Opinion
2:22-cv-01944-KJM-AC
04-19-2023
Leslie Dean Forman, Plaintiff, v. John Hancock Life Insurance Company and DOES 1 through 20, inclusive, Defendants.
ORDER
Plaintiff Leslie Dean Forman, a resident of Placer County, brings this action against defendant John Hancock Life Insurance Company (“JHLICO”), claiming JHLICO was negligent, engaged in fraudulent misrepresentation, and breached its fiduciary duty when it improperly handled Forman's investment account holdings. JHLICO moves to dismiss Forman's complaint. Mot., ECF No. 7. The court held a hearing on the motion on March 10, 2023. Mins. Hr'g, ECF No. 18. Karen Frostrom appeared for plaintiff and Brian Murray appeared for defendant. Id. For the reasons below, the court grants the motion in part with leave to amend and denies it in part.
At hearing, the court confirmed with the parties JHLICO was erroneously sued as John Hancock Retirement Plan Services. The caption has been corrected on the public docket.
When citing page numbers on filings, the court uses the pagination automatically generated by the CM/ECF system.
The court grants JHLICO's unopposed request for judicial notice of GFBB Benefits and Insurance Services, Inc. and Prospero Benefits Group & Insurance Services, Inc.'s public tax and account holding documents for the employer-run retirement investment accounts, of which Forman was the trustee. See Request for Judicial Notice (RJN), ECF No. 8; see also Fed.R.Evid. 201(c); Terraza v. Safeway Inc., 241 F.Supp.3d 1057, 1067 (N.D. Cal. Mar. 13, 2017) (“Courts routinely take judicial notice of ERISA plan documents . . . .”). But the court does not take judicial notice of disputed factual information contained in those documents. See Lee v. City of Los Angeles, 250 F.3d 668, 690 (9th Cir. 2001).
I. BACKGROUND
A. Factual Background
Plaintiff Forman opened an “investment account” with defendant JHLICO in 2017 depositing approximately $2,709,851. State Ct. Compl. ¶ 5, Notice of Removal Ex. A, ECF No. 1-1. At hearing, Forman conceded the account in question is an employer-sponsored tax qualified 401(k) Plan. More than a year prior to opening this 2017 account, Forman had signed a recordkeeping agreement with JHLICO in December 2015 as trustee for the 401(k) “Profit Sharing Plan” held by his former employer Prospero Benefits and Insurance Services (formerly GFBB Benefits and Insurance Services, Inc.). Recordkeeping Agreement at 27, Mot. Ex. A, ECF No. 7-2. At hearing, Forman confirmed he is still a trustee of the Plan.
At hearing, Forman confirmed he does not dispute the authenticity or existence of this agreement. See also Opp'n at 1 (claiming “[t]he facts set forth in [defendant's] motion are accurate”). The court takes judicial notice of the existence of the agreement in deciding this motion. See Knievel v. ESPN, 393 F.3d 1068, 1076 (9th Cir. 2005) (holding “even though the plaintiff does not explicitly allege the contents of th[e] document in the complaint,” courts may consider documents defendant attaches to its motion to dismiss and where authenticity is not disputed by parties).
In the recordkeeping agreement, Forman, as trustee of the Plan held by Prospero, contracted with JHLICO for “recordkeeping and administrative services for the Plan.” Id. at 5. The agreement explicitly states John Hancock is a “limited fiduciary” and “shall[] act only in accordance with directions from trustee(s)” who retain “authority and responsibility for reviewing the Plan documents, ensuring compliance with ERISA, . . . and instructing John Hancock accordingly.” Id.
In 2020, Forman realized the stock market was destabilizing and instructed JHLICO to move money he identifies as his, valued at that point at about $3,129,969, out of the stock market into a stable value fund. See State Ct. Compl. ¶ 6. Forman claims JHLICO later negligently handled his money when in January 2021 JHLICO transferred his funds from that stable value fund back into the stock market without his consent, causing a loss of roughly $537,000. Id. ¶ 7. In February 2022, Forman ordered JHLICO to liquidate his holdings and transfer them to an alternate account servicer, Principal Life, but a delay in JHLICO's processing caused another loss of $50,000. See id. ¶ 9.
B. Procedural Background
Forman brought state law claims in California Superior Court against JHLICO for negligence, misrepresentation and breach of fiduciary duty, seeking damages. Id. at 6-8. JHLICO removed the case to federal court based on 28 U.S.C. § 1446(b), invoking federal jurisdiction under 28 U.S.C. §§ 1331 and 1332. Notice of Removal ¶¶ 2-11, ECF No. 1. JHLICO then brought this motion to dismiss asserting federal law preempts Forman's claims. Mot. at 2. Forman opposes the motion, see Opp'n, ECF No. 12, and JHLICO has replied, see Reply, ECF No. 16. At hearing, Forman confirmed he is suing in his individual capacity and not on behalf of Prospero as trustee of the Plan, because he is the beneficiary of the account and was the one who lost the money.
Forman is a California citizen and JHLICO is a Michigan corporation with its principal place of business in Massachusetts. Not. of Removal ¶ 10. The amount in controversy exceeds $75,000. Id.
II. LEGAL STANDARD
Under Federal Rule of Civil Procedure 12(b)(6), a party may move to dismiss for “failure to state a claim upon which relief can be granted.” Fed.R.Civ.P. 12(b)(6). The motion may be granted if the complaint lacks a “cognizable legal theory” or if its factual allegations do not support a cognizable legal theory. Godecke v. Kinetic Concepts, Inc., 937 F.3d 1201, 1208 (9th Cir. 2019) (quoting Balistreri v. Pacifica Police Dep't, 901 F.2d 696, 699 (9th Cir. 1988)). The court assumes all factual allegations are true and construes “them in the light most favorable to the nonmoving party.” Steinle v. City of San Francisco, 919 F.3d 1154, 1160 (9th Cir. 2019) (quoting Parks Sch. of Bus., Inc. v. Symington, 51 F.3d 1480, 1484 (9th Cir. 1995)). “Ordinarily, a court may look only at the face of the complaint to decide a motion to dismiss,” Van Buskirk v. Cable News Network, 284 F.3d 977, 980 (9th Cir. 2002), and may not “consider[ ] evidence outside the pleadings,” United States v. Ritchie, 342 F.3d 903, 907 (9th Cir. 2003). However, exceptions exist for “matters of judicial notice,” which a court may properly consider “without converting the motion to dismiss into a motion for summary judgment.” Id. at 908-09. If the complaint's allegations do not “plausibly give rise to an entitlement to relief,” the motion must be granted. Ashcroft v. Iqbal, 556 U.S. 662, 679 (2009).
A complaint need contain only a “short and plain statement of the claim showing that the pleader is entitled to relief,” Fed.R.Civ.P. 8(a)(2), not “detailed factual allegations,” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). But this rule demands more than unadorned accusations; “sufficient factual matter” must make the claim at least plausible. Iqbal, 556 U.S. at 678. In the same vein, conclusory or formulaic recitations of elements do not alone suffice. Id. This evaluation of plausibility is a context-specific task drawing on “judicial experience and common sense.” Id. at 679.
III. ERISA PREEMPTION
JHLICO argues all three of plaintiff's claims-negligence, misrepresentation and breach of fiduciary duty-are preempted by the Employee Retirement Income Security Act of 1974 (ERISA) because they relate to an ERISA-governed plan. Mot. at 2. JHLICO argues the account in question is related to a “tax qualified 401(k) retirement plan[,] [which] is an ‘employee pension benefit plan' governed by [ERISA].” Mot. at 8. Forman agrees he “had a retirement account with John Hancock through his former employer, Prospero,” and concedes the facts set forth in Hancock's motion are true. Opp'n at 1.
ERISA provides statutory remedies for violations of employees' rights related to their pension or welfare plans. Shaw v. Delta Airlines, 463 U.S. 85, 90-91 (1983). The Act governs plans that “relate to any employee benefit plan” as defined by the statute. 29 U.S.C. § 1144(a); see also Metro. Life Ins. Co. v. Parker, 436 F.3d 1109, 1111 (9th Cir. 2006) (“[ERISA] governs the administration of employer-provided benefit pension plans.”).
There are two types of ERISA preemption: 1) “conflict preemption” under ERISA § 502(a), 29 U.S.C. § 1132(a), and 2) “express preemption” under ERISA § 514(a), 29 U.S.C. § 1144(a). See Fossen v. Blue Cross & Blue Shield of Mont., Inc., 660 F.3d 1102, 1107 (9th Cir. 2011). All “preemption provisions defeat state-law causes of action on the merits,” id., if certain conditions are met as explained below.
A. Forman's Claims Are Not Preempted By ERISA § 502(a)
ERISA § 502(a) “contains a comprehensive scheme of civil remedies to enforce ERISA's provisions” and completely preempts a state-law claim if the claim “would fall within the scope of [ERISA's] scheme of remedies.” Cleghorn v. Blue Shield of California, 408 F.3d 1222, 1225 (9th Cir. 2005). Defendant argues “[b]ecause Plaintiff's purported state law claims actually state a potential claim for breach of fiduciary duty under an ERISA plan, Plaintiff must assert them under ERISA § 502(a)'s civil enforcement provisions.” Mot. at 12-13. Specifically, defendant points to ERISA § 502(a)(2), id. at 12, which provides “[a] civil action may be brought . . . by a participant, beneficiary or fiduciary for appropriate relief under [ERISA § 409],” 29 U.S.C. § 1132(a)(2). ERISA § 409, in turn, sets forth liabilities for breach of fiduciary duty. 29 U.S.C. § 1109; see also 29 U.S.C. § 1002(21)(A) (defining ERISA fiduciary).
Under ERISA,
[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 (iii) he has any discretionary authority or discretionary responsibility in the administration of such plan.29 U.S.C. § 1002(21)(A).
The court finds Forman's claims are not within the scope of ERISA § 502(a)(2) because JHLICO is not an ERISA fiduciary. Defendant itself argues it did not act as an ERISA fiduciary. See Opp'n at 16-17. The relationship between Forman and JHLICO is defined by the recordkeeping agreement the parties entered into in 2015. See Recordkeeping Agreement at 5. Under the terms of the agreement, JHLICO agreed to provide recordkeeping and administrative services. Id. JHLICO is not obligated to handle the pension benefits directly or manage the retirement accounts in a discretionary way; its obligations are explicitly non-discretionary. Id. Moreover, JHLICO argues it “did not perform any services [in the agreement] ‘as a fiduciary[.]'” Mot. at 17. Here, Forman could not have brought his claims under ERISA 502(a)(2) for breach of fiduciary duty because JHLICO is not an ERISA fiduciary. See Mertens v. Hewitt Assocs., 948 F.2d 607, 610 (9th Cir. 1991), aff'd, 508 U.S. 248 (1993) (“A party rendering professional services to a plan is not a fiduciary so long as he does not exercise any authority over the plan in a manner other than by usual professional functions.” (internal marks and citations omitted)).
Moreover, any fiduciary duties JHLICO owed Forman arose out of its obligations under the Recordkeeping Agreement and not from the terms of the Plan. Cf. Blue Cross of California v. Anesthesia Care Assocs. Med. Grp., Inc., 187 F.3d 1045, 1051-52 (9th Cir. 1999) (finding no preemption under ERISA § 502(a)(1)(B) because claims arose from alleged breach of separate contract, and not terms of ERISA-covered plan); Marin Gen. Hosp. v. Modesto & Empire Traction Co., 581 F.3d 941, 948 (9th Cir. 2009) (concluding no preemption under ERISA § 502(a)(1)(B) for claims arising out of separate oral agreement). Forman claims JHLICO wrongfully transferred his funds into the stock market and then delayed transferring his funds to a different account servicer against his explicit directions. State Ct. Compl. ¶¶ 7-9; See Opp'n at 1 (arguing for first time that system malfunction caused error forming basis of defendant's liability). The allegations in the complaint do not claim there was a violation of the terms of the Plan. Here, Forman's claims are not preempted by ERISA § 502(a).
B. Forman's Claims Are Not Preempted Under ERISA § 514(a)
ERISA § 514(a) can preempt a claim when the state action “relate[s] to” an ERISA-covered plan. Fossen, 660 F.3d at 1108. The Supreme Court has interpreted “relate to” in this context as (1) having a connection with or (2) referencing such an ERISA-covered plan. Cal. Div. of Labor Standards Enf't v. Dillingham Constr., N.A., Inc., 519 U.S. 316, 324 (1997). “Stated another way, where the existence of an ERISA plan is a critical factor in establishing liability under a state cause of action, the state law claim is preempted.” Wise v. Verizon Commc'ns, Inc., 600 F.3d 1180, 1190 (9th Cir. 2010) (citation and marks omitted).
The Supreme Court has narrowed its once broad interpretation of “relate to” in certain respects since ERISA was first passed, while maintaining a focus on the objectives of the ERISA statute and the principles it embodies to guide an understanding of the law's scope. See De Buono v. NYSA-ILA Med. & Clinical Servs. Fund, 520 U.S. 806, 813-15 (1997) (finding state health law did not infringe on ERISA in “case in which the existence of a pension plan [was not] a critical element of a state-law cause of action”); Egelhoff v. Egelhoff ex rel. Breiner, 532 U.S. 141, 148-50 (2001) (finding ERISA preempted Washington State statute automatically revoking life insurance benefits for divorced former spouse because revocation was contrary to ERISA principles requiring plans be administered and benefits paid in accordance with plan documents). Just because a state law claim has some connection with an ERISA plan does not mean it is automatically preempted; rather, it depends on the type of connection. N.Y. State Conf. of Blue Cross & Blue Shield Plans v. Travelers Ins. Co., 514 U.S. 645, 656 (1995) (“For the same reasons that infinite relations cannot be the measure of pre-emption, neither can infinite connections.”).
Additionally, ERISA principles are consistent with streamlining enforcement of the law. See Ingersoll-Rand Co. v. McClendon, 498 U.S. 133, 142 (1990) (noting goal of ERISA § 514(a) “to minimize the administrative and financial burden of complying with conflicting directives among States or between States and the Federal Government”). To this end, ERISA “controls the administration of benefit plans,” including “reporting and disclosure mandates, participation and vesting requirements, funding standards, and fiduciary responsibilities for plan administrators.” Travelers, 514 U.S. at 651 (internal citation omitted). With this understanding, preemption is designed “to avoid a multiplicity of regulation in order to permit the nationally uniform administration of employee benefit plans.” Id. at 657. If applying state law over federal law would interfere with the consolidation of administrative burdens, courts should exercise caution in assessing whether a matter is preempted. See Egelhoff, 532 U.S. at 149-50. These concerns are not present in this case involving Forman and JHLICO, however.
On the one hand, JHLICO argues the account in question is related to a “tax-qualified 401(k) retirement plan[,] [which] is an ‘employee pension benefit plan' within the meaning of ERISA[.]” Mot. at 12; see also 29 U.S.C. § 1002(2). The Plan documents for Forman, covered by JHLICO's Request for Judicial Notice, show the Plan had between seven and ten employees in any given year between 2017 and 2022. RJN, Exs. 1-6. Forman concedes the account at issue was a retirement account through his former employer, Prospero. Opp'n at 1.
[T]he terms ‘employee pension benefit plan' and ‘pension plan' mean any plan, fund, or program which was heretofore or is hereafter established or maintained by an employer or by an employee organization, or by both, to the extent that by its express terms or as a result of surrounding circumstances such plan, fund, or program--(i) provides retirement income to employees . . . . 29 U.S.C. § 1002(2) (emphasis added).
On the other hand, Forman's claims are not preempted under ERISA § 514(a) because the connections between the Plan and the state law causes of action are too tenuous. See Travelers, 514 U.S. at 661 (“Pre-emption does not occur . . . if the state law has only a tenuous, remote, or peripheral connection with covered plans, as is the case with many laws of general applicability.” (citations and marks omitted)); see also Scripps Health v. Schaller Anderson, LLC, No. 12-252, 2012 WL 2390760, at *3 (S.D. Cal. June 22, 2012) (finding ERISA did not preempt because “state-law claims are traditional state claims that are only tangentially related to the administration of the employee benefit plan”).
Here, Forman's claims concern JHLICO's alleged actions in transferring funds without Forman's consent, and later not moving the funds quickly enough-not the administration of the employee benefit Plan itself. See State Ct. Compl. ¶¶ 7-9; Opp'n at 1. The claims are not related to the denial of benefits under the ERISA-covered Plan, the administration of Plan benefits, or a breach of that Plan. See Ariz. State Carpenters Pension Tr. Fund v. Citibank (Ariz.), 125 F.3d 715, 724 (9th Cir. 1997) (Citibank's nonfiduciary custodial relationship with Trust and general state common law principles too tenuously connected with ERISA's regulation of benefit plans to trigger preemption). The claims if ultimately successful will not “preclude uniform administrative practices.” Id. at 723. The existence of an ERISA-covered employment pension plan is not “a critical factor in establishing liability” given the claims. Cf. Wise, 600 F.3d at 1190. The claims are not preempted. That does not mean they are pled to as to survive a motion to dismiss, as the court discusses next.
IV. FRAUDULENT MISREPRESENTATION CLAIM
Forman claims JHLICO misrepresented its services to him when his money was moved into the stock market against his explicit instructions. See State Ct. Compl. ¶¶ 15-16. In his opposition, Forman describes the negligent action as a “mistake” in JHLICO's computer software, which failed to turn off an auto-balancing function and moved the money back onto the stock market. See Opp'n at 1. Federal law requires that a party alleging fraud “state with particularity the circumstances constituting fraud or mistake.” Fed.R.Civ.P. 9(b). A defendant must be put on notice of the particular misconduct, enough so as to defend against the charge. See Kearns v. Ford Motor Co., 567 F.3d 1120, 1124 (9th Cir. 2009). Fraudulent misrepresentation under California law requires (1) a misrepresentation; (2) knowledge of that falsity; (3) intent to defraud; (4) justifiable reliance on that misrepresentation; and (5) damages. In re Estate of Young, 160 Cal.App.4th 62, 79 (2008).
Forman's pleading of this claim is light on details. See State Ct. Compl. ¶¶ 15-21. He identifies the misrepresentation simply as JHLICO's putting his money into a stable fund and then moving it to the stock market against explicit instructions. Id. But he does not explain JHLICO's knowledge of any falsity. Rather, in his opposition, Forman argues there was no “discretionary misconduct . . . but instead . . . flaws in the computer system” whereby JHLICO “failed to flip the second switch and turn off the auto balancing feature in the account.” Opp'n at 1. Forman's own argument that JHLICO made a “mistake” betrays no knowledge of falsity. See Id. at 2. Moreover, if Forman claims the system was mistaken and there was no “decision” made to move the money, then there cannot have been intent on the part of JHLICO to defraud Forman.
Also as noted, in his opposition Forman introduces Prospero as the party harmed by JHLICO's alleged fraudulent misrepresentation. He claims it was Prospero that relied on JHLICO's false representation. Id. at 3. But Prospero is not a party to this case. At hearing,
Forman clarified he is suing in his individual capacity and not on behalf of Prospero as the trustee of the Plan. If that is the case, he will need to clarify how he was harmed in any future complaint.
The court grants JHLICO's motion to dismiss the fraudulent misrepresentation claim, but with leave to amend if possible under Federal Rule of Civil Procedure 11. The court does not find leave to amend would be futile here. See Jackson v. Carey, 353 F.3d 750, 758 (9th Cir. 2003).
V. NEGLIGENCE AND BREACH OF FIDUCIARY DUTY CLAIMS
Apart from the argument on ERISA preemption, JHLICO does not separately seek dismissal of Forman's state law negligence or breach of fiduciary duty claims for failure to state a claim. These state law claims thus survive.
VI. CONCLUSION
For the reasons above, the court denies JHLICO's motion to dismiss the state law claims for negligence and breach of fiduciary duty based on ERISA preemption and grants JHLICO's motion to dismiss the state law claim for fraudulent misrepresentation with leave to amend. Any amended complaint shall be filed within 21 days of the filing date of this order.
The court grants JHLICO's request for judicial notice.
This order resolves ECF No. 7.
IT IS SO ORDERED.