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Matrix Prevails in Custodian Case Challenge

Litigation

In a case that has lumbered around since a 2017 embezzlement by Vantage Benefits Administrators, a custodian has finally been able to clear its name.

The action followed an Oct. 31, 2017 raid by the Federal Bureau of Investigation on the offices of Vantage Benefits Administrators “amid concerns that money may be missing from retirement accounts the company manages.” Vantage Benefits described itself as a full-service TPA specializing in corporate benefit programs, with a focus on small plans (under $10 million).

The Case History

In December 2017, MBA Engineering Inc. had accused Vantage Benefits Administrators, Inc., Vantage CEO Jeffrey A. Richie and Vantage CFO Wendy K. Richie of stealing approximately $2,269,653.43 from the company’s retirement plans between June 3, 2016 and June 7, 2017, and since prior to those transfers, the plans’ total combined balance was approximately $2.5 million, “…the Vantage Defendants’ scheme was simply catastrophic to the Plans and the participants’ retirement savings.” At that time the suit outlined a scheme whereby Vantage directed Matrix Trust Company to make a series of transfers from the plan trust accounts to an account maintained by Vantage at Bank of America “without any authorization or direction from MBA, as the plan sponsor and the plan administrator.” 

In March 2018, the plaintiffs in that case amended that suit to include Matrix Trust Company as a defendant—claiming that “Matrix made these numerous and substantial transfers of ERISA plan assets directly to Vantage Benefits without any direction or authorization of any kind from MBA or Meidinger as the ERISA administrator and the Trustee, respectively, of the Plans.” The suit further alleged that “by holding the assets of the Plans without any authorization from the Plaintiffs and by making the transfers of assets of the Plans to Vantage Benefits without any authorization or direction by Plaintiffs, Matrix exercised authority and control over the assets of the ERISA governed Plans and held fiduciary status as to the Plans under ERISA.” The complaint claims that “Matrix knew that all of the thirty-five fraudulent transfers were made to the same business bank account held in the name of Vantage Benefits itself, and not in the name of the Plans, and that the transfers depleted nearly the entire multimillion-dollar account balance held in the names of the Plans at Matrix.” 

Those arguments were subsequently rebuffed by Matrix Trust later that year, stating, among other things, that the claims were foreclosed by the terms of their Custodial Account Agreement. The court then concluded "that the issue of whether any such agreements were executed or are binding is best left for summary judgment practice after discovery." 

The Current Case

Which brings us to the recent decision (MBA Eng’g Inc. v. Vantage Benefits Adm’rs, Inc., 2022 BL 270264, N.D. Tex., No. 3:17-cv-03300, 8/3/22), rendered by Judge Brantley Starr of the US District Court for the Northern District of Texas, who noted that discovery had now occurred—and both the plaintiffs and Matrix had filed motions for summary judgment.

Judge Starr quickly dismissed arguments regarding injury and standing of the plaintiffs to bring suit by the Matrix defendants, who had claimed that the monetary claims were moot (most of the losses to the plans had been funded, at least temporarily by the plaintiffs)—but $96,109.97 still remained ($2,173,544.40 had been covered temporarily). “Even if Matrix is correct that the plaintiffs would lack standing if any recovery for the Plans would in the end flow entirely to the plaintiffs themselves, the plaintiffs here do have standing because $96,109.07 is still needed to ‘make good’ to the Plans the losses they suffered from the alleged breach of fiduciary duty,” he wrote.

Document ‘Ed’

Turning to arguments by Matrix that summary judgment (judgment in their favor without requiring discovery or a trial), the court acknowledged that the plan documents themselves “…by authorizing MBA to "appoint a Custodian of the Plan assets” such as Matrix, provide that “[t]he Custodian will be protected from any liability with respect to actions taken pursuant to the direction of the Trustee, Administrator, the Employer, and Investment Manager, a named Fiduciary or other third party with authority to provide direction to the Custodian.”

The court went on to note that the plan document further provides that “[t]he [Custodian] is not obligated to inquire as to whether [a distribution directed by the Administrator] is proper or within the terms of the Plan, or whether the manner of making any payment or distribution is proper”—and all that notwithstanding indemnification language between MBA and Matrix, as well as the service agreement between Matrix and Vantage and the Custodial Account Agreement between Matrix, Vantage, and MBA. The latter further specified that Vantage’s customers “shall be subject to that agreement,” alongside “…numerous provisions indicating that Matrix was entitled to rely conclusively on Vantage’s instructions.”

‘Bar’ Tab?

The court concluded that, “in summary, these provisions from both the Plan documents and the Custodial Account Agreement appear to expressly and unambiguously bar all of the plaintiffs’ claims against Matrix by excusing them from liability, waiving any claims, and indemnifying them. Apparently recognizing this, the plaintiffs offer no meaningful argument against their applicability based on the terms of these documents themselves. Rather, they argue that the parties did not actually enter into the Custodial Account Agreement, and that, even if they did, those provisions from both the Custodial Account Agreement and the Plan documents that purport to indemnify or relieve Matrix from liability are void under ERISA.” 

As for that latter argument, the court noted that while “discovery apparently failed to yield a signed copy of the Custodial Account Agreement, MBA did produce an addendum to the Master Services Agreement MBA entered with Vantage, which Meidinger signed,” and while “Meidinger says he does not remember ever seeing the Master Services Agreement either, and discovery has failed to yield a signed copy of the Master Services Agreement…” the court stated that that addendum stated that “[t]his Addendum is made part of the Master Services Agreement..., and the Master Services Agreement is incorporated herein as if fully set forth.” They went on to quote from that Master Services Agreement that the “undersigned also acknowledges receipt of a copy of the custodial agreement (see Exhibit B) and agrees to be bound by the terms of the custodial agreement.”

The court therefore concluded that “the signed addendum expressly acknowledges the existence of the Master Services Agreement and incorporates it, and the plaintiffs offer no alternative interpretation of or explanation for its terms. So, the lack of signed copies of these agreements does not create a genuine dispute of fact where the signed addendum, the plaintiffs’ own production of the form Master Services Agreement, Matrix’s agreements with Vantage and the parties’ conduct combine to indicate that the Master Services Agreement and the Custodial Account Agreement were agreed to and in effect here.”

Direct ‘Shuns’

And then there was the argument made by the plaintiffs that Matrix was a fiduciary—and therefore precluded from seeking protection under the aforementioned provisions as “against public policy.” After a brief discussion regarding the definition of a fiduciary, the court cited precedent from the Fifth Circuit that, “A person is a fiduciary only with respect to those portions of a plan over which he exercises control,” and that courts are to determine whether a purported fiduciary in fact is a fiduciary “without succumbing to the improper influence of titles and labels.” Rather, they noted that “Section 1002(21)(A) provides a functional definition of a fiduciary which depends, in part, upon whether a person ‘exercises any discretionary authority or discretionary control respecting management of such plan or exercises any authority or control respecting management or disposition of its assets.’

“Here, in the plaintiffs’ own words,” the court wrote, “Matrix completed each of the wire transfers in question solely at the instruction and direction of [Vantage].” The court continued, “And Matrix’s Services Agreement with Vantage specified that Vantage has, and at all times during the term of this Agreement will have, the requisite authority from each of its Customers to act on their behalf in connection with this Agreement.” Moreover, that agreement also provided that Matrix “shall not be liable for undertaking any act on instructions from [Vantage]” and that Matrix “shall be entitled to conclusively rely on the authenticity of any notice or other communication received from [Vantage] so long as [Matrix] reasonably believe[s] the notice or other communication to be genuine.”

‘Cause, ‘Control’

The plaintiffs here argued—as has recently been the case in other suits—that Matrix was a fiduciary because it exercised control over the fund assets in question by “holding the assets in its own account, one subject to the control of no person except Matrix, and [by directing] JPMorgan Chase to make the illegal payments.” The plaintiffs argued that this was sufficient to make Matrix a fiduciary, because an ERISA fiduciary is “one who exercises any control of plan assets,” and “discretion is not required.” However, the court took issue with that stance as “flatly at odds with section 1002(21)(A) , from which plaintiffs purportedly draw this minimal ‘any control’ standard, and with the standards set out in the Fifth Circuit caselaw discussed above.”

However, the court noted that, “in merely providing custodial services and initiating the transfers in question as ordered by Vantage, Matrix exercised no such power”—and “the plaintiffs point to nothing else to suggest that Matrix did in fact exercise such power, nor that it did anything here other than follow Vantage’s directions in completing the ministerial tasks assigned to it. Accordingly, Matrix was not a functional fiduciary under ERISA”—and thus, there was no public policy conflict. 

“And of course, even in the absence of such provisions, Matrix’s non-fiduciary status means the plaintiffs’ ERISA claims against Matrix that may only be brought against a fiduciary would still be subject to dismissal.”

That said, the court denied the plaintiffs’ motion for partial summary judgment, GRANTED Matrix’s motion for summary judgment—and DISMISSED WITH PREJUDICE all of the plaintiffs’ claims against Matrix. 

What This Means

Several suits of late have attempted to equate the ability of a recordkeeper to disburse funds with control of plan assets. This case is not that—here we have a contractual custodian acting at the direction of the party authorized to issue those directions—and a plaintiff looking to recover embezzled funds from a party that might ostensibly have blocked those transfers—though that would have required them to go outside the terms of their agreement. While the underlying events are surely tragic, the issues adjudicated here seem to be relatively straightforward contract law—though it’s taken five years to reach that final conclusion. 

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