Matrix Trust has pushed back on claims that its role as plan custodian created “functional fiduciary” liability for the firm in a case involving 401(k) plan asset theft by a third party administrator.
The motion, and supporting brief, filed in the United States District Court for the Northern District of Texas, presents two threshold issues: whether venue as to the claims against Matrix Trust is proper; and second, whether the Amended Complaint states a plausible claim against Matrix Trust under ERISA or the common law.
What Happened
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 of the plan’s approximate $2.5 million in assets. The action followed an Oct. 31 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.”
The MBA suit, filed in December, 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, MBA Engineering amended its complaint to include Matrix Trust Company as a defendant, claiming that charges that the Vantage defendants “misappropriated the Plans’ assets through thirty-five fraudulent transfers made by Matrix to Vantage Benefits over the course of twelve months,” and 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.”
Matrix Motion
In response the motion by Matrix notes that, as the plans’ fiduciaries, the plaintiffs here “bear the ultimate responsibility for the Plans under ERISA and, among other things, they have a duty of care to oversee service providers they hire for the Plans,” but goes on to note that, in this action, “they are trying to shift their liability to other parties who provided services for the Plans,” specifically Matrix Trust, who the motion explains “served as a directed custodian for the Plans.” The motion goes on to note that the custodial accounts were established to maintain custody and invest assets “as directed by authorized parties under the custodial agreement,” and that “the money the Plans allegedly lost was transferred out of the Custodial Accounts under the direction and authority of Vantage.”
With regard to its position on venue, the motion explains that “Matrix Trust is a Colorado-based corporation that does not have a physical presence in Texas (where the original suit, home to Vantage Benefits, was filed), and that “its alleged involvement in the alleged fraud is limited to having custody of funds in the Custodial Accounts and processing the electronic wire instructions through which money was transferred out of the Custodial Accounts,” which were maintained in Colorado, “where the plan is administered, where the breach took place, or where a defendant resides or may be found, and process may be served in any other district where a defendant resides or may be found,” going on to note that the plans in question here are administered in Minnesota (where Plaintiffs reside) “and does not allege that Matrix acted (or failed to act) from anywhere other than its principal place of business in Colorado.”
Matrix goes on to explain that, even if venue were proper in this district, a transfer to the District of Colorado is warranted because “there is a valid forum selection clause in the Custodial Agreement that governs the Custodial Accounts,” and that the “relevant factors support a transfer to the District of Colorado, where Matrix Trust resides, where the Custodial Account records are maintained, and where its employees are.” Moreover, the motion explains that “…the resolution of the claims against the Vantage Defendants by default judgment will leave Plaintiffs and Matrix Trust as the only remaining parties in the case,” and that “if severance is necessary to effectuate a transfer, the Court should do so and transfer the claims.
‘Equity’ Able?
Venue notwithstanding, the motion by Matrix Trust articulates three independent rationales for why the claims against the firm should by dismissed under Federal Rule 12(b)(6). First, they allege that the plaintiffs lack statutory standing to bring their ERISA claims. “Plaintiffs do not—and cannot—seek recovery on behalf of the Plans or their participants or beneficiaries for the simple reason that the Plans have already been made whole, and any alleged injury previously sustained by the Plans has been remedied.” The motion states, referring to the decision of MBA to replenish the funds stolen by Vantage Benefits from the plan, that the MBA plaintiffs are “effectively bringing an action for contribution, seeking compensation for amounts they have paid to the plans as a result of their own breach of their fiduciary duty to monitor Vantage.”
The motion notes that the plaintiffs in the case – Minnesota-based MBA Engineering Inc. as plan administrator and trustee of the MBA Engineering, Inc. Employees 401(k) Plan and the MBA Engineering, Inc. Cash Balance Plan – filed suit “in their individual capacities and not on behalf of the Plans,” that they had contracted with Vantage Benefits Administrators, Inc. to serve as the Plans’ third party administrator (“TPA”) and record keeper.”
In their brief in support of the motion, Matrix Trust argues that plaintiffs “lack standing under ERISA to obtain individual relief in the nature of contribution from other alleged co-fiduciaries,” and that “ERISA’s civil enforcement provisions are designed to provide remedies for plans and their beneficiaries, not fiduciaries.”
Secondly, the motion says that, even if the plaintiffs are assumed to have standing, “the facts alleged do not support a plausible inference that Matrix Trust is liable under ERISA”. That’s because they say the plaintiff’s claims “rise and fall with the allegation that Matrix Trust was a “fiduciary” under the statute, going on to state that the term “…does not apply here because there is no allegation that Matrix Trust was named in the plan documents or pursuant to a procedure set forth in the plan documents, or that it exhibited discretionary control over any aspect of the Plans’ affairs, or that it had functional control over Plan assets.” The motion goes on to note that Matrix Trust is only alleged to have held plan assets “in custody, which does not equate to control, and to have executed transaction instructions,” and that “courts have regularly held that providing these basic services for retirement plans, without more, does not give rise to fiduciary status.”
Know ‘Ledge’?
Perhaps the most intriguing argument made by the plaintiffs in their amended complaint was that Matrix Trust knew or “should have known” of particular facts, giving rise to “functional fiduciary” status (and liability). In its motion, Matrix Trust rebuts that notion, stating that ERISA’s “functional fiduciary” definition “does not turn on actual or constructive knowledge, and even if it did, Plaintiffs do not allege facts giving rise to a plausible inference that Matrix Trust, a corporation that can only obtain knowledge through its agents, “knew” any fact cited in the Amended Complaint,” nor to the allegation that Matrix Trust “knowingly participated” in the Vantage Defendants’ alleged ERISA breaches and violations.
In their brief supporting the motion, Matrix Trust notes not only that “there is no allegation that Matrix Trust agreed or otherwise undertook to relieve Plaintiffs of their duty to oversee and monitor the Vantage Defendants,” and that under ERISA, “that duty falls on plan sponsors and administrators (i.e., the employer), who are far better positioned to detect fraud than custodial banks and trust companies whose role is limited to processing transactions”.
And while, the motion continues, the plaintiffs acknowledge that Matrix Trust did, in fact, establish Custodial Accounts for the Plans, consistent with the Master Agreement, they “…nonetheless strategically avoid mentioning the Master Agreement in their Amended Complaint, likely because the incorporated Custodial Agreement provides that Matrix Trust does not act as a fiduciary.” That same agreement, according to the motion, “further specifies that Matrix Trust “shall be under no duty to make an investigation with respect to any Instructions received from the Designated Representative or an Investment Manager.”
Finally, the motion states that the two common law claims asserted against Matrix Trust fail to state a claim “because the Amended Complaint does not allege facts showing that Matrix Trust owed a duty to either Plaintiff, nor does it identify any relevant “professional standard” of care that Matrix Trust allegedly failed to meet.”
The motion concludes that, for the reasons stated above, the court should: (1) dismiss all claims against Matrix Trust for improper venue or, alternatively, transfer it to the District of Colorado; or (2) alternatively, dismiss all claims against Matrix Trust for failure to state a claim.
We’ll see what the court has to say…
