Haley v. Teachers Investment and Annuity Association

Background

Melissa Haley, individually and on behalf of others similarly situated, brought this class action against Teachers Insurance and Annuity Association of America, referred to as TIAA. Haley moved for partial summary judgment on Count V, alleging that TIAA violated Section 406(a)(1)(B) of the Employee Retirement Income Security Act (ERISA) through prohibited loans. TIAA cross-moved for summary judgment on all claims and separately moved to strike or exclude the opinions of Haley’s expert, Dr. Ethan Kra.

The court noted that earlier orders had dismissed Haley’s claims alleging that TIAA was an ERISA fiduciary. The claims remaining in this motion practice concerned whether TIAA’s collateralized loan program violated ERISA provisions governing prohibited transactions and whether statutory exemptions applied.

Haley’s Motion

Haley’s motion focused only on whether TIAA’s loan plans qualified for the exemption in ERISA Section 408(b)(1). The court explained that a Section 406(a)(1)(B) claim against a non-fiduciary transferee requires evidence concerning multiple elements, including the fiduciary’s prohibited transaction, the applicability of an exemption, the parties’ knowledge, and the factual circumstances underlying the transaction. Because Haley did not provide evidence on each required element, the court denied her motion for summary judgment.

TIAA’s Motion on the Section 406(a)(1)(B) Claim

Section 406(a)(1)(B) generally prohibits a plan fiduciary from causing a plan to lend money or extend credit to a party in interest, subject to statutory exemptions. Section 408(b)(1) exempts certain participant loans that bear a reasonable interest rate and are adequately secured. The applicable regulation also requires the loan program to be prudently established and administered for the exclusive purpose of providing benefits to plan participants and beneficiaries.

TIAA argued that its collateralized loan program satisfied the exemption. Haley argued that the program was not operated exclusively for participants’ benefit because collateral was deposited in TIAA’s General Account and secured TIAA rather than the plans. The court held that TIAA had not shown there was no genuine dispute of material fact about whether the program satisfied the exclusive-purpose requirement.

The court rejected Haley’s argument that the plans did not receive a reasonable rate of interest merely because TIAA, rather than the plans, received the loan interest. The court found that the relevant regulation did not require the interest credited to participants to come directly from loan interest. The court also found Haley’s argument about whether the collateral was pledged to the plans too undeveloped to consider. Even so, TIAA had not established that the Section 408(b)(1) exemption applied as a matter of law. The court therefore denied TIAA’s motion on the Section 406(a)(1)(B) claim.

TIAA’s Motion on the Section 406(a)(1)(C) Claim

Section 406(a)(1)(C) prohibits certain transactions involving the furnishing of goods, services, or facilities between a plan and a party in interest. TIAA argued that Section 408(b)(2) exempted its compensation for administering the loans because the compensation was reasonable.

The court held that TIAA had established the reasonableness of its compensation spread as a matter of law. TIAA’s compensation was lower than or comparable to compensation charged by insurance companies providing similar collateralized loan services. The court also found that non-collateralized loan services were not comparable for purposes of Haley’s principal comparison, and that TIAA had submitted evidence showing lower compensation even against non-collateralized loan providers. The court rejected Haley’s arguments concerning the reasonableness of TIAA’s comparators and its asset-based fee structure.

The court therefore granted TIAA’s motion for summary judgment on the Section 406(a)(1)(C) claim.

TIAA’s Motion on the Section 406(a)(1)(D) Claim

Section 406(a)(1)(D) prohibits transferring or using plan assets for the benefit of a party in interest. Haley based this claim on TIAA’s requirement that collateral be placed in TIAA’s General Account. TIAA relied on the Section 408(b)(17) exemption for transactions in which the plan receives no less, and pays no more, than adequate consideration.

The court held that TIAA had not established as a matter of law that the crediting rate paid to the plans constituted adequate consideration. TIAA provided no case law or regulation equating the adequate-consideration requirement with the separate reasonableness requirement applicable to services. The court also noted that related authorities suggested adequate consideration may require both fair market value and a good-faith determination by a fiduciary. The court therefore denied TIAA’s motion on the Section 406(a)(1)(D) claim.

Equitable Relief

TIAA argued that Haley could not obtain the monetary relief she sought under ERISA Section 502(a)(3), contending that only equitable remedies such as disgorgement and restitution were available. The court rejected this argument based on its prior rulings that disgorgement of TIAA’s profits from the loan program could be an appropriate equitable remedy.

Motion to Strike Expert Testimony

TIAA moved to strike or exclude Dr. Kra’s opinions, arguing that they included legal conclusions, speculation, assumptions supplied by counsel, and disclosure deficiencies under Federal Rule of Civil Procedure 26(a)(2)(B). Because the court did not rely on Dr. Kra’s reports or opinions in deciding the summary judgment motions, it denied TIAA’s motion to strike as moot for purposes of those motions. The court reserved decision on whether the opinions would be admissible if the case proceeded to trial.

Disposition

The court denied Haley’s motion for summary judgment. It granted in part and denied in part TIAA’s motion for summary judgment: the motion was granted on the ERISA Section 406(a)(1)(C) claim and denied on the ERISA Sections 406(a)(1)(B) and 406(a)(1)(D) claims. The court also denied TIAA’s motion to strike Haley’s expert as moot for purposes of the summary judgment motions.