16-1316‐cv

Hannan v. Hartford Financial Serv

UNITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT

SUMMARY ORDER

RULINGS BY SUMMARY ORDER DO NOT HAVE PRECEDENTIAL EFFECT.  CITATION TO A

SUMMARY ORDER FILED ON OR AFTER JANUARY 1, 2007, IS PERMITTED AND IS GOVERNED BY

FEDERAL RULE OF APPELLATE PROCEDURE 32.1 AND THIS COURTʹS LOCAL RULE 32.1.1.

WHEN CITING A SUMMARY ORDER IN A DOCUMENT FILED WITH THIS COURT, A PARTY MUST

CITE EITHER THE FEDERAL APPENDIX OR AN ELECTRONIC DATABASE (WITH THE NOTATION

ʺSUMMARY ORDERʺ).  A PARTY CITING A SUMMARY ORDER MUST SERVE A COPY OF IT ON

ANY PARTY NOT REPRESENTED BY COUNSEL.

At a stated term of the United States Court of Appeals for the Second

Circuit, held at the Thurgood Marshall United States Courthouse, 40 Foley Square, in

the City of New York, on the 25th day of April, two thousand seventeen.

PRESENT: GUIDO CALABRESI,

DENNY CHIN,

RAYMOND J. LOHIER, JR.,

Circuit Judges.

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PATRICK HANNAN, DAWN LEMIEUX, NICOLE

GROOMES, PEGGY HORN, on behalf of themselves

and others similarly situated,

Plaintiffs‐Appellants,

v. 16‐1316‐cv

HARTFORD FINANCIAL SERVICES, INC.,

FAMILY DOLLAR STORES INC., FAMILY

DOLLAR STORES INC. GROUP INSURANCE

PLAN, PLAN ADMINISTRATORS,

Defendants‐Appellees.

*

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* The Clerk of Court is directed to amend the official caption in accordance with the above.
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FOR PLAINTIFFS‐APPELLANTS: RAYMOND C. FAY, Fay Law Group,

Washington, D.C. (Seth R. Lesser, Klafter Olsen

& Lesser LLP, Rye Brook, New York, on the

brief).

FOR DEFENDANT‐APPELLEE ROBERT N. HOCHMAN (Mark B. Blocker,  

HARTFORD FINANCIAL   Joel S. Feldman, Daniel R. Thies, on the brief),

SERVICES, INC.: Sidley Austin LLP, Chicago, Illinois.

FOR DEFENDANTS‐APPELLEES JEREMY P. BLUMENFELD, Morgan, Lewis &   

FAMILY DOLLAR STORES INC.,   Bockius LLP, New York, New York (James P.  

FAMILY DOLLAR STORES INC. Walsh, Jr., Morgan, Lewis & Bockius LLP,

GROUP INSURANCE PLAN,   Princeton, New Jersey, on the brief).

PLAN ADMINISTRATORS:   

Appeal from the United States District Court for the District of

Connecticut (Bryant, J.).

UPON DUE CONSIDERATION, IT IS HEREBY ORDERED,

ADJUDGED, AND DECREED that the judgment of the district court is AFFIRMED.  

Plaintiffs‐appellants Patrick Hannan, Dawn Lemieux, Nicole Groomes,

and Peggy Horn (together, ʺplaintiffsʺ) appeal from the March 29, 2016 judgment of the

district court (Bryant, J.) dismissing their claims against defendants‐appellees Family

Dollar Stores Inc., Family Dollar Stores Inc. Group Insurance Plan, and Plan

Administrators (together, ʺFamily Dollar ʺ), and Hartford Financial Services, Inc.

(ʺHartfordʺ) under the Employee Retirement Income Security Act (ʺERISAʺ), 29 U.S.C.

§ 1001 et seq.  By memorandum of decision entered March 29, 2016, the district court

granted defendantsʹ motions to dismiss the complaint pursuant to Federal Rule of Civil

Procedure 12(b)(6) for failure to state a claim upon which relief may be granted.  We
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assume the partiesʹ familiarity with the underlying facts, procedural history, and issues

on appeal.

Hartford is an insurance company that issued a group life insurance

policy (the ʺPolicyʺ) to plaintiffsʹ employer Family Dollar Stores Inc. under an insurance

coverage plan (the ʺPlanʺ).1  The Plan automatically enrolled all employees in basic life

insurance and offered them the option to purchase supplemental life insurance.  As

alleged in the complaint, plaintiffs received enrollment materials representing that basic

life insurance would be ʺnon‐contributory,ʺ meaning that Family Dollar would pay all

costs, and supplemental life insurance would be ʺcontributory,ʺ meaning that

employees would be required to contribute toward the cost.  App. at 19‐20.  The

enrollment materials also stated that all employees would receive basic life insurance

ʺat no costʺ and that the optional supplemental life insurance premiums were

ʺsurprisingly affordableʺ and ʺwithout high cost.ʺ  App. at 19, 28.  Plaintiffs claimed this

information was material to their ability to make informed decisions about enrollment

and misled them into thinking supplemental life insurance would be a prudent

investment.   

In March 2015, plaintiffs filed a class action complaint alleging that

defendants engaged in a ʺcross‐subsidizationʺ scheme to charge supplemental life

insurance premiums at prices higher than warranted by underwriting and actuarial

                                                  1   The Policy was actually issued by Hartfordʹs subsidiary, Hartford Life and Accident

Insurance Company.  
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projections.  App. at 15.  They alleged that Family Dollar applied part of the employee‐

paid premiums toward its cost for basic life insurance.  Plaintiffs claimed that Family

Dollar benefited by avoiding the full cost of basic life insurance, that Hartford

benefitted by receiving the insurance contract, and that employees who bought

supplemental life insurance suffered monetary losses because they were overcharged

for premiums.  The complaint asserted that defendants violated ERISA by breaching

their fiduciary duties, failing to remedy each otherʹs breaches, and participating in

prohibited self‐dealing.    

On March 29, 2016, the district court dismissed plaintiffsʹ claims because

they did not identify a misrepresentation or false statement, there was no fiduciary duty

to disclose Family Dollarʹs allocation of supplemental life insurance premiums, the

insurance rate structure did not violate ERISA or any fiduciary duties, and the selection

of the rate structure did not constitute self‐dealing.  

On appeal, plaintiffs challenge the dismissal of their (1) fiduciary and co‐

fiduciary claims with respect to the misrepresentations and omissions in the enrollment

materials and (2) prohibited transaction claims with respect to defendantsʹ self‐dealing

and Hartfordʹs participation in the scheme.   

  ʺWe review de novo the dismissal of a complaint pursuant to Rule 12(b)(6),

construing the complaint liberally, accepting all factual allegations as true, and drawing

all reasonable inferences in the plaintiffʹs favor.ʺ  Nicosia v. Amazon.com, Inc., 834 F.3d
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220, 230 (2d Cir. 2016).  ʺTo survive a motion to dismiss, a complaint must contain

sufficient factual matter, accepted as true, to ʹstate a claim to relief that is plausible on its

face.ʹʺ  Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550

U.S. 544, 570 (2007)).  We may affirm the dismissal on ʺany basis for which there is

sufficient support in the record, including grounds not relied on by the district court.ʺ  

Lotes Co. v. Hon Hai Precision Indus. Co., 753 F.3d 395, 413 (2d Cir. 2014) (quoting Bruh v.

Bessemer Venture Partners III L.P., 464 F.3d 202, 205 (2d Cir. 2006)).

  ʺThe central purpose of ERISA is ʹto protect beneficiaries of employee

benefit plans.ʹʺ  Rinehart v. Lehman Bros. Holdings Inc., 817 F.3d 56, 63 (2d Cir. 2016) (per

curiam) (quoting Slupinski v. First Unum Life Ins. Co., 554 F.3d 38, 47 (2d Cir. 2009)).  

ERISA furthers this objective by imposing a duty of care on fiduciaries, id., and

requiring them to discharge their fiduciary duty ʺsolely in the interest of the

participants and beneficiaries [of the employee benefit plan] and . . . for the exclusive

purpose of: (i) providing benefits to participants and their beneficiaries; and

(ii) defraying reasonable expenses of administering the plan,ʺ 29 U.S.C. § 1104(a)(1).   

We conclude that the district court correctly dismissed the complaint

because it failed to plausibly allege that Hartford was a fiduciary under ERISA, that

Family Dollar made any fraudulent misrepresentations or omissions, or that defendants

engaged in prohibited transactions.
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A. Fiduciary status  

An entity is a ʺfiduciaryʺ of an employee benefit plan to the extent it

exercises (1) discretionary authority, responsibility, or control over the management or

administration of the plan or (2) any authority or control over the management or

disposition of plan assets.  29 U.S.C. § 1002(21)(A).  ʺUnder this definition, [an entity]

may be an ERISA fiduciary with respect to certain matters but not others, for [it] has

that status only ʹto the extentʹ that [it] has or exercises the described authority or

responsibility.ʺ  F.H. Krear & Co. v. Nineteen Named Trs., 810 F.2d 1250, 1259 (2d Cir.

1987).  An entity that negotiates a contract with an ERISA benefits plan at armʹs length

and has no other relationship to the plan, for example, is not a fiduciary with respect to

the selection of the contract terms governing the plan.  Id.  This is because it ʺhas no

authority over or responsibility to the plan and presumably is unable to exercise any

control over the [plan] trusteesʹ decision whether or not, and on what terms, to enter

into an agreement with [it].ʺ  Id.   

The entity can, however, become a fiduciary with respect to particular

contract terms, such as the terms of its own compensation, if the terms grant it

discretionary authority or control.  Id. (noting that a party to an ERISA‐covered contract

becomes a fiduciary with respect to compensation terms giving it discretionary control

over factors, such as the processing of insurance claims, that affect the actual amount of

its compensation); see also Harris Tr. & Sav. Bank v. John Hancock Mut. Life Ins. Co., 302
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F.3d 18, 29 (2d Cir. 2002) (holding that insurer exercises no discretion in, and thus is not

fiduciary with respect to, adhering to contract term unless term provides it

discretionary authority); United States v. Glick, 142 F.3d 520, 528 (2d Cir. 1998)

(explaining that agent with specified commission rate is not fiduciary with respect to

compensation terms because ʺmere deduction of [his] commission from welfare fund

assetsʺ does not involve any discretion on his part).

Here, plaintiffs alleged that Hartford was a fiduciary of the Plan because it

exercised discretionary control over the assets of the Plan, i.e., employee payroll

deductions for supplemental life insurance, when it negotiated contract terms for the

purpose of securing the award of the insurance contract and sharing in the overpriced

premiums for supplemental life insurance.  The complaint, however, identified only

Hartfordʹs negotiation conduct, and no pre‐existing relationship with the Plan or post‐

contract exercise of discretionary control, as its basis for alleging Hartfordʹs fiduciary

liability.  We thus agree with the district court that the complaint did not sufficiently

allege that Hartford had or exercised any discretionary authority over the Plan or its

assets with respect to the setting of the contract terms governing the Plan, and thus

Hartford is not subject to fiduciary liability.  See § 1002(21)(A).

    Accordingly, we affirm the dismissal of the fiduciary and co‐fiduciary

claims against Hartford.  We also affirm the dismissal of the co‐fiduciary claim against
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Family Dollar, a claim premised upon Hartfordʹs breach of fiduciary duty, for failure to

state a claim because Hartford had no such duty.

B. Misrepresentations and omissions

ERISA imposes a fiduciary duty ʺto avoid intentional material

misrepresentations in plan administratorsʹ communications with plan beneficiaries

about the contents of a plan.ʺ  Bell v. Pfizer, Inc., 626 F.3d 66, 74 (2d Cir. 2010).  A claim of

breach of fiduciary duty on this ground must allege (1) a misrepresentation or omission,

(2) materiality, and (3) detrimental reliance.  Id. at 75.  A misrepresentation is a false or

misleading statement.  See id. at 74 (citing Flanigan v. Gen. Elec. Co., 242 F.3d 78, 84 (2d

Cir. 2001)).  A misrepresentation or omission is material if there is ʺa ʹsubstantial

likelihoodʹ that [it] ʹwould mislead a reasonable employee in making an adequately

informed decisionʹʺ about whether to purchase an offered benefit.  Id. at 75 (quoting

Caputo v. Pfizer, 267 F.3d 181, 192 (2d Cir. 2001)).

We conclude that the district court did not err in dismissing the breach of

fiduciary duty claims against Family Dollar because the complaint did not identify any

material misrepresentations or omissions.  First, the statement that basic life insurance

was non‐contributory and Family Dollar would bear all costs is not false or misleading,

even when we read the complaint in plaintiffsʹ favor, because plaintiffs did not incur

any costs for receiving basic life insurance.   
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    Second, the failure to clarify that Family Dollar would apply part of the

employee premiums for supplemental life insurance toward its own cost for basic life

insurance is not misleading because, as the district court held, the enrollment materials

accurately disclosed the cost that employees were required to pay for supplemental life

insurance.  Family Dollar had no obligation to reveal how it would apply premium

proceeds.  See Nechis v. Oxford Health Plans, Inc., 421 F.3d 96, 102‐03 (2d Cir. 2005)

(holding insurer need not disclose its cost‐reduction strategies because it had ʺno duty

to disclose to plan participants information additional to that required by ERISAʺ); see

also Amatangelo v. Natʹl Grid USA Serv. Co., No. 04‐CV‐246S, 2011 WL 3687563, at * 9

(W.D.N.Y. Aug. 23, 2011) (ʺDefendants were not required to disclose how the premium

liabilities for each benefit structure are paid under the plan.ʺ (citing Bd. of Trs. of the

CWA/ITU Negotiated Pension Plan v. Weinstein, 107 F.3d 139, 146 (2d Cir. 1997))), affʹd sub

nom. Argay v. Natʹl Grid USA Serv. Co., 503 F. Appʹx 40 (2d Cir. 2012) (summary order).

    Third, the statement that supplemental life insurance was ʺsurprisingly

affordableʺ and ʺwithout high cost,ʺ see App. at 28, is not false or misleading because, as

the court noted, the enrollment materials did not describe the cost of supplemental life

insurance as involving favorable or below‐market rates.  The complaint does not

plausibly and in a non‐conclusory way allege that the statement was not true.   

    Plaintiffsʹ reliance on McConocha v. Blue Cross & Blue Shield of Ohio is

misplaced because here, unlike in McConocha, Family Dollar disclosed to plaintiffs what
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it charged.  See 898 F. Supp. 545, 547, 551 (N.D. Ohio 1995) (holding that insurance

provider breached fiduciary duty when it informed plaintiffs of 20% copayments but

actually charged more than 20%).

Accordingly, we affirm the district courtʹs dismissal of the

misrepresentation and omission claims against Family Dollar for failure to state a claim.  

C. Prohibited transactions

ERISA prohibits a fiduciary from engaging in a direct or indirect ʺtransfer

to, or use by or for the benefit of a party in interest, of any assets of the plan.ʺ  29 U.S.C.

§ 1106(a)(1)(D).  The statute also prohibits a fiduciary from ʺdeal[ing] with the assets of

the plan in [its] own interest or for [its] own account.ʺ  29 U.S.C. § 1106(b)(1).   

Plaintiffs alleged in the complaint that defendantsʹ cross‐subsidization

arrangement violated ERISAʹs ban on self‐dealing and benefited defendants by

reducing Family Dollarʹs payment obligations, allowing Hartford to secure the award of

the insurance contract, and increasing Hartfordʹs profits with every supplemental life

insurance policy sold.  The district court dismissed these claims for failure to state a

claim after determining that Family Dollar used plaintiffsʹ premiums for the sole

purpose of covering insurance costs under the Plan.   

We likewise conclude that the complaint failed to state a prohibited

transaction claim against Family Dollar.  Family Dollarʹs use of cost‐reduction strategies

to minimize its cost of providing employees with basic and supplemental life insurance
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does not constitute a transfer for its own benefit or self‐dealing in its own interest.  

Amatangelo, 2011 WL 3687563, at *7 (finding no evidence of prohibited transaction

where employer used employee contributions to pay for employerʹs insurance

liabilities); see Alves v. Harvard Pilgrim Health Care Inc., 204 F. Supp. 2d 198, 215 (D. Mass.

2002) (ʺThe mere fact that defendants used discounting arrangements to reduce their

net cost of providing prescription drug benefits does not constitute self‐dealing

proscribed by 2[9] U.S.C. § 1106(b)(1).ʺ).  We therefore affirm the dismissal of this claim.

The complaint also failed to allege that Hartford engaged or participated

in a prohibited transaction.  Sections 1106(a)(1)(D) and (b)(1) apply only to fiduciaries

and, as discussed, plaintiffs have not sufficiently alleged that Hartford is a fiduciary.  

Nor have plaintiffs identified any ERISA violation arising out of Family Dollarʹs

conduct that would subject Hartford to liability.  We thus affirm the dismissal of the

prohibited transaction and knowing participation claims against Hartford.

We have considered plaintiffsʹ remaining arguments and find them to be

without merit.  Accordingly, we AFFIRM the judgment of the district court.

FOR THE COURT:

     Catherine OʹHagan Wolfe, Clerk