Rozo v. Principal Life Ins. Co.

344 F.Supp.3d 1025

Frederick ROZO, Individually and on Behalf of All Others Similarly Situated, Plaintiff,

v.PRINCIPAL LIFE INSURANCE COMPANY, Defendant.

No. 4:14-cv-00463-JAJ

United States District Court, S.D. Iowa, Central Division.

Signed September 25, 2018

Christopher Thomas Micheletti, Pro Hac Vice, Heather Thompson Rankie, Pro Hac Vice, Zelle LLP, Jason H. Kim, Pro Hac Vice, Schneider Wallace Cottrell Konecky LLP, San Francisco, CA, J. Barton Goplerud, Brandon McCaull Bohlman, Shindler, Anderson, Goplerud & Weese PC, West Des Moines, IA, Garrett W. Wotkyns, Pro Hac Vice, Michael C. McKay, Pro Hac Vice, Schneider Wallace Cottrell Konecky LLP, Scottsdale, AZ, Mark T. Johnson, Pro Hac Vice, Todd M. Schneider, Pro Hac Vice, Schneider Wallace Cottrell Konecky Wotkyns LLP, Emeryville, CA, Nina R. Wasow, Pro Hac Vice, Todd Franklin Jackson, Pro Hac Vice, Feinberg, Jackson, Worthman & Wasow LLP, Berkeley, CA, Rory D. Zamansky, Pro Hac Vice, Zelle, LLP, Minneapolis, MN, for Plaintiff.

Angel Anna West, Nyemaster Goode PC, Des Moines, IA, Joel S. Feldman, Pro Hac Vice, Mark B. Blocker, Pro Hac Vice, Tara Azad Amin, Pro Hac Vice, Sidley Austin LLP, Chicago, IL, Kevin H. Collins, Nyemaster Goode PC, Cedar Rapids, IA, for Defendant.

ORDER

JOHN A. JARVEY, Chief judgeThis matter comes before the Court pursuant to Defendant Principal Life Insurance Company's April 20, 2018 Motion for Summary Judgment pursuant to Federal Rule of Civil Procedure 56. Dkt. No. 187. Principal also filed a Motion to Exclude Opinions and Testimony of Richard Kopcke. Dkt. No. 186. Plaintiff Frederick Rozo, individually and on behalf of all others similarly situated, filed a Resistance to the Motion for Summary Judgment and a Motion to Exclude Opinions and Testimony of Craig Merrill on May 15, 2018. Dkt. Nos. 193, 194. Principal filed a Reply to Rozo's Resistance and a Motion to Decertify the Class on June 4, 2018. Dkt. Nos. 206, 207. Rozo filed an Opposition to Principal's Motion to Decertify the Class on June 22, 2018. Dkt. No. 215. Principal filed a Reply to Rozo's Opposition on June 29, 2018. Dkt. No. 221. For the reasons that follow, Defendant's Motion for Summary Judgment is GRANTED as to Counts I, II, and III. Accordingly, Plaintiff's Motion to Exclude Opinions and Testimony of Craig Merrill, Defendant's Motion to Exclude Opinions and Testimony of Richard Kopcke, and Defendant's Motion to Decertify the Class are DENIED as moot .

I. STATEMENT OF UNDISPUTED MATERIAL FACTS¹

Plaintiff Frederick Rozo ("Rozo") resides in California and was employed by the Western Exterminator Company ("WEC").² During his employment, Rozo participated in the WEC Employees' 401(k) Profit Sharing Plan (the "Plan"), which allocated funds to the investment plan at issue in this lawsuit. Defendant Principal Life Insurance Company ("Principal") is an insurance company headquartered in Des Moines, Iowa. Principal offered a product called the Principal Fixed Income Option ("PFIO") to 401(k) plans. Participation in the PFIO is governed by a group annuity contract and incorporated schedules (the "Contract"). PFIO funds are deposited into Principal's general account, which is invested in bonds and fixed income instruments.

The PFIO is structured as a series of Guaranteed Interest Funds ("GIFs"). Every six months during the class period, Principal created a new GIF that accepted participants' deposits into the PFIO for the following six months.³ For each GIF, Principal declared in advance an applicable Guaranteed Interest Rate ("GIR").⁴ Accordingly, every six months during the class period, Principal issued a new PFIO schedule that related to and governed the new GIF. The interest rate credited to the participants is called the Composite Crediting Rate ("CCR"), and during the class period, Principal established a new CCR every six months, with effectivity dates of January 1 and July 1.⁵ The PFIO Contract describes, in words, the formula used for calculating the CCR.⁶ Participants are guaranteed to earn interest at the CCR for that six-month period—if Principal's general account performs at a rate of return less than the CCR, Principal will lose money by paying participants the CCR, but if the general account performs at a rate of return above the CCR, Principal will make money by retaining the "spread."⁷ Principal's ability to retain the spread is therefore dependent on participants' decision to invest in the PFIO.⁸ Principal notifies plan sponsors of the new CCR about 30 days in advance of the new effectivity date. Plan sponsors (also called "plan administrators") are required by law to notify participants of the new rate.⁹ If participants object to the new CCR, they can withdraw their monies subject to the terms described below.

The Contract governs the terms on which a plan or participant can withdraw from the PFIO.¹⁰ Participants are allowed to withdraw their money from the PFIO at any time and deposit it in another plan investment option without a contractual financial penalty, though transfers to Competing Plan Investment Options are subject to an equity wash.¹¹ The Contract defines equity wash as follows, "any transfers made from this Contract to a Competing Plan Investment Option must first be directed to a Plan Investment Option that is not a Competing Plan Investment Option. There will be a stated period of time before such amounts may be directed to a Competing Plan Investment Option."¹² During all relevant times, Principal set the equity wash period at 90 days. In the fourth quarter of 2008, Rozo transferred $9,395 out of the PFIO and immediately placed those funds in non-competing investment options. Plans are allowed to terminate their entire interest in the PFIO either by giving Principal 12-month advance notice or by paying a 5% surrender charge to receive their funds immediately. If the plan chooses to pay the 5% surrender charge, the plan sponsor makes the decision as to whether or not to pass that charge along to participants. The Contract and related schedules also describe the "stampede provision," which states that if a collection of participant withdrawals appear to have been motivated by plan sponsor action, Principal can impose the surrender charge on the plan sponsor.¹³ An inquiry into whether a stampede has occurred is triggered if participants representing 20% of the plan's interest in the PFIO withdraw within a three-month period and the plan has given notice of its intent to withdraw.¹⁴

Article I of the Contract covers basic definitions; Article II details the deposits and funds; Article III of the Contract sets forth a description of Principal's fees with reference to the associated schedules; Article IV covers benefits and other payments; and Article V describes limitations and termination.

Additional undisputed material facts are set forth below as needed.

II. LEGAL STANDARD FOR SUMMARY JUDGMENT

Federal Rule of Civil Procedure 56 provides that a "court shall grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." FED. R. CIV. P. 56(a) ; see also Med. Liab. Mut. Ins. Co. v. Alan Curtis L.L.C. , 519 F.3d 466, 471 (8th Cir. 2008) ; Kountze ex rel. Hitchcock Found. v. Gaines , 536 F.3d 813, 817 (8th Cir. 2008) ("[S]ummary judgment is appropriate where the pleadings, discovery materials, and any affidavits show that there is no genuine issue as to any material fact and that the movant is entitled to summary judgment as a matter of law."). In making this determination, the Court must examine the evidence in the light most favorable to the nonmoving party. See HDC Med., Inc. v. Minntech Corp. , 474 F.3d 543, 546 (8th Cir. 2007).

To survive a motion for summary judgment, a plaintiff must "set out specific facts showing a genuine issue for trial." FED. R. CIV. P. 56(e). "[A]n issue of material fact is genuine if the evidence is sufficient to allow a reasonable jury verdict for the nonmoving party." Great Plains Real Estate Dev., L.L.C. v. Union Cent. Life Ins., et al. , 536 F.3d 939, 944 (8th Cir. 2008) (internal citation omitted). "A genuine issue of fact is material if it ‘might affect the outcome of the suit under the governing law.’ " Saffels v. Rice , 40 F.3d 1546, 1550 (8th Cir. 1994) (internal citation omitted). " ‘[T]he substantive law will identify which facts are material.’ " Guinan v. Boehringer Ingelheim Vetmedica, Inc. , 803 F.Supp.2d 984, 993 (N.D. Iowa 2011) (quoting Anderson v. Liberty Lobby, Inc. , 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986) ). "The mere existence of a scintilla of evidence in support of the plaintiff's position will be insufficient; there must be evidence on which the jury could reasonably find for the plaintiff." Anderson , 477 U.S. at 252, 106 S.Ct. 2505.

III. OVERVIEW OF THE PARTIES' ARGUMENTS

A. Principal Life Insurance Company

Counts I and II of the First Amended Complaint allege that Principal breaches its fiduciary duty and engages in prohibited transactions under ERISA when it sets the fixed rate of return guaranteed to participants every six months. Count I states:

These breaches include but are not limited to the following: (a) setting the Guaranteed Interest Rate and/or Composite Guaranteed Rate for its own benefit rather than for the benefit of the Plans and participants; (b) setting the credited rate artificially low; (c) misrepresenting the extent to which the rate was "guaranteed;" (d) failing to disclose its retention of the spread; and (e) charging an excessive disclosed fee in addition to the undisclosed compensation from the spread.

Dkt. No. 67. Count II states:

Principal engaged in prohibited transactions in violation of ERISA § 406(b), 29 U.S.C. § 1106(b), by dealing with the Contract in its own interest or for its own account. Specifically, Principal set the credited rate to ensure its own profit rather than for the benefit of the Plans and participants, and set the rate artificially low.

Dkt....