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BH Services Inc. v. FCE Benefit Administrators Inc.

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

June 28, 2018

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, AMERICAN COUNCIL OF ENGINEERING COMPANIES OF METROPOLITAN WASHINGTON, TRANSAMERICA LIFE INSURANCE COMPANY, Defendants.

          ORDER GRANTING IN PART AND DENYING IN PART MOTION TO DISMISS

          KAREN E. SCHREIER UNITED STATES DISTRICT JUDGE.

         On September 27, 2017, this court issued a memorandum opinion and order granting various motions to dismiss and denying a motion to strike. Docket 104. Specifically, the court dismissed the two state-law causes of action alleged against defendants, including Transamerica, because they were expressly preempted by the Employee Retirement Income Security Act of 1974 (ERISA). Id. Plaintiffs, BH Services, Inc. and the BH Services, Inc. Health and Welfare Plan (the Plan) (collectively, BH Services), filed a second amended complaint, in which BH Services alleged, among other allegations, four causes of action under ERISA against defendant Transmerica. Docket 120. Transamerica moves to dismiss all causes of action against it. Docket 129. BH Services opposes the motion to dismiss. Docket 137. For the reasons that follow, the court grants Transamerica's motion to dismiss count one but denies Transamerica's motion to dismiss counts three, four, and five.

         BACKGROUND

         For a more complete factual background regarding all defendants, the court refers to its previous memorandum opinion and order. See Docket 104. The current motion to dismiss only applies to defendant Transamerica, so the court will briefly provide a background of BH Services' allegations against Transamerica, construing facts pleaded in the second amended complaint as true.

         BH Services, a not-for-profit corporation based in Rapid City, South Dakota, is the sponsor, administrator, and named fiduciary of the Plan. Docket 120 ¶ 9. The Plan is an employee welfare benefit plan as defined by ERISA. Id. ¶ 10. BH Services hired defendant FCE as a third-party administrator for the Plan, and in this capacity FCE, as a plan fiduciary, exercised discretionary control or discretionary authority over Plan assets and services related to the Plan. Id. ¶ 11.

         FCE and its owners, Gary Beckman and Stephen Porter, told BH Services that contributions made to the Plan would be for the benefit of the Plan and its participants. Id. ¶ 23. BH Services believed it sponsored group term life insurance benefits but instead learned that the Plan participants had cash accounts in at least two group variable universal life insurance policies issued by Transamerica. Id. Beckman and Porter, the FCE owners, were also agents of Transamerica. Id.

         In 2016, BH Services requested information from Transamerica about the cash accounts for BH Services' Plan participants. Id. ¶ 24. Transamerica, in response, provided a spreadsheet showing that BH Services' participant accounts were comingled with 50 other employer accounts in the group variable universal life insurance policies. Id. The cash surrender value and assets of these insurance policies were controlled by Transamerica, and thus, Transamerica could access the built-up cash that accumulated in these insurance policies. Id. ¶ 25. And because the defendants hid the existence of these group permanent life insurance policies from BH Services, BH Services did not know about their access to the cash surplus. Id. BH Services also learned that the accounts for former BH Services employees were “warehoused” in accounts of FCE, but never returned to the Plan. Id. ¶ 29.

         Transamerica is an Iowa insurance company. Id. ¶ 14. BH Services alleges that Transamerica and the other defendants exercised discretionary control over the cash surplus by either charging excessive fees to the Plan or by taking the cash surplus. Id. ¶ 26. Additionally, Transamerica exercised control over the Plan assets by refusing to inform BH Services' Plan participants about the insurance policies and through its agents, Beckman and Porter, receiving commissions on the sale of the life insurance policies. Id. It is BH Services' position that these commissions are a prohibited form of self-dealing by Transamerica's agents. Id.

         BH Services alleges that through its exercise of discretionary authority or control over Plan assets, Transamerica is a Plan fiduciary under ERISA, Transamerica's actions breached its fiduciary duties, and such breaches caused damages to BH Services and the Plan. Id. ¶ 48. In addition to its claim for breach of fiduciary duty, BH Services brings three other causes of action against Transamerica: a request for an injunction, recovery of plan assets wrongfully dissipated, and attorney's fees and costs. See generally Docket 120. Transamerica moves to dismiss all four causes of action. Docket 129.

         LEGAL STANDARD

         A court 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). And “[w]hile a complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual allegations, ” the plaintiff must provide “more than labels and conclusions[.]” Twombly, 550 U.S. at 555. 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)).

         DISCUSSION

         I. Breach of Fiduciary Duty and Breach of Co-Fiduciary Duty

         To state a claim for breach of an ERISA fiduciary duty, the plaintiff must show that the defendant acted as a fiduciary, breached its fiduciary duty, and thereby caused a loss to the Plan. See Pegram v. Herdrich, 530 U.S. 211, 225-26 ...


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