Bryant v. Matrix Trust Co., LLC

          ORDER

          PHILIP A. BRIMMER CHIEF UNITED STATES DISTRICT JUDGE.

         This matter comes before the Court on defendant Matrix Trust Company, LLC's Renewed Motion to Dismiss the Complaint and Brief in Support [Docket No. 37]. The Court has jurisdiction pursuant to 28 U.S.C. § 1331 and 28 U.S.C. § 1367.

         I. BACKGROUND

         The allegations in plaintiff's Complaint [Docket No. 1] are to be taken as true in considering a motion to dismiss. Brown v. Montoya, 662 F.3d 1152, 1162 (10th Cir. 2011). The Court will also consider attached exhibits and documents incorporated into the complaint by reference. Smith v. United States, 561 F.3d 1090, 1098 (10th Cir. 2009).

         This case arises out of misfeasance by a plan trustee. Plaintiff is the court-appointed fiduciary for Retirement Security Plan and Trust (“RSPT”), a trust comprised of various retirement plans. Docket No. 1 at 2, ¶ 1-2. RSPT's original named trustee was Matthew D. Hutcheson (“Hutcheson”). Id. at 3, ¶ 8. RSPT's sponsor and administrator was Hutcheson Walker Advisors, LLC (“HWA”) and its third-party administrator was ASPire Financial Services (“ASPire”). Id., ¶¶ 8, 11, 13. Defendant, doing business as “MG Trust Company, LLC, ” entered into a Custodial Account Agreement (the “Custodial Agreement”) with HWA and Hutcheson in 2009. Docket No. 1-2. Under the Custodial Agreement, defendant agreed to “take, hold, invest, and distribute all of the assets of [RSPT] . . . as a non-discretionary, directed custodian.” Id. at 7. The Custodial Agreement provided for a Designated Representative - here, ASPire - who would “provide direction to [defendant]” by “provid[ing] [i]nstructions” on behalf of RSPT. Id. at 8.^[1] The instructions provided by ASPire could include “plac[ing] orders for the purchase and sale of securities” and authorizing disbursement of funds on RSPT's behalf. Id. The Custodial Agreement provided that defendant “shall be under no duty to make an investigation with respect to any [i]nstructions received from [ASPire].” Id. The Custodial Agreement also provides that Hutcheson, as Trustee, “has the power to delegate trading authorization to [ASPire] and has done so by executing [the Custodial Agreement].” Id. at 14.

         On December 21, 2010, Hutcheson emailed ASPire, instructing it to make a request to defendant to transfer $275, 000 of RSPT assets to an account which later turned out to be controlled by Hutcheson. Docket No. 1 at 6, ¶ 28. ASPire made the request to defendant. Id., ¶ 29. Upon receipt of the instructions, defendant transferred the funds. Id. On December 23, 2010, Hutcheson instructed ASPire to have defendant transfer $3, 001, 000 of RSPT assets to a real estate title company in order to purchase a bank note. Id., ¶ 30. Again, ASPire did so, and defendant followed the instructions. Id., ¶ 32. Hutcheson used the $3, 276, 000 to purchase the bank note f or the benefit of a company owned or controlled by Hutcheson. Id., ¶ 33. Hutcheson gave a promissory note to RSPT. Id., ¶ 34. Because the transaction between RSPT and a company owned or controlled by Hutcheson was a “prohibited transaction, ” the United States Department of Labor began an investigation. Id. at 8, ¶¶ 43-44. The Department of Labor removed Hutcheson as trustee and appointed plaintiff as his replacement. Id., ¶ 46. Hutcheson was eventually charged with crimes related to the transfer of funds. Id., ¶ 47. A jury found Hutcheson guilty of wire fraud. Id., ¶ 49.

         On December 30, 2016, plaintiff filed this lawsuit in the District of Idaho. Docket No. 1. Plaintiff asserts five claims for relief: (1) breach of fiduciary duty under the Employee Retirement Income Security Act of 1974 (“ERISA”), 29 U.S.C. § 1001 et seq., to prudently manage RSPT's assets; (2) breach of fiduciary duty under ERISA to administer RSPT in accordance with its terms; (3) professional negligence; (4) state law breach of fiduciary duty; and (5) attorney's fees and costs. Id. at 9-16, ¶¶ 52-84. Defendant moved to dismiss under Fed.R.Civ.P. 12(b)(3) and 12(b)(6), arguing that (1) venue was improper in the District of Idaho and (2) plaintiff failed to state a claim upon which relief could be granted. Docket No. 10-1. The Idaho court granted the motion to dismiss in part and denied it in part, concluding that venue was not proper in Idaho and transferring the case to this Court. Docket No. 30 at 13. The Idaho court did not reach the question of whether plaintiff had stated a claim under Fed.R.Civ.P. 12(b)(6). Docket No. 27 at 19 n.4 (report and recommendation of magistrate judge).

         Defendant subsequently filed a renewed motion to dismiss. Docket No. 37. Defendant argues that: (1) plaintiff's claims under ERISA fail because she does not allege facts that plausibly show that defendant was an ERISA fiduciary with respect to RSPT; (2) plaintiff's claim for professional negligence is barred by the statute of limitations, the economic loss rule, and waiver; and (3) plaintiff's state law claim for breach of fiduciary duty is preempted by ERISA or is otherwise barred. Id. at 8-16.

         II. LEGAL STANDARD

         To survive a motion to dismiss under Rule 12(b)(6) of the Federal Rules of Civil Procedure, a complaint must allege enough factual matter that, taken as true, makes the plaintiff's “claim to relief . . . plausible on its face.” Khalik v. United Air Lines, 671 F.3d 1188, 1190 (10th Cir. 2012) (citing Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). “[W]here the well-pleaded facts do not permit the court to infer more than the mere possibility of misconduct, the complaint has alleged-but it has not shown-that the pleader is entitled to relief.” Ashcroft v. Iqbal, 556 U.S. 662, 679 (2009) (internal quotation marks and alteration marks omitted); see also Khalik, 671 F.3d at 1190 (“A plaintiff must nudge [his] claims across the line from conceivable to plausible in order to survive a motion to dismiss.” (quoting Twombly, 550 U.S. at 570)). If a complaint's allegations are “so general that they encompass a wide swath of conduct, much of it innocent, ” then plaintiff has not stated a plausible claim. Khalik, 671 F.3d at 1191 (quotations omitted). Thus, even though modern rules of pleading are somewhat forgiving, “a complaint still must contain either direct or inferential allegations respecting all the material elements necessary to sustain a recovery under some viable legal theory.” Bryson v. Gonzales, 534 F.3d 1282, 1286 (10th Cir. 2008) (alteration marks omitted).

         III. ANALYSIS

         A. ERISA Claims

         Defendant argues that plaintiff's ERISA claims fail because she has not plausibly alleged that defendant is a fiduciary under ERISA with respect to RSPT. Docket No. 37 at 8.

         “ERISA designates as fiduciaries not only those persons expressly named by a plan, but also those persons who exercise control over the management and administration of the plan and the distribution of its assets [and] individuals who provide investment advice for a fee or other compensation.” Reich v. Stangl, 73 F.3d 1027, 1029 (10th Cir. 1996) (internal citations and quotations omitted).^[2] If a person is not a “named fiduciary” under 29 U.S.C. § 1102(a), he or she may nevertheless be a functional fiduciary. 29 U.S.C. § 1102(a); Reich, 73 F.3d at 1029. As the statute explains,

a person is a fiduciary with respect to a plan to the extent (i) he 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, (ii) he renders investment advice for a fee or other compensation, direct or indirect, with respect to any moneys or other property of such plan, or has any authority or responsibility to do so, or ...