United States District Court, D. South Dakota, Western Division
BH SERVICES INC., FOR ITSELF AS SPONSOR AND FIDUCIARY AND FOR THE BH SERVICES, INC., HEALTH AND WELFARE PLAN Plaintiff,
FCE BENEFIT ADMINISTRATORS INC., TRUST MANAGEMENT SERVICES, ACEC MW, and TRANSAMERICA LIFE INSURANCE COMPANY, Defendants.
MEMORANDUM OPINION AND ORDER
E. Schreier, United States District Judge
pending before the court are several motions. Defendant FCE
Benefit Administrators Inc., moves to dismiss counts six and
seven of the first amended complaint and moves to strike
paragraph 5.13 from the first amended complaint. Docket 33.
Defendant Transamerica Life Insurance Company also moves to
dismiss counts six and seven of the first amended complaint,
which are the only two counts pled against Transamerica.
Docket 52. Defendant ACEC MW moves to dismiss count seven of
the first amended complaint. Docket 64. Plaintiff, BH
Services, Inc., opposes each of the motions to dismiss and
the motion to strike. See Dockets 39, 74, 75. For
the reasons that follow, the court grants the motions to
dismiss and denies the motion to strike.
facts as alleged in the first amended complaint are as
follows: 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. See Docket 28
¶ 2.01. BH Services is the sponsor, administrator, and
named fiduciary of the BH Services, Inc. Health and Welfare
Plan (the Plan). Id. The Plan is an “employee
welfare benefit plan” as defined by the Employee
Retirement Income Security Act of 1974 (ERISA), 29 U.S.C.
§§ 1001-1461 (2012). Id. ¶ 2.02. The
Plan also includes a health reimbursement account.
Id. The Plan is funded by BH Services' general
assets, which are placed in a trust account to cover the
Plan's claims and expenses. Id.
1995 to 2015, BH Services retained FCE to provide a plan
document, compliance services, and third-party administrative
services for the Plan. Id. ¶ 5.01. Prior to
2013, FCE hired Marilyn Ward and Vivian Lewis to act as
trustees of the Plan's assets. Id. ¶¶
1.02, 5.01. Upon their retirement, FCE hired defendant Trust
Management Services (TMS) to serve as an independent trustee
of the Plan's assets. Id. ¶¶ 1.02, 5.01.
Because FCE and TMS had the discretionary authority and
control to manage the Plan, dispose of Plan assets, and
administer the Plan, both entities were Plan
fiduciaries. Id. ¶¶ 2.03, 2.04. As
fiduciaries, FCE and TMS were responsible for operating the
Plan and protecting the Plan's assets. Id.
¶¶ 2.03, 2.04.
BH Services was told by FCE and its owners that, consistent
with the Plan documents and BH Services' instructions, BH
Services sponsored group term life insurance benefits and a
health reimbursement account for the employees and
participants of the Plan. See Id. ¶¶ 1.03,
5.05. After receiving some conflicting financial information
from FCE, however, BH Services began to engage in a long
process to attempt to uncover what assets the Plan actually
owned. Id. ¶¶ 1.03, 5.05. As part of this
process, BH Services was asked by FCE and TMS to use the
accounting firm Ineich & Company to do an independent
audit of the Plan's assets. Id. ¶ 5.04.
initial result of BH Services' investigation into the
Plan's assets was the discovery that instead of working
to provide plan members with group term life insurance-as FCE
and TMS were directed to do by BH Services-FCE and its agents
contracted with Transamerica Life Insurance Company to
provide plan members with cash accounts in at least two
master group variable universal life insurance policies
(Transamerica policies). See Id. ¶¶ 1.03,
this discovery, BH Services contacted Transamerica to obtain
additional information about the policies. Id.
¶ 5.06. BH Services' request resulted in
Transamerica sending to BH Services a spreadsheet showing
that the Transamerica policies were not owned by TMS as
trustee of the Plan's assets, but rather that the
policies were owned by FCE and ACEC, another multiple welfare
benefit plan. Id. BH services also discovered that
its Transamerica policies were further comingled with master
group variable universal life insurance policies from 50
other employers. Id. Those other policies were also
controlled by FCE and ACEC. Id. Because FCE and ACEC
were the owners of the Transamerica policies, they, along
with TMS as trustee of the Plan's assets, were able to
hide the cash surrender value of these policies, which were
Plan assets, from BH Services. Id. ¶ 5.07. FCE,
ACEC, and TMS also had the ability to freely access and use
the cash surplus built up from the Transamerica policies
without BH Services' knowledge. Id.
result of the mismanagement of Plan assets by FCE and TMS, in
2015, BH Services began to look for a new third-party
administrator of the Plan. Id. ¶¶ 1.05,
5.01. BH Services eventually transferred plan documents,
compliance services, and third-party administrative services
for the Plan to Fringe Benefits Group. Id.
¶¶ 1.05, 5.01. On October 28, 2015, BH Services
provided written notification to FCE and TMS of its intent to
terminate their services within 60 days. Id. ¶
5.01. And on December 15, 2015, BH Services directed FCE and
TMS to transfer all of the Plan's assets to the new plan
administered by Fringe Benefits Group. Id. ¶
5.01. Despite BH Services' multiple attempts, FCE and TMS
have yet to transfer the Plan's assets, totaling more
than $735, 000, to Fringe Benefits Group. See Id.
¶¶ 1.06, 5.02.
October 2016, BH Services discovered that independent audit
reports from the other 50 employers participating in the
comingled master group variable universal life insurance
policies issued by Transamerica showed that those employers
reported that they paid premiums for group term life
insurance policies. Id. ¶ 5.09. After comparing
these independent audit reports to the information provided
to BH Services from Transamerica, however, BH Services
discovered that those employers, like BH Services, actually
were paying money into the comingled master group variable
universal life insurance policies owned by FCE and ACEC.
Id. Based upon these independent audit reports, BH
Services believes that it has an undisclosed amount of cash
sitting in participant accounts at Transamerica. Id.
independent audit reports also led BH Services to learn that
certain plan participants had their life insurance coverage
and other participant accounts in an FCE
“warehouse”. Id. ¶ 5.10. FCE failed
to disclose the existence of these “warehoused”
accounts to BH Services. Id. And because there has
been no accounting of these undisclosed
“warehoused” accounts, it appears that TMS, as
trustee for the Plan, allowed the accounts to be held by FCE
and ACEC individually rather than by the Plan. Id.
Services further discovered that neither FCE nor TMS could
account for the source of funds or benefit payments
associated with the Plan's health reimbursement account.
Id. ¶ 5.11. It appears that FCE used the cash
values from the Transamerica policies to provide unemployment
compensation and health reimbursement account benefits but
the premiums charged for those benefits by FCE and TMS were
in excess of the funding necessary to pay the amount of both
the actuarially predicted and the actual claims made.
Id. Because there has been no accounting, BH
Services is unaware of what FCE, TMS, and ACEC did with these
excess funds. Id.
the conflicting financial information that BH Services
uncovered, BH Services retained Ketel Thorstenson, LLP, to
conduct an independent audit of the Plan and the Plan's
assets. See Id. ¶¶ 1.07, 5.12. In October
2016, Ketel Thorstenson issued an adverse auditor's
report. Id. ¶¶ 1.07, 5.12. The adverse
auditor's report was issued because of FCE's and
TMS's refusal to provide support and documentation
regarding the Plan's asset transactions, the amount of
the cash values in the Transamerica policies, and the source
of funds or benefits paid from the health reimbursement
account in the Plan. Id. ¶¶ 1.07, 5.12.
Because the Transamerica policies are Plan assets, BH
Services contends that Transamerica has allowed these
insurance policies to be withheld from control of the Plan
and dissipated by excessive fees and charges. Id.
BH Services' receipt of Ketel Thorstenson's adverse
auditor's report, BH Services learned that the United
States Secretary of Labor has brought a lawsuit against FCE
and its owners. See Id. ¶ 5.13. This lawsuit,
Thomas E. Perez v. Chimes District of Columbia,
Inc., Civil Action No. RDB-15- 3315 (Chimes
litigation),  is pending in the United States District
Court for the District of Maryland. Id. In that
suit, the Secretary of Labor makes allegations against FCE
that are similar to the allegations against FCE in this
current dispute. Id.
10, 2016, BH Services filed a complaint 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 (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 Rule 15(a)(1)(B) of the Federal
Rules of Civil Procedure. See Docket 28. The first
amended complaint added ACEC and Transamerica as defendants.
Id. ¶¶ 2.05, 2.06.
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.
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.
responded to the first amended complaint on November 14,
2016, by filing a motion to dismiss counts six and seven for
a failure to state a claim and a motion to strike paragraph
5.13 of the first amended complaint, which references
FCE's involvement in the Chimes litigation.
Docket 33. FCE also has answered counts one through five of
the first amended complaint. Docket 37. Transamerica
responded to the first amended complaint on January 20, 2017,
by filing a motion to dismiss counts six and seven of the
first amended complaint for failure to state a claim, which
are the only two counts alleged against Transamerica. Docket
52. ACEC responded to the first amended complaint on February
2, 2017, by filing a motion to dismiss count
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 was
entered, TMS has moved to vacate the clerk's entry of
default. Docket 88. This motion is still pending.
may dismiss a complaint for “failure to state a claim
upon which relief can be granted.” Fed.R.Civ.P.
12(b)(6). Inferences are construed in favor of the nonmoving
party. Braden v. Wal-Mart Stores, Inc., 588 F.3d
585, 595 (8th Cir. 2009). “To survive a motion to
dismiss, a complaint must contain sufficient factual matter,
accepted as true, to ‘state a claim to relief that is
plausible on its face.' ” Ashcroft v.
Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl.
Corp. v. Twombly, 550 U.S. 544, 570 (2007)). “A
claim has facial plausibility when the plaintiff pleads
factual content that allows the court to draw the reasonable
inference that the defendant is liable for the misconduct
alleged.” Id. (citing Twombly, 550
U.S. at 556). In ruling on a motion to dismiss, courts can
also “consider ‘those materials that are
necessarily embraced by the pleadings.' ”
Hughes v. City of Cedar Rapids, 840 F.3d 987, 998
(8th Cir. 2016) (quoting Schriener v. Quicken Loans,
Inc., 774 F.3d 442, 444 (8th Cir. 2014)). “Those
materials include ‘documents whose contents are alleged
in a complaint and whose authenticity no party questions, but
which are not physically attached to the pleadings.'
” Id. (quoting Kushner v. Beverly Enters.,
Inc., 317 F.3d 820 (8th Cir. 2003)).
Rule of Civil Procedure 12(f) provides that a court
“may strike from a pleading an insufficient defense or
any redundant, immaterial, impertinent, or scandalous
matter.” Fed.R.Civ.P. 12(f). A court may act on its own
or “on motion made by a party either before responding
to the pleading or, if a response if not allowed, within 21
days after being served with the pleading.”
Fed.R.Civ.P. 12(f)(1)-(2). “Judges enjoy liberal
discretion to strike pleadings under Rule 12(f).”
BJC Health Sys. v. Columbia Cas. Co., 478 F.3d 908,
917 (8th Cir. 2007). “Despite this broad discretion
however, striking a party's pleadings is an extreme
measure, and, as a result, [the Eighth Circuit has]
previously held that ‘[m]otions to strike under
Fed.R.Civ.P. 12(f) are viewed with disfavor and infrequently
granted.' ” Stanbury Law Firm v. I.R.S.,
221 F.3d 1059, 1063 (8th Cir. 2000) (first alteration added)
(quoting Lunsford v. United States, 570 F.2d 221,
229 (8th Cir. 1977)); see also 5C Charles Alan
Wright & Arthur R. Miller, Federal Practice &
Procedure, § 1380 (3d ed. 1998) (observing that
courts infrequently grant and disfavor motions to strike due
to the drastic nature of the remedy and because motions to
strike are often used as a dilatory or harassing tactic).
Motions to Dismiss - ERISA Preemption
the motions to dismiss portions of the first amended
complaint filed by FCE, ACEC, and Transamerica, argue for
dismissal of either count six, count seven, or both on the
basis that the state-law causes of action alleged by BH
Services are preempted by ERISA. See Dockets 34, 53,
65. BH Services contends that counts six and seven of the
first amended complaint are not preempted by ERISA.
See Dockets 39, 74, 75.
have long recognized that “ERISA . . . is a
comprehensive statute that sets certain uniform standards and
requirements for employee benefit plans.” Ark. Blue
Cross & Blue Shield v. St. Mary's Hosp., Inc.,
947 F.2d 1341, 1343 n.1 (8th Cir. 1991) (Ark. BCBS).
“Congress enacted ERISA to regulate comprehensively
certain employee benefit plans and ‘to protect the
interests of participants in these plans by establishing
standards of conduct, responsibility, and obligations for
fiduciaries.' ” Prudential Ins. Co. of Am. v.
Nat'l Park Med. Ctr., Inc., 413 F.3d 897, 906-07
(8th Cir. 2005) (quoting Johnston v. Paul Revere Life
Ins. Co., 241 F.3d 623, 628 (8th Cir. 2001)). “
‘To meet the goals of a comprehensive and pervasive
Federal interest and the interests of uniformity with respect
to interstate plans, Congress included an express preemption
clause in ERISA for the displacement of State action in the
field of private ...