Appeals court orders fiduciary breach case vs. Transamerica to be dismissed

The three-judge panel reversed a ruling by a U.S. District Court judge in Los Angeles.

A federal appeals court in Pasadena, Calif., ruled for Transamerica Life Insurance Co. and several affiliates against plaintiffs who alleged Transamerica violated fiduciary duties as a service provider.

In a complex case that dates back to 2011, the three-judge appeals court panel reversed a ruling by a U.S. District Court judge in Los Angeles that had supported the plaintiffs.

The lower court had refused most of Transamerica’s request that the case be dismissed. Transamerica attorneys had argued that the defendants weren’t fiduciaries under the terms of the Employee Retirement Income Security Act.

On Feb. 23, the 9th U.S. Circuit Court of Appeals reversed the lower court judge’s ruling on the motion to dismiss, vacated the judge’s granting of class-action status to plaintiffs and told the judge to dismiss the case.

“We simply conclude that when a service provider’s definitely calculable and non-discretionary compensation is clearly set forth in a contract with a fiduciary employer, collection of fees out of plan funds in strict adherence to that contractual term is not a breach of a provider’s fiduciary duty,” said the panel’s unanimous opinion by Circuit Judge Andrew D. Hurwitz.

Plaintiffs filed a nine-count complaint against Transamerica, and District Court Judge Dean D. Pregerson dismissed only two of the complaints in 2013.

In 2016, Mr. Pregerson ruled against Transamerica’s request to reconsider his decision in the case of Santomenno et al. vs. Transamerica Life Insurance Co. et al. The complaint was filed by current or former participants in two 401(k) plans — QualCare Alliance Networks Inc. Retirement Plan and Gain Capital Group LLC 401(k) Plan. Neither plan was cited as a defendant.

Plaintiffs argued that Transamerica had violated its fiduciary duties by offering certain investment options by Transamerica affiliates in a group annuity contract.

They also alleged that Transamerica failed to invest in the lowest-price shares, retained certain money from revenue sharing rather than distributing the amounts to participants and charged additional fees on top of investment management fees, according to court records.

Transamerica maintained that it wasn’t a fiduciary regarding the terms of its own compensation.

The appeals court agreed, noting that three other federal appeals courts “have held that a plan administrator is not an ERISA fiduciary when negotiating its compensation with a prospective customer.”

Robert Steyer is a reporter at InvestmentNews’ sister publication Pensions & Investments.