NOT PRECEDENTIAL UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT

______________ No. 12

- 3497

______________ NICHOLAS DANZA , individually and on behalf of defined contribution plans that used Defendants as their qualified domestic relations order ser vice provider and all similarly situated beneficiaries of such ERISA

- covered employee benefit plans, Appellant

v. FIDELITY MANAGEMENT TRUST COMPANY ; FIDELITY INVESTMENTS

INSTITUTIONAL OPERAT IONS COMPANY INC.

______________ APPEAL FROM THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF NEW JERSEY (D.C. Civ. Action No. 1

- 11

- cv - 0 2893 ) District Judge: Honorable Joseph E. Irenas

______________ Submitted Under Third Circuit L.A.R. 34.1(a)

July 16, 2013

______________ Before: RENDELL, SMITH, and SHWARTZ, Ci rcuit Judges

(Opinion Filed: July 29 , 2013)

______________ OPINION

______________ SHWARTZ, Circuit Judge

. I. INTRODUCTION2

Plaintiff Nicholas Danza brought suit on behalf of himself and other similarly situated beneficiaries of employee benefit plans aga inst Defendants Fidelity Management Trust Company and Fidelity Investments Institutional Operations Company (collectively, “Fidelity”) alleging that they violated various provisions of the Employee Retirement Income Security Act of 1974, as amended (“ERISA ”) , by charging participants an excessive service fee for reviewing Domestic Relations Ord ers (“ D RO s ”). Plaintiff argues that the District Court erred in granting Defendants’ motion to dismiss . For the reasons set forth below, we will affirm.

II. FACTS AND P ROCEDURAL HISTORY As we write principally for the benefit of the parties, we recite only the essential facts and procedural history. Plaintiff was a participant in a 401(k) retirement plan sponsored by his employer, the Great Atlantic & Pacific Tea Compan y , Inc. (“A&P”). In 2008, A&P and Fidelity entered into a Trust Agreement under which Fidelity agreed to provide recordkeeping and administrative service s for the Great Atlantic & Pacific Tea Company, Inc. Savings Plan (“ A&P P lan ”) , which included the rev iew of DROs for compliance with ERISA and the members’ plan

. 1 Schedule B of the Trust Agreement

1 Generally, a 401(k) plan participant may not assign his or her plan retirement savings to another person, but ERIS A provides an exception in cases of divorce as long as the assignment is made by a DRO that satisfies specific statutory and plan requirements. See 29 U.S.C. § 1056(d)(1), (3). Plan administrators must review DROs to ensure that t hey satisfy these requir ements. Some plan administrators hire service providers to perform this compliance review. Pursuant to the agreement here, A&P hired Fidelity as a service provider to configure an online method to create a qualified DRO, develop administrative guidelines for determining whether a DRO is qualified, respond to inquiries, and review DROs to determine if they comply with Section 414(p) of the Internal Revenue Code.3

list ed the fees that Fidelity would charge for its services, including the following fixed fees for DRO services to be paid by plan participants :

• $300 for th e web review of a defined contribut ion Order generated on the [Fidelity] Web site and not materially altered. • $1,200 for the manual review of one defined contribution plan me ntioned in [a DRO] . . . [that] was not generated on the [Fidelity] Web site or was generated on the Web site, but materially altered

. • $1,800 for the manual review of a combination of any two or more defined contributio n plans mentioned in [a DRO] . . . [that] was not generated on the [Fidelity] Web site or was generated on the Web site, but materially altered. App. 192. Plaintiff did not use a DRO generated on the Fidelity website. Rather, he submitted a DRO that an outside firm had prepare d

. Pursuant to the Trust Agreement, he was charged $1 , 200 for its review. Plaintiff claim s the fee is unreasonable and violates ERISA. His eight

- count complaint alleges breach of fiduciary duty under ERISA Section 404(a) (Count I), breach of fiduciary duty by a co

- fiduciary under ERISA Section 405(a) (Counts II

- III), and participation in proh ibited transactions under ERISA Sections 406(a) and (b) (Counts IV

- VIII). The District Court granted Defendants’ Rule 12(b)(6) motion to dismiss for failure to state a claim. This appeal followed.

III. JURISDICTION AND STANDARD OF REVIEW The District Court h ad jurisdiction over this case pursuant to 28 U.S.C. § 1331 and 29 U.S.C. § 1132(e) and (f ). We have jurisdiction over this appeal pursuant to 28 U.S.C. § 1291. We exercise plenary review of an order granting a motion to dismiss and apply
the same standa rd as the District Court. See Santomenno v. John Hancock Life Ins. Co. , 677 F.3d 178, 182 (3d Cir. 2012 ). W hen considering a motion to di s miss , we must determine whether the complaint “ contain[s] sufficient factual matter, accepted as true, to4

‘ state a c laim to relief that is pl ausible on its face.’” Ashcroft v. Iqbal , 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly , 550 U.S. 544, 570 (2007)). “ A claim has facial plausibility when the Plaintiff pleads factual c ontent [, which is assumed to be true,] that allows the court to draw the reasonable inference that the defendant is lia ble for the misconduct alleged.” Id.
IV. DISCUSSION Plaintiff a sserts that Fidelity violated ERISA b y entering into an agreement to charge allegedly excessive fees and f or collecting such fees. Thus, to determine if Plaintiff properly alleges violations of ERISA, Fidelity’s conduct must be examined at two points: when it was negotiating for the fees and when it was collecting the fees.

A. Breach of Fiduciary Duty
Plaintif f asserts a claim under ERISA Section 404 (a) , which prohibits breach e s of fiduciary duty by plan fiduciaries

. Under ERISA Section 3(21)(A) , “ a person is a fiduciary with respect to a plan to the extent . . . [he] exercises any authority or control
respec ting management or disposition of its assets . . . or

. . . he has any discretionary authority or discretionary responsibility in the administration of such plan.” 29 U.S.C. § 1002(21)(A). Under Section 404(a), “a fi duciary shall discharge his duti es wit h respect to a plan solely in the interest of the participants and beneficiaries and . . . for the exclusive purpose of . . . defraying reasonable expenses of administering the plan . . . .” 29 U.S.C. § 1104(a)(1)(A)(ii). Section 404 in essence codifies a common law fiduciary’s general duty of loyalty

— the duty of a trustee to administer the trust solely in the interest of the beneficiaries. See Pegram v. Herdrich , 530 U.S. 211, 224 (2000) ; In re Unisys5

Corp. Retiree Med. Benefits ERISA Litig. , 579 F.3d 2 20, 227

- 228 (3d Cir. 2009)

. A
person or entit y may be de emed a fiduciar y for certain purposes but not others. Thus, in the case of service providers, like Fidelity in this case, “ the threshold question is not whether the actions of some person employed t o provide services under a plan adversely affected a plan beneficiary’s interest, but whether that person was acting as a fiduciary (that is, was performing a fiduciary function) when taking the action subject to complaint.” Pegram , 530 U.S. at 225, 226

. Our decision i n Renfro v. Unisys Corp. , 671 F.3d 314 (3d Cir. 2011) , provides an example. In Renfro , a plaintiff claimed that a fiduciary breached its duty by allegedly charging unreasonably high fees for its services managing investments in mutual fund s that were available to plan participants

. Id. at 318

- 19. A lthough the Renfro defendant was a fiduciary for some purposes

— i.e. , the management of the investments

— it was not

a fiduciary with respect to the charging of its fees because it lacked “discreti onary control ” over “ the particular activity in question , ” which was the original decision by the plan sponsor to incl ude those investment options with those fees in the plan. Id. at 321 ( internal citations omitted )

. Here, at the point that Fidelity was negotiating its fees with A&P, it was not a fiduciary of the plan and owed no duty to the plan participants to “defray[] reasonable expenses of administering the plan.” 29 U.S.C. § 1104(a)(1)(A)(ii) . It was simply engaging in an arms

- length negotiation for a contract to provide services. Thus, the District Court correctly concluded that Fidelity was not a fiduciary at that time and so it had no fiduciary duty to Plaintiff that could have be en breached.6

At the point in time whe n Fidelity actually charged the fee for reviewing a DRO, Fidelity did have a fiduciary duty to the A&P Plan and its participants with respect to the administration of those services, but it did not then control the fee structure , as it was set in the agreement with A&P and Fidelity did not have unilateral discretion to change it

. 2
Renfro , 671 F.3d at 324 ( quoting Hecker v. Deere & Co. , 556 F.3d 575, 583 (7th Cir. 2009) ) (Defendant “‘[did] not act as a fiduciary with respect to the terms in the service agreement if it did not contro l the named fiduciary’s negotiation and approval of those terms.’”) ; s ee also Chi. Dist. Council of Carpenters Welfare Fund v. Caremark, Inc. , 474 F.3d 463, 472

- 73 n.4 (7th Cir. 2007) ( holding that d efendant was not a fiduciary with respect to a fixed fee that was set by an agreement negotiated at arm ’ s length). Therefore, Fidelity cannot be held liable as a fiduciary for the challenged conduct, and Plaintiff’s Section 40 4 (a) claim fails.

B. Br each of Fiduciary Duty by a Co

- F iduciary Plaintiff next asserts claim s under ERISA Section 405( a), which holds co

fiduciaries liable for the breaches of other fiduciaries if they knowingly participate in that breach or have knowledge of that breach and do not make reasonable efforts under the circumstances to remedy th e breach

. 29 U.S.C. § 1105(a)(1), (3). Under ERISA, fiduciaries “ [ may ] not avoid liability for . . . mismanagement of the [p] l an by simply doing nothing,” Free v. Briody , 732 F.2d 1331, 1336 (7th Cir. 1984), and therefore Section 405 encourages fiduciar ies , “as a means of avoiding personal

2 Notably, the fee was predetermined, and the amount charged was based on how the participant prepared the DRO.7

liability, to take steps to remedy perceived improprieties in plans operations.” Nicolaou v. Horizon Media, Inc. , 402 F.3d 325, 331 (2d Cir. 2005) (Pooler, J. , concurring)

. Here, Plaintiff argues that A&P breached it s fiduciary duty to defray costs by agreeing to the $1,200 fee and signing the Trust Agreement, and Fidelity, as another fiduciary of the A&P plan who was aware of A&P’s breach, is liable. Once again, we look to whether Fidelity was a fiduciary when the a lleged breach by another fiduciary occurred. In Renfro , we found that th e defendant service provider could not be a co - fiduciary un der
ERISA Sect ion 405 for the plan sponsor’s alleged breach

— the decision to include certain mutual funds and their accompany ing fees

— because the defendant then “ owe [ d ] no fiduciary duty with respect to the negotiation of its fee compensation ” as it “was not yet a plan fiduciary at the time it negotiated the fee compensation with [the plan sponsor]. ”
Renfro , 671 F.3d at 324.
S imilarly, based on Plaintiff’s allegations , a t the time that A&P and Fidelity negotiated and signed the Trust Agre ement, Fidelity was just an arms

- length negotiator who owed no duty to plan participan ts . Hence, Fidelity was not then a fiduciary and theref ore could not be considered a co - fiduciary under Section 405

. When Fidelity later became a fiduciary , it was only a fiduciary with respect to its administration of plan services, not with respect to the challenged conduct of A&P approving Fidelity’s
colle ction of a particular fee

. Because Fidelity cannot be held liable as a co

- fiduciary, Plaintiff’s Section 405(a) claim s fail

.

C. Involvement in Prohibited Transactions8

Plaintiff also asserts cla ims under two provisions of Section 406, which prohibit certain t ransactions that “generally involve uses of plan assets that are potentially harmful to the plan.” Lockheed Corp. v. Spink , 517 U.S. 882, 893 (1996). Section 406(a) prohibits transactions between the plan and a party in interest. The relevant portion o f the statute provides :



### Except as provided in section 1108 of this title , . . . a fiduciary with respect to a plan shall not cause the plan to engage in a transaction, if he knows or should know that such transaction constitutes a direct or indirect . . . furnishing of goods, services, or facilities between the plan and a party in interest [or] transfer to, or use by or for the benefit of a party in interest, of any assets of the plan . . .

. 29 U.S.C. § 1106(a)(1)(C) , (D). A “party in interest” includes in siders to a plan, such as fiduciaries, employers, employees, service providers, and certain stockholders. 

### 29 U.S.C. § 1002(14). Prohibited Section 406(a) transactions between a plan and a party in interest are those “commercial bargains that present a sp ecial risk of plan underfunding because they are struck with plan insiders, presumably not at arm’s length.” Lockheed , 517 U.S. at 893. A party in interest can be held liable for Section 40 6 (a) transactions and be required to disgorge its profits under t he remedy provisions of Section 502(a)(3). Harris Trust & Sav. Bank v. Salomon Smith Barney, Inc. , 530 U.S. 238 , 242

- 43, 245

- 249 (2000) (holding that a defendant who provided broker

- dealer services to a plan was a party in interest, required to disgorge h is profits after the plan fiduciary caused the plan to buy worthless motel properties from him as that was a Section 406(a) prohibited transaction given his insider status) . To obtain that remedy, however, Plaintiff must first9

allege that Fidelity is a pa rty in interest that engaged in one of the statutorily prohibited transaction s . Here, Plaintiff argues that a statutorily prohibited transaction occurred when A&P

as a fiduciary caused the plan to hire and pay Fidelity , who was a party in interest, that

w ould result in both a direct furnishing of services between the plan and a party in interest and a transfer of plan assets to a party in interest under Section 406(a) . Fidelity, however, was not a party in interest at the time the Trust Agreement was sign ed. 3 While Fidelity is currently a party in interest as a service provider to the plan, it was not “providing services” and was not a fiduciary when the Trust Agreement was signed, so that transaction did not fall within a prohibited category. Moreover, “Congress defined ‘party in interest’ to encompass those entities that a fiduciary might be inclined to favor at the expense of the plan’s beneficiaries.” Harris
Trust , 530 U.S. at 242. Here, t here is no allegation that A&P had a prior relationship with Fidelity and t here is no fact from which th is C ourt could infer that they showed favoritism to each other or did anything other than engage in arms

- length negotiation.
N egotiation between such unaffiliated parties does not fall into th e category of
trans actions that Section 406(a) was meant to prevent. Lockheed , 517 U.S. at 893

. 4

3 At the time that Fidelity was collecting the fee under the terms of the Trust Agreement, it was both a fiduciary of the plan and a party in interest, but its conduct in causing the plan to pay the fee for its own benefit cannot trigg er liability under ERISA Section 406(a) because this section deals with transactions between two distinct parties. Self

- dealing transactions are addressed by ERISA Section 406(b), which we discuss herein. 4 ERISA Section 408 provides certain exceptions to Section 406(a) prohibited transactions, 29 U.S.C. § 1108(b), but we need not address whether an exception applies10

We next turn to Section 406(b), which prohibits certain transactions between the plan and a fiduciary . Of relevance here is the portion of the statute that reads “ [a] fiduciary with respect to a plan shall not

. . . deal with the assets of the plan in his own interest or for his own account

. . . .” 29 U.S.C. § 1106(b)(1). Section 406(b) ’s purpose is to “ prevent[ ] a fiduciary from being put in a position where he has dual loy alties and, therefore, he cannot act exclusively for the benefit of a plan's participants and beneficiaries.” Reich v. Compton , 57 F.3d 270, 287 (3d Cir. 1995) ( internal citation omitted)

. Here, P laintiff argues that Fidelity’s act causing the plan to di sburse $1, 200 of plan assets to itself as compensation for the DRO review constitutes a prohibited transaction because it was a fiduciary at the time of the disbursement.
A s previously discussed, Fidelity was a fiduciary only for purposes of
administerin g the plan, not for purposes of negotiating or collecting its compensation. At the time of the disbursement, the fee structure was set and Fidelity lacked discretion to change it. W hat differentiates this case from cases in which we have held that Sectio n 406(b) applied is the fact that Fidelity , at the time it collected the fee, had no actual control or discretion over the transaction at issue 5

— the price of the previously bargained

- for fees.

here, as we do not find that the allegations describe a prohibited Section 406(a) transaction.

5 For example, 406(b) has been found to prohib it transactions involving kick

- backs to fiduciaries and self

- negotiated loans. See , e.g. , Nat’l Sec. Systems, Inc. v. Iola , 700 F.3d 65, 91

- 93 (3d Cir. 2012) (holding that a fiduciary who receives consideration in connection with a transaction involving p lan assets violated Section 406(b), and a non

fiduciary who facilitated that transaction could be liable); Reich , 57 F.3d at 287, 289

- 290 (holding that a plan trustee who essentially negotiated on both sides of a mortgage11

Plaintiff points out that while there are exceptions to Sect ion 406(a) prohibited transactions under Section 408, there are no exceptions to Section 406(b) prohibited transactions . Thus, Plaintiff argues that even if the fees are reasonable, the disbursement of any fees by the fiduciary to pay itself for its servi ces is prohibited. This argument goes too far. Section 406(b)’s purpose is to prohibit transactions that might involve self

dealing by a fiduciary , not to prevent fiduciaries from being paid for their work. A service provider cannot be held liable for m erely acce pting previously bargained

- for fixed compensation that was not prohibited at the time of the bargain

. See Chi. Dist. Council of Carpenters Welfare Fund , 474 F.3d at 4 72 n.4 ( holding that a service provider who accepted compensation prescribed by an arms - length agreement was not a fiduciary for compensation purposes and therefore not liable under Section 406(b)) ; Schulist v. Blue Cross of Iowa , 717 F.2d 1127 , 1131 (7th Cir. 1983) (holding that Section 406(b) only governs a defendant service provid er who was receiving agreed

- up on rates directly from a plan if that defendant had discretionary authority or control with respect to the rates agreed to by the plan sponsor)

. 6
In short , ERISA prohibits none of the alleged transactions , and thus Plaintiff ’s Section 406 claims fail.

transaction with the plan violated Section 406(b)); Cutaiar v. Marshall , 590 F.2d 523 , 530 (3d Cir. 1979) (holding that a transfer between two funds where the trustees are identical but participants and beneficiaries are not violates Section 406(b))

.

6 Cf. Sixty

- Five Sec. Plan v. Blue Cr oss and Blue Shield of Greater New York , 583 F. Supp. 380, 388 (S.D.N.Y.), reargument denied 588 F. Supp. 119, 120 (S.D.N.Y. 1984) (finding an impermissible conflict of interest under ERISA where a service provider had full discretion to grant or deny insu rance claims, and the provider’s fee was based upon a percentage of any claims it granted).12 V. CONCLUSION For the foregoing reasons, we will affir m the District Court’s order grant ing the motion to dismiss

.