ForUsAll, Inc. v. U.S. Dep't of Labor

691 F.Supp.3d 14

FORUSALL, INC., Plaintiff, v. UNITED STATES DEPARTMENT OF LABOR, et al., Defendants.

Case No. 22-cv-1551 (CRC)

United States District Court, District of Columbia

Signed August 29, 2023

David N. Levine, Kevin Liam Walsh, Samuel Levin, Edward Joseph Meehan, Groom Law Group Chartered, Washington, DC, for Plaintiff.

Christopher A. Eiswerth, U.S. Department of Justice, Washington, DC, for Defendants.

MEMORANDUM OPINION

CHRISTOPHER R. COOPER, United States District Judge

Last year, the Department of Labor ("Department") issued a Compliance Assistance Release that questioned the prudence of exposing 401(k) plan participants to investments in cryptocurrencies and reminded retirement plan sponsors of their fiduciary duties under the Employee Retirement Income Security Act of 1974 ("ERISA"), 88 Stat. 829, as amended, 29 U.S.C. § 1001 et seq. Plaintiff ForUsAll, Inc., which provides administrative and other services to retirement plans, claims that this Release harmed its pocketbook by prompting retirement plans to back out of discussions about partnering with ForUsAll to provide plan participants access to cryptocurrency investment options. Bringing this action under the Administrative Procedure Act ("APA"), 60 Stat. 237, as amended, 5 U.S.C. § 500 et seq., ForUsAll seeks a declaration that the Release was unlawful, an order vacating and setting it aside, and an injunction preventing the Department from applying it in any manner. None of this requested relief, however, appears likely to redress ForUsAll's alleged injury because ForUsAll fails to show that these actions would cause the third-party fiduciaries to renew their discussions or enter into the contemplated partnerships. Nor is the Release final agency action subject to judicial review. For these two reasons, the Court grants the Department's motion to dismiss.

I. Background

A. Legal Background

"ERISA is a comprehensive statute designed to promote the interests of employees and their beneficiaries in employee benefit plans," including retirement plans. Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 90, 103 S.Ct. 2890, 77 L.Ed.2d 490 (1983); see also 29 U.S.C. § 1101(a). To achieve this objective, ERISA "imposes participation, funding, and vesting requirements" on covered plans and "also sets various uniform standards, including rules concerning reporting, disclosure, and fiduciary responsibility." Shaw, 463 U.S. at 91, 103 S.Ct. 2890.

Fiduciary responsibilities serve a central role in this statutory scheme by ensuring that plan providers operate in participants' best interests. ERISA casts a wide net and imposes these fiduciary responsibilities not only on "named fiduciaries" of an employee benefit, see 29 U.S.C. § 1102(a), but on all actors who "render[ ] investment advice for a fee or other compensation" or have "any discretionary authority or discretionary responsibility in the administration of such plan," id. § 1002(21)(A). Each of these fiduciaries must act "with the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent man acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims." Id. § 1104(a)(1)(B). These duties are "derived from the common law of trusts," Tibble v. Edison Int'l, 575 U.S. 523, 528, 135 S.Ct. 1823, 191 L.Ed.2d 795 (2015) (citation omitted), and courts "have often called [them] the highest known to the law." Stegemann v. Gannett Co., 970 F.3d 465, 469 (4th Cir. 2020) (citation and quotation marks omitted). Particularly relevant here, fiduciaries have a "duty to exercise prudence in selecting investments at the outset" as well as "a continuing duty to monitor trust investments and remove imprudent ones." Tibble, 575 U.S. at 529, 135 S.Ct. 1823.

How these duties play out in practice depends on the employee benefit plan in question. Employee retirement plans come in two forms. Defined-benefit plans operate like traditional pension plans and pay out from an account that the participating employee does not control. See 29 U.S.C. § 1002(35). Defined-contribution plans, by contrast, allow "participating employees [to] maintain individual investment accounts, which are funded by pretax contributions from the employees' salaries and, where applicable, matching contributions from the employer." Hughes v. Nw. Univ., 595 U.S. 170, 142 S. Ct. 737, 740, 211 L.Ed.2d 558 (2022); see also 29 U.S.C. § 1002(34). "Each participant chooses how to invest her funds . . . from the menu of options selected by the plan [fiduciaries]," and the "performance of her chosen investments, as well as the deduction of any associated fees, determines the amount of money the participant will have saved for retirement." Hughes, 142 S. Ct. at 740. Providers of defined-contribution plans must "conduct their own independent evaluation to determine which investments may be prudently included in the plan's menu of options." Id. at 742.

Whether any similar duties apply to investment options that plan providers offer through "brokerage windows" is less settled. "A brokerage window allows participants to invest their account balances held within a self-directed retirement plan in a variety of investments beyond the menu of designated investment alternatives offered directly by the plan." Advisory Council on Emp. Welfare & Pension Benefit Plans, Understanding Brokerage Windows in Self-Directed Retirement Plans 7 (2021), https://www.dol.gov/sites/dolgov/files/EBSA/about-ebsa/about-us/erisa-advisory-council/2021-understanding-brokerage-windows-in-self-directed-retirement-plans.pdf. Plan providers, of course, "may restrict the types of investment options or even exclude specific investments within a type of investment option" offered through their brokerage windows. Id. (emphasis added). But the Labor Department has wavered on whether they have any affirmative obligation to do so, see id. at 8, leaving that question unanswered for now, see Moitoso v. FMR LLC, 451 F. Supp. 3d 189, 207 (D. Mass. 2020) ("[I]n the absence of other regulations explicitly imposing such a duty, [the court] is hesitant to state unequivocally that there either is, or is not, a fiduciary responsibility to monitor self-directed brokerage accounts."); but see Understanding Brokerage Windows, supra at 47 (advising that, "except perhaps in extraordinary circumstances," there is no duty to monitor the brokerage windows).

If a plan fiduciary breaches its duties, plan participants may sue to "recover benefits due to [them] under the terms of [the] plan, to enforce [their] rights under the terms of the plan, or to clarify [their] rights to future benefits under the terms of the plan." 29 U.S.C. § 1132(a)(1)(B). The Secretary of Labor also has the power to initiate civil actions against entities for breaching their duties. See id. § 1132(a)(2). Additionally, the Secretary is authorized to investigate plan providers to ensure their compliance with ERISA. See id. § 1134(a).

B. Factual and Procedural Background

In March 2022, President Biden issued Executive Order No. 14067 in response to the dramatic rise of digital assets, such as cryptocurrencies. See Exec. Order No. 14067, Ensuring Responsible Development of Digital Assets, 87 Fed. Reg. 14143 (Mar. 9, 2022). The Executive Order declared that the United States government "must take strong steps to reduce the risks that digital assets could pose to consumers, investors, and business protections" and advised agencies to take appropriate actions to regulate the industry. Id. at 14143.

That same month, the Labor Department's Employee Benefits Security Administration ("EBSA") issued a Compliance Assistance Release entitled "401(k) Plan Investments in 'Cryptocurrencies.' " See Mot. to Dismiss, Ex. A at 1. The Release "caution[ed] plan fiduciaries to exercise extreme care before they consider adding a cryptocurrency option to a 401(k) plan's investment menu for plan participants." Id. at 1. The Release then identified several reasons why such caution was warranted in this area. In particular, the Release expressed concerns about cryptocurrency investments' "[e]xtreme volatility" due to "the many uncertainties associated with valuing these assets, speculative conduct, the amount of fictitious trading reported, [and] widely published incidents of theft and fraud." Id. at 2. It also commented on the significant regulatory risks, observing that "[r]ules and regulations governing the cryptocurrency markets may be evolving" and cautioning that "some market participants may be operating outside of existing regulatory frameworks or not complying with them." Id. at 3. On top of these market and regulatory uncertainties, the Release warned that plan participants enticed by the "hype" and "potential for outsized profits" may not have "sufficient knowledge about these investments." Id. at 2. Under these conditions, EBSA cautioned that fiduciaries may "lead plan participants astray and cause losses" by offering cryptocurrency options and thereby "effectively tell[ing] the plan's participants that knowledgeable investment experts have approved the cryptocurrency option as a prudent option for plan participants." Id. at 2. The Release concluded by notifying plans that the Department "expects to conduct an investigative program" into cryptocurrency investments and intends "to take appropriate action to protect the interests of plan participants and beneficiaries with respect to these investments" and by remarking that fiduciaries "responsible for overseeing such investment options or allowing such investments through brokerage windows should expect to be questioned about how they can square their actions with their duties of prudence and loyalty in light of the risks described above." Id. at 3.

Three months later, ForUsAll filed suit against the Department and Secretary of Labor Martin Walsh in his official capacity. The complaint alleges that ForUsAll is in the...