Roton v. Peveto Fin. Grp.

649 F.Supp.3d 300

Robert ROTON and Jacqueline Juarez, Plaintiffs, v. PEVETO FINANCIAL GROUP, LLC and Legacy Counseling Center, Inc., Defendants.

Civil Action No. 3:20-cv-3569-X

United States District Court, N.D. Texas, Dallas Division

Signed December 29, 2022

Jon Azano, Fee Smith Sharp & Vitullo LLP, Dallas, TX, Anthony L. Vitullo, The Vitullo Law Firm, Dallas, TX, for Plaintiffs.

Andrew Richard Harvin, Arman Ghassem Nikkhoo, Doyle Restrepo Harvin & Robbins LLP, Houston, TX, Will Stuart Montgomery, WMontgomery Law Group PLLC, Dallas, TX, for Defendant Peveto Financial Group LLC.

Robert John Bogdanowicz, III, Whitney Lee Warren, Burke Bogdanowicz PLLC, Dallas, TX, Jeremy Thomas Tufnell, Yale Law Group PLLC, Denton, TX, for Defendant Legacy Counseling Center Inc.

MEMORANDUM OPINION AND ORDER

BRANTLEY STARR, UNITED STATES DISTRICT JUDGE

Robert Roton and Jacqueline Juarez ("Plaintiffs") brought this Employee Retirement Income Security Act ("ERISA") action against Peveto Financial Group, LLC ("Peveto") and Legacy Counseling Center, Inc. ("Legacy") (collectively, "Defendants"). Before the Court are eight pending motions.

After careful consideration, and for the reasons below, the Court GRANTS IN PART AND DENIES IN PART Peveto's motion for judgment on the pleadings. [Doc. No. 56]. The Court DENIES Peveto's motion to exclude the expert testimony of Brett N. Fry [Doc. No. 34] and GRANTS IN PART AND DENIES IN PART Peveto's motion to exclude the expert testimony of Kathleen R. Barrow. [Doc. Nos. 33 & 38]. The Court GRANTS Legacy's motion for summary judgment [Doc. No. 36] and DENIES Peveto's motion for summary judgment. [Doc. No. 31]. The Court DISMISSES Peveto's motion to strike [Doc. No. 50] and STRIKES Plaintiffs' jury demand. Finally, the Court DISMISSES AS MOOT Peveto's motion for a hearing on these motions. [Doc. No. 52].

I. Background

Legacy has offered its employees a 403(b) plan ("the Plan") at least since 2010. A 403(b) plan—like its more popular cousin, the 401(k) plan—allows participating employees to save for their retirements on a tax-deferred basis and may also provide benefits such as employer-matching contributions.¹ Peveto set up the 403(b) plans for Legacy's employees, which were invested in American Funds accounts.

Plaintiffs allege they "were never provided with any meaningful opportunity to participate in the [ ] Plan" and "were never fully apprised of [t]he Plan, its details, its tax advantages[,] and other benefits."² Instead, they allege, Legacy only offered the Plan to its "high-level officers."³

Plaintiffs sued Legacy and Peveto, bringing two causes of action under ERISA.⁴

First, Plaintiffs seek "to recover benefits due to [them] under the terms of [their] 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" under 29 U.S.C. § 1132(a)(1)(B). Specifically, Plaintiffs allege "that Defendants violated ERISA by [restricting] utilization of [t]he Plan, including the lack of a written plan document and the failure to comply with ERISA's universal availability requirement."⁵ To remedy this alleged violation, Plaintiffs seek "damages in the form of benefits due to Plaintiffs" and "an injunction against any act or practice which violates ERISA or the terms of [t]he Plan."⁶

Second, Plaintiffs allege breach of fiduciary duty under 29 U.S.C. § 1132(a)(2), claiming that Defendants owed "fiduciary duties arising out of their roles as sponsor, provider, administrator[,] and/or third-party administrator exercising control and/or ownership over the assets, and as trustee."⁷ Further, Plaintiffs continue, Peveto acted as a fiduciary by "exercis[ing] control and authority over the management of Plan assets" and "determining who would be eligible for [t]he Plan."⁸ And Plaintiffs conclude that Defendants breached their fiduciary duties by failing to ensure the Plan had a governing document and that it "satisfied the universal availability requirement."⁹

II. Analysis

A. Peveto's Motion for Judgment on the Pleadings

Peveto's motion for judgment on the pleadings, filed under Federal Rule of Civil Procedure 12(c), "is subject to the same standards as a motion to dismiss under Rule 12(b)(6)."¹⁰ The Court will "accept[ ] all well-pleaded facts as true and view[ ] those facts in the light most favorable to" Plaintiffs.¹¹ Peveto's motion brings two arguments, which the Court addresses in turn.

i. Standing

Peveto first argues that Plaintiffs lack statutory standing to bring their claim for breach of fiduciary duty under ERISA because ERISA only permits recovery "with respect to a plan" and not for individual employees like Plaintiffs.¹² Peveto states that the Supreme Court, in Massachusetts Mutual Life Insurance Company v. Russell, ruled that "Congress did not intend [ERISA's breach of fiduciary duty statute] to authorize any relief except for the plan itself" because ERISA's "draftsmen were primarily concerned with the possible misuse of plan assets" and not "with the rights of an individual beneficiary."¹³ But about twenty years later, the Supreme Court delineated Russell's parameters in LaRue v. DeWolff, Boberg & Associates, Inc.: "Russell's emphasis on protecting the 'entire plan' from fiduciary misconduct reflects the former landscape of employee benefit plans. That landscape has changed."¹⁴

The new landscape the Supreme Court mapped out in LaRue arose when one common retirement plan gave way to another. In the days of ERISA's enactment, and when the Supreme Court decided Russell, "the [defined benefit] plan was the norm of American pension practice," but LaRue recognized that "[d]efined contribution plans dominate the retirement plan scene today."¹⁵ A 403(b) retirement plan is a "defined contribution plan"¹⁶—the subject of LaRue—which means it consists of employee or employer contributions that are invested on a participating employee's behalf.¹⁷ It is not a "defined benefit plan"—the subject of Russell—which guarantees a specified monthly payout starting at retirement.¹⁸ The difference between these two retirement plans can be "[o]f decisive importance"—and that is precisely the situation here.¹⁹

This dispute is about a 403(b) retirement plan, so LaRue—not Russell—governs the analysis. But Peveto's motion never so much as utters the word "LaRue." This omission is inexplicable given the Supreme Court's direct admonition: "[O]ur references to the 'entire plan' in Russell . . . are beside the point in the defined contribution context."²⁰ Plaintiffs allege they were excluded from a defined contribution plan and seek to recover for individual losses resulting from Peveto's alleged breach of fiduciary duty. LaRue makes clear that they have standing to do so. The Court DENIES Peveto's motion for judgment on the pleadings as to its argument that Plaintiffs lack standing.

ii. Extracontractual Damages

Peveto's motion next alleges that Plaintiffs impermissibly seek extracontractual damages, which are "[d]amages that would give a beneficiary more than he or she is entitled to receive under the strict terms of the plan."²¹ According to their complaint, Plaintiffs seek three categories of damages: (1) "the missed elective deferral contribution," (2) "the mandatory corrective [Internal Revenue Service ('IRS')] earnings calculation associated with such contributions," and (3) "a lost opportunity cost associated with being denied the opportunity to invest their funds in [t]he Plan," which prevented them from "realiz[ing] the market gains on such earnings."²² Peveto characterizes the latter two categories of damages as extracontractual and therefore barred by binding caselaw.²³

First, Plaintiffs' request for damages according to the "corrective IRS earnings calculation associated with [missed elective deferral] contributions"²⁴ is invalid because such damages would be extracontractual. As Plaintiffs' response to Peveto's motion to dismiss makes clear, the "calculation" Plaintiffs invoke is derived from the Employee Plans Compliance Resolution System ("EPCRS"), a publication of the IRS that "enables employers to self-correct operational errors" in retirement plans "in order to avoid sanctions and tax consequences the IRS would otherwise be authorized to impose."²⁵ This prophylactic measure is a "comprehensive system of correction programs for sponsors of retirement plans," including 403(b) plans.²⁶ But the EPCRS calculations do not describe a benefit contained in the Plan, so they do not describe a benefit Plaintiffs may seek in this suit.²⁷

If Plaintiffs are correct that they were improperly excluded from the Plan, then the Plan sponsor might have followed the EPCRS procedures to correct this mistake, which would have included paying Plaintiffs according to the corrective earnings calculations Plaintiffs cite. But it did not do so, and that ship has sailed. The corrective payment Plaintiffs demand is not a remedy guaranteed by law. It appears in the IRS guidelines so plan sponsors can correct missed elective deferrals before suit is filed, and it serves to avoid enforcement actions like this one. Section 1132(a)(1)(B) is "the appropriate remedy" when "a beneficiary simply wants what was supposed to have been distributed under the plan."²⁸ That is not the case here: EPCRS remedies are not part of the Plan, so they're extracontractual. Accordingly, the Court finds that Plaintiffs are not entitled to seek such damages and GRANTS Peveto's motion for judgment on the pleadings as to Plaintiffs' demand for the "corrective IRS earnings calculation" for any missed elective deferrals.²⁹

Guided by the same reasoning, the Court also finds invalid Plaintiffs' request for damages for "lost opportunity cost[s]" in the form of missed "market gains" on funds they would have invested in the Plan.³⁰ The only Plan benefits Plaintiffs describe in their complaint are elective deferral contributions, and the Court will not step beyond the complaint to assume the Plan also promised...