On Appeal from the United States District Court for the Eastern District of Pennsylvania D.C. Civil Action No. 07-cv-02098 (Honorable Berle M. Schiller)
The opinion of the court was delivered by: Scirica, Circuit Judge.
Before: SCIRICA, AMBRO and VANASKIE, Circuit Judges.
Plaintiffs Mark Renfro and Gerald Lustig, representatives of a putative class of participants in a 401(k) defined contribution plan, sued defendants Unisys Corp. and Fidelity Management Trust Co. and its related corporate entities under the Employment Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. § 1001 et seq., for breach of fiduciary duty. Plaintiffs alleged defendants inadequately selected a mix and range of investment options to include in the plan. The District Court dismissed the Fidelity entities, holding they were not fiduciaries with reference to the challenged conduct, dismissed the action holding plaintiffs‟ claims were implausible because the plan‟s mix and range of options was reasonable, and, in the alternative, granted Unisys‟s summary judgment motion holding the ERISA safe- harbor provisions exempted it from liability. We will affirm the dismissal of the Fidelity entities and the dismissal of the action. We will not reach the grant of summary judgment.
The Unisys Corporation Savings Plan is a "defined contribution plan" within the meaning of 29 U.S.C. § 1002(34), which is tax qualified under 26 U.S.C. § 401(k). "[A] "defined contribution plan‟ . . . promises the participant the value of an individual account at retirement, which is largely a function of the amounts contributed to that account and the investment performance of those contributions." LaRue v. DeWolff, Boberg & Assocs., 552 U.S. 248, 250 n.1 (2008). These plans "dominate the retirement plan scene today." Id. at 255.
The Unisys plan consists of several investment options (seventy-three as of the filing of the complaint) into which non-union Unisys employees may allocate contributions. An employee-participant may contribute up to 30%, but no more than $15,000 per year, of his or her pre-tax wages into the plan. Unisys then matches half of the participant‟s contribution, capped at 2% of the participant‟s wages, which it invests in the Unisys Stock Fund. Participants are fully vested in their accounts.
Of the seventy-three options included in the plan, participants could invest in either of a stable value fund or the Unisys Stock Fund, or one of seventy-one options provided under trust agreement with Fidelity. Of the seventy-one options provided by Fidelity, four were commingled pools.
Commingled pools consist of funds commingled from different sources owning shares in the pool. They are part of a group trust owned by a bank. Of the commingled pools included in the Unisys plan, one commingled pool invested in an S&P 500 index, and three commingled pools invested in bonds.
The remaining sixty-seven investment options were mutual funds. ""A mutual fund is a pool of assets, consisting primarily of [a] portfolio [of] securities, and belonging to the individual investors holding shares in the fund.‟" Jones v. Harris Assocs. L.P., --- U.S. ----, 130 S. Ct. 1418, 1422 (2010) (alterations in original) (quoting Burks v. Lasker, 441 U.S. 471, 480 (1979)). Mutual funds are organized as investment companies, which are governed by the Securities Act of 1933, 15 U.S.C. § 77a et seq., and the Investment Company Act of 1940, 15 U.S.C. § 80a-1 et seq. See Jones, 130 S. Ct. at 1422. Accordingly, they are subject to a variety of reporting, governance, and transparency requirements that do not apply to other investment vehicles such as commingled pools.
The Unisys plan‟s mutual funds were added in 1993 by way of a trust agreement with Fidelity. Fidelity, as a directed trustee of the plan, agreed to provide administrative services bundled with the investment options. In return, Unisys agreed that any additions to the funds to be managed by Fidelity would be Fidelity funds. The agreement did not prohibit Unisys from adding non-Fidelity options to its plan, and administering them itself, or from contracting with another company to administer non-Fidelity investments. In fact, in its recitals, the trust agreement stated certain investments were to be held in trust and administered by CoreStates, a trustee unaffiliated with Fidelity.
Each mutual fund included in the plan incurred fees for investment management. These fees are set for each mutual fund in an expense ratio-a percentage of each contributor‟s assets invested in a particular fund. The plan had a wide variety of risk and expense ratios; the expense ratios on the funds included in the Unisys plan ranged from 0.1% to 1.21%. Renfro v. Unisys Corp., No. 07-2098, 2010 U.S. Dist. LEXIS 41563, at *7 n.2 (E.D. Pa. April 26, 2010) (taking judicial notice of the fees because they were disclosed in prospectuses filed with the Securities and Exchange Commission). These fees pay for, among other things, management of the investments and compliance with securities laws. All fees were disclosed in materials distributed to the participants.*fn1 Regardless of these fees, the Unisys plan participants appear to strongly prefer mutual fund investments. As of the filing of the complaint, nearly $1.9 billion of the plan‟s roughly $2 billion worth of assets were invested in these mutual funds.
Plaintiffs sued Unisys and the Fidelity entities in the United States District Court in the Central District of California alleging breach of fiduciary duty under 29 U.S.C. §§ 1104 and 1132(a)(2), and for equitable relief under § 1132(a)(3) relating to defendants‟ selection for inclusion and maintenance of investment options in the Unisys plan. The case was transferred to the Eastern District of Pennsylvania.
While the case was pending, the Supreme Court issued its decisions in Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007), and Aschroft v. Iqbal, --- U.S. ----, 129 S. Ct. 1937 (2009), addressing pleading standards. Plaintiffs sought and were granted leave to file an amended complaint and a second amended complaint, which was filed on September 3, 2009.*fn2
In the complaint, plaintiffs allege that Unisys and the Fidelity entities breached their duties of loyalty and prudence by selecting and retaining retail mutual funds in the range of investment options. Specifically, plaintiffs contend the administrative fees governed by the trust agreement, and the fees associated with each retail mutual fund, are excessive in light of the services rendered as compared to other, less expensive, investment options not included in the plan. These allegations focus on the inclusion of so-called retail mutual funds, which are available to individual investors with small investments as well as to large ERISA funds such as Unisys‟s. Plaintiffs allege Unisys could have selected investments having lower fees than mutual funds and/or used the size of its plan as leverage to bargain for lower fee rates on mutual funds.
Both the Fidelity entities and Unisys moved to dismiss under Fed. R. Civ. P. 12(b)(6). See Renfro, 2010 U.S. Dist. LEXIS 41563, at *3. The Fidelity entities contended they were not fiduciaries with respect to the challenged conduct and, relying on the Seventh Circuit‟s decision in Hecker v. Deere & Co., 556 F.3d 575 (7th Cir. 2009), supplemented by 569 F.3d 708 (7th Cir. 2009), that plaintiffs had failed to plead a plausible breach of fiduciary duty. In addition, the Fidelity entities argued plaintiffs‟ claims were barred by ERISA‟s six-year limitation period. 29 U.S.C. § 1113. Unisys similarly argued plaintiffs did not adequately plead a breach of fiduciary duty. In the alternative, Unisys moved for summary judgment under Fed. R. Civ. P. 56(c), contending ERISA‟s safe harbor provision, 29 U.S.C. § 1104(c)(1)(A)(ii), shielded it from liability because the alleged losses were the aggregate result of the participants‟ own investment decisions.
The District Court denied the statute of limitations motion on the ground that ERISA fiduciary breaches are continuing violations that accrue each time a plan incurs a loss as a result of a breach. But the court granted the Fidelity entities‟ motion to dismiss, concluding as a matter of law under the trust agreement that Fidelity and its related corporate entities were not fiduciaries with respect to the challenged conduct because they did not exercise control over the inclusion of investment options in the plan. Renfro, 2010 U.S. Dist. LEXIS 41563, at *15-19. The court also granted the defendants‟ motion to dismiss on the grounds the complaint failed to state a claim because the plan ""offered a sufficient mix of investments for their participants‟ [such] that no rational trier of fact could find, on the basis of the facts alleged in the operative complaint, that the Unisys defendants breached an ERISA fiduciary duty by offering this particular array of investment vehicles." Id. at *19 (quoting Hecker, 556 F.3d at 586.). In the alternative, the court granted Unisys‟s motion for summary judgment, finding ERISA section 404(c) shielded Unisys from liability for any alleged breach because the participants chose the investment options into which they allocated their contributions. Id. at *31.
Plaintiffs timely appealed.
Our review of a Rule 12(b)(6) motion to dismiss is plenary. Leveto v. Lapina, 258 F.3d 156, 161 (3d Cir. 2001). Rule 12(b)(6) permits dismissal of complaints for "failure to state a claim upon which relief can be granted." Fed. R. Civ. P. 12(b)(6). The question is "not whether [plaintiffs] will ultimately prevail . . . but whether [their] complaint was sufficient to cross the federal court‟s threshold." Skinner v. Switzer, --- U.S. ----, 131 S. Ct. 1289, 1296 (2011) (internal citations and quotations omitted). "Because Federal Rule of Civil Procedure 8(a)(2) "requires a "showing", rather than a blanket assertion, of entitlement to relief,‟ courts evaluating the viability of a complaint under Rule 12(b)(6) must look beyond conclusory statements and determine whether the complaint‟s well-pled factual allegations, taken as true, are "enough to raise a right to relief above the speculative level.‟" In re Ins. Brokerage Antitrust Litig., 618 F.3d 300, 319 (3d Cir. 2010) (quoting Twombly, 550 U.S. at 555 & n.3). But plaintiffs "need only allege "enough facts to state a claim to relief that is plausible on its face.‟" Matrixx Initiatives, Inc. v. Siracusano, --- U.S. ----, 131 S. Ct. 1309, 1322 n.12 (2011) (quoting Twombly, 550 U.S. at 570). Accordingly, we must examine the context of a claim, including the underlying substantive law, in order to assess its plausibility. See Ins. Brokerage, 618 F.3d at 320 n.18.