In Danza v. Fidelity Management Trust Company, No. 12-3497 (3rd Cir. 2013), the plaintiff, Nicholas Danza (“Danza”), had brought suit on behalf of himself and other similarly situated beneficiaries of employee benefit plans against the defendants, Fidelity Management Trust Company and Fidelity Investments Institutional Operations Company (collectively, “Fidelity”), alleging that they violated various provisions of ERISA by charging plan participants an excessive service fee for reviewing Domestic Relations Orders (“DROs”). The district court had granted Fidelity’s motion to dismiss, and Danza appeals.
In this case, Danza was a participant in a 401(k) retirement plan (the “Plan”) sponsored by his employer. The employer and Fidelity entered into a Trust Agreement under which Fidelity agreed to provide recordkeeping and administrative services for the Plan, which included the review of DROs for compliance with ERISA and the members’ plan. The fees for this review ranged from $300 for a review of a DRO generated on Fidelity’s website to $1,800 when plans not on Fidelity’s website are involved. When a DRO naming Danza was reviewed by Fidelity, Danza was charged $1,200. This suit ensued.
In analyzing the case, the Third Circuit Court of Appeals (the “Court”) noted that Danza asserts that Fidelity violated ERISA by entering into an agreement to charge allegedly excessive fees and for collecting such fees. Thus, the Court said, to determine if Plaintiff properly alleges violations of ERISA, Fidelity’s conduct must be examined at two points: when it was negotiating for the fees and when it was collecting the fees.
The potential ERISA violation at the negotiating stage was a breach of fiduciary duty-namely a duty of loyalty to participants- under section 404(a) of ERISA. But at this stage, Fidelity was not a fiduciary of the plan, and thus could not commit a fiduciary breach. The potential ERISA violation as the collection stage is the same-breach of duty of loyalty to participants-but Fidelity did not set the fees it was charging and was merely collecting fees negotiated for at the earlier stage. Thus, Fidelity could not commit a fiduciary breach at this stage either. As such, the Court concluded that Danza’s claim under section 404(a) of ERISA fails. Similarly, the Court concluded that Danza’s other claims of ERISA violations-such as breach of fiduciary duty by a co-fiduciary under section 405(a) of ERISA, involvement in prohibited transactions in violation of section 406 of ERISA, also fail. As a result, the Court affirmed the district court’s motion to dismiss.