Davidian, 859 F.2d at 135. A fund 14 employee allegedly did not inform him that one of the benefit plans, the one he ultimately chose, 15 capped medical reimbursements. Id. The plaintiff brought a fraud claim, among others. Id. The 16 Ninth Circuit affirmed the district court’s summary judgment, finding the claims related to the 17 administration of an employee benefit plan and were therefore preempted. Id. 18 As in Davidian, Plaintiffs bring a claim for fraud based on alleged misrepresentations 19 regarding the plan assets (i.e. the annuity contracts) and the value of the assets. Under Davidian, 20 Plaintiffs’ fraud claim is preempted as it relies on the existence of an ERISA plan and seeks 21 remedies related to benefits. 22 23 iii. Claim Nine (labeled claim eight): Conversion Plaintiff’s Claim Nine (labeled Eight) alleges that Defendants 4Cs Plans, Logan, Logan 24 Group Securities, LSW, and Chacon “exercise unlawful dominion or control over an identifiable 25 sum of money consisting of retirement contributions promised to Plaintiffs by the 4Cs Board of 26 Trustees.” ECF 1 at ¶ 127. Plaintiffs also allege that LSW “continues to exercise unlawful 27 dominion or control over an identifiable sum of money belonging to Plaintiffs . . . by enforcing the 28 terms of the life annuity contracts.” ECF 1 at ¶ 128. Plaintiffs claim they have been financially 18 1 harmed by “depriving them with the ability to diversify or re-invest the proceeds,” and seek 2 injunctive relief against the enforcement of the terms and conditions of life annuity contracts.” 3 ECF 1 at ¶¶ 130, 131. Once again, Plaintiffs’ state law claim relies on the existence of an ERISA plan and the 4 5 payment of benefits. Without a plan, Plaintiffs would not be entitled to the money they claim 6 Defendants have unlawfully converted. Therefore, Plaintiffs’ conversion claim is also preempted. All three of Plaintiffs’ state law claims are preempted and therefore dismissed without 7 8 leave to amend. 9 c. Administrator Liability as to LSW and Villasenor Plaintiffs’ first and second causes of action are for statutory penalties pursuant to ERISA 10 United States District Court Northern District of California 11 § 502(c)(1), 29 U.S.C. § 1132(c)(1). See ECF 1 at ¶¶ 66, 77. LSW and Villasenor move to 12 dismiss because they are not administrators of the plan and therefore cannot be liable under 13 ERISA. The Court agrees and dismisses Claim One and Claim Two as to Villasenor and Claim 14 Two as to LSW without leave to amend.12 ERISA defines a plan administrator as: 15 16 (i) the person specifically so designated by the terms of the instrument under which the plan is operated; (ii) if an administrator is not so designated, the plan sponsor; or (iii) in the case of a plan for which an administrator is not designated and a plan sponsor cannot be identified, such other person as the Secretary may by regulation prescribe.” 17 18 19 29 U.S.C. § 1002(16)(A). 20 21 22 23 24 25 26 27 28 Pursuant to ERISA § 502(c)(1), 29 U.S.C. § 1132(c)(1), an administrator may be liable for refusing to supply requested information. An “administrator” is typically the person or entity designated as such in the documents governing the ERISA plan. ERISA § 3(16), 29 U.S.C. § 1002(16). The Ninth Circuit has “effectively closed the door” on the de facto administrator theory, even where an insurer takes on a substantial role in operating a plan. Turnipseed v. Educ. Mgmt. LLC’s Emp. Disability Plan, Case No. 09–cv–03811 MHP, 2010 WL 140384, at *5 (N.D. Cal. 12 As explained above, Claim Two is partially dismissed as time-barred. See supra section IV.a.ii. 19 1 Jan. 13, 2010) (citing Ford v. MCI Commc’ns Corp. Health & Welfare Plan, 399 F.3d 1076, 2 1081–82 (9th Cir.2005) overruled on other grounds by Cyr v. Reliance Standard Life Ins. Co., 642 3 F.3d 1202 (9th Cir.2011)) (“Liberty cannot be considered a de facto administrator because 4 plaintiff has not alleged that Liberty's role in the Plan was anything greater than that of a standard 5 third-party insurer with discretion to determine eligibility for benefits . . .. Even if plaintiff had 6 alleged more, it is not clear that such a claim would be cognizable in the Ninth Circuit regardless 7 of Liberty's role in the Plan.”); see also In re WellPoint, Inc. Out–of–Network UCR Rates Litig., 8 865 F.Supp.2d 1002, 1045–46 (C.D.Cal.2011) (“The Ninth Circuit has all but slammed the door 9 on the de facto administrator theory advanced by Plaintiffs....”). 10 Plaintiffs’ Claims One and Two seek statutory penalties under ERISA § 502(c)(1), 29 United States District Court Northern District of California 11 U.S.C. § 1132(c)(1) for the alleged failure to provide the correct forms to the Department of Labor 12 pursuant to ERISA § 103, 29 U.S.C. § 1023 and for allegedly failing to provide annual reports to 13 participants and beneficiaries detailing the financial condition of the plan pursuant to ERISA 14 § 103(a)(1)(B), 29 U.SC. § 1023(a)(1)(B). The complaint identifies Defendant 4Cs Board of 15 Trustees as the plan sponsor and plan administrator. ECF 1 at ¶ 10. The complaint also alleges 16 that Villasenor, Chacon, Unger and ARS, Inc. have “acted as a plan administrator.” ECF 1 at ¶¶ 17 12, 17, 19, 20. 18 19 i. Defendant LSW Plaintiffs do not allege in the complaint that LSW is a plan administrator or acted as a plan 20 administrator. However, in opposition to LSW’s motion to dismiss, Plaintiffs argue that LSW is 21 “likely” an administrator because LSW received annuity applications, accepted and processed 22 annuity applications, received phone calls, and answered questions about the terms and conditions 23 of the annuities that had been purchased by Plaintiffs. ECF 91 at 13. 24 The Court finds that LSW is not a de facto administrator. Courts in the Ninth Circuit have 25 typically rejected extending plan administrator liability beyond the specific entity that formally 26 holds that designation. The Court declines to do so here despite Plaintiffs’ recent arguments that 27 LSW performed certain functions such as accepting applications and answering questions. The 28 Court finds that those activities are insufficient to subject LSW to liability as a de facto plan 20 1 administrator in light of the high bar for such a finding in the Ninth Circuit. 2 3 ii. Defendant Villasenor Plaintiffs argue that they have alleged that Villasenor is a de facto plan administrator 4 because he “executed service contracts, filed various annual reports with the Secretary of Labor 5 and conducted various other business activities on behalf of the 4Cs Plans.” ECF 105 at 5-6; ECF 6 1 at ¶ 12. 7 Plaintiffs argue the de facto administrator theory is still viable under Cyr v. Reliance Standard Life Ins. Co., 642 F.3d 1202 (9th Cir.2011) and Spinedex Physical Therapy USA Inc. v. 9 United Healthcare of Ariz., Inc., 770 F.3d 1282, 1297 (9th Cir. 2014). Those cases, however, 10 interpret claims for benefits, not statutory penalties, brought under ERISA § 502(a)(1)(B), 29 11 United States District Court Northern District of California 8 U.S.C. § 1132 (a)(1)(B). In those cases, the Ninth Circuit held that where a party seeks recovery 12 of benefits, a defendant may be a de facto administrator where the defendant was responsible for 13 the payment of benefits. Spinedex, 770 F.3d at 1297-98. The linchpin of the Ninth Circuit’s 14 analysis is the initial premise that ERISA § 502(a)(1)(B), 29 U.S.C. § 1132 (a)(1)(B) does not 15 limit the class of defendants that may be sued under that subsection. Id. 16 Plaintiffs’ argument fails because unlike ERISA § 502(a)(1)(B), 29 U.S.C. § 1132 17 (a)(1)(B) at issue in Cyr and Spinedex, recovery under ERISA § 502(c)(1), 29 U.S.C. § 1132(c)(1) 18 is explicitly limited to recovery of penalties against an administrator. As such, the Court 19 concludes that Villasenor is not a de facto administrator and is therefore not subject to liability 20 under Claims One and Two. 21 Claims One and Two seek relief based on ERISA § 502(c)(1), 29 U.S.C. § 1132(c)(1). 22 The Court finds that because LSW and Villasenor are not named or de facto administrators, they 23 cannot be liable under ERISA § 502(c)(1), 29 U.S.C. § 1132(c)(1). Claims One and Two 24 therefore fail to state a claim against Villasenor, and Claim Two fails to state a claim against 25 LSW. As any amendment would be futile, leave to amend is not granted. See Thinket Ink Info. 26 Res., Inc. v. Sun Microsystems, Inc., 368 F.3d 1053, 1061 (9th Cir.2004) (finding a “district court 27 does not err in denying leave to amend where the amendment would be futile”) (quoting Saul v. 28 United States, 928 F.2d 829, 843 (9th Cir.1991)); see also Eminence Capital, LLC v. Aspeon, Inc., 21 1 2 3 316 F.3d 1048, 1052 (9th Cir.2003) (citing Chang v. Chen, 80 F.3d 1293, 1296 (9th Cir.1996)). d. Fiduciary Liability as to LSW and Logan Plaintiffs’ Claims Five (labeled Four) and Six (labeled Five) seek to hold fiduciaries liable 4 under ERISA. Defendants LSW and Logan move to dismiss these claims arguing they are not 5 fiduciaries. The Court agrees and dismisses LSW and Logan for Claims Five (labeled Four) and 6 Six (labeled Five) with leave to amend. 7 8 9 10 United States District Court Northern District of California 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 An employer that forms an ERISA plan is a statutory fiduciary. See 29 U.S.C. § 1102(a). A party not named in the plan may become a fiduciary if (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, (ii) he renders investment advice for a fee or other compensation, direct or indirect, with respect to any moneys or other property of such plan, or has any authority or responsibility to do so, or (iii) he has any discretionary authority or discretionary responsibility in the administration of such plan. 29 U.S.C. § 1002(21)(A). Such non-named fiduciaries are sometimes referred to as “functional” fiduciaries, and plan service providers can under the named circumstances become functional fiduciaries. See, e.g., IT Corp. v. Gen. Am. Life Ins. Co., 107 F.3d 1415, 1419–22 (9th Cir. 1997); Parker v. Bain, 68 F.3d 1131, 1139–40 (9th Cir. 1995). To determine whether a party is a fiduciary such that liability should attach, the “threshold question” is whether the party was “performing a fiduciary function when taking the action subject to complaint.” Pegram, 530 U.S. at 226 (parentheses omitted); Santomenno v. Transamerica Life Ins. Co., 883 F.3d 833, 840–41 (9th Cir. 2018). In Santomenno, plaintiff argued that a third-party administrator was a fiduciary because it exercised authority or control respecting management or disposition of accounts. Santomenno, 883 F.3d at 839. The Ninth Circuit Court held that the third-party administrator of the plan was not a fiduciary with respect to the decision to withdraw its fees from the plan’s pooled accounts because the fees were fixed by a contractual formula and thus withdrawing them was a “purely ministerial” act. Id. at 840. The Court characterized its holding as “narrow[ly]” addressed to the situation where “a service provider’s definitively calculable and nondiscretionary compensation is clearly set forth in a contract with the fiduciary22 1 employer” and the service provider collects its fees “out of plan funds in strict adherence to that 2 contractual term.” Id. at 841. If, on the other hand, the allegation were that the service provider's 3 “fee were based on self-reported hours worked, or even if [its] withdrawals involved expenses,” 4 the Court declared, “this might well be a different case.” Id. 5 i. Defendant LSW Plaintiffs argue that LSW is a fiduciary because it has exercised custody and control over 7 the 4Cs Plans assets by virtue of accepting payments from 4Cs and the 4Cs Board of Trustees for 8 the purpose of purchasing annuities. Plaintiffs argue that LSW exercises discretionary authority 9 over the plans by assessing and enforcing penalties and withdrawal limitations. ECF 91 at 14 10 (citing ECF 1 at ¶¶ 19, 39, 41-43). The penalties and withdrawal limitations are terms of the 11 United States District Court Northern District of California 6 Annuity Applications signed by Plaintiffs. See, e.g., ECF 69-1 at 8 (Del Castillo Annuity 12 Application); ECF 1 at ¶¶ 42-43. The only allegation that is not also found in the contract is the 13 allegation that LSW informed Plaintiff Del Castillo that he could only roll over his vested 14 retirement account balance into another product sold by LSW. ECF 1 at ¶ 42. 13 Any allegation that LSW is a fiduciary because it enforced a term of a contract signed by 15 16 Plaintiffs fails to establish that LSW is in fact a fiduciary. See Santomenno, 883 F.3d at 840. 17 Because Plaintiffs only allege that LSW enforced the terms of the contract to which they agreed, 18 under Santomenno, enforcing the terms was purely ministerial and LSW is not a fiduciary. 19 The only remaining allegation that is not found in a contract that is currently before the 20 Court is LSW’s alleged restrictions on rolling over account balances. However, this fact alone 21 does not convert LSW into a fiduciary. Preliminarily, it is unclear to the Court whether such an 22 allegation would rise to the requisite level of discretionary authority or custody and control over 23 the assets to render LSW a fiduciary. Plaintiffs do not cite any authority to support such a 24 conclusion. However, even if this restriction is not in a contract and did support the conclusion that 25 26 27 28 13 At oral argument, LSW argued that the roll-over limitations were a part of a second contract entered into by Del Castillo. That contract is not before the Court for purposes of this motion. ECF 125. 23 1 LSW is a fiduciary, it does not support the conclusion that LSW is a fiduciary for all purposes. 2 The “threshold question” is not only whether LSW performed a fiduciary duty, but whether LSW 3 was performing a fiduciary duty when taking the action subject to complaint. Pegram, 530 U.S. at 4 226. Here, Plaintiffs allege two causes of action that implicate LSW’s supposed fiduciary 5 6 duties. ECF 1 at 23, 24. (Claims Five (labeled Four), and Six (labeled Five)). Plaintiffs’ Claim 7 Five (labeled Four) claims violations of ERISA § 404, 29 U.S.C. § 1104 by alleging that the 8 Defendants breached their alleged fiduciary duties by failing to establish appropriate plan 9 documents, allowing benefits to be converted to LSW Annuities, and imprudently selecting an investment product that was based on the market performance of the S&P 500 index. ECF 1 at ¶¶ 11 United States District Court Northern District of California 10 96–97. All of the described activities are those that would be undertaken by the 4Cs Board of 12 Trustees, 14 not LSW. LSW simply provided a product that the 4Cs Board of Trustees chose to 13 purchase for its retirement plan. See Cotton v. Massachusetts Mut. Life Ins. Co., 402 F.3d 1267, 14 1278 (11th Cir. 2005) (“Simply urging the purchase of its products does not make an insurance 15 company an ERISA fiduciary with respect to those products”) (citations omitted); Santomenno, 16 883 F.3d at 838 (“A service provider is plainly not involved in plan management when negotiating 17 its prospective fees or compiling a list of proposed investment options. Rather, at that stage 18 discretionary control over plan management lies . . . with the trustee, who decides whether to agree 19 to the service provider’s terms.”) (citations and quotations omitted). Plaintiffs’ Claim Six (labeled Five) claims that LSW violated ERISA § 406, 29 U.S.C. 20 21 § 1106. The only allegation that relates to LSW is the claim that the 4Cs Plans assets were 22 transferred into the sole custody of LSW and retained by LSW. ECF 1 at ¶ 104A. It is unclear 23 how this allegation breaches a fiduciary duty. However, based on the allegations in the complaint, 24 the only manner in which Plaintiff may be able to establish LSW is a fiduciary is through its 25 restriction on rolling over account funds. This restriction does not relate to the alleged violation of 26 section 406(a)(1)(B) of ERISA, 29 U.S.C. § 11069a)(1)(B), which prohibits a fiduciary from 27 28 14 Plaintiffs allege that the 4Cs Board of Trustees established the 4Cs Plans and alleges that the 4Cs Board of Trustees is the plan sponsor and administrator. ECF 1 at ¶¶ 1, 10. 24 1 lending money to, or extending credit to a party-in-interest. Therefore, LSW is not a fiduciary for 2 purposes of Plaintiffs’ Claim Six (labeled Five). 3 In sum, Plaintiffs have failed to establish that LSW was acting as a fiduciary. All but one 4 of the allegations that Plaintiffs argue support such a conclusion are terms of the annuity contract, 5 and therefore do not establish LSW has the requisite custody, control, or discretionary authority to 6 render it a fiduciary under ERISA. The only remaining allegation that Plaintiffs argue could 7 support LSW’s fiduciary status does not relate to any of the sections of ERISA that Plaintiffs 8 allege LSW violated. Therefore, Claims Five (labeled Four) and Six (labeled Five) are dismissed 9 as to LSW with leave to amend. 10 United States District Court Northern District of California 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 ii. Defendant Logan The complaint contains the following allegations against Logan: Logan . . . has acted, and continues to act as a co-fiduciary, investment adviser and broker to each of the 4Cs Plans, and Plaintiffs who participate in each of the 4Cs Plans. By and through this conduct, Logan has exercised and continues to exercise discretionary authority and responsibility in the administration of these Plans. ECF 1 at ¶ 15. At a time unknown prior to March 2003, . . . Logan began providing various services to the 4Cs Plans including, but not limited to investment advisory and consulting services. Plaintiffs allege . . . that . . . Logan . . . conspired and agreed to have the vested retirement account balances of Plaintiffs and all other vested 4Cs Plan participants converted into life annuities underwritten and sold by Defendant LSW. Defendants Logan and Villasenor instructed 4Cs management representatives to begin providing life annuity applications to Plaintiffs and all other 4Cs employees and instructed the 4Cs management representatives to inform Plaintiffs and other vested employee participants that that these were enrollment applications for participation in the 4Cs Plans. ECF 1 at ¶ 32. On July 18, 2013, . . . Logan . . . made a presentation to the 4Cs Board of Trustees, wherein they persuaded the 4Cs Board of Trustees to make “15% elective contributions” to the 4Cs Profit Sharing Plan, and contribute $200,000.00 to the 4Cs Non-Qualified Deferred Compensation Plan. Plaintiffs allege . . . that this $200,000.000 contribution . . . [was] transferred into the custody and control of Defendants LSW and/or Cetera Financial Group and were applied as a premium payments life annuity contracts held in Plaintiffs’ names and/or and as a lump sum premium payment made into a life annuity contract held by Defendant LSW and/or Cetera Financial Group.” ECF 1 at 39. In or about January 2015, Plaintiff Rasche, who had retired from 4Cs, contacted a 25 representative from Defendant Logan Group Securities to inquire about the employer contributions that had been made into the 4Cs Plans on his behalf. Plaintiff Rasche was informed by Defendant Logan Group Securities that his retirement benefit consisted of a “life annuity” and that he could not roll-over money from his “retirement account” into another tax qualified plan without incurring substantial penalties. ECF 1 at ¶ 41. 1 2 3 4 5 Plaintiff brings Claims Five (labeled Four) and Six (labeled Five) against Logan for breach of fiduciary duties. Claim Five (labeled Four) alleges, inter alia, that Logan breached his 7 fiduciary duties by allowing the vested retirement account balances of Plaintiffs to be converted 8 into the subject life annuity contracts. ECF 1 at ¶ 97. Claim Six (labeled Five) alleges, inter alia, 9 that Logan breached his fiduciary duties by brokering the life annuity contracts, which resulted in 10 the payment of commissions and/or other compensation to Logan, who Plaintiffs allege is a party- 11 United States District Court Northern District of California 6 in-interest with respect to the 4Cs Plans. ECF 1 at ¶ 104.B. 12 Plaintiffs allege and argue that Logan is a fiduciary because he exercises discretionary 13 authority and responsibility over the plans. Plaintiffs argue that the allegation that Logan advised 14 4Cs on when to make contributions and the percentage of elective employer contributions 15 demonstrates that he managed and administered the plans. ECF 108 at 10. For the reasons 16 described above, discretion over the plan lies solely with the 4Cs Board of Trustees,15 not with a 17 party selling a product. Only the Board could make the decision to invest in certain products. See 18 supra section IV.d.i.; Santomenno, 883 F.3d at 838. Plaintiffs also argue, without support, that by 19 informing Plaintiff Rasche that he could not roll-over his retirement account into another tax 20 qualified plan, Logan managed and administered the plan, making him a fiduciary. Again, as 21 explained above, the “threshold question” is not only whether Logan performed a fiduciary duty, 22 but whether Logan was performing a fiduciary duty when taking the action subject to complaint. 23 Pegram, 530 U.S. at 226. 24 Logan is named in Claims Five (labeled Four) and Six (labeled Five), both claims for 25 breach of fiduciary duties under ERISA. Claim Five (labeled Four) relates to the conversion of 26 retirement account balances to life annuity contracts. ECF 1 at 97. Claim Six (labeled Five) 27 28 15 Plaintiffs allege that the 4Cs Board of Trustees established the 4Cs Plans and alleges that the 4Cs Board of Trustees is the plan sponsor and administrator. ECF 1 at ¶¶ 1, 10. 26 1 relates to extending credit or lending money to a party-in-interest. ECF 1 at 103. Neither of these 2 allegations relate to Logan’s alleged fiduciary administration of the plan by informing Rasche of 3 restrictions on the transfer of his accounts. Therefore, Plaintiffs have failed to establish that Logan 4 is a fiduciary for the purposes of their claims against him. 5 In opposition to Logan’s motion to dismiss, Plaintiffs also argue, without support, that 6 Logan’s role as an investment advisor renders him a fiduciary. ECF 108 at 10-11. Specifically, 7 Plaintiffs argue that the allegation that Logan made a presentation and persuaded 4Cs Board of 8 Trustees to make 15% elective contributions to the 4Cs Profit Sharing Plan, and contribute 9 $200,000.00 to the 4Cs Non-Qualified Deferred Compensation Plan constituted investment 10 United States District Court Northern District of California 11 advice. Id. Where a plaintiff alleges that a defendant is a fiduciary because of investment advice given 12 for a fee, the following five factors must be met: (1) providing individualized investment advice; 13 (2) the advice having been given pursuant to a mutual understanding; (3) the advice was provided 14 on a regular basis; (4) the advice pertained to the value of property or consisted of 15 recommendations as to the advisability of investing in certain property; and (5) the advice was 16 rendered for a fee. Thomas, Head & Greisen Employees Trust v. Buster, 24 F.3d 1114, 1117 (9th 17 Cir.1994). Neither party addresses these five factors. 18 All five factors are not present in the allegations of the complaint. For example, even after 19 construing the allegations of the complaint liberally in favor of finding a fiduciary relationship, see 20 Az. State Carpenters Pension Trust Fund v. Citibank, 125 F.3d 715, 720 (9th Cir.1997) 21 (“Fiduciary status under ERISA is to be construed liberally”), the complaint simply does not 22 allege that Logan provided investment advice on a regular basis. The allegation that on one 23 occasion Logan advised the plan to invest in LSW annuities is insufficient to constitute the 24 rendering of regular investment advice. See Damasco & Assocs. 401(k) Profit Sharing Plan v. 25 Manufacturers Life Ins. Co., No. C 99-2135 CRB, 1999 WL 672322, at *5–6 (N.D. Cal. Aug. 20, 26 1999); Schloegel v. Boswell, 994 F.2d 266, 273 (5th Cir.1993) (holding that ERISA defendant’s 27 few, isolated instances of rendering investment advice to ERISA plan did not support a finding 28 that the defendant “rendered investment-type advice to the Profit Sharing Plan on a regular 27 1 basis”). Since the “regular investment advice” factor is not satisfied by the allegations of the 2 complaint, the complaint does not allege that Logan was an ERISA fiduciary. See Thomas, Head 3 & Greisen Employees Trust, 24 F.3d at 1119 (stating that “[a] finding that the investment advisor 4 rendered advice on a ‘regular basis’ is essential to a determination that a fiduciary relationship 5 existed”). Therefore, claims Five (labeled Four) and Six (labeled Five) are dismissed as to Logan 6 with leave to amend. 7 e. Individual Defendants 8 The complaint names the following individuals as Defendants: Ben Menor, Xiaoyan Xu, 9 Clarence Madrilejos, James McDaniel, Julienne La Fitte, Jaime Gallardo, Maria Reyes and Faye Sears “in their official capacities as current and former trustees.” See ECF 1 at 1-2. However, 11 United States District Court Northern District of California 10 beyond identifying them as defendants in paragraph nine of the complaint, there are no specific 12 allegations that describe specific wrongful acts in connection with Plaintiffs’ claims. Accordingly, 13 Plaintiffs have failed to state a claim against these Defendants, and they must be dismissed. Fed. 14 R. Civ. P. 12(b)(6); Fed. R. Civ. P. 8; see also Naguiat v. BAC Home Loans Servicing, LP, No. C 15 10-4303 RS, 2011 WL 577421, at *2 (N.D. Cal. Feb. 9, 2011) (dismissing complaint against 16 defendant where no specific wrongful action by defendant was alleged). Plaintiffs will be given 17 the opportunity to amend to demonstrate, with factual allegations made in good faith, that they 18 have claims that are not time-barred against the individual defendants. Plaintiffs are cautioned 19 that the amended complaint must set out facts specific to their own claims.16 20 V. As explained above, the Court dismisses the following claims as to the following 21 22 CONCLUSION Defendants: 23 24 Claim One: Dismissed as to all moving Defendants without leave to amend. Claim Two: Dismissed as to LSW without leave to amend. Dismissed as to all moving Defendants named in Claim Two for those actions occurring before 25 26 27 28 16 These individual defendants also moved to be dismissed under the Volunteer Protection Act, 42 U.S.C. § 14501. However, because Plaintiffs have failed to state a claim against the individual defendants as described above, the Court does not reach this argument. 28 1 December 21, 2014 without leave to amend. Dismissed as to Defendants 4Cs 2 and 4C Board of Trustees, with leave to amend as to actions occurring after 3 December 21, 2014. 4 5 6 Claim Three: Dismissed as to all moving Defendants without leave to amend. Claim Four: Dismissed as to all moving Defendants without leave to amend. Claim Five (labeled Four): Dismissed as to LSW and Logan with leave to 7 amend. Claim Five survives as to Defendants 4Cs, 4Cs Board of Trustees, and 8 Chacon. 9 10 United States District Court Northern District of California 11 12 13 14 15 18 amend. Claim Seven (labeled Six): Dismissed as to all moving Defendants without leave to amend. Claim Eight (labeled Seven): Dismissed as to all moving Defendants without leave to amend. Claim Nine (labeled Eight): Dismissed as to all moving Defendants without leave to amend. 16 17 Claim Six (labeled Five): Dismissed as to LSW and Logan with leave to Requests for Judicial Notice: The Court grants LSW’s Request for Judicial Notice. 19 20 SO ORDERED. 21 The Court grants 4Cs’s Request for Judicial Notice. Dated: May 24, 2018 22 23 SUSAN VAN KEULEN United States Magistrate Judge 24 25 26 27 28 29