Santomenno v. Transamerica Life Ins. Co.

JACLYN SANTOMENNO; KAREN POLEY; BARBARA POLEY, Plaintiffs, v. TRANSAMERICA LIFE INSURANCE COMPANY; TRANSAMERICA INVESTMENT MANAGEMENT, LLC;TRANSAMERICA ASSET MANAGEMENT INC., Defendants.

Case No. CV 12-02782 DDP (MANx)

UNITED STATES DISTRICT COURT CENTRAL DISTRICT OF CALIFORNIA

May 13, 2016

ORDER DENYING DEFENDANTS' MOTION FOR RECONSIDERATION AND CERTIFYING QUESTIONS FOR INTERLOCUTORY REVIEW UNDER 28 U.S.C. § 1292(b)

[Dkt. No. 395]

Presently before the Court is Defendants' Motion for Reconsideration. (Dkt. No. 395.) After hearing oral argument and considering the parties' submissions, the Court adopts the following Order.

I. BACKGROUND

The facts of this case are well-known to the Court and the parties as recounted in the Court's Order Granting Class Certification. (Order, Dkt. No. 393.) After the Court certified two classes in this case, Defendants have filed this Motion for Reconsideration.

II. LEGAL STANDARD

Under Federal Rule of Civil Procedure 60(b), a party may seek reconsideration of a final judgment or court order for any reason that justifies relief, including:

(1) mistake, inadvertence, surprise, or excusable neglect;

(2) newly discovered evidence that, with reasonable diligence, could not have been discovered in time to move for a new trial under Rule 59(b);

(3) fraud (whether previously called intrinsic or extrinsic), misrepresentation, or misconduct by an opposing party;

(4) the judgment is void;

(5) the judgment has been released or discharged; it is based on an earlier judgment that has been reversed or vacated; or applying it prospectively is no longer equitable; or

(6) any other reason that justifies relief.

Fed. R. Civ. P. 60(b)(1)-(6).¹

Central District of California Local Rule 7-18 further explains that reasons to support a motion for reconsideration include:

(a) a material difference in fact or law from that presented to the Court . . . that . . . could not have been known to the party moving for reconsideration at the time of such decision, or (b) the emergence of new material facts or a change of law occurring after the time of such decision, or (c) a manifest showing of a failure to consider material facts presented to the Court before such decision.

C.D. Cal. L.R. 7-18. A motion for reconsideration may not, however, "in any manner repeat any oral or written argument made in support of or in opposition to the original motion." Id.

III. DISCUSSION

Defendants raise four arguments in their Motion for Reconsideration:

(1) The Court committed clear error in ignoring Department of Labor ("DOL") regulations and binding case law holding that a prohibited transaction under 29 U.S.C. § 1106(b) only occurs when a fiduciary "uses the authority that makes it a fiduciary to cause the transaction at issue." (Mot. Reconsideration, Dkt. No. 395, at 1 (emphasis removed).) As Defendants state, "the Court erred in concluding that TLIC engaged in [prohibited transactions] by honoring its clients' directions to place plan assets in pooled separate accounts and to withdraw agreed-upon annual fees." (Id.)

(2) The court committed clear error in holding that, for purposes of class certification, the "reasonablecompensation" exemption in 29 U.S.C. § 1108(b)(8) does not apply when a fiduciary withdraws such compensation from assets placed in investment vehicles even where independent plan fiduciaries agree to such an arrangement. (Id.) Further, Defendants claim that the Court "neglected ample record evidence that no pooled investment vehicle in the industry levies its fees in any other fashion." (Id.)

(3) The Court committed clear error and manifestly failed to consider material facts that show that the determination of profits that TLIC gained from each plan is plan-specific. Thus, individual issues predominate in determining damages, which cuts against class certification because Plaintiffs seek disgorgement of profits as a remedy for the prohibited transaction classes. (Id.)

(4) The Court committed clear error and manifestly failed to consider material facts in certifying the TIM and TAM classes because the Court did not consider the predominance requirement or the facts in the record that any fees — whether charged by TLIC or TIM and TAM — are charged as a total, bundled product offering and thus are subject to individualized defenses. (Id. at 1-2.) When examined as a total fee, "there is overwhelming evidence in the record establishing that such defenses aredependent on plan-specific proof" and thus fail the predominance analysis. (Id.)

1. Court's Holding that 29 U.S.C. § 1106 Forbids TLIC from Directly Withdrawing its Fees from Plan Assets

The Court's prior Order held that the Prohibited Transaction classes were certifiable because 29 U.S.C. § 1106(b), as applied in the Ninth Circuit cases Patelco and Barboza, forbids a fiduciary from taking the fiduciary's fee from the assets over which it exercises its fiduciary duties — even where an independent fiduciary accepts or contracts to allow such a taking. (Order, Dkt. No. 393, at 23-34.) The Court noted that causation did not appear to be a requirement in the § 1106(b) part of the statute, in contrast to § 1106(a) that explicitly states a causation requirement. (Id. at 24-25.) The Ninth Circuit in Barboza also did not discuss causation in its analysis of a fiduciary administrator's practice of taking agreed-upon fees directly from the plan assets it was administering. Barboza v. Cal. Ass'n of Prof'l Firefighters, 799 F.3d 1257, 1269-70 (9th Cir. 2015).

Defendants argue that the Court failed to address 29 C.F.R. § 2550.408b-2(e)(2) in its Order and that this regulation shows that causation is required for a § 1106(b)(1) prohibited transaction:

(2) Transactions not described in section 406(b)(1). A fiduciary does not engage in an act described in section 406(b)(1) of the Act if the fiduciary does not use any of the authority, control or responsibility which makes such person a fiduciary to cause a plan to pay additional fees for a service furnished by such fiduciary or to pay a fee for a service furnished by a person in which such fiduciary has an interest which may affect the exercise of such fiduciary's best judgment as a fiduciary.

This may occur, for example, when one fiduciary is retained on behalf of a plan by a second fiduciary to provide a service for an additional fee.

However, because the authority, control or responsibility which makes a person a fiduciary may beexercised "in effect" as well as in form, mere approval of the transaction by a second fiduciary does not mean that the first fiduciary has not used any of the authority, control or responsibility which makes such person a fiduciary to cause the plan to pay the first fiduciary an additional fee for a service. See paragraph (f) of this section.

29 C.F.R. § 2550.408b-2(e)(2) (paragraphing added). Paragraph (f) provides examples of prohibited and acceptable transactions.

Defendants also cite Wright v. Oregon Metallurgical Corp., 360 F.3d 1090, 1100-01 (9th Cir. 2004) in support, quoting the Ninth Circuit quoting Lockheed Corp. v. Spink, 517 U.S. 882, 888 (1996): "Lockheed specifically states that to establish liability under § 1106, a party must prove that 'a fiduciary caused the plan to engage in the allegedly unlawful transaction.'" The Ninth Circuit in Wright then held that the party at issue in that case was not a fiduciary, which defeated the prohibited transaction claim. Wright, 360 F.3d at 1101. In Lockheed, the Court was only analyzing § 1106(a), which was also the primary focus in Wright.

Defendants also cite Acosta v. Pacific Enterprises, 950 F.2d 611, 621 (9th Cir. 1991), which did address a § 1106(b)(1) claim. There, the Ninth Circuit held that the plaintiff had not alleged sufficient facts at summary judgment to support a claim that the defendant had committed a prohibited transaction. Id. The holding that Defendants here focus on is:

All fiduciaries have the inherent power that would enable them to deal with the assets of ERISA plans for their own benefit or account. However, we know of no rule that permits a plaintiff to bootstrap a claim for the actual commission of a wrong merely by alleging that the defendant has the power to commit it. In order to state a claim for self-dealing under ERISA, [Plaintiff] Acosta must demonstrate that [Defendant] Pacific Enterprises actually used its power to deal with the assets of the plan for its own benefit or account.

Id. The plaintiff in Acosta had argued that the defendant's "inherent power to use the participant-shareholder list to its benefit" was the self-dealing transaction "because such a power 'has a continuing deterrent effect on anyone considering whether to oppose management in corporate elections.'" Id. The facts in Acosta did not involve the question of whether a fiduciary paying itself fees from the assets over which it exercises its fiduciary control is a self-dealing transaction.

This case does not involve § 1106(a), which is why the Court did not find Wright or Lockheed to provide the answer regarding causation in its prior analysis. However, the Court did not consider the regulation or Acosta in its Order. Considering them now, the Court finds that as alleged in the Complaint and argued in the certification briefing, TLIC used the "authority, control [and] responsibility" over plan assets that makes it a fiduciary "to cause [the] plan[s] to pay additional fees for a service furnished by such fiduciary," namely, the allegedly excessive fees charged for TLIC's services as well as the allegedly excessive fees charged by TIM and TAM for their services through TLIC. Further, TLIC used the "authority, control [and] responsibility" that made it a fiduciary to pay itself out of the plan assets over which it exercises that authority, control, and responsibility, which is a per se prohibited transaction.

Defendants also argue that beyond the causation issue, the Court committed clear error in its understanding of § 1106(b) transactions. Defendants argue...