Opinion ID: 815292
Heading Depth: 4
Heading Rank: 1

Heading: Counts I, II, and III

Text: Appellants allege in Count I of the TAC that the CBC caused the 401(k) Plan to engage in prohibited transactions in violation of ERISA § 406, 29 U.S.C. § 1106, by including Bank-affiliated funds in the Plan’s investment lineup. In Count III, Appellants allege that the Bank itself participated in and abetted those prohibited transactions. Appellants argue that Appellees violated ERISA’s prohibited transactions provisions by failing to remove or replace the Affiliated Funds as Plan investment vehicles at each of the Committee meetings that occurred periodically during each year of the Removal Class Period, and the limitations period therefore began to run anew at each CBC meeting at which members failed to remove the funds. See Appellants’ Br. at 29, 37. Appellees argue that the failure to remove funds constitutes a failure to act, which cannot form the basis for a claim under 29 U.S.C. § 1106. Appellees’ Br. at 47-48. They contend that the only affirmative act alleged is the initial selection of the Bank-affiliated funds, which occurred more than six years before Appellants filed this action. Id. at 50. Appellees argue in the alternative that Counts I, II, and III are also barred under the three-year limitations period in 29 U.S.C. § 1113(2) because Appellants had actual knowledge of the alleged violation more than three years before filing. Id. at 50-55, 69-70. The district court construed Counts I, II, and III as challenging the initial selection of the Bank-affiliated funds, which undisputedly occurred no later than 1999, and accordingly held that the claims are time-barred under the 6-year limitations period in 29 U.S.C. § 1113(1)(A). Alphin, 817 F. Supp. 2d at 776-781. We agree with the district court. Although Appellants argue that Claims I and III are based only upon an omission (i.e., the 22 DAVID v. ALPHIN failure to remove the Bank-affiliated funds from the 401(k) Plan investment lineup), the alleged prohibited transactions and breach could only be based on the initial selection of the funds. Count I alleges that Appellees, by their actions and omissions, caused the Plans to engage in prohibited transactions under § 406(a)(1)(A), (C), and 406(b), of ERISA. Section 406(a)(1) provides: (a) Transactions between plan and party in interest Except as provided in section [408] of this title:
not cause the plan to engage in a transac- tion, if he knows or should know that such transaction constitutes a direct or indirect— (A) sale or exchange, or leasing, of any property between the plan and a party in interest; — (C) furnishing of goods, services, or facilities between the plan and a party in interest; 29 U.S.C. § 1106(a)(1)(A), (C). Section 406(b) provides: (b) Transactions between plan and fiduciary A fiduciary with respect to a plan shall not— (1) deal with assets of the plan in his own interest or for his own account, DAVID v. ALPHIN 23
act in any transaction involving the plan on behalf of a party (or represent a party) whose interests are adverse to the interests of the plan or the interests of its participants or beneficiaries, or
personal account from any party dealing with such plan in connection with a transac- tion involving the assets of the plan. 29 U.S.C. § 1106(b). To establish a claim under section 406(a), Appellants must show that a fiduciary caused the plan to engage in the allegedly unlawful transaction. Lockheed Corp. v. Spink, 517 U.S. 882, 888 (1996). Courts have held that a decision to continue certain investments, or a defendant’s failure to act, cannot constitute a transaction for purposes of section 406(a) or 406(b). Wright v. Metallurgical Corp., 360 F.3d 1090, 1101 (9th Cir. 2004) (The decision by the Oremet Defendants to continue to hold 15% of Plan assets in employer stock was not a ‘transaction.’); Tibble v. Edison Int’l, 639 F. Supp. 2d 1122, 1126 (C.D. Cal. 2009) (SCE’s alleged failure to act, however, cannot constitute a ‘transaction’ for the purposes of § 1106(a)(1)(D).). We agree with this view. The common understanding of the word transaction implies that an affirmative action is required. (See Meriam Webster dictionary: transaction: 1) a: something transacted; especially: an exchange or transfer of goods, services, or funds; . . . 2) a: an act, process, or instance of transacting.). Accordingly, we find untenable Appellants’ contention that their claims are timely because Appellees’ failure to remove the affiliated funds at every committee meeting constituted a new prohibited transaction, and thus, a breach of fiduciary duty. The only action that can support an alleged prohibited 24 DAVID v. ALPHIN transaction is the initial selection of the affiliated funds, which undisputedly occurred in 1999. Thus, the district court correctly determined that the limitations period ran prior to the filing of this action in 2006. Appellants allege in Count II of the TAC that Appellees breached their fiduciary duties of prudence and loyalty by failing to remove or replace the BOA-affiliated funds as investment vehicles despite poor performance and higher fees in comparison to other available alternatives during the relevant time period. In considering Count II, the district court concluded that [w]hile ERISA fiduciaries are in fact obliged to monitor funds contained in the Plan lineup for material changes, the court can find no continuing obligation to remove, revisit, or reconsider funds based on allegedly improper initial selection. Alphin, 817 F. Supp. 2d at 777. Appellants assert that the district court erred in suggesting that Count II alleges an improper monitoring claim. Appellant’s Br. at 36. They maintain that the allegation is solely one of a violation of the well-settled duty to remove imprudent investments, not the duty to monitor. Id. Appellees argue that the district court properly found that there is no duty to remove funds absent a material change in circumstances. As the district court held, Appellants have not claimed that the bank-affiliated funds became imprudent, based on fund performance or increased fees, during the limitations period. Rather, the TAC alleges that the affiliated funds offered poor performance and high fees, and that at each Committee meeting during the Removal Class Period, Appellees had cause to remove the Affiliated Funds based on their poor performance and high fees, but failed to do so. J.A. 3122 (TAC ¶¶ 117-18). The TAC makes clear that the challenge to the prudence of the funds which underlies Count II is based on attributes of the funds that existed at the time of their initial selection — their alleged poor performance and high fees relative to alternative available fund options. Thus, the claim is DAVID v. ALPHIN 25 not truly one of a failure to remove an imprudent investment. It is, at its core, simply another challenge to the initial selection of the funds to begin with. Again, as the initial selection of the Bank-affiliated funds undisputedly occurred in 1999, this claim is time-barred. We affirm the district court’s holding that Appellees’ initial selection of the Bank-affiliated funds for inclusion in the 401(k) Plan investment lineup triggered the limitations clock in this case and accordingly affirm the district court’s dismissal of Counts I, II and III. In so doing, we do not decide whether ERISA fiduciaries have an ongoing duty to remove imprudent investment options in the absence of a material change in circumstances, or whether Appellants had actual knowledge of the claims, as Appellees contend, thereby triggering the three-year limitations period in 29 U.S.C. § 1113(2).