# U n i t e d S t a t e s C o u r t o f A pp e a l s

For the Eig hth Circu it

_ _ _ _ __ _ _ _ _ _ _ _ _ __ _ _ _ _ _ _ _ _ _ _ _

No . 1 8 -3 3 10

_ _ _ _ __ _ _ _ _ _ _ _ _ __ _ _ _ _ _ _ _ _ _ _ _

Fred eri ck Ro zo

ll l l l l l l l l l l l l l l l l l l l Pl a in t i

f f - Ap p el l an t

v

.

Pri n ci p al Li fe In su ran ce Co m p an y

l l l l l l l l l ll l l l l l l l l l l Def

en da n t - Ap

p el l ee

Pri nci p al Fi n an ci al Gro u p , In c.

l l l l l l l l l l l l l l l l l l l l l

Def en d a n t

_ _ _ _ _ _ _ __ _ _ _ _

Am eri can Co u n ci l o f Li fe In s u rers ; Ch am ber o f Co m

m erce o f t h e Un it ed St at es o f

Am eri ca; Am eri can Ben efi t s Co u n ci l

l l l l ll l ll l l l l l l l l l l l l

Ami ci o n Beh a lf

o f Ap p el l ee(s )

_

_ _ _ _ _ _ _ _ _ _ _
Ap p eal fro m

Un i t ed St at es Di s t ri ct Co u rt
fo r t he So ut hern Di s t ri ct o f Io w a - Des M o i n es

_

_ _ _ _ _ _ _ _ _ _ _

Su bm i t t ed : Oct o ber 1 8, 2 0 19
Fi l ed : Feb ru ary

3 , 2 02 0

_ __ _ _ __ _ __ _ _

Befo re SM ITH, Ch i ef J u d g e, GRUENDER an d BENTON, Ci rcu i t J u d g es

.

_ __ _ _ __ _ __ _ _BENTON, Ci rcu i t J u d g e.

Fred eri ck Ro zo i nv es t ed i n an Em pl o y ee Ret i rem en t In co m e Secu ri t y Act
( E RISA) p l an o ffered by Pri n ci p al Li fe In s u ran ce Co m p an y

. T he p lan s et a

g u a r a n t e e d r a t e o f ret u rn ev ery s i x m o n t h s. Ro zo al l eg es t h at Pri nci p al

, a s erv i ce

p ro v id er t o t he p l an , v i o lat ed ERISA. Th e di st ri ct co u rt g ran t ed Pri n ci p al s u m m ary ju d g m en t

, fi n d i n g t h at i t i s n o t a fi d u ci ary w h en s et t i n g t h e rat e. Hav i n g j u ri s d i ct i o n

u n d er 2 8 U.S.C. § 1 2 9 1 , t h i s co u rt rev ers es

.

Pr i n c i p al offers a 4 0 1 (k ) ret i rem en t p l an

— a Pri n ci p al Fi x ed In co m e Op t i o n (“ p lan ”)— wh i ch g i v es p art i ci p an t s a g u aran t eed rat e o f r e t u r n , t h e Co m p o si t e

Cred i t i n g Rat e. Pri n ci p al u ni l at eral ly cal cu lat es t h i s CCR ev ery s i x m o n t h s

. Befo re

t h e C CR t ak es effect

— t y p i cal l y a m o n t h i n ad v an ce— Pri nci p al n o t i fi es p l an

s p o n so rs , wh i ch al ert t he p art i ci p an t s

.

If a p l an s p o n s o r wan t s t o reject t he pro p o s ed CCR, i t m u s t wi t h d raw i t s fu n d s , faci ng t wo o p t i o n s: (1 ) p ay a s u rren d er ch arg e o f 5 % o r (2 ) g i v e no t i ce an d wai t 1 2

m o nt h s

. If a pl an p art i ci p an t wi s h es t o ex it

, h e o r s h e faces an “ eq u i t y was h .” Th ey

can i m m ed i at el y w i t h d r a w t hei r fu n d s , b u t n o t rei n v es t in p lan s li k e t h e PFIO fo r

t h ree m o n t h s

.

Ro zo , a fo rm er p l an p art i ci p an t, al le g e s t h at Pri nci p al ’ s s et t i n g o f t h e CCR

b reach es i t s fi d u c i ary d u t y an d en g ag es i n pro h i bi t ed t ran s act i o ns u n d er ERISA.

B o t h c o u n t s rel y o n Pri n ci p al b ei n g a fi d u ci ary

. Al t ern at i v el y , i f Pri n ci p al i s n o t a

fi du ci ary , Ro zo p lead s th at Pri n ci p al i s en g ag i n g i n p ro h i b i ted t ran s act i o ns as a p art y

i n i nt eres t

.

A f t e r cert i fy i n g a cl as s act i on , t h e d is t ri ct co u rt g ran t ed Pri nci p al s u m m a r y ju d g m en t

, co n cl u d in g i t i s n o t a fi du ci a r y n o r li ab le as a p art y i n i n teres t

. Ro zo

ap p eal s

.

-2

-Th i s co u rt rev i ews de n o v o a d i s t ri ct co u rt ’ s g ran t o f s u m m ary ju d g m en t

v i e wi n g g en u i n el y d i s p ut ed fact s “ i n t h e l i g h t m o st fav orab l e t o t h e n o n m o v i n g

p art y .” To r

g er s o n v. Ci t y o f Ro ches t

er , 6 4 3 F.3 d 1 0 3 1

, 1 0 4 2 (8 t h Ci r. 2 0 1 1 ) (en

b an c), q u o t i ng Ri cci v. DeSt efa no , 5 5 7 U.S. 5 5 7

, 5 8 6 (2 0 0 9 ). If t h e reco rd t ak en as

a w h o l e c o u l d n o t l ead a rat i o n al t ri er o f fact t o fi n d fo r t h e n o n m o v i n g p ar t y,

s u m m ary ju d g m en t s h o u l d b e g ran t ed

. To r g er so n , 6 43 F.3 d at 1 0 4 2

, ci t i n g Ri cci

, 5 5 7

U.S. at 5 8 6

.

I.

Pri n ci p al i s a fi du ci ary

wh en i t s et s t h e CCR. “ [A] p ers o n i s a fi d u ci ary wi th

res p ect t o a p l an t o t h e ex t en t (i ) h e e x e r c i s es an y d i s cret i o n ary au t ho ri t y o r

d i s cret i o n ary co n tro l res p ect i n g m an ag em en t o f s u ch p l an o r ex erci ses an y au t h o ri t y

o r co n t ro l res p ect i ng m an ag em en t o r d i s p o s i t i o n o f it s as s e t s

. . .” 2 9 U.S.C. §

1 0 0 2 (2 1 )(A) ; M

a ni a ce v. Co m m er ce Ba nk o f Ka ns a s Ci t

y, N.A.

, 4 0 F.3 d 26 4

, 2 6 7
( 8 t h Ci r. 1 9 9 4 ) (“ Cl earl y , d i s cret i o n i s th e ben ch m ark fo r fi d u ci ary s t at u s u n d e r ERISA.”). S

ee a l s o Peg ra m v. Her d

r i ch

, 5 3 0 U.S. 2 1 1

, 2 2 6 (2 00 0 ) (“ In ev ery cas e

ch arg i n g b reach o f ERISA fi d u ci ary d ut y , t h en , t h e t h res h o l d q u es t i o n is

. . . wh et h er

t h at p ers o n w a s act i n g as a fi d u ci ary

. . . w h en t ak i n g t h e act i on s u b ject to

co m p l ai n t .”).

Th e part i es ag ree th at a recen t Ten t h Ci rcu it d eci s i o n sh o ul d g u i d e t hi s ap p eal

. Teet s v. Gr ea t -W es t Li fe & Annui t

y I ns

. Co

. , 9 2 1 F.3 d 1 2 0 0 (1 0 t h Ci r. 2 0 19 ). Teet s

d et erm i n es t hat a s erv i ce p ro v i der act s as a fi d u ci ary : i f (1 ) i t “ d i d n o t m erel y fo l l o w

a s p eci fi c co n t ract u al t erm s et i n an arm ’ s -l en g t h n eg o t i at i o n ” an d (2 ) it “ t o o k a

u n i l at eral act i on res pect i n g p l an m an ag em en t o r as s et s w i t ho u t t h e p lan o r i t s

p art i ci p an t s h av in g an op p o rt u n i t y to reject i ts d eci s i o n

. ” I d

. at 1 2 1 2

. S

ee M cCa ffr ee

Fi na nci a l Co r

p

. v. Pr i nci

p a l Li fe I ns

. Co

. , 8 1 1 F.3 d 9 9 8

, 1 0 0 3 & n.2 (8 t h Ci r. 2 0 1 6 )
(an al y zi n g (1 ) “ ad h eren ce t o ” co n t ract t erm s “ cl earl y i d e n t ifi ed ” an d (2 ) “ co n t ract

em po wered [p l an s p o n s or] t o reject ” s erv i ce p ro v i d er’ s act ).

-3

-Th i s co urt ag rees t hat Teet s ’ s t wo -p art t es t co n t ro l s b ecau s e i t p ro p e r l y

i n t erp ret s ERISA. If t h e p ro vi der’ s act i o n s (1 ) co n fo rm t o s p eci fi c co nt ract t erm s o r (2 ) a p l an an d p art i ci pan t can freel y reject i t

, t h en t h e p ro v id er i s n o t act i n g wi th

“ au t h o ri t y ” or “ co n t ro l ” res p ect i n g t h e “ d i s p o si ti o n o f [t h e p l an ’ s ] as s et s .” S ee 2 9

U.S.C. § 10 0 2 (2 1 )(A) ; Bl a ck ’s La w D ic t ion a r y ( 11th e d. 2019) ( defi n i n g “ au t h o ri t y ”

as “ [t ] he o ffi ci al ri gh t o r p erm i s s i o n t o act

, e s p e c i al l y t o act l eg al l y on an o t h er’ s

b eh al f; es p eci al l y , t he p o wer o f o n e pers on t o affect an o t h er’ s l eg al rel at i o n s b y act s

d o n e i n acco rd an ce wi th t he ot her’ s m an i fes t at i o n s o f as s en t”; d efi ni n g “ co n t ro l ” as

“ [t ] o ex erci s e p o wer o r i n fl u en ce o v er”).

II.

At Teet s s t ep o n e, Pri n ci p al ’ s s et t i ng o f t h e CCR d o es n o t “ co nfo rm [] t o a

s p eci fi c t erm o f it s co nt ract wi t h t h e em p l o y er p l an .” Teet

s , 9 2 1 F.3 d at 1 2 1 2

. Ev ery

s i x m o nt h s , Pri n ci p al s e t s t h e CCR wi t h n o s p eci fi c co n tract t erm s co n t ro l l i n g t h e

rat e. Pri n ci p al cal cu l at es t h e CCR b as ed o n p as t rat es in co m b i n at i o n wi t h a n ew rat e

t h at i t u n i l at eral ly

i n pu t s

.

Pri n ci p al as s ert s t h at i t i s act i n g p u rs u an t t o t h e co n t ract b ecau s e i t au t h o ri zes

Pri n ci p al t o set t h e CCR. Th i s as s ert i o n co n fl at es t wo i s s u es

. Al t h o ug h th e co n t ract

em po wers Pri nci p al t o s et t h e CCR, t h e rat e i s n o t a “ s p eci fi c term [] of t he co n t ract .”

Teet s , 92 1 F.3 d at 1 21 2

. W hen P r i n c i p al n o t i fi es a p l an s p o n s o r of t h e p ro p o s ed

CCR, t h e s p o n s or h as n o t ag reed t o i t

. A s erv i ce p ro v i d er m ay b e a fi d u ci ary

wh en

i t ex erci s es d i s cret i o n ary au th o ri t y , ev en i f t h e c o n t r act au t h o ri zes i t to t ak e t h e

d i s cret i o n ary

act

.

Pri o r cas e l aw “ st an d s fo r t he p ro p o si t io n th at i f a s p eci fi c

t erm (n o t a g ran t o f p o wer t o ch an g e t erm s ) i s b arg ai n ed
fo r at arm ’ s l en g t h

, ad h eren ce t o t h a t t erm i s n o t a b reach

o f fi du ci ary d ut y

. No d is cr e t i o n i s ex erci s ed wh en an i n s u rer m erel y ad h e r es t o a s peci fi c co n tract t erm

. W h en

-4

-a co n t ract

, h o w ev er, g ran t s an i n s u rer d i s cret i o n ary

au t ho ri t y , ev en t h o u gh t h e co n t ract i t s el f i s t h e p ro d uct o f

an arm ’ s l en g th b arg ai n , t h e i n s u rer m a y b e a fi d u ci ary .”

Ed M i n i a t , I nc. v. G lo b e Li fe I ns

. Gr o up , I

nc. , 8 0 5 F.2 d 7 3 2, 7 3 7 (7 t h Ci r. 1 9 8 6 ).

Pri n ci p al ci t es i n ap p o s i t e cas es t h at d i d n ot fi n d fi d u ci ary s tat u s b ecau s e— u n l i k e t h e

s e t t i n g o f t h e CCR h ere— t h e p ro v i d er’ s act was co n t ract u al ly p red et erm i n e d

. S e e

M cCa ffr ee , 81 1 F.3 d at 1 0 0 3 (fi n d i n g n o fi d u ci ary s t at u s i n a cas e al l eg i n g ex ces s i v e

fees b ecau se “ t h e co n t ract b et ween [t h e p art ies ] cl ea r l y i d en t i f i e d e a c h s ep arat e

acco u n t ’ s m an ag em en t fee an d au t ho ri zed [d efen d an t ] t o p as s t hro u g h ad d i t i o n al

o p e r at in g ex p en s es to p art ici p an t s i n t h es e acco u n t s .”) (em p h as is ad d ed ) ;

Sa nt om enno v. T

r ans a m er i ca Li

fe I ns

. Co

. , 8 83 F.3 d 8 3 3

, 8 41 (9 t h Ci r. 2 0 1 8 )
( ru l in g n o fi d u ci ary ca p a c i t y fo r “ wi t h d rawal o f p r ed et er mi ned fees ”) (em

p h as i s

ad d ed ); Heck er v. Deer e & Co

. , 5 5 6 F.3 d 5 7 5 , 5 8 3 (7 th Ci r. 2 0 0 9 ) (co n t ract g i v i n g

p l an s p o n s o r “ th e fi n al s ay ” o n i n v es t m en t o p t i o ns ).

III.

At Teet s s t ep t wo , t h e p l an s p o ns o rs h ere d o n o t “ h av e t h e u n i m p ed ed ab i l i t y

t o reject t h e s erv i ce p ro v i d er’ s act i o n o r t erm i nat e t h e rel at i o n s h i p.” T eet s , 9 2 1 F.3 d

at 1 21 2

. If a p lan sp o n s or wi s h es t o reject t h e CCR, i t m u s t l eav e t h e pl an , w i t h t wo

o p t i o n s : (1 ) pa y a 5 % s urren d er ch arg e o r (2 ) h av e i t s fu n d s rem ai n i n t h e p l an fo r

1 2 m o n t h s

. Ch a r g i n g a 5 % fee o n a pl an ’ s as s et s i m ped es term i n at i o n

. Li k ewi s e,

h o l d i n g a p l an ’ s fu n d s fo r 1 2 m o n t h s aft er i t w i s hes t o ex i t i m p e d es t erm i n at io n

. 1

1 Th e del ay p ro b ab l y s u b

ject s a p lan ’ s fu n d s t o at l eas t o n e n ew CCR, d es p i t e

t h e p l an s p o n s o r n ev er ap p ro v i n g th e rat e ch an g e. Nei t h er p art y co n fi rm s t hat a p l an

s p o n so r’ s fu n d s are s u b

j ect t o a CCR ch an ge d u ri n g t h e 1 2 -m o n t h d el ay

. H o wev er,

t h e p l an ’ s co nt ract s ay s t h ey are, s t at i n g , “ If [Pri n ci p al ] d el ay [s ] p ay m en t as p erm i t t ed

u n d er t h i s Sect i o n [reg ard i n g t erm i nat i o n o f c o n t ract ]

, am o u nt s t o b e p ai d o r

t ran s ferred wi ll co nt i n u e t o earn i n t eres t at t h e rat e d et erm in ed p u rs u an t t o each Ap p l i cab l e Sch ed ul e as d es cri b ed i n Art i cl e II, Sect i o n 2 u n t i l t h e t ran sfer o ccu rs .”

Art i cl e II, Sect i o n 2 g o v ern s t h e s et ti n g o f t h e rat e.

-5

-Pri n ci p al

, t h erefo re, i s a fi d u ci ary ex erci si n g co n t ro l an d au t h ori t y o ver t he CCR. See

Chi ca g o Bd

. Op t i o ns Ex ch., I

nc. (CBOE) v. Co nnect

i cut Gener a l Li

fe Ins

. Co

. , 7 1 3

F.2 d 2 54

, 2 6 0 (7 t h Ci r. 1 98 3 ) (fi n d i n g fi d u ci ary s t at u s b ecau se a res t ri ct i on req u i ri n g

1 0 y ears t o wi t h d raw fu n d s “ l o ck [ed ] ” i n t h e p lan s p o ns o r).

Pri n ci p al arg u es t h at t h e s u rren d er p en al t y an d d e l a y a re n o t i m ped i m en t s

b ecau s e t h ey are i n t h e p l an co n t ract

. Th i s arg u m en t i s m i s p l aced

. Fi d u ci ary s t at u s

fo cu s es o n t h e act s u b

ject t o co m

p l ai n t

. S ee Peg r a m , 5 3 0 U.S. at 2 2 6

. Here, Ro zo

co m p l ai n s ab o u t th e s et t i ng o f t h e CCR. Becau s e p l an s p o n s o rs d o n o t h av e an

o p p o rt u ni t y t o ag ree t o th e CCR u n t i l aft er it i s p ro p os ed

, t h e CCR i s a n ew co n t ract

t erm

. Th i s c o u rt

, t herefo re, m u s t d eci d e i f p l an sp o n s o rs can freel y reject t h e t erm

. S ee Teet s , 9 2 1 F.3 d at 1 2 1 2

. It d o es n o t m at t er th at t h e b arri ers t o reject i n g t h e CCR

are i n t h e co n t ract

. S

ee, e.g
., CBOE

, 7 1 3 F.2 d at 2 5 6 (1 0% wi t h d rawal l i m i t in

co n tract ); Cha r t

er s v. J o hn Ha nco ck Li

fe Ins

. Co

. , 5 8 3 F. Su p p

. 2 d 1 8 9

, 1 9 9 (D.

M as s . 2 0 0 8 ) (t erm i n at io n p en al t i es i n co n t ract ).

Rel at ed ly

, Pri n ci p al as s e r t s , wi th o u t s u p p ort i n t h e reco rd

, t h at en fo rci n g t h e

s u rren d er ch arg e at t he t i m e o f ex i t i s n o d ifferen t th an h av i n g t h e p l an s p on s o r p ay

an u p -fro n t ch arg e fo r free ex i t l at er. No t tru e. Th e cri t i cal i n q ui ry h ere i s t h e p l an

s p o n so r’ s ch o i ce at th e ti m e i t recei ves t he p ro p os ed CCR. If i m p ed ed t h en , Pri n ci p al

ex erci s es co nt ro l

.

Pri n ci p al a l s o b el i ev es t h at Teet s , wh ich fo u nd n o fi d u ci ary s t at u s , co n t ro l s

. Th e i n v es t m en t v eh i cl e t h ere

, al t h o u g h si m i l ar t o t h e o n e h ere, d iffers i n o n e cri t i cal

res p ect

. T h e Teet

s serv i ce p ro v i d er h ad a “ co n t ract u al o p t i o n t o i m

p o se a 1 2 -m o n th

wai t i n g p eri o d o n p l an wi t h d rawal ,” b u t n ev er ex erci s ed it

. Teet s , 9 2 1 F.3 d at 1 2 1 7
(em p h as i s ad ded ). Here, Pri n ci p al i m p o s es t h e 1 2 -m o n t h d el ay

.

Fi n al l y , Pri n ci p al arg u es t hat a p a rt i ci pa n t ’ s ab i l i t y t o freel y reject t h e

CCR— reg ard l es s o f t h e p l an s p o n s o r’ s ab i l i t y

— n eg at es fi du ci ary st at us fo r t h e

-6

-s erv i ce p ro v id e r

. Teet s s u m m ari zes ERISA cas e l aw as fi n d in g fi du ci ary s t at u s i f

ei t h er a p lan s p on s o r o r a p art i ci p an t i s i m p ed ed fro m reject i n g t h e s erv i ce p ro v i d er’ s

act

. S ee Tee t s , 9 2 1 F .3 d at 1 2 1 3

, ci t i n g CBOE

, 7 1 3 F.2 d at 2 60 (“ Fi d u ci ary s t at u s

t u r n s o n w h et her t h e s erv i ce p ro v i d er can fo rce p l an s o r p art i ci p an t s t o accep t i t s

ch o ices ab o u t pl an m an ag em en t o r as s et s .”) (em p h as i s ad d ed ), a nd ci t in g Cha r t er s , 5 8 3 F. Su p p

. at 1 99 (“ A n d wh en t he p l a n o r t h e p l an p art i ci p an t s can n o t reject t h e

s erv i ce p ro v i d er’ s act i o n o r t erm i n at e t h e co n t ract wi t h o u t i nt erferen ce o r p en al t y , t h e

s erv i ce p ro v i d er i s a fu n ct i o n al fi d u ci ary .”) (em p has i s ad d ed ). Becau s e t h e s p o n s o r

h ere i s i m p ed ed

, t he p art ici p an t’ s ab i li t y t o reject t h e CCR d o es n ot n eg at e Pri n ci p al ’ s

fi du ci ary s t at u s

.

IV.

Becau s e Pri n ci p al i s a fi d u ci ary wh en i t s et s t he CCR, t h i s c o u r t n eed n ot

ad d res s R o zo ’ s arg u m en t al l eg i n g t h at Pri n ci p al i s co n d u ct i n g a p ro h i b i t ed

t ran s act io n as a p art y

i n i nt eres t

.

Th i s co u rt rev ers es an d rem an d s t o t h e d i s tri ct co u rt fo r p ro ceed i n g s co n s i s t en t

wi t h t h i s o p i n i o n

.

* * * * * * *

Th e ju d g m en t i s rev ers ed

.

__ _ _ _ _ __ _ _ __ _ _ __ _ __ _ _ _ _ _ __ _ _ _ _

-7

-