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Sims v. BB&T Corp.

United States District Court, M.D. North Carolina

June 26, 2018

ROBERT SIMS, et al., Plaintiffs,
v.
BB&T CORPORATION, et al., Defendants.

          MEMORANDUM OPINION AND ORDER

          Catherine C. Eagles, District Judge.

         In this ERISA action, the plaintiffs have sued the defendants alleging that they breached their fiduciary duties to the BB&T 401(k) Savings Plan and engaged in prohibited transactions in connection with fees and investment options. The defendants have moved for partial summary judgment. The motion will be granted in part and denied in part.

         FACTUAL BACKGROUND

         In 1982, BB&T Corporation established the BB&T Corporation 401(k) Savings Plan. Doc. 315-1 at 8. Eligible BB&T employees can contribute some of their compensation to personal retirement accounts invested through the Plan. Doc. 315-1 at 28-37. The Plan is a Defined Contribution Plan under ERISA. Doc. 315-7 at 5.

         The Plan offers participants a number of investment options including stock mutual funds, bond funds, and a guaranteed interest option called the Bank Investment Contract. See, e.g., Doc. 315-6 at 12-14 (2009 options); Doc. 315-7 at 13-15 (2012 options); Doc. 315 at ¶¶ 33-34. It also gives participants the option to use a self-directed brokerage account with TD Ameritrade. Doc. 315-7 at 15; Doc. 315 at ¶ 21. Participants decide how to allocate their contributions among the Plan's investment options and may move their investments to other options at any time. Doc. 315-2 at 11-12.

         The Plan's governing document establishes a Compensation Committee, members of which are Plan fiduciaries. Doc. 315-1; Doc. 315-2 at 19-21. The Compensation Committee is responsible for “adopt[ing] an investment policy statement” for the Plan and “determin[ing] from time to time the investment funds to be made available to participants.” Doc. 315-2 at 20. The Compensation Committee engages a consultant to assist it in evaluating the types of investments options to offer Plan participants. See Doc. 315 at ¶ 13; Doc. 315-4.

         BB&T and its affiliates, including Sterling Capital Management, offer mutual funds and other proprietary investment options to the Plan, as well as to other retirement plans, pension funds, and customers.[1] Until 2007, the Plan offered only investment options from BB&T or its affiliates. Doc. 328-35 at 36 (consultants 2007 investment review). Non-proprietary funds were added to the Plan beginning in 2007, see Doc. 315 at ¶ 18, but many proprietary mutual funds remain as Plan options. See, e.g., Doc. 315 at ¶ 34; Doc. 315-7 at 13-15 (2012 options). These funds-proprietary and otherwise- generally charge the Plan fees for their services. See, e.g., Doc. 328-8 at 11 (May 2012 report showing fees paid from the Plan to proprietary and non-proprietary funds).

         LEGAL STANDARD

         Summary judgment is appropriate if “there is no genuine issue as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a). A genuine issue exists only when “the evidence is such that a reasonable jury could return a verdict for the nonmoving party.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). “Only disputes over facts that might affect the outcome of the suit under the governing law will properly preclude the entry of summary judgment. Factual disputes that are irrelevant or unnecessary will not be counted.” Id.

         The moving party has the initial burden of demonstrating the absence of any material issue of fact. Ruffin v. Shaw Indus., Inc., 149 F.3d 294, 300-01 (4th Cir. 1998) (per curiam) (citing Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986) and Liberty Lobby, 477 U.S. at 248-49).[2] Once the moving party meets its initial burden, the non-moving party must come forward with evidentiary material demonstrating the existence of a genuine issue of material fact requiring a trial. Id.

         The Court will construe the evidence and all reasonable inferences in favor of the plaintiff, the non-moving party. United States v. Diebold, Inc., 369 U.S. 654, 655 (1962) (per curiam). The Court has reviewed the evidence referenced in the parties' briefs, but it has not scoured the record to locate support for factual assertions in the briefs that are not accompanied by a citation to evidence. See Ritchie v. Glidden Co., 242 F.3d 713, 723 (7th Cir. 2001); see also Cray Commc'ns, Inc. v. Novatel Comp. Sys., Inc., 33 F.3d 390, 396 (4th Cir. 1994) (noting that the district court is “well within its discretion in refusing to ferret out the facts that counsel had not bothered to excavate”).

         ANALYSIS

         I. Statute of limitations

         ERISA requires that a plaintiff bring suit within the earlier of six years of the breach or violation or three years after a plaintiff has actual knowledge of the breach or violation. 29 U.S.C. § 1113(1), (2) (West, Westlaw through P.L. 115-185). This lawsuit was filed on September 4, 2015. Doc. 1.[3]

         The defendants move for partial summary judgment as to all claims based on acts or omissions occurring more than six years before suit was filed, Doc. 322 at 10, and as to all claims relating to investment expenses incurred and performance issues arising more than three years before suit was filed. Id. at 10-11.

         A. Acts or omissions before September 3, 2009

         Section 103 provides “that in the case of fraud or concealment, such action may be commenced not later than six years after the date of discovery of such breach or violation.”[4] 29 U.S.C. § 1113.[5] The Supreme Court also has stated that courts should read the fraudulent concealment tolling doctrine into every federal statute of limitation, Supermarket of Marlinton, Inc. v. Meadow Gold Dairies, Inc., 71 F.3d 119, 122 (4th Cir. 1995) (citing Holmberg v. Armbrecht, 327 U.S. 392, 397 (1946)), and the Fourth Circuit has noted in an unpublished opinion that ERISA's fraud or concealment provision “encompasses at a minimum” the common law fraudulent concealment doctrine. Browning v. Tiger's Eye Benefits Consulting, 313 Fed.Appx. 656, 663 (4th Cir. 2009). The plaintiffs have the burden of proof to establish that the statute of limitation should be tolled by fraudulent concealment. See, e.g., Supermarket of Marlinton, 71 F.3d at 122.

         To toll the statute of limitations under the fraudulent concealment doctrine to allow claims based on acts or omissions occurring more than six years ago, the plaintiffs must show (1) that defendants engaged in fraud or a course of conduct designed to conceal evidence of their alleged wrongdoing and (2) that the plaintiffs were not on actual or constructive notice of that evidence, despite (3) their exercise of diligence. See SD3 II LLC v. Black & Decker (U.S.) Inc., 888 F.3d 98, 108 (4th Cir. 2018); Supermarket of Marlinton, 71 F.3d at 122; see also Browning, 313 Fed.Appx. at 663 (noting that “when the defendant acts to prevent or delay the plaintiff's discovery of the breach, ” the statute of limitations is tolled “until the plaintiff in the exercise of reasonable diligence discovered or should have discovered the alleged fraud or concealment”).

         The plaintiffs contend that the statute of limitations should be tolled because the defendants had a duty to provide information to Plan participants, the defendants did not disclose this information, and the information contained “facts that would have alerted [the] participants that BB&T had breached its duties through self-dealing.” Doc. 327 at 23-24. The plaintiffs have not identified evidence in support of these contentions sufficient to create a disputed question of material fact as to fraudulent concealment.

         First, to a large extent the plaintiffs do not clearly articulate the information the defendants allegedly failed to disclose, and their evidentiary citations often direct the Court to pages of information, to a declaration identifying documents but not to the document itself, and to pages of previous briefing. See supra pp. 3-4. Second, the plaintiffs do not provide the Court with a clear analysis of how this information relates to their claims or how the allegedly secret information was necessary to put the plaintiffs on notice of their claims.[6]

         Finally, even as to those pieces of information that the plaintiffs have specifically identified and that the Court has been able to link to a substantive claim, the plaintiffs have not directed the Court to any statute, regulation or authority that requires the defendants to disclose such information to Plan participants or any evidence beyond a failure to affirmatively disclose. Fraudulent concealment means more than a mere failure to disclose disparate pieces of information, even in the fiduciary context. Rather, it requires fraud, SD3, 888 F.3d at 108, or, at the very least, a course of conduct designed to conceal, Supermarket of Marlinton, 71 F.3d at 123, and “affirmatively directed at deflecting litigation.” Pocahontas Supreme Coal Co., Inc. v. Bethlehem Steel Corp., 828 F.2d 211, 219 (4th Cir. 1987). The plaintiffs have not pointed to any such evidence.

         The plaintiffs also contend that the defendants “made purposeful misstatements in response to Plan participant questions about fee income received by BB&T” that fraudulently concealed their wrongdoing. Doc. 327 at 23-24. However, the only allegedly “purposeful misstatement” they identify was the Plan's 2007 Summary Plan Description that followed a general inquiry about fees by some Plan participants in 2006. See Doc. 327 at 12, 24 (citing TAD Decl. ¶ 32). The plaintiffs maintain that the 2007 Summary Plan Description did not identify fee income BB&T receives from proprietary mutual funds in which the Plan invests. Doc. 327 at 12; see also Doc. 327 at 24 (citing for continued misstatements to the TAD Decl. ¶¶ 10, 69, which cite Doc. 328-8 and Doc. 328-79). This is insufficient to establish fraudulent concealment, which cannot be based on “failing to admit illegal conduct upon general inquiry, ” such as the 2006 fee inquiry. Supermarket of Marlinton, 71 F.3d at 123; see also Pocahontas, 828 F.2d at 219 (requiring more than an unpursued inquiry).

         Beyond this, the plaintiffs have not directed the Court's attention to specific misstatements or explained how the misstatements prevented the plaintiffs from being on notice of their claims. In the absence of sufficient evidence of fraudulent concealment, the six-year statute of repose is not tolled. The defendants are entitled to summary judgment on all claims based on acts or omissions occurring before September 3, 2009.[7]

         B. Acts or omissions between September 4, 2009, and September 3, 2012

         The defendants assert that ERISA's three-year statute of limitation applies to bar Counts II, VI, and VII to the extent those claims are based on the Plan's investment expenses and performance issues before September 4, 2012. Doc. 322 at 19-21. As to these claims, the defendants contend that plan-wide communications establish that plaintiffs had actual knowledge of the facts underlying their claims more than three years before suit was filed.

         The defendants have the burden of proving facts showing that the statute of limitation bars the plaintiffs' claims. David, 704 F.3d at 339. The Court concludes that the defendants have not met their burden to show that the plaintiffs had actual knowledge more than three years before the suit was filed and will deny summary judgment on the defendants' three-year statute of limitation defense.

         The law is unsettled as to what standard the Court should apply in evaluating actual knowledge, Browning, 313 Fed.Appx. at 660-61, 661 n. 1 (discussing potential circuit split), but it does appear clear that actual knowledge of the facts supporting one claim would not bar another claim based on different facts. In view of the complicated facts underlying the multiple claims at issue in this case and some lack of clarity in the briefing as to the facts that the plaintiffs contend constitute breaches and violations-and thus of which the plaintiffs would need actual knowledge for the three-year statute to apply-summary judgment is inappropriate.[8]

         This, of course, does not guarantee that the Court ultimately will hold that the three-year statute of limitation is not applicable. Rather, it gives the defendants a chance to prove at trial that the limitation is applicable to each particular claim.

         II. The Claims

         A. Breach of fiduciary duty claims

         ERISA is a comprehensive statute that imposes a number of detailed duties and responsibilities on Plan fiduciaries, Mertens v. Hewitt Assocs., 508 U.S. 248, 251-52, (1993), including “the proper management, administration, and investment of [plan] assets, the maintenance of proper records, the disclosure of specified information, and the avoidance of conflicts of interest.” Mass. Mut. Life Ins. Co. v. Russell, 473 U.S. 134, 142-143 (1985); see also 29 U.S.C. § 1104(a) (West, Westlaw through P.L. 115-185). Among other things, Section 404(a) specifically imposes fiduciary duties of prudence and loyalty on fiduciaries. 29 U.S.C. § 1104(a)(1)(A) (duty of loyalty), § 1104(a)(1)(B) (duty of prudence); see also Cent. States, Se. & Sw. Areas Pension Fund v. Cent. Transport, Inc., 472 U.S. 559, 570-71 (1985) (noting that Section 404(a)(1) imposes “strict standards of trustee conduct . . . most prominently, a standard of loyalty and a standard of care”).

         The duty of loyalty requires an ERISA fiduciary to “discharge his duties . . . solely in the interest of the participants and beneficiaries.” 29 U.S.C. § 1104(a)(1)(A). “Fiduciaries must also scrupulously adhere to a duty of loyalty, and make any decisions in a fiduciary capacity with an eye single to the interests of the participants and beneficiaries.” DiFelice v. U.S. Airways, Inc., 497 F.3d 410, 418-19 (4th Cir. 2007).

         The duty of prudence requires ERISA fiduciaries to 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.” 29 U.S.C. § 1104(a)(1)(B). This includes “a continuing duty to monitor investments and remove imprudent ones.” Tibble v. Edison Intern., 135 S.Ct. 1823, 1828 (2015). “When deciding whether a plan fiduciary has acted prudently, a court must inquire whether the individual trustees, at the time they engaged [or failed to engage] in the challenged transactions, employed the appropriate methods to investigate the merits of the investment and to structure the investment.” DiFelice, 497 F.3d at 420.

         Section 409(a) makes fiduciaries liable for breach of these duties and specifies that each fiduciary must personally “make good to the plan any losses to the plan resulting from each such breach” and “restore to the plan any profits of such fiduciary [that] have been made through use of assets of the plan by the fiduciary.” Mertens, 508 U.S. at 252; see also 29 U.S.C. § 1109(a) (West, Westlaw through P.L. 115-185). While the ERISA statute does not define “losses, ” courts have generally applied the law of trusts to find that a loss occurs when there is a difference between the current value of the Plan as compared to what the Plan would have been worth had the breach not occurred. See, e.g., Coyne & Delany Co. v. Selman, 98 F.3d 1457, 1466 (4th Cir. 1996) (finding that a defined benefit plan incurred a loss when it imprudently paid out $160, 000 for services to a non-participant because it had “less money available to pay benefits”); Roth v. Sawyer-Cleator Lumber Co., 61 F.3d 599, 603 (8th Cir. 1995) (explaining how loss should be measured and citing to Donovan); Donovan v. Bierwirth, 754 F.2d 1049, 1056 (2nd Cir. 1985) (explaining how loss should be measured in light of trust law).

         In sum, the elements of a claim for breach of fiduciary duty under ERISA are: (1) that the defendant was a fiduciary of the ERISA plan; (2) that the defendant breached its fiduciary responsibilities under the plan; and (3) that the plan suffered a loss from the defendant's breach. See, e.g., Tatum v. RJR Pension Inv. Comm., 761 F.3d 346, 361 (4th Cir. 2014) (discussing breach and loss requirements); Blair v. Young Phillips Corp., 235 F.Supp.2d 465, 470 (M.D. N.C. 2002) (stating elements and citing Griggs v. E.I. DuPont de Nemours & Co., 237 F.3d 371, 379-80 (4th Cir. 2001)).

         At trial, the plaintiffs bear the burden of proof on these elements. Tatum, 761 F.3d at 361-62. As to proof of loss resulting from the breach, this is a low burden-the plaintiff only need establish “that there was some sort of loss to the Plan.” Plasterers' Local Union No. 96 Pension Plan v. Pepper, 663 F.3d 210, 220 (4th Cir. 2011); see also Tatum, 761 F.3d at 362-63 (plaintiff need only establish a prima facie loss). Once the plaintiff meets this low burden, the burden shifts to the defendants to disprove loss. Tatum, ...


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