The Bd. of Trs. for the Alaska Carpenters Defined Contribution Tr. Fund v. Principal Life Ins. Co.

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THE BOARD OF TRUSTEES FOR THE ALASKA CARPENTERS DEFINED CONTRIBUTION TRUST FUND, Plaintiff, v. PRINCIPAL LIFE INSURANCE CO., an Iowa Company, Defendant.

No. 22-cv-01337

United States District Court, W.D. Washington, Seattle

November 3, 2023

ORDER ON MOTION TO DISMISS

JAMAL N. WHITEHEAD, UNITED STATES DISTRICT JUDGE.

1. INTRODUCTION

This is an ERISA case. Plaintiff The Board of Trustees for the Alaska Carpenters Defined Contribution Trust Fund (“The Board”) sues Defendant Principal Life Insurance Co. (“Principal Life”), alleging Principal Life breached its fiduciary duties and contract with the Board as the plan's former administrator. Dkt. No. 1. Principal Life moves to dismiss the complaint arguing the Board fails to state a claim. Dkt. No. 14. The Court disagrees and DENIES the motion as explained further below.

2. BACKGROUND

The facts below are taken from the Board's complaint, which the Court accepts as true on review of Principal Life's Rule 12(b)(6) motion. Bafford v. Northrop Grumman Corp., 994 F.3d 1020, 1024 (9th Cir. 2021) (citing Curtis v. Irwin Indus., Inc., 913 F.3d 1146, 1151 (9th Cir. 2019)).

The Alaska Carpenters Defined Contribution Trust Fund (“Trust”) is a trust fund that sponsors a multi-employer individual account or defined contribution plans for carpenters and their families. Dkt. No. 1 ¶ 1.1. The Board administers the Trust as its named fiduciary. Id. The Board consists of ten unpaid volunteers, and the Trust has no employees, so the Trust contracts with third-party administrators for its day-to-day operations like receipt of contributions, confirmation of contributions, enrollment and eligibility determinations, beneficiary record maintenance, financial accounting, and assistance with distributions. Id. ¶¶ 3.1-3.2.

In 2011, the Trust entered a Master Services Agreement with Wells Fargo Bank, N.A. for recordkeeping and administrative services, including recordkeeping of participant accounts, asset custody, trust fund reporting, processing distributions, and distribution of certain participant notices. Id. ¶ 3.3. The Board did not attach the Master Services Agreement to its Complaint. But it alleges that under the agreement, Wells Fargo would receive an annual fee of $55.00 per participant account, billed to the Board monthly. Id. ¶ 3.4. If the plan's investment managers paid the plan revenue sharing amounts, those amounts were to be deposited to a reserve account and used “pursuant to written direction to Wells Fargo.” Id.

The Trust and Wells Fargo amended the Master Services Agreement several times, including in 2014, 2015, 2020, and 2021. Id. ¶¶ 3.5-3.7. The amendments all dealt with how fees would be calculated and paid to Wells Fargo. In 2014, the Trust and Wells Fargo amended the Master Services Agreement “to add an asset-based fee between 10 basis points and 35 basis points to cover” various costs, including the Trust's third-party administrator, attorney, auditor, investment consultant, insurance, and “other plan-related expenses.” Dkt. No. 1 ¶ 3.5. Like the “revenue sharing amounts,” “the asset-based fee was to be paid to a reserve account and subsequently used to pay qualified plan expenses pursuant to written direction to Wells Fargo.” Id.

The Trust and Wells Fargo amended the Master Services Agreement again in January 2015. This time to change the “asset-based fee to a flat 20 basis point fee (inclusive of revenue sharing) ....” Id. ¶ 3.6. Additionally, Wells Fargo agreed “to create a separate reserve account for the revenue sharing amounts and directed that the asset-based fee be paid to this reserve account.” Id. The “fees and expenses described in the amendment ‘constitute[d] amounts payable to Wells Fargo Bank.'” Id. Despite repeated references in the Master Service Agreement and its various amendments to amounts payable to Wells Fargo, “the understanding and practice between the parties was that the asset-based fee was designated solely to pay plan expenses, other than Wells Fargo's fee.” Id. In other words, the Board alleges, at no time did Wells Fargo pay itself the asset-based fee.

Effective January 2020, the Trust and Wells Fargo amended the Master Services Agreement yet again. Id. ¶ 3.7 This amendment reduced the asset-based fee to 15 basis points and the account fee from $55 to $50 per participant. Id. “[T]he practice regarding the allocation and use of the asset-based fee remained unchanged” otherwise. Id.

In the meanwhile, Principal Life bought Wells Fargo's recordkeeping business in May 2019. At the time, Wells Fargo's Client Relationship Manager, Mark Thomas, informed the Board that the Trust “would be transitioning” to Principal Life and that Wells Fargo's fees would not change. Id. at ¶ 3.9. In February 2020, Thomas sent a written request to the Fund for its consent to assign “its Wells Fargo agreement to Principal.” Id. Thomas stated, “Except as specifically stated otherwise in the Consent, all terms and conditions of the Agreements, including amounts charge [sic] for any services, will remain the same at the time of the transfer to Principal.” Id. (emphasis in complaint).

About a year later, Thomas emailed the Trust's attorney, Frank Morales, about updating Wells Fargo's fee schedule for “AK Carpenters” and “chang[ing] the administrative procedures to combine the expense accounts” for the move to Principal Life. Id. ¶ 3.10. Thomas included “an agreement” with his email that did not include the “reserve account,” but “the remaining language in the agreement was largely unchanged.” Id.

Thomas and Morales also spoke on the telephone that day, with Thomas telling Morales that “Principal preferred to credit the revenue sharing amounts directly back to participant accounts rather than use them to offset plan expenses . . . [and] if the revenue sharing amount were paid back to plan participants there was no need to reference the reserve account in the agreement.” Id. ¶ 3.11. The Board further alleges that Thomas assured Morales “that proposed fee changes consisted solely of change to the revenue sharing and that the fees payable to Wells Fargo and to Principal, by assignment, were not increasing.” Id. ¶ 3.11.

On May 20, 2021, Morales provided the Board with the “requested amendment to the fee schedule.” Id. ¶ 3.12. The Board contends Morales “conveyed the information that Thomas told him, namely ‘This agreement is to clean-up some items in anticipation of the transition to Principal. The fees are not changing, other than that the rebates will no longer be used to pay for any administrative expenses.'” Id. Thomas did not inform the Trust or its advisors that Wells Fargo was increasing its fees. Id. ¶ 3.13.

The Trust went “live” on Principal Life's system on May 25, 2021, but the system immediately began to have “significant problems,” including failure to timely and correctly deposit contributions into participant accounts, failure to provide requested information on how the contribution correction was made or funded, failure to attend Board meetings or provide timely responses to the Trust's “numerous questions and concerns,” and failure to provide the Board information it needed “to complete its required annual audits.” Id. ¶ 3.14(a)-(h).

Ultimately, the Board terminated Principal's services on May 1, 2022. Id. at ¶ 3.15. The Trust's new recordkeeper, Milliman, informed the Trust that Principal had transferred the Trust's reserve account in the amount of $300,000 to “the Trust Fund's new custodial bank.” Id. ¶ 3.16. This amount was “significantly less than expected,” since the reserve account was previously reported to be around $800,000. Id. In response to the Trust's inquiry about the balance, Principal Life said it had not been paid its fees since May 2021, so it “'pulled fees owed at termination and collected all fees owed to date.'” Id. ¶ 3.17 (quotation unattributed). Principal Life provided Trust invoices on June 6, 2022, and itemized invoices on August 12, 2022. Id. The Board alleges that “Principal paid to itself not only the $50 per participant per account annual fee, but also the 15 basis point asset fee . . . Despite assurance that the fees would not change as a result of the transaction, the additional 15 basis point asset fee more than doubled the recordkeeping fee payable to Wells Fargo . . .” Id. ¶ 3.18.

3. ANALYSIS

3.1. Legal standards.

3.1.1. Motion to dismiss standard.

The Court will grant a motion to dismiss only if the complaint fails to allege “enough facts to state a claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). “A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citations omitted). The plausibility standard is less than probability, “but it asks for more than a sheer possibility” that a defendant did something wrong. Id. (citations omitted). “Where a complaint pleads facts that are ‘merely consistent with' a defendant's liability, it ‘stops short of the line between possibility and plausibility of ‘entitlement to relief.''” Id. (quoting Twombly, 550 U.S. at 557). In other words, a plaintiff must have pled “more than an unadorned, the-defendant-unlawfully-harmed-me accusation.” Id.

When considering a motion to dismiss, the Court accepts factual allegations pled in the complaint as true and construes them in the light most favorable to the plaintiff. Lund v Cowan, 5 F.4th 964, 968 (9th Cir. 2021). But courts “do not assume the truth of legal conclusions merely because they are cast in the form of factual allegations.” Fayer v. Vaughn, 649 F.3d 1061, 1064 (9th Cir. 2011) (citations...