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BH Services Inc v. FCE Benefit Administrators Inc.

United States District Court, D. South Dakota, Western Division

August 23, 2017

BH SERVICES INC., For Itself as Sponsor and Fiduciary and for the BH SERVICES, INC., HEALTH AND WELFARE PLAN, Plaintiff,
v.
FCE BENEFIT ADMINISTRATORS INC., TRUST MANAGEMENT SERVICES, ACEC MW, and TRANSAMERICA LIFE INSURANCE COMPANY, Defendants.

          ORDER DENYING MOTION TO TRANSFER VENUE

          KAREN E. SCHREIER UNITED STATES DISTRICT JUDGE

         Defendant FCE Benefit Administrators Inc., moves to transfer this action under 28 U.S.C. § 1404(a) to the Northern District of California based on the forum selection clause in a Third Party Administrator (TPA) Agreement between plaintiff, BH Services, Inc., and FCE. Docket 23; Docket 25-1 at 5. BH Services opposes the motion to transfer and argues that venue is proper in the District of South Dakota. Docket 30 at 1-2. For the reasons that follow, the court denies the motion to transfer venue.

         BACKGROUND

         BH Services is a not-for-profit corporation based in Rapid City, South Dakota, providing employment to over 200 people in Nebraska and South Dakota. Docket 31 ¶ 2. BH Services is the sponsor, administrator, and named fiduciary of the BH Services, Inc. Health and Welfare Plan (the Plan). Docket 28 ¶¶ 2.01, 2.02. FCE is a third party administrator that provides administration support services to ERISA health and welfare plans. Docket 25 ¶ 2.

         From 1995 to 2015, BH Services retained FCE to provide a plan document, compliance services, and third-party administrative services for the Plan. Docket 28 ¶ 5.01. In March 2004, BH Services and FCE entered into two agreements relating to FCE's management of the Plan. Docket 25 ¶¶ 3, 4. The first, the Adoption Agreement, incorporated the Plan by reference and added several exhibits to the Plan. Id. ¶ 4. The second agreement, the TPA Agreement, was one of the included attachments and describes the services FCE would provide related to administering and managing the Plan. Id. ¶¶ 4, 5.

         Article VIII(f) of the TPA Agreement provides:

Governing Law and Venue: This Agreement will be governed by the internal laws of the State of California except to the extent preempted by ERISA, COBRA or other applicable federal law, and the venue for resolving any dispute under this Agreement will be San Mateo County, California.

Docket 25-1 at 5.

         In October of 2013, BH Services appointed defendant Trust Management Services (TMS) to serve as trustee of the Plan's assets. Docket 31 ¶ 8; see also Docket 28 ¶ 5.01. This appointment was made at FCE's recommendation. Docket 31 ¶ 3. To effectuate this appointment, BH Services and TMS executed a Trust Assignment Agreement, under which TMS agreed to assume “the rights, claims and obligations of Trustee and agrees to perform the services and function of the Trustee under the Trust Agreement as expressly provided therein.” Docket 25-3. Section 7.4 of the Trust Agreement contained a forum selection clause similar to the one entered into between BH Services and FCE: “This Trust Agreement will be construed, administered and enforced according to ERISA and the law of the State of California . . . . Venue for any dispute under this Agreement will be San Mateo County, California.” Docket 25-2 at 4.[1]

         On June 10, 2016, BH Services filed a complaint in this court naming FCE and TMS as defendants. Docket 1 ¶¶ 2.03, 2.04. FCE responded to the complaint on October 11, 2016, by filing both a motion to dismiss for failure to state a claim (Docket 20) and a motion to transfer venue (Docket 23). On October 28, 2016, BH Services amended its complaint as a matter of course under Federal Rule of Civil Procedure 15(a)(1)(B). See Docket 28. The first amended complaint added two additional defendants, ACEC MW and Transamerica Life Insurance Company. Id. ¶¶ 2.05, 2.06.

         BH Services alleges in the first amended complaint that in 2015, it decided to transfer plan document compliance, administration, and servicing of the Plan to Fringe Benefits Group. Id. ¶ 5.01. BH Services also alleges that it notified FCE and TMS of its intent to terminate their services on October 28, 2015. Id. BH Services further alleges that despite its multiple attempts to have FCE and TMS transfer the Plan's assets to Fringe Benefits Group, FCE and TMS have failed to transfer the Plan's assets totaling more than $735, 000. Id. ¶ 5.02.

         The first amended complaint also recites several allegations regarding the relationship of the parties to this dispute. For example, BH Services alleges that, despite its belief that FCE and TMS would operate the Plan to provide plan members with group term life insurance, see Id. ¶¶ 1.03, 5.09, FCE and ACEC actually contracted with Transamerica to provide plan members with life insurance plans that were part of two master group variable universal life insurance policies. Id. ¶¶ 1.03, 5.09. Instead of these universal life insurance policies being owned by TMS, as trustee of the Plan, BH Services alleges that the Transamerica policies and their cash values were owned by both FCE and ACEC. Id. ¶ 1.03. BH Services also alleges that because FCE and ACEC had control of the Plan's assets and the cash value held in the Transamerica policies, FCE and ACEC could build up cash accounts that accumulated in the Transamerica policies. Id. ¶ 1.04. BH Services further alleges that FCE and ACEC, along with TMS as trustee of the Plan's assets, were able to hide the cash surrender value of the policies from BH Services and access that cash surplus without BH Services' knowledge. Id. BH Services also alleges that FCE and TMS are preventing BH Services from discovering additional information about the Plan's assets, which has frustrated BH Services' attempts to get an accounting. Id. ¶ 5.14.

         In total, the first amended complaint alleges seven causes of action against FCE, TMS, ACEC, and Transamerica. Count one seeks an injunction against FCE, TMS, and ACEC under 29 U.S.C. § 1132(a)(3). Count two requests an accounting of the Plan's assets under 29 U.S.C. § 1132(a)(3) against FCE and TMS. Count three seeks the recovery of wrongfully dissipated Plan assets against FCE, TMS, and ACEC under 29 U.S.C. § 1132(a)(3)(B)(i). Count four seeks damages against FCE, TMS, and ACEC for the breach of fiduciary duty and breach of fiduciary duty by co-fiduciaries under 29 U.S.C. §§ 1105, 1109, and 1132(a)(2). Count five seeks an award of attorney's fees and costs under 29 U.S.C. § 1132(g) against FCE, TMS, and ACEC for BH Services' ERISA claims. Count six seeks damages, including punitive damages, against FCE and Transamerica for common law fraud under state law. Count seven seeks damages for unjust enrichment against FCE, TMS, ACEC, and Transamerica.

         FCE responded to the first amended complaint on November 14, 2016, by filing a partial motion to dismiss and motion to strike portions of the first amended complaint (Docket 33) and an answer to the first amended complaint (Docket 37). FCE did not refile its motion to transfer venue, see Docket 23, and instead, also on November 14, 2016, filed its reply brief in support of the motion to transfer venue.[2] Docket 36.

         BH Services filed TMS's waiver of service on March 13, 2017. Docket 83.Under this waiver, TMS had until May 12, 2017, to respond to the first amended complaint. TMS failed to file an answer or responsive motion to the first amended complaint. Thus, BH Services moved for a clerk's entry of default against TMS, Docket 85, which was entered on May 19, 2017. Docket 86. Since the clerk's entry of default ...


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