16‐3327‐cv (L)
Allen v. Credit Suisse Secs. (USA) LLC
In the
United States Court of Appeals
for the Second Circuit
AUGUST TERM 2016
Nos. 16‐3327‐cv (L), 16‐3571‐cv (CON)
DORIS SUE ALLEN, DONNA S. LUCAS, JONATHAN G. AXELROD,
DANA KELLEN, HEDY L. ANSELMAN, TIMOTHY R. GARRETT,
WARREN J. PEPICELLI, JOHN A. BOARDMAN,
Plaintiffs‐Appellants,
v.
CREDIT SUISSE SECURITIES (USA) LLC, DEUTSCHE BANK AG, MORGAN
STANLEY, MORGAN STANLEY & CO. LLC, MORGAN STANLEY CAPITAL
SERVICES LLC, CREDIT SUISSE AG, BANK OF AMERICA CORPORATION,
BANK OF AMERICA, N.A., BARCLAYS PLC, BARCLAYS BANK PLC,
BARCLAYS CAPITAL INC., CITIBANK, N.A., CITIGROUP INC., THE
GOLDMAN SACHS GROUP, INC., GOLDMAN, SACHS & CO., HSBC
HOLDINGS PLC, HSBC BANK PLC, HSBC NORTH AMERICA HOLDINGS
INC., HSBC BANK USA, N.A., JPMORGAN CHASE BANK, N.A.,
JPMORGAN CHASE & CO., THE ROYAL BANK OF SCOTLAND PLC, THE
ROYAL BANK OF SCOTLAND GROUP PLC, RBS SECURITIES INC., UBS
AG, UBS SECURITIES LLC, MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED, BNP PARIBAS GROUP, BNP PARIBAS NORTH AMERICA,
INC., UBS INVESTMENT BANK, UBS INVESTMENT BANK, AMERICAS,
UBS GROUP AG, MERRILL LYNCH CAPITAL SERVICES, INC., BARCLAYS
GROUP US INC.,
Defendants‐Appellees,
CREDIT SUISSE GROUP AG, CREDIT SUISSE SECURITIES (EUROPE)
LIMITED, DOES, 1–30, DOES, 1–40, BNP PARIBAS SECURITIES CORP.,
CITICORP, CITIGROUP GLOBAL MARKETS INC., BNP PRIME BROKERAGE
INC.,
Defendants.
On Appeal from the United States District Court
for the Southern District of New York
ARGUED: JUNE 22, 2017
DECIDED: JULY 10, 2018
Before: JACOBS, LEVAL, RAGGI, Circuit Judges
___________
On appeal from a judgment entered in the United States District
Court for the Southern District of New York (Schofield, J.), dismissing
plaintiffs’ ERISA complaint for failure to state claims for which relief
can be granted, see Fed. R. Civ. P. 12(b)(6), plaintiffs fault the district
court for failing to recognize that the defendant banks acted as ERISA
functional fiduciaries in conducting the foreign currency exchange
transactions here at issue and, thus, that their alleged manipulation of
the foreign exchange market breached ERISA fiduciary duties owed
to plaintiffs’ employee benefit plans. Plaintiffs further fault the
2
district court’s denial of their request for a 60‐day adjournment and
leave to file a fourth amended complaint.
AFFIRMED.
REGINA M. MARKEY (J. Brian McTigue, on the
brief), McTigue Law LLP, Washington, D.C.,
for Plaintiffs‐Appellants.
DAVID G. JANUSZEWSKI (Herbert S. Washer,
Elai Katz, Jason M. Hall, Sheila C. Ramesh,
on the brief), Cahill Gordon & Reindel LLP,
New York, New York, for Defendants‐
Appellees Credit Suisse AG and Credit Suisse
Securities (USA) LLC.
MATTHEW A. SCHWARTZ (Yvonne S. Quinn,
David H. Braff, on the brief), Sullivan &
Cromwell LLP, New York, New York, for
Defendants‐Appellees Barclays PLC, Barclays
Bank PLC, Barclays Capital Inc., and Barclays
Group US Inc.
Adam S. Hakki, Richard F. Schwed, Jeffrey
J. Resetarits, Shearman & Sterling LLP,
New York, New York, for Defendants‐
Appellees Bank of America Corporation, Bank of
America, N.A., Merrill Lynch, Pierce, Fenner &
3
Smith Incorporated, and Merrill Lynch Capital
Services, Inc.
David C. Esseks, Laura R. Hall, Rebecca
Delfiner, Allen & Overy LLP, New York,
New York; John Terzaken, Allen & Overy
LLP, Washington, D.C., for Defendants‐
Appellees BNP Paribas Group and BNP Paribas
North America, Inc., and Defendants BNP
Paribas Securities Corp. and BNP Prime
Brokerage, Inc.
Andrew A. Ruffino, Covington & Burling
LLP, New York, New York; Alan M.
Wiseman, Thomas A. Isaacson, Andrew D.
Lazerow, Julie M. Edmond, Jamie A. Heine,
Covington & Burling LLP, Washington,
D.C., for Defendants‐Appellees Citibank, N.A.
and Citigroup Inc.
Joseph Serino, Jr., Eric F. Leon, Latham &
Watkins LLP, New York, New York, for
Defendant‐Appellee Deutsche Bank AG.
Thomas J. Moloney, George S. Cary, Sue S.
Guan, Cleary Gottlieb Steen & Hamilton
LLP, New York, New York, for Defendants‐
Appellees The Goldman Sachs Group, Inc. and
Goldman, Sachs & Co.
4
Gregory T. Casamento, Locke Lord LLP,
New York, New York; Roger B. Cowie,
Locke Lord LLP, Dallas, Texas; J. Matthew
Goodin, Julia C. Webb, Locke Lord LLP,
Chicago, Illinois, for Defendants‐Appellees
HSBC Holdings PLC, HSBC Bank PLC, HSBC
North America Holdings Inc., and HSBC Bank
USA, N.A.
Peter E. Greene, Boris Bershteyn, Skadden,
Arps, Slate, Meagher & Flom LLP,
New York, New York; Stephen L. Ratner,
Russell L. Hirschhorn, Proskauer Rose LLP,
New York, New York, for Defendants‐
Appellees JPMorgan Chase & Co. and
JPMorgan Chase Bank, N.A.
Jonathan M. Moses, Bradley R. Wilson,
Wachtell, Lipton, Rosen & Katz, New York,
New York, for Defendants‐Appellees Morgan
Stanley, Morgan Stanley & Co. LLC, and
Morgan Stanley Capital Services LLC.
Joel M. Cohen, Melissa C. King, Davis Polk
& Wardwell LLP, New York, New York, for
Defendants‐Appellees The Royal Bank of
Scotland PLC, The Royal Bank of Scotland
Group PLC, and RBS Securities Inc.
5
D. Jarrett Arp, Melanie L. Katsur, Gibson
Dunn & Crutcher LLP, Washington, D.C.;
Mark A. Kirsch, Indraneel Sur, Gibson
Dunn & Crutcher LLP, New York,
New York, for Defendants‐Appellees UBS AG,
UBS Group AG, UBS Securities LLC, UBS
Investment Bank, and UBS Investment Bank,
Americas.
REENA RAGGI, Circuit Judge:
In this civil action under the Employee Retirement Income
Security Act of 1974 (“ERISA”), 29 U.S.C. §§ 1132(a)(2) and (a)(3), the
named plaintiffs, acting on behalf of a putative class of trustees,
beneficiaries, and participants of various ERISA Employee Benefit
Plans (“Plans”),1 sue twelve banks and their affiliates for breach of
ERISA fiduciary duties owed to the Plans or, in the alternative, for
defendants’ knowing participation in prohibited transactions as non‐
fiduciary parties‐in‐interest. Plaintiffs here appeal from judgments
entered in the United States District Court for the Southern District of
New York (Lorna G. Schofield, Judge) on August 24, 2016, and on
1 Plaintiffs bring their claims on behalf of the participants and beneficiaries of their Plans,
including the Caterpillar Inc. Retirement Income Plan, the Caterpillar Inc. Retiree Benefit
Program, the Bridgestone Americas Salaried Employees Retirement Plan, the Health
Corporation of America 401(k) Plan, the Hospital Corporation of America Retirement Plan,
the Baker Hughes Incorporated Thrift Plan, and the International Ladies Garment Workers
Union Death Benefit Fund 2 and predecessor plans, as well as on behalf of participants,
beneficiaries, and named fiduciaries of all other similarly situated Plans.
6
September 20, 2016, dismissing the complaint for failure to state a
claim for which relief can be granted. See Fed. R. Civ. P. 12(b)(6). Both
judgments were based on the same reasoning. First, the district court
determined that defendants’ alleged fraudulent conduct in
conducting foreign currency exchange (“FX”) market transactions for
plaintiffs’ Plans was insufficient to plead the banks’ ERISA functional
fiduciary status. See Allen v. Bank of Am. Corp., No. 15 Civ. 4285 (LGS),
2016 WL 4446373, at *6–8 (S.D.N.Y. Aug. 23, 2016). Second, the district
court ruled that the alternative party‐in‐interest claim failed in the
absence of any allegation that non‐party Plan fiduciaries (i.e., the
investment managers who arranged the transactions with the
defendant banks) had actual or constructive knowledge of the banks’
fraud. Id. at *9–10.
In challenging dismissal, plaintiffs argue that defendants
acquired functional fiduciary status under ERISA by exercising
control over the disposition of Plan assets. Specifically, plaintiffs
contend that defendants manipulated the benchmark rates to which
the subject FX transactions were tied, effectively allowing them to
determine their own compensation for each transaction. Moreover,
on appeal, plaintiffs recast their alternative party‐in‐interest claim,
urging that it, too, is supported by defendants’ acquisition of ERISA
functional fiduciary status with regard to the subject transactions.
Defendants respond that the subject transactions were ordinary FX
transactions between arms’ length counterparties and, as such, did
not give rise to functional fiduciary status. Defendants emphasize
that they had no influence over the Plans’ decisions to enter into the
7
transactions, which were executed pursuant to written instructions
negotiated between defendants and the Plans’ investment managers.
Defendants submit that these instructions, which dictated their
compensation and the terms of the transactions’ execution, could not
confer sufficient control over the disposition of Plan assets to make
them fiduciaries, regardless of their alleged misconduct.
In appealing dismissal, as well as the district court’s denial of
their request for adjournment and leave to amend, plaintiffs fault the
district court for imposing a novel contract‐evidence requirement for
identifying ERISA functional fiduciary status. On de novo review of
the challenged dismissal, we reject plaintiffs’ argument and reach the
same conclusion as the district court, i.e., that plaintiffs fail to state
plausible ERISA claims because the facts alleged do not show that
defendants exercised the control over Plan assets necessary to
establish ERISA functional fiduciary status. Because we further
identify no abuse of discretion in the district court’s denial of
adjournment or leave to file a fourth amended complaint, we affirm
the challenged judgments in all respects.
BACKGROUND
I. Factual Background
This ERISA action challenges the conduct of twelve banks and
their affiliates in the FX market from January 2003 through 2014. For
purposes of this appeal, in discussing this conduct, we credit
8
allegations contained in the Second Amended Complaint, which
plaintiffs describe as fully capturing all claims against defendants.2
The FX market is the world’s largest and most actively traded
financial market, with defendants holding a combined global market
share of 84%. Indeed, as of 2013, defendants acted as counterparties
in approximately 98% of United States spot transactions in the FX
market.
By way of background, trading in the FX market has a seller
exchanging one currency that it holds for another currency that it
wishes to acquire. A customer contacts a dealer bank, which provides
a “bid,” i.e., the price at which the customer can sell the currency it
holds, and an “ask,” i.e., the price at which the customer can purchase
the currency it desires. The difference between these prices is the
“bid/ask spread,” which forms the basis for the dealer bank’s
compensation. In an untainted market, competition for customers’
orders serves to narrow bid/ask spreads.
A “spot transaction” exchanges a sum of currency at a settled
exchange rate on a value date that is within two business days of the
transaction. The most basic spot transaction is an order for immediate
execution by which a customer purchases or sells currency at the
quoted price. Another type of spot transaction, sometimes called a
“benchmark transaction,” is executed on the basis of a daily fixing rate
2 The alleged conduct has been the subject of several federal civil and criminal enforcement
actions detailed in the pleadings, but with the exception of one antitrust action, we do not
discuss these further here as they are not relevant to this appeal.
9
(i.e., a benchmark), which is a published exchange rate for a pair of
currencies that is calculated by various third parties at a daily
specified time. One of the most commonly used rates for benchmark
transactions is the WM/Reuters “4:00 p.m. fix,” which is published
each day at 4:00 p.m. London time. Fixing rates are presumably
determined automatically and anonymously using the median price
of actual FX transactions in the 30 seconds before and after a certain
time (the “fixing window”). When arranging a benchmark
transaction, the dealer guarantees execution at the fixing rate, or at a
rate determined by reference to the fixing rate, and derives its
compensation based on an agreed‐upon markup.
ERISA Plans often trade currency to settle their purchases and
sales of foreign securities, or to repatriate dividends, interest, and
redemptions that are paid in foreign currencies, rather than as a mode
of investment. Thus, the investment managers who invested assets
on behalf of plaintiffs’ Plans “authorized FX [t]ransactions with Plan
assets when [the managers’] investment strategies for a Plan required
the exchange of one currency for another.” App’x 523, ¶ 218. The
Plans’ managers would “arrange[] with [d]efendant banks to conduct
[an] FX transaction[],” id., ¶ 219, which the banks would then execute
pursuant to a direction or written authorization from the managers,
each of whom was “an independent pension plan fiduciary,” id. at
470, ¶ 75 n.28.
10
Plaintiffs here allege that defendants took advantage of their
dominant positions in both the wholesale and retail FX markets3 to
capitalize on their knowledge of customers’ order flows as well as to
collude with one another to benefit collectively from customer order
information, all of which was to the detriment of their customers,
including plaintiffs’ ERISA Plans. Plaintiffs allege that, toward these
ends, defendants manipulated benchmark fixing rates and, in
particular, used three primary techniques to exploit vulnerabilities in
methods for calculating those rates.4
First, defendants individually used or shared customer orders
and trading positions to devise strategies for trading in and around
the benchmarks. By exchanging information about net customer
orders, defendants were able to ascertain likely directional movement
of the fixing rate, enabling them to trade so as to amplify that
movement. Defendants allegedly employed the following tactics to
this purpose: (a) they “cleared the decks” of contrary trade orders
sufficiently in advance of the fixing window to eliminate or, at least,
diminish the effect of such orders on the fixing rate, id. at 451, ¶ 13;
(b) they matched or “netted out” customers’ buy and sell orders to
3 In this context, the “wholesale market” is the market between banks, whereas the “retail
market” is that between banks and non‐bank customers, including ERISA plans. The
trades in both markets are “over‐the‐counter,” which means that they do not occur on a
central exchange containing records of all daily transactions and their prices.
4 One example of a vulnerability is that present in the calculation of the WM/Reuters
Closing Spot Rates. These fixing rates are determined by reference to the median value of
the transactions alone and weigh all transactions equally. This calculation’s failure to
account for the notional size of the quotes and transactions rendered it susceptible to
defendants’ manipulation through artificial increases or decreases in trading volume.
11
prevent contrary orders from affecting the fixing rate, id., ¶ 14; (c) they
amassed large proprietary currency positions that they traded just
before or during the fixing window, see id., ¶ 15; (d) certain
defendants sold positions before the fixing window or failed to fill, or
delayed filling, orders to manipulate the fixing rate, see id., ¶ 16;
(e) defendants broke up large orders into smaller trades, timing them
relative to the fixing window to increase their effect on fixing rate
calculations, see id., ¶ 17; and (f) they placed orders with each other
before the fix to create the appearance of increased trading in the
desired direction, a practice known as “paint[ing] the screen,”
whereupon they would reverse the trades after the fixing window
closed, id. at 452, ¶ 19.
Second, defendants independently front‐ran market‐moving
customer orders by trading proprietary currency positions before
executing significant trades, buying before the customer’s order
increased the fixing rate or selling before that order decreased the
fixing rate.
Third, one defendant bank, Barclays, implanted a mechanism
in its electronic trading platform to give itself the functional
equivalent of an option contract on any currency trade, in that the
platform rejected orders where the market was moving to the
customer’s benefit during an artificial hold period, but executed
orders where the market was neutral or moving to Barclays’s benefit.
Plaintiffs further allege that, separate from benchmark
manipulation, defendants coordinated the bid/ask spread for various
12
currency pairs, effectively eliminating competition and fixing prices.
Moreover, defendants quoted customers different bid/ask spreads
based on what they understood a customer was buying or selling, and
imposed undisclosed markups or markdowns on the price FX traders
quoted to FX sales employees. Defendants also manipulated limit
and stop orders5 at levels above the limit order price to earn a greater
spread or markup with their execution.
II. Procedural History
Plaintiffs filed their initial complaint in this action on June 3,
2015. They filed their First Amended Complaint on November 16,
2015, and, by leave of court, their Second Amended Complaint on
April 6, 2016.
The Second Amended Complaint pleads nine claims. Claims I
and VI allege defendants’ breach of fiduciary duties of prudence and
loyalty in violation of ERISA § 404, see 29 U.S.C. § 1104; Claims II and
VII allege self‐interested transactions with Plan assets in violation of
ERISA § 406(b)(1), see id. § 1106(b)(1); Claims III and VIII allege action
on behalf of a party with interests adverse to those of the Plans in
violation of ERISA § 406(b)(2), see id. § 1106(b)(2); Claims IV and IX
allege action causing party‐in‐interest transactions in violation of
ERISA § 406(a)(1), see id. § 1106(a)(1); and Claim V alleges knowing
participation as non‐fiduciaries in party‐in‐interest transactions in
5 Limit and stop orders are trades conditioned on an exchange rate moving past a particular
threshold level.
13
violation of ERISA § 406(a)(1)(A) & (D), see id. §§ 1106(a)(1),
1132(a)(3).6
On May 19, 2016, three of the defendant banks and their
affiliates (“Group One Defendants”)7 moved to dismiss the Second
Amended Complaint for lack of subject matter jurisdiction, see Fed. R.
Civ. P. 12(b)(1), and for failure to state a claim, see Fed. R. Civ. P.
12(b)(6).
Meanwhile, the district court had granted preliminary
approval to settlements involving the remaining nine defendant
banks and their affiliates (“Group Two Defendants”) in the related
FOREX antitrust litigation, and had enjoined further prosecution of
this action against those defendants because plaintiffs’ ERISA Plans
were members of the settling classes.8 Thus, on June 1, 2016, while
6 Claims VI through IX were not asserted against any Group One Defendant. See Definition
of “Group One Defendants,” infra note 7.
7 This subset of defendants, which consists of Credit Suisse AG, Credit Suisse Securities
(USA) LLC, Deutsche Bank AG, Morgan Stanley, Morgan Stanley Capital Services LLC,
and Morgan Stanley & Co., LLC, was referred to by the district court as the “Non‐Settling
Defendants,” because they were not parties to the preliminarily approved settlement
agreement in In re Foreign Exchange Benchmark Rates Antitrust Litigation, 13 Civ. 7789 (LGS)
(S.D.N.Y. filed Nov. 1, 2013) (“FOREX antitrust litigation”), an antitrust case predicated on
the same facts as this case and also assigned to Judge Schofield. In their appellate briefs,
the parties refer to this subset of defendants as the “Group One Defendants,” a designation
we adopt in this opinion.
Group Two Defendants comprise Bank of America Corporation; Bank of America, N.A.;
8
Merrill Lynch, Pierce, Fenner & Smith Incorporated; Merrill Lynch Capital Services, Inc.;
Barclays PLC; Barclays Bank PLC; Barclays Group US Inc.; Barclays Capital Inc.; BNP
Paribas Group; BNP Paribas North America, Inc.; Citibank, N.A.; Citigroup Inc.; The
Goldman Sachs Group; Goldman, Sachs & Co.; HSBC Holdings PLC; HSBC Bank PLC;
HSBC North America Holdings Inc.; HSBC Bank USA, N.A.; JPMorgan Chase Bank, N.A.;
14
the Group One Defendants’ motion to dismiss was pending, the
district court ordered plaintiffs to file a third amended complaint
removing allegations of collusive activity by the Group Two
Defendants in order to conform with the preliminary FOREX
antitrust litigation settlement. The Third Amended Complaint, filed
on July 15, 2016, incorporated all allegations against the Group One
Defendants asserted in the Second Amended Complaint. As such, the
parties agreed that no new briefing was necessary for the district court
to rule on the pending motion to dismiss.
On August 23, 2016, the district court dismissed the complaint
against the Group One Defendants pursuant to Fed. R. Civ. P.
12(b)(6). See Allen v. Bank of Am. Corp., 2016 WL 4446373, at *6–10.9 At
an August 31, 2016 conference, the parties agreed that the Group Two
Defendants would file a motion to dismiss all counts against them on
the same basis.
On September 9, 2016, however, plaintiffs requested a 60‐day
adjournment to allow them to consider further amendment, positing
that there “may be . . . existing contracts” to support their claims.
App’x 433–34. The district court denied the request, observing that
the complaint had already been amended several times and that
JPMorgan Chase & Co.; The Royal Bank of Scotland PLC; The Royal Bank of Scotland
Group PLC; RBS Securities Inc.; UBS AG; UBS Securities LLC; UBS Investment Bank; UBS
Investment Bank, Americas; and UBS Group AG.
The district court denied that portion of the Group One Defendants’ motion seeking
9
dismissal for lack of subject matter jurisdiction pursuant to Fed. R. Civ. P. 12(b)(1). See
Allen v. Bank of Am. Corp., 2016 WL 4446373, at *2–6.
15
plaintiffs had not proffered adequate justification for further
amendment or delay. Instead, the district court granted plaintiffs’
alternative request, to which the Group Two Defendants consented,
to file a joint stipulation of dismissal of any outstanding claims. Thus,
on September 20, 2016, the district court so‐ordered a stipulation from
the parties for dismissal of all claims against those defendants.
This timely appeal followed.
DISCUSSION
On appeal, plaintiffs primarily challenge the district court’s
determination that the defendant banks were not functional
fiduciaries under ERISA, an error plaintiffs maintain requires reversal
of the dismissal of their ERISA fiduciary breach claims and non‐
fiduciary ERISA party‐in‐interest claims.10 In any event, plaintiffs
maintain that the district court erred in denying them an adjournment
and leave to file a fourth amended complaint.
We review de novo the dismissal of a complaint pursuant to Fed.
R. Civ. P. 12(b)(6), accepting the alleged facts as true and drawing all
reasonable inferences in plaintiffs’ favor. See Allco Fin. Ltd. v. Klee, 861
F.3d 82, 94 (2d Cir. 2017). In doing so, we are mindful that a complaint
must plead sufficient “factual content” to allow a factfinder “to draw
Plaintiffs challenge dismissal of their claims insofar as they are based on defendants’
10
alleged manipulation of fixing rates and stop and limit orders, but plaintiffs do not appeal
dismissal of their claims to the extent they are predicated on allegations that defendants
charged undisclosed markups to FX bid/ask quotes or engaged in collusive manipulation
of FX bid/ask spreads.
16
the reasonable inference that the defendant is liable for the
misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). “[B]ald
assertions and conclusions of law will not suffice” to avoid dismissal,
Spool v. World Child Int’l Adoption Agency, 520 F.3d 178, 183 (2d Cir.
2008) (internal quotation marks omitted), nor will factual “allegations
that are wholly conclusory,” Krys v. Pigott, 749 F.3d 117, 128 (2d Cir.
2014).
I. Fiduciary Duty Claims
With the exception of Claim V, which is discussed in Part II, all
claims asserted in the Second Amended Complaint require a showing
that defendants engaged in conduct breaching an alleged ERISA
fiduciary duty. See 29 U.S.C. §§ 1104, 1106(a)(1), (b)(1), (b)(2). “In
every case charging breach of ERISA fiduciary duty, . . . the threshold
question is not whether the actions of some person employed to
provide services under a plan adversely affected a plan beneficiary’s
interest, but whether that person was acting as a fiduciary (that is, was
performing a fiduciary function) when taking the action subject to
complaint.” Pegram v. Herdrich, 530 U.S. 211, 226 (2000). Accordingly,
the question presented by this appeal is whether the banks were
performing a fiduciary function when they executed FX transactions
for the Plans so as to give rise to ERISA fiduciary status and attending
fiduciary duties.
“The definition of ‘fiduciary’ under ERISA focuses on the
exercise, as well as the possession, of authority or control” over a
pension plan’s assets, without regard to the title of the person
17
exercising such control. Blatt v. Marshall & Lassman, 812 F.2d 810, 812–
13 (2d Cir. 1987); accord Bouboulis v. Transp. Workers Union of Am., 442
F.3d 55, 64–65 (2d Cir. 2006). Specifically, under ERISA, even if a
person is not a named fiduciary of an ERISA plan,11 it can be a de facto
fiduciary if it “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.” 29 U.S.C. § 1002(21)(A); see Coulter v. Morgan Stanley & Co.,
753 F.3d 361, 366 (2d Cir. 2014).12 Mindful that “Congress intended
that ERISA function as a comprehensive remedial statute,” Layaou v.
Xerox Corp., 238 F.3d 205, 210 (2d Cir. 2001), we construe this
definition liberally, see Frommert v. Conkright, 433 F.3d 254, 271 (2d Cir.
2006); see also David P. Coldesina, D.D.S. v. Estate of Simper, 407 F.3d
1126, 1132 (10th Cir. 2005) (holding that “[i]n Congress’s judgment,
and consistent with general trust law, parties controlling plan assets
are automatically in a position of confidence by virtue of that control,
and as such they are obligated to act accordingly” (emphasis in
original)). Here, there is no question that the FX transactions at issue
ERISA defines “person” as “an individual, partnership, joint venture, corporation,
11
mutual company, joint‐stock company, trust, estate, unincorporated organization,
association, or employee organization.” 29 U.S.C. § 1002(9).
A person can also be a fiduciary if it “renders investment advice for a fee or other
12
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 “has any discretionary authority
or discretionary responsibility in the administration of such plan.” 29 U.S.C. § 1002(21)(A).
Because these statutory provisions are not the basis for plaintiffs’ functional fiduciary
argument, we do not discuss them further.
18
involved monetary assets of plaintiffs’ Plans.13 Thus, the
determinative question is whether plaintiffs pleaded facts sufficient
to demonstrate defendants’ control or authority over these assets.
Like the district court, we conclude that plaintiffs did not.
Our analysis begins with the basic proposition, applicable in
both the ERISA context and more generally, that “a relationship of
trust is established when one acquires possession of another’s
property with the understanding that it is to be used for the owner’s
benefit, and in these circumstances an obligation arises on the part of
the one in possession to act in the owner’s best[] interests rather than
his own.” David P. Coldesina, D.D.S. v. Estate of Simper, 407 F.3d at
1134; see United States v. Skelly, 442 F.3d 94, 98 (2d Cir. 2006)
(explaining relationship of trust and confidence exists with respect to
matters entrusted to another’s discretion). From this, it necessarily
follows that an entity has a fiduciary duty to an ERISA plan if the
entity possesses or exercises “actual control over the disposition of
plan assets.” Blatt v. Marshall & Lassman, 812 F.2d at 813 (emphasis in
original). Whether this control was explicitly granted is irrelevant;
what matters is whether the putative fiduciary actually exercised
Although plaintiffs cursorily argue that order information for an FX transaction also
13
constitutes a Plan asset, they support that proposition only with a citation to a Department
of Labor Advisory Opinion that is irrelevant to the issue. See Department of Labor
Advisory Op. No. 93‐14A (May 5, 1993) (discussing whether assets of trust established by
employer as potential source of premium payments for ERISA plan’s health insurance
were plan assets). Thus, because this issue is not properly presented, see Fed. R. App. P.
28(a)(8)(A), we need not address it here, see In re Tustaniwsky, 758 F.3d 179, 184 (2d Cir.
2014) (“[I]ssues not sufficiently argued in the briefs are considered waived and normally
will not be addressed on appeal.” (internal quotation marks omitted)), and we focus our
control discussion on the Plans’ monetary assets involved in the FX transactions.
19
control. See Bouboulis v. Transp. Workers Union of Am., 442 F.3d at 63–
64. The principle is not, however, without limit. An entity “must
exercise the requisite degree of control and discretion to be held
liable” for breach of fiduciary duty. Geller v. Cty. Line Auto Sales, Inc.,
86 F.3d 18, 21 (2d Cir. 1996); see Bell v. Pfizer, Inc., 626 F.3d 66, 74 (2d
Cir. 2010) (identifying examples of conduct not implicating fiduciary
duty).
Plaintiffs argue that insofar as the defendant banks
fraudulently manipulated benchmark rates to maximize the profit
they reaped from each FX transaction, they exercised a sufficient
degree of control over the disposition of the Plans’ assets plausibly to
be denominated ERISA functional fiduciaries. The argument fails to
persuade for a combination of reasons. To begin, even assuming the
alleged manipulation of FX transactions, as well as an attendant
increase in costs to the Plans, one factor weighing against the
conclusion that the defendant banks controlled the Plans’ assets is
that the transactions at issue were initiated not by the banks but at the
discretion of the Plans’ independent investment managers. Thus, this
case is not akin to Bricklayers & Allied Craftworkers Local 2, Albany, N.Y.
Pension Fund v. Moulton Masonry & Const., LLC, 779 F.3d 182, 189 (2d
Cir. 2015), in which we identified as an ERISA functional fiduciary a
party who determined which of the corporate defendant’s creditors
to pay, exercised control over money owed to the plans at issue, and
failed to remit to those plans assets under his control. Nor is it akin
to LoPresti v. Terwilliger, 126 F.3d 34, 40 (2d Cir. 1997), wherein we
identified as an ERISA functional fiduciary a defendant who
20
determined which creditors would be paid from a company account
on which he was a signatory and which commingled general assets
and employee plan contributions. Rather, the relationship here was
“salesmanship,” with defendants “matching the customer’s
desires”—as conveyed by their investment managers—“with
available inventory,” but otherwise lacking “authority to exercise
control unilaterally over a portion of a plan’s assets.” Farm King
Supply, Inc. Integrated Profit Sharing & Tr. v. Edward D. Jones & Co., 884
F.2d 288, 292 (7th Cir. 1989); cf. United States v. Litvak, 889 F.3d 56, 61
(2d Cir. 2018) (explaining that, in context of arms’ length, over‐the‐
counter transactions in RMBS bond market, broker‐dealer “acts solely
in its own interest as a principal,” is not agent for its counterparties,
and “owes them no special or fiduciary duty”). Such arms’ length
dealings do not admit an inference that the banks controlled
disposition of the Plans’ assets so as thereby to be deemed ERISA
functional fiduciaries of the Plans.
No different conclusion is warranted by plaintiffs’
characterization of defendants as service providers. That
characterization, which defendants dispute, usually applies to
accountants, lawyers, and investment advisors, and derives from
their contracts or agreements with ERISA plans. As this court has
observed,
[w]hen a person who has no relationship to an ERISA
plan is negotiating a contract with that plan, he has no
authority over or responsibility to the plan and
presumably is unable to exercise any control over the
trustees’ decision whether or not, and on what terms, to
21
enter into an agreement with him. Such a person is not
an ERISA fiduciary with respect to the terms of the
agreement for his compensation. . . . On the other hand,
after a person has entered into an agreement with an
ERISA‐covered plan, the agreement may give it such
control over factors that determine the actual amount of
its compensation that the person thereby becomes an
ERISA fiduciary with respect to that compensation.
F.H. Krear & Co. v. Nineteen Named Trustees, 810 F.2d 1250, 1259 (2d
Cir. 1987).
No allegations here indicate that defendants were able to
exercise any control over the Plans’ trustees’ or investment managers’
decisions to enter into FX transactions with defendants. See id. Nor
do any allegations suggest that agreements stating the managers’
instructions for execution of the FX transactions gave defendants
“such control over factors that determine the actual amount of [their]
compensation.” Id.14 Indeed, plaintiffs conceded at oral argument
that defendants would not be fiduciaries if they followed the Plans’
investment managers’ instructions in executing the transactions at
issue. See McCaffree Fin. Corp. v. Principal Life Ins. Co., 811 F.3d 998,
1003 (8th Cir. 2016) (collecting cases recognizing that “service
provider’s adherence to its agreement with a plan administrator does
14 Rather, averments as to the existence of such agreements confirm that defendants
themselves did not cause the Plans to enter into any of the transactions at issue, which is
an essential element of Claims IV and IX. See Lockheed Corp. v. Spink, 517 U.S. 882, 888–89
(1996).
22
not implicate any fiduciary duty where the parties negotiated and
agreed to the terms of that agreement in an arm’s‐length bargaining
process”). Plaintiffs do not allege defendants’ violation of any specific
instructions.
Insofar as plaintiffs rely on allegations of fraud in defendants’
conduct of FX transactions to support their fiduciary claims, this
court, as well as sister circuits, have held that wrongdoing in
performing non‐fiduciary services does not transform the alleged
wrongdoer into a fiduciary. See Geller v. Cty. Line Auto Sales, Inc., 86
F.3d at 19–21 (holding that employer who performed only ministerial
functions for plan was not transformed into fiduciary by fraud in
carrying out his functions that resulted in some dissipation of plan
assets); see also Rutledge v. Seyfarth, Shaw, Fairweather & Geraldson, 201
F.3d 1212, 1220 (9th Cir. 2000) (holding that law firm’s alleged
overcharge for traditional attorney services did not make it ERISA
fiduciary); Reich v. Lancaster, 55 F.3d 1034, 1049 (5th Cir. 1995) (stating
that, in absence of “actual decision making power,” “even miscreant
professionals . . . who provide necessary services to ERISA plans” are
not automatically fiduciaries); Pappas v. Buck Consultants, Inc., 923
F.2d 531, 538 (7th Cir. 1991) (rejecting argument that consultants
become ERISA fiduciaries by “perform[ing] professional functions in
a tortious manner, regardless of what capacity they are acting in when
their tortious deeds occur”). Thus, while defendants’ alleged
fraudulent exploitation of vulnerabilities within the system for
calculating benchmark rates could raise other legal concerns—
whether in tort, contract, etc.—we have no reason to consider that
23
possibility on this appeal. We here conclude only that the alleged
wrongdoing did not afford defendants the control over the Plans’
assets necessary to make them ERISA functional fiduciaries.
Plaintiffs nevertheless maintain that the district court erred in
failing to cite and apply the functional fiduciary standard referenced
in United States v. Glick, 142 F.3d 520 (2d Cir. 1998). The argument
does not persuade. Plaintiffs acknowledge that Glick, a criminal
sentencing appeal, merely restates the statutory standard, which, as
we have already observed supra at 18–20, asks whether the funds
involved were Plan assets and whether defendants had any authority
or control over those assets. See United States v. Glick, 142 F.3d at 527
(citing 29 U.S.C. § 1002(21)(A)). Because this is the standard the
district court applied, see Allen v. Bank of Am. Corp., 2016 WL 4446373,
at *6–8, there was no error in its failure explicitly to reference Glick.
Moreover, Glick does not support plaintiffs’ urged attribution
of functional fiduciary status in this case. It cautioned that,
the mere deduction of an agent’s commission from
welfare fund assets does not, in itself, create a fiduciary
relationship between the agent and the fund. The
fiduciary relationship in this case [was] created because
the agent exercised unhampered discretion in setting the
commission rate. Conversely, an agent with a
contractually‐established commission rate is not,
without other indicia, a fiduciary to the plan.
United States v. Glick, 142 F.3d at 528. The facts pleaded here do not
admit an inference that defendants “exercised unhampered
24
discretion” in establishing their compensation for the FX transactions
at issue. Id. Even assuming that defendants’ alleged market
manipulations allowed them to secure higher compensation for the
FX transactions they conducted than a free market would have
indicated, the scheme nevertheless depended on so many different
persons and manipulations as to preclude an inference that
defendants had an unfettered ability to dictate their compensation for
each transaction. Moreover, such an inference is belied by the fact,
already noted, that the Plans’ independent investment managers
initiated the FX transactions at issue and provided instructions for
their execution, which themselves informed defendants’
compensation.
Accordingly, because the complaint fails plausibly to allege
that defendants exercised the control over the disposition of Plan
assets necessary to make them ERISA functional fiduciaries, we
affirm dismissal of plaintiffs’ breach of fiduciary duty claims (Claims
I through IV and Claims VI through IX).
II. Party‐In‐Interest Claim
On appeal, plaintiffs tie the fate of their party‐in‐interest claim
(Claim V) to that of their fiduciary claims by arguing that the former
is predicated on a recognition of ERISA functional fiduciary status as
to at least some of the defendant banks and their affiliates. Conceding
that their party‐in‐interest claim, which is premised on violations of
ERISA § 406(a)(1)(A) & (D), requires knowledge of fraud, see 29 U.S.C.
§ 1106(a)(1), plaintiffs urge non‐fiduciary liability for certain
25
defendant banks as a result of their knowing participation in FX
transactions with other defendant banks that were acting as
functional fiduciaries and knew of the benchmark manipulations.15
For the reasons explained in Part I of this opinion, we conclude that
no defendant was a functional fiduciary with respect to the
transactions at issue and, thus, conclude that plaintiffs cannot secure
relief from dismissal on the theory urged in this court. See Lotes Co. v.
Hon Hai Precision Indus., 753 F.3d 395, 413 (2d Cir. 2014) (observing
that “Court may affirm on any basis for which there is sufficient
support in the record, including grounds not relied on by the district
court” (internal quotation marks omitted)).16
III. Denial of Adjournment and Leave To Amend
The district court denied plaintiffs’ September 9, 2016 request
for a 60‐day adjournment to conduct further investigation and,
potentially, to amend their complaint, explaining that plaintiffs had
amended their complaint “repeatedly,” and had “submitted nothing
in support of the application, and nothing to suggest that a further
amendment would be anything but futile.” App’x 436. We review
denials either of adjournment or of leave to amend for abuse of
By contrast, in the district court, plaintiffs argued party‐in‐interest in the alternative in
15
the event no bank was found to be a fiduciary. Because they do not pursue that theory on
appeal, we deem it abandoned. See State St. Bank & Tr. Co. v. Inversiones Errazuriz Limitada,
374 F.3d 158, 172 (2d Cir. 2004).
Insofar as plaintiffs urge non‐fiduciary, party‐in‐interest liability based on violations of
16
other ERISA provisions, Claim V of the Second Amended Complaint specifically pleads
only violations of 29 U.S.C. § 1106(a)(1) and, therefore, we do not consider those newly
raised claims here. See Harrison v. Rep. of Sudan, 838 F.3d 86, 96 (2d Cir. 2016).
26
discretion, see TechnoMarine SA v. Giftports, Inc., 758 F.3d 493, 505 (2d
Cir. 2014); Farias v. Instructional Sys., Inc., 259 F.3d 91, 99–100 (2d Cir.
2001), unless “denial was based on an interpretation of law,” such as
futility, in which case our review is de novo, Pyskaty v. Wide World of
Cars, LLC, 856 F.3d 216, 224 (2d Cir. 2017) (internal quotation marks
omitted).
Plaintiffs argue that it was legal error for the district court to
conclude that further amendment would be futile in light of their
counsel’s professed belief that further investigation “may” reveal
“existing contracts between Defendants and the ERISA plans” that
would show “an ongoing contractual relationship between any Plan
and any Defendant[] with respect to FX transactions” or “indicia of
[defendants’] control over Plan assets.” App’x 434 (internal quotation
marks omitted). They maintain that, “[l]ogically, adding allegations
of such contracts would remedy what the district court found to be a
fatal deficiency” of contract evidence. Appellant Br. at 52.
The argument fails because the district court did not impose a
contract‐evidence requirement only to conclude that an amendment
pleading contract evidence would be futile. Rather, read in context,
the district court’s futility statement is properly understood to
reference plaintiffs’ speculative suggestion that they could identify
further contracts within the requested adjournment time and, thus,
the futility of adjournment. In reaching that conclusion, the district
court highlighted plaintiffs’ failure to support their motion. Indeed,
plaintiffs’ application only speculates, based on their counsel’s
unspecified “experience with previous cases,” that there “may be . . .
27
existing contracts” supporting further amendment. App’x 434.
Nowhere, even on this appeal, do plaintiffs explain what those
contracts might show that would warrant amendment. See
TechnoMarine SA v. Giftports, Inc., 758 F.3d at 505 (“A plaintiff need
not be given leave to amend if it fails to specify either to the district
court or to the court of appeals how amendment would cure the
pleading deficiencies in its complaint.”). Nor do they proffer any
excuse for their lack of diligence in searching for such contracts
earlier, a particularly egregious omission given that they filed their
initial complaint on June 3, 2015, proceeded to amend it on November
16, 2015, April 6, 2016, and July 15, 2016, but only proposed to look
for further contracts on September 12, 2016. Plaintiffs can hardly
profess ignorance of the significance of such contracts because courts
routinely consider contract terms as indicators of discretion or control
over ERISA plan assets. See, e.g., Flanigan v. Gen. Elec. Co., 242 F.3d 78,
87 (2d Cir. 2001); Lowen v. Tower Asset Mgmt., Inc., 829 F.2d 1209, 1219
(2d Cir. 1987); see also City of Pontiac Policemen’s & Firemen’s Ret. Sys.
v. UBS AG, 752 F.3d 173, 188 (2d Cir. 2014) (stating that, although
plaintiffs’ prior amendment was not in response to a motion to
dismiss identifying particular pleading defects, “it is unlikely that the
deficiencies raised with respect to the Amended Complaint were
unforeseen by plaintiffs when they amended”).
On this record, we identify neither legal error nor abuse of
discretion in the district court’s denial of adjournment in anticipation
of further amendment, and, therefore, affirm the challenged
judgment.
28
CONCLUSION
To summarize, we conclude as follows:
1. Plaintiffs fail to allege facts showing that the defendant
banks and their affiliates exercised the requisite level of control over
the disposition of Plan assets so as to warrant their identification as
ERISA functional fiduciaries with respect to the FX transactions at
issue.
2. Because plaintiffs here pursue their party‐in‐interest claim
not in the alternative to, but in reliance on, their functional fiduciary
theory, the claim necessarily fails for lack of the requisite proof of
control.
3. The district court neither committed legal error nor abused
its discretion in denying plaintiffs an adjournment to conduct further
investigation in anticipation of amending their complaint for a fourth
time.
Accordingly, the judgments of dismissal are AFFIRMED.
29