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In re Fidelity Erisa Float Litigation

United States District Court, D. Massachusetts

March 11, 2015

IN RE FIDELITY ERISA FLOAT LITIGATION

MEMORANDUM AND ORDER

DENISE J. CASPER, District Judge.

I. Introduction

Plaintiffs bring this purported class action on behalf of the retirement plans (the "Plans") in which they have been participants or an administrator alleging that Defendants FMR LLC, Fidelity Management Trust Company ("FMTC"), Fidelity Management and Research Company ("FMRC"), and Fidelity Investments Institutional Operations Company, Inc. ("FIIOC") (collectively, "Fidelity") have violated the Employee Retirement Income Securities Act ("ERISA"), 29 U.S.C. § 1001 et seq. Fidelity has moved to dismiss. D. 125. For the reasons stated below, the Court ALLOWS the motion.

II. Standard of Review

In considering a motion to dismiss for failure to state a claim upon which relief can be granted pursuant to Fed.R.Civ.P. 12(b)(6), the Court must determine if the facts alleged "plausibly narrate a claim for relief." Schatz v. Republican State Leadership Comm., 669 F.3d 50, 55 (1st Cir. 2012). This determination requires a two-step inquiry. García-Catalán v. United States, 734 F.3d 100, 103 (1st Cir. 2013). First, the Court must distinguish the factual allegations from the conclusory legal allegations in the complaint. Id . Second, taking the Plaintiff's allegations as true, the Court should be able to draw "the reasonable inference that the defendant is liable for the misconduct alleged." Id . (quoting Haley v. City of Boston, 657 F.3d 39, 46 (1st Cir. 2011)).

When deciding a motion to dismiss, the First Circuit has "emphasize[d] that the complaint must be read as a whole." García-Catalán, 734 F.3d at 103. Overall, a claim must contain sufficient factual matter that, accepted as true, would allow the Court to draw "the reasonable inference that the defendant is liable for the misconduct alleged." Id . (quoting Haley, 657 F.3d at 46). However, "[i]n determining whether a [pleading] crosses the plausibility threshold, the reviewing court [must] draw on its judicial experience and common sense." Id . (internal citations omitted).

III. Factual Background

Unless otherwise noted, the Court relies on the facts as alleged in the operative complaint, the second amended consolidated complaint, D 122.

Plaintiffs include participants in retirement plans and an administrator for a retirement plan that entered into trust agreements with Fidelity to establish trusts to hold Plan assets. Id . ¶¶ 9-15, 22. The Plans' Trust Agreements are substantially the same in all material respects. Id . ¶ 25. Under the agreements, Defendant FMTC agreed to open and maintain trust accounts for each plan and participant, including in Deposit Accounts, holding the assets of the trust funds for the benefit of the plan participants and beneficiaries. Id . ¶¶ 23, 25. Fidelity's trust agreements would generally provide that FMTC would charge only three types of fees to the Plans: (1) an asset-based fee based on a percentage of Plan assets held in a particular Plan investment; (2) a fixed administrative fee per Plan participant; and (3) fees for individual participant services. Id . ¶ 24.

In light of its authority to manage or dispose Plan assets, FMTC is a fiduciary of the Plans. Id . ¶ 27. Defendant FIIOC is also a fiduciary of the Plans by virtue of it being an agent for FMTC and in this role managing its Depository Account and Redemption Account. Id . ¶ 28. Defendant FMRC is also a fiduciary by virtue of its discretionary management and control over plan assets transferred to the "FICASH" program. Id . ¶ 29.

Plaintiffs allege that Fidelity's ERISA violations arise from "(1) their practice of appropriating float earned on Plan assets to pay banking fees that Fidelity was required to pay, and (2) their practice of misappropriating float income for the use of clients other than the participants in the Plans." Id . ¶ 32. According to the operative complaint, when Plan participants withdrew funds from the Plan a lump-sum disbursement was triggered (unless the Plan participant had entered retirement and was receiving regular retirement payments). Id . ¶ 33. Fidelity's disbursement process occurred in multiple steps. When Fidelity received a withdrawal request, it sold the mutual fund shares and moved the funds from the relevant investment option account to a redemption bank account. Id . ¶ 33a. Electronic disbursements were paid to plan participants from the redemption bank account. Id . ¶ 33f-g. Overnight, Fidelity would transfer the funds into an interest bearing account owned and controlled by Fidelity and the principal of the funds would be transferred back to the redemption bank account the following day. Id . ¶ 33b-d. Any interest earned overnight was not transferred to the redemption bank account. Id . ¶ 33d. This interest is generally referred to as "float." Id . ¶ 3. For participants who did not elect to receive an electronic disbursement, the withdrawn funds were transferred from the redemption bank account to an interest bearing disbursement bank account, which issued a check to the participant in the amount of the withdrawn funds, but not including interest. Id . ¶ 33g. Participants received the funds after they cashed or deposited the check. Id . Fidelity would retain some portion of the float income generated during the disbursement process and the remainder was credited to mutual funds. Id . ¶ 33h.

Although all of the accounts described above incurred bank expenses, these expenses were part of Fidelity's ordinary operating expenses for recordkeeping and administering the Plans. Id . ¶ 35. Thus, Fidelity used float income - which Plaintiffs allege belong to them - to pay these recordkeeping and administrative expenses. Id . ¶¶ 36-37. Plaintiffs allege that these expenses were outside the scope of the agreed-upon fees they would pay Fidelity and, therefore, Fidelity's practice amounted to a violation of Fidelity's fiduciary duties. Id . ¶¶ 24, 59-60.

IV. Procedural History

Plaintiffs instituted this action on February 5, 2013. D. 1. The Court consolidated this case with three other cases (13-cv-10570-DJC; 13-cv-10524-DJC; and 13-cv-11011-DJC) on December 27, 2013. D. 62. On February 7, 2014, Plaintiffs - six plan participants and a plan administrator - filed an amended consolidated complaint, D. 67, which Fidelity moved to dismiss on March 7, 2014, D. 82. In its motion to dismiss, Fidelity argued that ERISA's six-year statute of repose barred Plaintiffs' claims, D. 83 at 16, that ERISA's three-year statute of limitations barred Plaintiffs' claims, id. at 26, that Plaintiffs lacked constitutional standing to bring this class action, id. at 30, and that Plaintiffs failed to state a claim against FMR ...


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