Ronald Tussey v. ABB, Inc. , 746 F.3d 327 ( 2014 )

United States Court of Appeals
For the Eighth Circuit
___________________________
No. 12-2056
___________________________
Ronald C. Tussey; Charles E. Fisher; Timothy Pinnell
lllllllllllllllllllll Plaintiffs - Appellees
v.
ABB, Inc.; John W. Cutler, Jr.; Pension Review Committee of ABB, Inc.; Pension
& Thrift Management Group of ABB, Inc.; Employee Benefits Committee of
ABB, Inc.
lllllllllllllllllllll Defendants - Appellants
Fidelity Management Trust Company; Fidelity Management & Research Company
lllllllllllllllllllll Defendants
------------------------------
Securities Industry and Financial Markets Association
lllllllllllllllllllllAmicus on Behalf of Appellants
AARP; Barbara Jean Black
lllllllllllllllllllllAmici on Behalf of Appellees
Thomas E. Perez, Secretary of the United States Department of Labor
lllllllllllllllllllllAmicus Curiae
Tamar Frankel; David Webber
lllllllllllllllllllllAmici on Behalf of Appellees
___________________________
No. 12-2060
___________________________
Ronald C. Tussey; Charles E. Fisher; Timothy Pinnell
lllllllllllllllllllll Plaintiffs - Appellees
v.
ABB, Inc.; John W. Cutler, Jr.; Pension Review Committee of ABB, Inc.; Pension
& Thrift Management Group of ABB, Inc.; Employee Benefits Committee of
ABB, Inc.
lllllllllllllllllllll Defendants
Fidelity Management Trust Company; Fidelity Management & Research Company
lllllllllllllllllllll Defendants - Appellants
------------------------------
AARP; Barbara Jean Black; Tamar Frankel; David Webber
lllllllllllllllllllllAmici on Behalf of Appellees
___________________________
No. 12-3794
___________________________
Ronald C. Tussey; Charles E. Fisher; Timothy Pinnell
lllllllllllllllllllll Plaintiffs - Appellees
-2-
v.
ABB, Inc.; John W. Cutler, Jr.; Pension Review Committee of ABB, Inc.; Pension
& Thrift Management Group of ABB, Inc.; Employee Benefits Committee of
ABB, Inc.
lllllllllllllllllllll Defendants
Fidelity Management Trust Company; Fidelity Management & Research Company
lllllllllllllllllllll Defendants - Appellants
------------------------------
AARP; Barbara Jean Black; Tamar Frankel; David Webber
lllllllllllllllllllllAmici on Behalf of Appellees
___________________________
No. 12-3875
___________________________
Ronald C. Tussey; Charles E. Fisher; Timothy Pinnell
lllllllllllllllllllll Plaintiffs - Appellees
v.
ABB, Inc.; John W. Cutler, Jr.; Pension Review Committee of ABB, Inc.; Pension
& Thrift Management Group of ABB, Inc.; Employee Benefits Committee of
ABB, Inc.
lllllllllllllllllllll Defendants - Appellants
-3-
Fidelity Management Trust Company; Fidelity Management & Research Company
lllllllllllllllllllll Defendants
------------------------------
AARP
lllllllllllllllllllllAmicus on Behalf of Appellees
Thomas E. Perez, Secretary of the United States Department of Labor
lllllllllllllllllllllAmicus Curiae
Barbara Jean Black; Tamar Frankel; David Webber
lllllllllllllllllllllAmici on Behalf of Appellees
____________
Appeal from United States District Court
for the Western District of Missouri - Jefferson City
____________
Submitted: September 24, 2013
Filed: March 19, 2014
____________
Before RILEY, Chief Judge, BRIGHT and BYE, Circuit Judges.
____________
RILEY, Chief Judge.
These consolidated appeals arise from a class action led by Ronald C. Tussey,
Charles E. Fisher, and Timothy Pinnell (participants) as representatives of a class of
current and former employees of ABB, Inc. (ABB) who participated in two ABB
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retirement plans1 governed by the Employee Retirement Income Security Act of 1974
(ERISA), 29 U.S.C. § 1001 et seq. After a sixteen-day bench trial, the district court
entered judgment against the ABB defendants2 and the Fidelity defendants3 for
breaching their fiduciary duties in violation of 29 U.S.C. §§ 1104, 1106, 1109. The
ABB fiduciaries and Fidelity appeal the judgment, damages, and attorney fee award.
Although the district court’s analysis was sound in many respects, the analysis was not
without errors. We affirm in part, reverse in part, and remand for further proceedings.
I. BACKGROUND
A. The Plan
To attract and retain quality employees, ABB sponsored the Plan, whose stated
goal was “to encourage employees to provide additional security and income for their
future through a systematic savings program.” See 26 U.S.C. § 401(k) (authorizing
defined contribution plans for the benefit of employees). Under the Plan, each
participant decided how to allocate individual contributions among the investment
options selected to be part of the Plan. ABB would match a portion of each
contribution, up to six percent of the participant’s salary. The Plan, which had an
open architecture—meaning investment options came from several
1
ABB offered one plan for union employees (union Plan) and another for
unrepresented employees (non-union Plan) (collectively, the Plan).
2
The ABB defendants (collectively, the ABB fiduciaries) are (1) ABB, the Plan
sponsor; (2) ABB’s Pension Review Committee (PRC), a named fiduciary responsible
for selecting and monitoring the Plan’s investment options; (3) ABB’s Pension and
Thrift Management Group (PTMG), which acts as the staff of the PRC; (4) John
Cutler, Jr., ABB’s director of the PTMG since 1999; and (5) ABB’s Employee
Benefits Committee (EBC), a three-member committee appointed by ABB’s board to
oversee ABB’s benefit program and to serve as Plan administrator.
3
The Fidelity defendants (collectively, Fidelity) are (1) Fidelity Management
Trust Company, the Plan trustee and recordkeeper; and (2) Fidelity Management and
Research Company, the investment advisor to the Fidelity mutual funds on the Plan.
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sources—generally invested in mutual funds, including Fidelity funds. As of 2000,
the Plan held more than $1.4 billion in assets and had more than 14,000 participants.
B. Revenue Sharing
Fidelity became the recordkeeper for the Plan in 1995 after a competitive
bidding process. Initially, ABB paid Fidelity a flat fee for each Plan participant.
Beginning in 2000, Fidelity primarily was paid through revenue sharing—a common
method of compensation whereby the mutual funds on a defined contribution plan pay
a portion of investor fees to a third party. Fidelity received a percentage of the income
the Plan investment options received from the participants. By 2001, compensation
for the non-union Plan came solely from revenue sharing, whereas ABB paid Fidelity
$8 per participant and some revenue sharing for the union Plan.
C. Other Corporate Services
Over time, Fidelity provided additional administrative services to ABB
unrelated to the Plan, including processing ABB’s payroll and acting as recordkeeper
for ABB’s defined benefit plans and health and welfare plans. Fidelity incurred losses
from these additional services, but made substantial profits from the Plan. In 2005,
ABB and Fidelity negotiated a comprehensive agreement covering both Fidelity’s
services to the Plan and the other corporate services Fidelity provided to ABB.
During negotiations, Fidelity advised ABB that Fidelity provided services for ABB’s
health and welfare plans at below market cost and did not charge for administering
other ABB plans. An outside consulting firm advised ABB it was overpaying for Plan
recordkeeping services and cautioned that the revenue sharing Fidelity received under
the Plan might have been subsidizing the other corporate services Fidelity provided
to ABB. ABB did not act on the information it received.
D. Plan Redesign
In 2000, a year after Cutler became director of the PTMG, Cutler drafted and
the PRC adopted an Investment Policy Statement (IPS), which was designed “to
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provide plan participants with a range of investment options that spanned the
risk-return spectrum.” The IPS provided a framework for selecting, monitoring, and
removing Plan investment options. The IPS contemplated investments in three tiers
based on the Plan participants’ willingness and ability to make personal asset
allocation decisions. Cutler recommended that the Plan offer participants a life-cycle
or target-date fund. Such managed allocation funds are dynamically managed to
diversify a participant’s portfolio across different funds and rebalanced to become
more conservative as the participant nears a target retirement date. Cutler also
suggested the PRC remove the Vanguard Wellington Fund, a balanced fund, from the
investment platform as a result of “deteriorating performance and because participants
would be empowered to create their own balanced fund.”
The PTMG considered three of the few target-date funds available at the time
of the Plan redesign. Of the available funds, Cutler favored the Fidelity Freedom
Funds because of their “glide path”—the manner in which the funds changed the asset
allocation as the funds approached their respective target retirement dates. On the
PTMG’s recommendation, the PRC replaced the Wellington Fund with the Freedom
Funds. The PRC decided to “map” funds held in the balanced Wellington Fund to the
age appropriate Freedom Fund. Mapping creates a default option for participants who
do not specify a different investment option when an existing option is being removed.
Those participants who chose a different investment option did not have their funds
mapped to the Freedom Funds.
E. Float
When a Plan participant or ABB made a contribution to the Plan, Fidelity
processed the contribution to the Plan investment option designated by the participant
and credited the participant’s account with shares in that investment option based on
the closing share price on the date of the contribution. The Plan became the owner of
the selected investment option as of the date the contribution was made and the order
was placed, entitling the Plan to any dividends or any other change in the fund that
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day. The contribution flowed into a depository account held at Deutsche Bank for the
benefit of the Plan investment options. For logistical reasons, the contribution could
not be distributed to the investment option until the next day. Money sitting in the
depository account overnight before it is distributed to the Plan investment options is
often described as “float.”4
As is common practice for such accounts, Fidelity temporarily transferred the
funds from the depository account overnight to secured investment vehicles to earn
interest often called “float interest” or “float income.” The following day Fidelity
transferred the principal back to the depository account. Fidelity used the float
income to pay fees on float accounts before allocating the remaining income to each
investment option choosing to receive it in proportion to the option’s share of the
overnight account balance. The float income benefitted all the shareholders of the
investment option receiving it. Fidelity did not receive the float or float interest.
F. Procedural History
On December 29, 2006, the participants sued the ABB fiduciaries and Fidelity,
alleging various fiduciary breaches, see 29 U.S.C. § 1104, and prohibited transactions,
see 29 U.S.C. § 1106, regarding the administration of the Plan. The participants
amended their complaint on July 5, 2007, and the district court certified the class on
December 3, 2007. After a sixteen-day bench trial beginning on January 5, 2010, the
district court found the ABB fiduciaries and Fidelity “breached some fiduciary duties
that they owed to the [] Plan[].” The district court summarized its findings as follows:
4
Fidelity draws a key distinction between “depository” float—the money
contributed to purchase shares in a Plan investment option—and “redemption”
float—the money withdrawn from a Plan investment option by a participant
requesting payment by check while the check remains uncashed. Disbursements are
transferred to a redemption account held for the benefit of the investment options and
treated in a similar manner to depository float, subject to federal and state tax
withholding.
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(1) ABB [fiduciaries] violated their fiduciary duties to the Plan when
they failed to monitor recordkeeping costs, failed to negotiate rebates for
the Plan from either Fidelity or other investment companies chosen to be
on the [Plan] platform, selected more expensive share classes for the []
Plan’s investment platform when less expensive share classes were
available, and removed the Vanguard Wellington Fund and replaced it
with Fidelity’s Freedom Funds; (2) ABB[] and the [EBC] violated their
fiduciary duties to the Plan when they agreed to pay to Fidelity an
amount that exceeded market costs for Plan services in order to subsidize
the corporate services provided to ABB by Fidelity, such as ABB’s
payroll and recordkeeping for ABB’s health and welfare plan and its
defined benefit plan; (3) Fidelity [] breached its fiduciary duties to the
Plan when it failed to distribute float income solely for the interest of the
Plan; and (4) Fidelity [] violated its fiduciary duties when it transferred
float income to the Plan’s investment options instead of the Plan.
Rejecting the participants’ “global damages theory” (i.e., “that the breaches
infected all of [ABB’s] investment decisions” and thus damages should be measured
against ABB’s defined benefit plan), the district court determined the damages
resulting from each breach. Against the ABB fiduciaries, the district court awarded
$13.4 million for failing to control recordkeeping costs and $21.8 million for losses
the district court believed the Plan suffered as a result of mapping from the Wellington
Fund to the Freedom Funds. See 29 U.S.C. § 1132(a) (civil enforcement). The
district court awarded $1.7 million against Fidelity for lost float income. The district
court held the ABB fiduciaries and Fidelity jointly and severally liable for more than
$13.4 million in attorney fees and costs. See 29 U.S.C. § 1132(g). The ABB
fiduciaries and Fidelity timely appealed.
II. DISCUSSION
“In reviewing a judgment after a bench trial, this court reviews ‘the court’s
factual findings for clear error and its legal conclusions de novo.’” Outdoor Cent.,
Inc. v. GreatLodge.com, Inc., 688 F.3d 938, 941 (8th Cir. 2012) (quoting Tadlock v.
Powell, 291 F.3d 541, 546 (8th Cir. 2002)); see also Fed. R. Civ. P. 52(a)(6)
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(“Findings of fact, whether based on oral or other evidence, must not be set aside
unless clearly erroneous, and the reviewing court must give due regard to the trial
court’s opportunity to judge the witnesses’ credibility.”). “The district court’s
determination that a breach of fiduciary duty occurred [under ERISA] represents a
legal ruling reviewed de novo.” Herman v. Mercantile Bank, N.A., 137 F.3d 584, 586
(8th Cir. 1998).
A. Fiduciary Discretion
The Plan gave ABB’s Plan administrator and its agents “sole and absolute
discretion to determine eligibility for, and the amount of, benefits under the Plan and
to take any other actions with respect to questions arising in connection with the Plan,
including . . . the construction and interpretation of the terms of the Plan.” Such a
broad grant of discretionary authority entitles the Plan administrator “to deference in
exercising that discretion.” Conkright v. Frommert, 559 U.S. 506, 509 (2010) (citing
Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 111 (1989) (applying trust law
principles in determining the appropriate standard of review for ERISA benefit
claims)). The district “court reviews the plan administrator’s construction of the plan
terms for an abuse of discretion; and we review de novo the district court’s application
of that deferential abuse-of-discretion standard.” Sunder v. U.S. Bancorp Pension
Plan, 586 F.3d 593, 602 (8th Cir. 2009) (internal citations omitted).
Under an abuse of discretion standard, the Plan administrator’s “interpretation
will not be disturbed if reasonable.” Firestone, 489 U.S. at 111. A reviewing “court
must defer to [the fiduciary’s] interpretation of the plan so long as it is ‘reasonable,’
even if the court would interpret the language differently as an original matter.”
Darvell v. Life Ins. Co. of N. Am., 597 F.3d 929, 935 (8th Cir. 2010) (quoting King
v. Hartford Life & Accident Ins. Co., 414 F.3d 994, 999 (8th Cir. 2005) (en banc)).
An interpretation is not “invalid merely because [a court] disagree[s] with it, but only
if it is unreasonable.” Hutchins v. Champion Int’l Corp., 110 F.3d 1341, 1344 (8th
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Cir. 1997). “An interpretation is reasonable if a reasonable person could have reached
a similar decision, given the evidence before him.” Id. (quotation omitted).
The ABB fiduciaries contend the district court erred in failing to afford any
discretion to the Plan administrator, particularly with respect to interpreting the IPS.5
According to the ABB fiduciaries, the district court’s de novo “substitution of its
views for those of ABB fiduciaries infected its entire analysis.” While overstated, the
ABB fiduciaries raise a legitimate question about whether the district court applied the
appropriate standard of judicial review. The district court’s opinion is silent as to the
standard of review, and much of the district court’s analysis gives little, if any,
deference to the Plan administrator’s determinations under the Plan documents.
The participants do not argue the district court afforded any deference to the
Plan administrator. Rather, they suggest deference only applies “to discretionary
benefits claim determinations.” In the participants’ view, federal courts must review
fiduciary acts outside the benefit context de novo, otherwise plan sponsors will grant
broad discretionary powers to fiduciaries and undermine ERISA’s exacting standards.
The participants misunderstand the nature of ERISA and ignore the application of
trust principles to the exercise of fiduciary discretion under ERISA’s provisions. See
5
The ABB fiduciaries maintain the district court erred in (1) finding the IPS was
a binding Plan document based on an inapposite interpretive bulletin from the United
States Department of Labor, despite “unmet Plan amendment requirements,” and
(2) assessing liability against the ABB fiduciaries for what the district court perceived
to be deviations from the IPS. While we are concerned that construing all investor
policy statements as binding plan documents will discourage their use, and we
question whether a policy statement like the one in this case—informally implemented
to provide a framework for administering the Plan itself—constitutes a binding Plan
document, we need not resolve those issues here. In evaluating the ABB fiduciaries’
decisions with respect to recordkeeping and selecting Plan investment options, the
district court found breaches of the duties of loyalty and prudence independent of the
IPS. The ABB fiduciaries’ assertion that the district court’s analysis was based
“entirely” upon its erroneous interpretation of the IPS is incorrect.
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Firestone, 489 U.S. at 111 (“Trust principles make a deferential standard of review
appropriate when a trustee exercises discretionary powers.”); Cox v. Mid-America
Dairymen, Inc., 965 F.2d 569, 572 (8th Cir. 1992) (“Trust law plainly does not permit
a reviewing court to reject a discretionary trustee decision with which the court simply
disagrees.”).
“ERISA represents a ‘careful balancing between ensuring fair and prompt
enforcement of rights under a plan and the encouragement of the creation of such
plans.’” Conkright, 559 U.S. at 517 (quoting Aetna Health Inc. v. Davila, 542 U.S.
200, 215 (2004)). Preserving that balance “by permitting an employer to grant
primary interpretive authority over an ERISA plan to the plan administrator,”
Firestone deference (1) encourages employers to offer ERISA plans by controlling
administrative costs and litigation expenses; (2) creates administrative efficiency;
(3) “promotes predictability, as an employer can rely on the expertise of the plan
administrator rather than worry about unexpected and inaccurate plan interpretations
that might result from de novo judicial review”; and (4) “serves the interest of
uniformity, helping to avoid a patchwork of different interpretations of a plan.” Id.
Like most circuits to address the issue, we see no compelling reason to limit
Firestone deference to benefit claims.6 “‘Where discretion is conferred upon the
6
Other circuits have agreed. Cf., e.g., Tibble v. Edison Int’l, 729 F.3d 1110,
1130 (9th Cir. 2013) (explaining that “[n]ot applying Firestone deference . . . would
risk” creating conflicting interpretations of the same plan under § 1132(a)(1)(B) and
§ 1104(a)(1)(D)); Armstrong v. LaSalle Bank Nat’l Ass’n, 446 F.3d 728, 733 (7th Cir.
2006) (“Even if . . . the general standard of review of an [employee stock ownership
plan fiduciary]’s decisions for prudence is plenary, a decision that involves a
balancing of competing interests under conditions of uncertainty requires an exercise
of discretion, and the standard of judicial review of discretionary judgments is abuse
of discretion.”); Hunter v. Caliber Sys., Inc., 220 F.3d 702, 711 (6th Cir. 2000)
(finding “no barrier” to applying a deferential standard to a case “not involving a
typical review of denial of benefits”); Moench v. Robertson, 62 F.3d 553, 565 (3d Cir.
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trustee with respect to the exercise of a power, its exercise is not subject to control by
the court except to prevent an abuse by the trustee of his discretion.’” Firestone, 489
U.S. at 111 (quoting Restatement (Second) of Trusts § 187 (1959) (alterations
omitted)). “This deferential standard reflects our general hesitancy to interfere with
the administration of a benefits plan.” Layes v. Mead Corp., 132 F.3d 1246, 1250 (8th
Cir. 1998). Given the grant of discretion in this case, the district court should have
reviewed the Plan administrator’s determinations under the Plan for abuse of
discretion. With that in mind, we now turn to the ABB fiduciaries’ substantive
challenges to the district court’s judgment.
B. Recordkeeping
“ERISA imposes upon fiduciaries twin duties of loyalty and prudence, requiring
them to act ‘solely in the interest of [plan] participants and beneficiaries’ and to carry
out their duties ‘with the care, skill, prudence, and diligence under the circumstances
then prevailing that a prudent man acting in a like capacity and familiar with such
matters would use in the conduct of an enterprise of a like character and with like
aims.’” Braden v. Wal-Mart Stores, Inc., 588 F.3d 585, 595 (8th Cir. 2009) (alteration
in original) (quoting 29 U.S.C. § 1104(a)(1)). “Section [1104]’s prudent person
standard is an objective standard that focuses on the fiduciary’s conduct preceding the
challenged decision”—not the results of that decision. Roth v. Sawyer-Cleator
Lumber Co., 16 F.3d 915, 917-18 (8th Cir. 1994) (internal citation omitted). “Even
if a trustee failed to conduct an investigation before making a decision, he is insulated
1995) (“[W]e believe that after Firestone, trust law should guide the standard of
review over claims, such as those [arising from an employee stock ownership plan],
not only under section 1132(a)(1)(B) but also over claims filed pursuant to 29 U.S.C.
§ 1132(a)(2) based on violations of the fiduciary duties set forth in section 1104(a).”).
But see John Blair Commc’ns, Inc. Profit Sharing Plan v. Telemundo Grp., Inc. Profit
Sharing Plan, 26 F.3d 360, 369 (2d Cir. 1994) (declining to apply the arbitrary and
capricious standard beyond the “simple denial of benefits”).
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from liability if a hypothetical prudent fiduciary would have made the same decision
anyway.” Id. at 919.
1. Range of Investment Options
The ABB fiduciaries contend the fact the Plan offered a wide “range of
investment options from which participants could select low-priced funds bars the
claim of unreasonable recordkeeping fees.” In support, the ABB fiduciaries rely on
Hecker v. Deere & Co. (Hecker I), 556 F.3d 575, 586 (7th Cir. 2009), Loomis v.
Exelon Corp., 658 F.3d 667 (7th Cir. 2011), and Renfro v. Unisys Corp., 671 F.3d
314, 327 (3d Cir. 2011), which the ABB fiduciaries propose “collectively hold that
plan fiduciaries cannot be liable for excessive fees where, as here, participants in a
self-directed 401(k) retirement savings plan that offers many different investment
options with a broad array of fees can direct their contributions across different cost
options as they see fit.”
The ABB fiduciaries’ reliance on Hecker I and its progeny is misplaced. Such
cases are inevitably fact intensive, and the courts in the cited cases carefully limited
their decisions to the facts presented. See Hecker v. Deere & Co., 569 F.3d 708, 711
(7th Cir. 2009) (explaining “the opinion was tethered closely to the facts”); Loomis,
658 F.3d at 671; Renfro, 671 F.3d at 327 (deciding “the range of investment options . .
. [is a] highly relevant fact[] . . . against which the plausibility of claims . . . should be
measured”). The facts of this case, unlike the cited cases, involve significant
allegations of wrongdoing, including allegations that ABB used revenue sharing to
benefit ABB and Fidelity at the Plan’s expense. See, e.g., Loomis, 658 F.3d at 671
(noting there was “no reason to think [the defendant] chose these funds to enrich itself
at participants’ expense”). Such allegations of wrongdoing with respect to fees state
a claim for fiduciary breach. See Braden, 588 F.3d at 590, 598.
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2. Breach
The ABB fiduciaries claim the district court erred in concluding they breached
their fiduciary duties by failing to monitor and control recordkeeping fees and for
paying excessive revenue sharing from Plan assets to subsidize ABB’s other corporate
services. According to the ABB fiduciaries, the district court erroneously (1) “implied
that certain business arrangements, such as bundling of investment management and
recordkeeping services through a single provider,” were automatically improper,
(2) failed to give proper weight to the recognized benefits of revenue sharing, and
(3) “relied on unwarranted inferences” in finding ABB and the EBC favored ABB’s
and Fidelity’s interests at the Plan’s expense. We disagree.
The district court did not condemn bundling services or revenue sharing, which
are common and “acceptable” investment industry practices that frequently inure to
the benefit of ERISA plans. Rather, the district court found the ABB fiduciaries
breached their duties to the Plan by failing diligently to investigate Fidelity and
monitor Plan recordkeeping costs based on the ABB fiduciaries’ specific failings in
this case. The district court found, as a matter of fact, that the ABB fiduciaries failed
to (1) calculate the amount the Plan was paying Fidelity for recordkeeping through
revenue sharing, (2) determine whether Fidelity’s pricing was competitive,
(3) adequately leverage the Plan’s size to reduce fees, and (4) “make a good faith
effort to prevent the subsidization of administration costs of ABB corporate services”
with Plan assets, even after ABB’s own outside consultant notified ABB the Plan was
overpaying for recordkeeping and might be subsidizing ABB’s other corporate
services.
The district court’s factual findings find ample support in the record, and its
legal conclusion that the ABB fiduciaries breached their fiduciary duties to the Plan
was not in error. Any failure by the district court to afford discretion to the Plan
administrator’s interpretation of the Plan with respect to recordkeeping and revenue
sharing was harmless under the circumstances. See Fed. R. Civ. P. 61 (explaining
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“the court must disregard all errors and defects that do not affect any party’s
substantial rights”).
3. Damages
The ABB fiduciaries maintain there is no basis for the district court’s award of
$13.4 million in excessive recordkeeping fees because the award rested on the
unreliable testimony of the participants’ expert, Al Otto. According to the ABB
fiduciaries, the district court abused its discretion by (1) failing to rule on Otto’s
reliability; (2) rejecting the ABB fiduciaries’ Daubert v. Merrell Dow
Pharmaceuticals, Inc., 509 U.S. 579 (1993), challenge; (3) admitting Otto’s testimony;
and (4) relying on that testimony in awarding damages resulting from excessive
recordkeeping fees. See Eckelkamp v. Beste, 315 F.3d 863, 869 (8th Cir. 2002)
(standard of review). These arguments are unavailing.
In a bench trial, we not only give the trial court “‘wide latitude in determining
whether an expert’s testimony is reliable,’” Khoury v. Philips Med. Sys., 614 F.3d
888, 892 (8th Cir. 2010) (quoting Fireman’s Fund Ins. Co. v. Canon U.S.A., Inc., 394
F.3d 1054, 1057 (8th Cir. 2005)), we also “relax Daubert’s application,” David E.
Watson, P.C. v. United States, 668 F.3d 1008, 1015 (8th Cir. 2012). Contrary to the
ABB fiduciaries’ assertion that the district court failed to rule on Otto’s reliability, the
district court denied the Daubert challenge before trial, stating the Daubert issues in
the case were “matters for the court to consider in terms of weighing the evidence [in
this bench trial] as opposed to finding that the evidence is so unreliable that it should
not even be considered.” The district court’s reliability ruling is inherent in that
determination, and the district court’s rejection of the ABB fiduciaries’ challenge was
well within its discretion.
The ABB fiduciaries also had a full opportunity to test Otto and his
methodology on cross-examination, which they did. See id. (“Generally, ‘the factual
basis of an expert opinion goes to the credibility of the testimony, not the
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admissibility, and it is up to the opposing party to examine the factual basis for the
opinion in cross-examination.’” (quoting Neb. Plastics, Inc. v. Holland Colors Ams.,
Inc., 408 F.3d 410, 416 (8th Cir. 2005))). The district court did not abuse its
discretion in awarding damages based on Otto’s testimony.
C. Selection of Plan Investment Options and Mapping
1. Timeliness
Absent fraud or concealment not present here, 29 U.S.C. § 1113(1)(A) requires
a plaintiff to bring fiduciary breach claims within “six years after . . . the date of the
last action which constituted a part of the breach or violation.” The participants filed
suit December 29, 2006. The ABB fiduciaries argue the participants’ claim based on
the mapping of funds from the Wellington Fund to the Freedom Funds is time barred.
As the ABB fiduciaries see it, the last date of the action that constituted the breach
was in November 2000, when PRC decided to remove the Wellington Fund and add
the Freedom Funds. We are unconvinced.
The last fiduciary acts constituting the alleged breach—amending the trust
agreements, removing the Wellington Fund as an investment option, selecting the
Freedom Funds, and mapping Plan assets to the Freedom Funds—all took place
during or after March 2001, bringing them within the six-year statute of limitation.
The district court correctly determined the participants’ mapping claim was timely.
2. Breach
In determining the ABB fiduciaries breached their fiduciary duties with respect
to selecting investment options and mapping from the Wellington Fund to the
Freedom Funds, the district court relied heavily on its interpretation of the Plan and
the provisions of the IPS. The ABB fiduciaries challenge the district court’s factual
findings, methodology, and conclusions. Although the ABB fiduciaries maintain the
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IPS is not a Plan document, they assert that even if it is, neither the IPS nor ERISA
required the investment selection and removal process the district court required.
According to the ABB fiduciaries, the district court erroneously substituted its
own de novo interpretation of the Plan and view of the ideal Plan investments for the
reasoned judgment of “those bodies legally charged with the actual exercise of
discretion.” The ABB fiduciaries also contend the district court’s analysis reflects an
improper hindsight bias as demonstrated by the district court “reason[ing] ex post that
‘between 2000 and 2008, the Wellington Fund[] outperformed the Freedom Funds.’”
(quoting the district court opinion). See Roth, 16 F.3d at 918 (“[T]he prudent person
standard is not concerned with results; rather, it is a test of how the fiduciary acted
viewed from the perspective of the time of the challenged decision rather than from
the vantage point of hindsight.” (internal marks omitted) (quoting Katsaros v. Cody,
744 F.2d 270, 279 (2d Cir. 1984))).
The ABB fiduciaries’ points are well taken. The district court’s opinion shows
clear signs of hindsight influence regarding the market for target-date funds at the time
of the redesign and the investment options’ subsequent performance. While it is easy
to pick an investment option in retrospect (buy Apple Inc. at $7 a share in December
2000 and short Enron Corp. at $90 a share), selecting an investment beforehand is
difficult. The Plan administrator deserves discretion to the extent its ex ante
investment choices were reasonable given what it knew at the time. It is also not
manifest the district court afforded any deference to the ABB Plan administrator’s
determinations under the Plan documents. “As the more deferential discretionary
standard of review could have affected any facet of the district court’s analysis, we are
far from certain the district court would have arrived at the same conclusions” had it
applied the required deferential standard of review in evaluating whether the ABB
fiduciaries, at the time they made their investment decisions, breached their fiduciary
duties in implementing the redesign and evaluating and selecting Plan investment
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options in accordance with the Plan. Jobe v. Med. Life Ins. Co., 598 F.3d 478, 486
(8th Cir. 2010); accord Wallace v. Firestone Tire & Rubber Co., 882 F.2d 1327, 1330
(8th Cir. 1989) (explaining that when an improper standard of review is “interwoven
into almost all of the court’s factual findings, we cannot be sure it would have made
the same factual conclusions if it had employed the required . . . standard of review”).
As such, we vacate the district court’s judgment and award on this claim and remand
for further consideration.
3. Damages
On remand, the district court should reevaluate its method of calculating the
damage award, if any, for the participants’ investment selection and mapping claims.7
See Peabody v. Davis, 636 F.3d 368, 373 (7th Cir. 2011) (clarifying in an ERISA case
that “[t]he method of calculating damages is reviewed de novo; the calculations
pursuant to the method are reviewed for clear error”). First, the district court awarded
the amount that participants who had invested in the Wellington Fund presumably
would have had if (1) ABB had not replaced the Wellington Fund with the Freedom
Funds, and (2) the participants remained invested in the Wellington Fund for the entire
period at issue. In light of the IPS requirement to add a managed allocation fund, it
seems the participants’ mapping damages, if any, would be more accurately measured
by comparing the difference between the performance of the Freedom Funds and the
minimum return of the subset of managed allocation funds the ABB fiduciaries could
have chosen without breaching their fiduciary obligations.
Second, the district court determined “it [was] a reasonable inference that
participants who invested in the Freedom Funds would have invested in the
Wellington Fund had it not been removed from the Plan’s investment platform.” Such
an inference appears to ignore the investment provisions of the IPS, participant choice
7
We address this issue because it may “arise again on remand.” Halbach v.
Great-West Life & Annuity Ins. Co., 561 F.3d 872, 882 (8th Cir. 2009).
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under the Plan, and the popularity of managed allocation funds. And the participants
fail to cite any evidentiary support for inferring the participants’ voluntary, post-
mapping investments in the Freedom Funds would have instead been made in the
Wellington Fund, even if that fund remained as a Plan option for all of the years at
issue. “A reasonable inference is one ‘which may be drawn from the evidence without
resort to speculation.’” Sip-Top, Inc. v. Ekco Grp., Inc., 86 F.3d 827, 830 (8th Cir.
1996) (quoting Hauser v. Equifax, Inc., 602 F.2d 811, 814 (8th Cir. 1979)). As
calculated, the $21.8 million damage award for the participants’ mapping claim is
speculative and exceeds the “losses to the plan resulting from” any fiduciary breach.
29 U.S.C. § 1109.
D. Float
Fidelity appeals the district court’s conclusion that Fidelity breached its
fiduciary duties of loyalty by failing to pay float income to the Plan.8 Fidelity asserts
“Fidelity was not required to credit the Plan with income earned on overnight
investments of float” because “[f]loat was not a Plan asset” within the meaning of
ERISA and “Fidelity was paid nothing for the float”—“no fees” and “none of the float
earnings.” Fidelity maintains that, as a matter of basic property rights, the investment
options—not the Plan—owned the float and bore the risk of loss with respect to the
float accounts and thus were entitled to any benefits of ownership. Fidelity’s appeal
to basic property rights is persuasive on this record.
Although “ERISA does not exhaustively define the term ‘plan assets,’ . . . [t]he
Secretary of Labor has repeatedly defined ‘plan assets’ consistently with ordinary
notions of property rights.” Kalda v. Sioux Valley Physician Partners, Inc., 481 F.3d
639, 647 (8th Cir. 2007) (quotation omitted). Here, the participants failed to adduce
any evidence the Plan had any property rights in the float or float income. To the
8
Fidelity asserts the participants’ float claims are barred by 29 U.S.C. § 1113(1).
For the purpose of this appeal, we assume the participants’ float claims are timely.
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contrary, the record evidence indicates that when a contribution was made, Fidelity
credited the participant’s Plan account and the Plan became the owner of the shares
of the selected investment option—typically shares of a mutual fund—the same day
the contribution was received. The Plan received the full benefit of
ownership—including any capital gains or dividends from the purchased shares—as
of the purchase date.
The participants do not rebut Fidelity’s simple assertion that “[o]nce the Plan
became the owner of the shares, it was no longer also owner of the money used to
purchase them,” which flowed to the investment options through the depository
account held for their benefit. Under the evidence and circumstances of this case, the
Plan investment options held the property rights in the depository float and were
entitled to the float income. Fidelity did not breach any fiduciary duties with respect
to the depository account.
The participants also fail to establish the Plan had any rights in the redemption
account balance, which, like the depository account, was registered for the benefit of
the investment options.9 Fidelity proposes, “As a matter of black-letter commercial
law, the payee of an uncashed check has no title in or right to interest on the account
funds.” See U.C.C. § 3-112(a)(i) (explaining “an instrument is not payable with
interest” “[u]nless otherwise provided in the instrument”). According to Fidelity,
when a participant chose to receive a check rather than an electronic disbursement, the
relevant Plan investment options retained all rights to the redemption float until the
disbursement check was cashed.
9
The parties do not make any distinction between the redemption account and
the disbursement account, which is also registered for the benefit of the investment
options. We follow that practice.
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The participants agree with Fidelity that “the funder of the check owns the
funds in the checking account until the check is presented, and thus is entitled to any
interest earned on that float,” but the participants contest the ownership of the funds
at issue. The participants assert, “In this case, the owner is the Plan[],” making the
float income a Plan asset. But the participants do not cite any record evidence
establishing the Plan as “the funder of the check” or the owner of the funds in the
redemption account. Absent proof of any ownership rights to the funds in the
redemption account, the Plan had no right to float income from that account.
Because the participants have failed to show the float was a Plan asset under the
circumstances of this case, the district court erred in finding Fidelity breached its
fiduciary duty of loyalty by paying the expenses on the float accounts and distributing
the remaining float to the investment options.
E. Attorney Fees
Under 29 U.S.C. § 1132(g)(1), “the court in its discretion may allow a
reasonable attorney’s fee and costs of action to either party.” The district court
awarded $12,947,747.68 in attorney fees and $489,985.00 in costs jointly and
severally against the ABB fiduciaries and Fidelity. The ABB fiduciaries and Fidelity
both challenge the award, but for different reasons. The ABB fiduciaries argue the
district court erred in (1) using a national rate in calculating the award because
experienced local counsel handled the case, and (2) applying a blended rate of $514.60
per hour when the award included substantial time for twelve lawyers who never
entered an appearance and performed uncomplicated work, including document
review, deposition summaries, and database management. Fidelity challenges the
decision to make liability for the award joint and several.
Although the hourly rate the district court applied for attorney work is generous
and the resulting fee award substantial, we are unable to say the district court abused
-22-
its discretion in determining the rate to use in calculating the award. See Geissal ex
rel. Estate of Geissal v. Moore Med. Corp., 338 F.3d 926, 935 (8th Cir. 2003)
(standard of review). Nonetheless, we vacate the award for further consideration in
light of our decision to vacate the mapping award and because we reverse the
judgment against Fidelity, which can no longer be liable for attorney fees and costs.
We leave for the district court to determine the amount by which the attorney fee
award against the ABB fiduciaries should be reduced after resolving the remaining
issues on remand. In recalculating any award, the district court should be careful to
apply the generous attorney rate it has allowed in this case only to work that requires
an attorney—not administrative, clerical, or paralegal work.
III. CONCLUSION
We affirm the district court’s judgment and award against the ABB fiduciaries
with respect to recordkeeping, but vacate the judgment and award on the participants’
investment selection and mapping claims. We reverse the district court’s judgment
against Fidelity, vacate the attorney fee award as to all defendants, and remand for
further proceedings consistent with this opinion.
BYE, Circuit Judge, dissenting in part.
Unlike the majority, I would conclude float is a Plan asset under these
circumstances and Fidelity therefore breached its fiduciary duty of loyalty by
transferring float to the Depository Account for the benefit of investment options and
by using float income to pay for bank expenses.
In concluding float is not a Plan asset, the majority has been persuaded by
principles of property law. However, I find basic principles of property law are not
persuasive in light of regulations which specifically define Plan assets in the context
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of ERISA. Regarding the definition of Plan assets, the Department of Labor
regulations implementing ERISA provide:
[T]he assets of the plan include amounts (other than union dues) that a
participant or beneficiary pays to an employer, or amounts that a
participant has withheld from his wages by an employer, for contribution
or repayment of a participant loan to the plan, as of the earliest date on
which such contributions or repayments can reasonably be segregated
from the employer's general assets.
29 C.F.R. § 2510.3-102(a)(1) (2012) (emphasis added). I read this regulation to mean
that a distribution to the Plan is a Plan asset at the time it is placed into Fidelity's
depository account, thus making depository float a Plan asset. Additional Department
of Labor Resources convince me redemption float is also a Plan asset. U.S. Dep't of
Labor, Information Letter (1994), available at
http://www.dol.gov/ebsa/regs/ILs/il081194.html (stating self-dealing is improper with
respect to retaining earnings on float attributable to outstanding checks). Because the
funds in Fidelity's float accounts were Plan assets, the float income, consisting of
interest earned from Plan assets and returns from investing of Plan assets, is also
considered to be a Plan asset.
I would also find Fidelity breached its fiduciary duty of loyalty in handling the
float as well as the float income. The Department of Labor expects that parties
should, "as part of their fee negotiations, provide full and fair disclosure regarding the
use of float[.]" U.S. Dep't of Labor, Field Assistance Bulletin 2002-3 (2002),
available at http://www.dol.gov/ebsa/regs/fab2002-3.html. As such, if Fidelity had
"openly negotiated" to retain float income "as part of its overall compensation," a
breach of fiduciary duties by Fidelity would not be before this court. Id. However,
Fidelity failed to negotiate float openly and thus Fidelity was improperly using, for
its own benefit, float income which was property of the Plan. See George v. Kraft
Foods Global, Inc., 641 F.3d 786, 801 (7th Cir. 2011) (“Under State Street’s
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agreement with the Plan, State Street was allowed to retain the income earned from
float. Absent this agreement, any float income would have been property of the
Plan.”).
Accordingly, I respectfully dissent from the majority’s conclusion that the
district court erred in assessing damages for Fidelity's handling of float and income
generated from such float.
______________________________
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