NOT PRECEDENTIAL

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

______________

No. 12-3497

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NICHOLAS DANZA, individually and on behalf of defined contribution plans that used 

Defendants as their qualified domestic relations order service provider and all similarly 

situated beneficiaries of such ERISA-covered employee benefit plans,

Appellant

v.

FIDELITY MANAGEMENT TRUST COMPANY; FIDELITY INVESTMENTS

INSTITUTIONAL OPERATIONS COMPANY INC.

______________

APPEAL FROM THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF NEW JERSEY

(D.C. Civ. Action No. 1-11-cv-02893)

District Judge: Honorable Joseph E. Irenas

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

July 16, 2013

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Before: RENDELL, SMITH, and SHWARTZ, Circuit Judges

(Opinion Filed: July 29, 2013)

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OPINION

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SHWARTZ, Circuit Judge.

I. INTRODUCTION
2

Plaintiff Nicholas Danza brought suit on behalf of himself and other similarly 

situated beneficiaries of employee benefit plans against 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 Orders (“DROs”). 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 PROCEDURAL 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 Company, Inc. (“A&P”). In 

2008, A&P and Fidelity entered into a Trust Agreement under which Fidelity agreed to 

provide recordkeeping and administrative services for the Great Atlantic & Pacific Tea 

Company, Inc. Savings Plan (“A&P Plan”), which included the review 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 ERISA 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 they satisfy these requirements. 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

listed 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 the web review of a defined contribution Order generated 

on the [Fidelity] Web site and not materially altered.

• $1,200 for the manual review of one defined contribution plan 

mentioned 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 contribution 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 prepared. Pursuant to the Trust Agreement, he 

was charged $1,200 for its review. Plaintiff claims 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 prohibited 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 had 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 standard as the District Court. See Santomenno v. John Hancock Life Ins. Co., 

677 F.3d 178, 182 (3d Cir. 2012). When considering a motion to dismiss, we must 

determine whether the complaint “contain[s] sufficient factual matter, accepted as true, to 
4

‘state a claim to relief that is plausible 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 content[, which is assumed to be true,] 

that allows the court to draw the reasonable inference that the defendant is liable for the 

misconduct alleged.” Id.

IV. DISCUSSION

Plaintiff asserts that Fidelity violated ERISA by entering into an agreement to 

charge allegedly excessive fees and for 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 

Plaintiff asserts a claim under ERISA Section 404(a), which prohibits breaches 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 

respecting 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 fiduciary shall discharge his duties with 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 Unisys 
5

Corp. Retiree Med. Benefits ERISA Litig., 579 F.3d 220, 227-228 (3d Cir. 2009). A 

person or entity may be deemed a fiduciary 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 to 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 in 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 funds

that were available to plan participants. Id. at 318-19. Although 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 “discretionary 

control” over “the particular activity in question,” which was the original decision by the 

plan sponsor to include 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 been breached.
6

At the point in time when 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 control the named fiduciary’s negotiation and approval of those 

terms.’”); see also Chi. Dist. Council of Carpenters Welfare Fund v. Caremark, Inc., 474 

F.3d 463, 472-73 n.4 (7th Cir. 2007) (holding that defendant 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 404(a) claim fails.

B. Breach of Fiduciary Duty by a Co-Fiduciary

Plaintiff next asserts claims under ERISA Section 405(a), which holds cofiduciaries 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 the breach. 29 U.S.C. § 1105(a)(1), (3). 

Under ERISA, fiduciaries “[may] not avoid liability for . . . mismanagement of the 

[p]lan by simply doing nothing,” Free v. Briody, 732 F.2d 1331, 1336 (7th Cir. 1984), 

and therefore Section 405 encourages fiduciaries, “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 its 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 alleged breach by another fiduciary occurred. In 

Renfro, we found that the defendant service provider could not be a co-fiduciary under 

ERISA Section 405 for the plan sponsor’s alleged breach—the decision to include certain 

mutual funds and their accompanying 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.

Similarly, based on Plaintiff’s allegations, at the time that A&P and Fidelity 

negotiated and signed the Trust Agreement, Fidelity was just an arms-length negotiator 

who owed no duty to plan participants. Hence, Fidelity was not then a fiduciary and 

therefore 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 

collection of a particular fee. Because Fidelity cannot be held liable as a co-fiduciary, 

Plaintiff’s Section 405(a) claims fail.

C. Involvement in Prohibited Transactions
8

Plaintiff also asserts claims under two provisions of Section 406, which prohibit

certain transactions 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 of 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 insiders 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 special 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 406(a) transactions and 

be required to disgorge its profits under the 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 his 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 first 
9

allege that Fidelity is a party in interest that engaged in one of the statutorily prohibited 

transactions. 

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 

would 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 signed.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, there is no allegation that A&P had a prior relationship 

with Fidelity and there is no fact from which this Court could infer that they showed 

favoritism to each other or did anything other than engage in arms-length negotiation. 

Negotiation between such unaffiliated parties does not fall into the category of 

transactions 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 trigger 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 applies 
10

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 loyalties 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, Plaintiff argues that Fidelity’s act causing the plan to disburse $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. 

As previously discussed, Fidelity was a fiduciary only for purposes of 

administering 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. What differentiates this case from cases in which we have held that Section 

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 issue5 —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 prohibit 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 plan assets violated Section 406(b), and a nonfiduciary 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 mortgage 
11

Plaintiff points out that while there are exceptions to Section 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 services is prohibited. This argument goes 

too far. Section 406(b)’s purpose is to prohibit transactions that might involve selfdealing by a fiduciary, not to prevent fiduciaries from being paid for their work. A 

service provider cannot be held liable for merely accepting 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 472 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 provider who was receiving agreed-upon 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 Cross 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 insurance 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 affirm the District Court’s order granting the

motion to dismiss.