Carfora v. Teachers Insurance Annuity Association of America
- Katherine Failla
- 1:21-cv-08384
- U.S. District Court · Southern District of New York
- 29
In Carfora v. Teachers Insurance, Judge Failla granted in part and denied in part the request to reopen the case and amend the claims.
The ruling affected plaintiffs John Carfora, Sandra Putnam, and Juan Gonzales, the proposed class they sought to represent, and defendants Teachers Insurance Annuity Association of America and TIAA-CREF Individual & Institutional Services, LLC. The case was reopened, but only the proposed Count III theory concerning non-fiduciary receipt of ill-gotten profits could be repleaded.
What happened
In Carfora v. Teachers Insurance Annuity Association of America, the plaintiffs asked to reopen their closed case and file an amended complaint asserting claims under the Employee Retirement Income Security Act, a federal law governing employee benefit plans. The court had previously dismissed all of their claims for failure to state a claim.
The plaintiffs argued that their proposed amended complaint added facts showing that the defendants acted as fiduciaries and knowingly participated in breaches by plan sponsors. The court found that the proposed amendments did not fix the problems with Counts I and II, but found that the proposed version of Count III—based on the defendants’ alleged receipt of ill-gotten profits without being fiduciaries—could potentially proceed.
Judge Katherine Polk Failla granted in part and denied in part the motion. She denied it as to Counts I and II, granted it as to Count III concerning non-fiduciary receipt of ill-gotten profits, vacated the prior judgment, reopened the case, and allowed the plaintiffs to file an amended complaint limited to Count III.
The detailed version
- Carfora v. Teachers Insurance Annuity Association of America · No. 1:21-cv-08384
- Katherine Failla
- Aug. 21, 2023
Background
John Carfora, Sandra Putnam, and Juan Gonzales brought claims individually and as representatives of a proposed class against Teachers Insurance Annuity Association of America and TIAA-CREF Individual & Institutional Services, LLC. The claims arose from services provided for employer-sponsored defined-contribution retirement plans, including recordkeeping, investment options, and individual advisory services. Plaintiffs alleged that the defendants promoted a managed-account program, used sales practices that confused participants about fiduciary status and rollover options, and encouraged participants to move retirement assets into that program.
The claims were brought under the Employee Retirement Income Security Act of 1974, or ERISA. In the earlier round of this case, the court dismissed the complaint in full and closed the case. It concluded that the plaintiffs had not adequately alleged that the defendants were ERISA fiduciaries during the relevant period, that the plaintiffs’ ERISA Section 502(a)(3) claim failed because they had not alleged a fiduciary duty owed by the defendants, and that two named plaintiffs’ claims were time-barred.
Motion to Alter the Judgment and Amend
After judgment was entered, the plaintiffs moved under Federal Rules of Civil Procedure 59(e) and 15 to alter or amend the judgment and obtain permission to file a proposed amended complaint. Because the case had already been closed, the court explained that the plaintiffs first had to satisfy the standards for altering or vacating the judgment. They also had to show that the proposed amendments were not futile, meaning that the proposed claims could withstand a motion to dismiss.
The court rejected the proposed amendments to Counts I and II. Those counts depended on showing that the defendants were functional ERISA fiduciaries. The court reaffirmed its earlier conclusion that the allegations did not show that the defendants provided investment advice on a regular basis as required by the governing statute and regulations. One additional alleged rollover, generalized allegations concerning participant accounts, and allegations about advice after assets left the plans did not cure the deficiencies. The court also rejected the plaintiffs’ effort to relitigate the earlier interpretation of ERISA and the Supreme Court’s decision in LaRue v. DeWolff, Boberg & Associates, Inc.
Count III
The proposed Count III asserted that the defendants could be liable as non-fiduciaries for knowingly participating in breaches of fiduciary duty by plan sponsors and receiving ill-gotten profits. Unlike the original complaint’s theory, the proposed amendment alleged that plan sponsors breached their ERISA duties and that the defendants participated in those breaches through cross-selling activities, use of participant information, and related conduct.
The court recognized that this theory had not appeared in the original complaint or the earlier motion-to-dismiss briefing, and that Rule 59(e) generally does not permit a party to present a new claim or theory after judgment. Nevertheless, the court concluded that the proposed non-fiduciary theory was not plainly futile at this stage. The proposed allegations supported a plausible inference that the defendants knowingly participated in alleged breaches, rather than merely receiving fees passively. The court did not decide whether the theory would ultimately succeed.
Disposition
The court granted in part and denied in part the plaintiffs’ motion to alter or amend the judgment and for leave to file an amended complaint. It denied the motion as to Counts I and II. It granted the motion as to Count III, but only insofar as that count alleged liability for non-fiduciary receipt of ill-gotten profits. The court vacated the prior judgment, reopened the case, and allowed the plaintiffs to submit an amended complaint limited to Count III. The court directed the parties to file a joint letter about next steps, including whether the defendants would answer or engage in further motion practice.
Read the full 29-page opinion on CourtListener, the free public archive maintained by the Free Law Project.