James J. Thole; Sherry Smith, individually and on behalf of all others similarly situated Plaintiffs - Appellants
U.S. Bank, National Association, individually and as successor in interest to FAF Advisors, Inc.; U.S. Bancorp Defendants - Appellees Nuveen Asset Management, LLC, as successor in interest to FAF Advisors, Inc. Defendant Richard K. Davis; Douglas M. Baker, Jr.; Y. Marc Belton; Peter H. Coors; Joel W. Johnson; Olivia F. Kirtley; O'Dell M. Owens; Craig D. Schnuck; Arthur D. Collins, Jr.; Victoria Buyniski Gluckman; Jerry W. Levin; David B. O'Maley; Patrick T. Stokes; Richard G. Reiten; Warren R. Staley; John and Jane Doe 1-20 Defendants - Appellees AARP; AARP Foundation; R. Alexander Acosta, Secretary of the United States Department of Labor Amid on Behalf of Appellant (s)Chamber of Commerce of the United States of America Amicus on Behalf of Appellee(s)
Submitted: May 11, 2017
from United States District Court for the District of
Minnesota - Minneapolis
SMITH, Chief Judge, COLLOTON and KELLY, Circuit Judges.
plaintiffs James Thole and Sherry Smith (collectively,
"plaintiffs")brought a putative class action against
U.S. Bank, N.A. ("U.S. Bank"); U.S. Bancorp; and
multiple U.S. Bancorp directors (collectively,
"defendants"),  challenging the defendants'
management of a defined benefit pension plan
("Plan" or "U.S. Bank Pension Plan") from
September 30, 2007, to December 31, 2010. The plaintiffs
alleged that the defendants violated Sections 404, 405, and
406 of the Employee Retirement Income Security Act of 1974
(ERISA), 29 U.S.C. §§ 1104-06, by breaching their
fiduciary obligations and causing the Plan to engage in
prohibited transactions with a U.S. Bank subsidiary, FAF
Advisors, Inc. (FAF). The plaintiffs' complaint asserts
that these alleged ERISA violations caused significant losses
to the Plan's assets in 2008 and resulted in the Plan
being underfunded in 2008. The plaintiffs sought to recover
Plan losses, disgorgement of profits, injunctive relief, and
other remedial relief pursuant to ERISA Section 502(a)(2), 29
U.S.C. § 1132(a)(2), and ERISA Section 409, 29 U.S.C.
§ 1109. They also sought equitable relief pursuant to
ERISA Section 502(a)(3), 29 U.S.C. § 1132(a)(3).
response, the defendants moved to dismiss the plaintiffs'
consolidated amended complaint with prejudice under Federal
Rules of Civil Procedure 12(b)(1) and 12(b)(6). Specifically,
they argued that the plaintiffs lacked standing to bring the
suit, the ERISA claims were time-barred or had been released,
and the pleading otherwise failed to state a claim on which
relief could be granted. Relevant to the present appeal, the
district court concluded that the plaintiffs' claim
challenging the Plan's strategy of investing 100 percent
of its assets in equities was barred by ERISA's six-year
statute of repose. The court, however, permitted the
plaintiffs to proceed with their claim that the defendants
engaged in a prohibited transaction by investing the
Plan's assets in mutual funds that FAF managed.
the litigation, the factual backdrop of the case changed. In
2014, the Plan became overfunded; in other words, there was
more money in the Plan than was needed to meet its
obligations. The defendants, alleging that the plaintiffs had
not suffered any financial loss upon which to base a damages
claim, moved to dismiss the remainder of the action for lack
of standing pursuant to Rule 12(b)(1). Although the district
court concluded that standing was the wrong doctrine to
apply, it granted the motion to dismiss for lack of Article
III jurisdiction based on the doctrine of mootness. The court
concluded that because the Plan is now overfunded, the
plaintiffs lack a concrete interest in any monetary relief
that the court might award to the Plan if the plaintiffs
prevailed on the merits. The court later denied the
plaintiffs' motion for attorneys' fees, determining
that the plaintiffs had achieved no success on the merits.
The court concluded that the plaintiffs failed to show that
the litigation had acted as a catalyst for any contributions
that U.S. Bancorp made to the Plan resulting in its
appeal, the plaintiffs argue that the district court erred by
(1) dismissing the case as moot; (2) dismissing the Equities
Strategy claim on statute-of-limitations and pleading
grounds; and (3) denying their motion for attorneys' fees
and costs. We affirm.
Overview of the U.S. Bank Pension Plan-A Defined Benefit
plaintiffs, both retirees of U.S. Bank, are participants in
the U.S. Bank Pension Plan. U.S. Bancorp is the Plan's
sponsor, while U.S. Bank (a wholly-owned subsidiary of U.S.
Bancorp) is the Plan's trustee. Pursuant to the Plan
document, the Compensation Committee and Investment Committee
had authority to manage the Plan's assets. The
Compensation Committee was composed of U.S. Bancorp directors
and officers. The Compensation Committee designated FAF as
the Investment Manager with full discretionary investment
authority over the Plan's assets. During the relevant
time period, U.S. Bank was the parent of FAF.
Plan is a defined benefit plan regulated under ERISA.
See 29 U.S.C. §§ 1002(2)(A), 1002(35),
1003. "A defined benefit plan . . . consists of a
general pool of assets rather than individual dedicated
accounts. Such a plan, 'as its name implies, is one where
the employee, upon retirement, is entitled to a fixed
periodic payment.'" Hughes Aircraft Co. v.
Jacobson, 525 U.S. 432, 439 (1999) (quoting
Comm'r v. Keystone Consol. Indus., Inc., 508
U.S. 152, 154 (1993)). According to the plaintiffs, the
Plan's purpose "is to provide a monthly retirement
income based on a U.S. Bancorp employee's pay and years
of service." In 2009, "Smith elected to receive her
Plan benefits in the form of a single life annuity in the
amount of $42.26 per month, and received a payment of the
portion of her benefit accrued under a predecessor plan . . .
in the amount of $7, 588.65." In 2011, "Thole
elected to receive his Plan benefits in the form of a Estate
Protection 50% Joint and Survivor Annuity in the amount of
$2, 198.38 per month." Under § 2.1.26 of the Plan,
Smith and Thole are entitled to receive their respective
benefits for the rest of their lives. Thus far, the
plaintiffs have received all payments under the Plan to which
they are entitled.
Bancorp and its subsidiaries make all Plan contributions.
See Hughes, 525 U.S. at 439 ("The asset pool
may be funded by employer or employee contributions, or a
combination of both." (citing 29 U.S.C. §
1054(c))). Plan "members have a right to a certain
defined level of benefits, known as 'accrued
benefits.'" Id. at 440. "Accrued
benefit" for purposes of a defined benefit plan means
"the individual's accrued benefit determined under
the plan . . . expressed in the form of an annual benefit
commencing at normal retirement age." 29 U.S.C. §
measurement called the Funding Target Attainment Percentage
(FTAP) determines whether a plan is on track to meet its
benefit obligations to participants. The FTAP is used to
determine whether the plan sponsor must make a contribution
to the Plan in a particular year. See 29 U.S.C.
§ 1083(a), (d). A plan's assets are less than its
liabilities if its FTAP is under 100 percent; if this occurs,
then the plan sponsor must make a contribution. By contrast,
if the FTAP is over 100 percent-i.e., the plan's assets
are greater than the liabilities-the plan sponsor is not
required to make a contribution. See 26 U.S.C.
the Plan (like all defined benefit plans), "the employer
typically bears the entire investment risk and-short of the
consequences of plan termination-must cover any underfunding
as the result of a shortfall that may occur from the
plan's investments." Hughes, 525 U.S. at
439. But "if the defined benefit plan is overfunded, the
employer may reduce or suspend his contributions."
Id. at 440. The defined benefit plan's structure
"reflects the risk borne by the employer."
Id. "Given the employer's obligation to
make up any shortfall, no plan member has a claim to any
particular asset that composes a part of the plan's
general pool." Id.
summary, "[i]n a defined benefit plan, if plan assets
are depleted but the remaining pool of assets is more than
adequate to pay all accrued or accumulated benefits, then any
loss is to plan surplus." Harley v. Minn. Mining
& Mfg. Co., 284 F.3d 901, 906 (8th Cir. 2002).
"Plan beneficiaries have no claim or entitlement to its
surplus. If the Plan is overfunded, [the employer] may reduce
or suspend its contributions." Id. Conversely,
"[i]f the Plan's surplus disappears, it is [the
employer]'s obligation to make up any underfunding with
additional contributions. If the Plan terminates with a
surplus, the surplus may be distributed to [the
employer]." Id. "[T]he reality is that a
relatively modest loss to Plan surplus is a loss only to . .
. the Plan's sponsor." Id.
2014, the plaintiffs filed the consolidated amended
complaint setting forth a putative class action
against the defendants, challenging their management of the
Plan from September 30, 2007, to December 31, 2010. According
to the plaintiffs, the defendants violated ERISA Sections
404, 405, and 406, 29 U.S.C. §§ 1104-06.
plaintiffs alleged that by 2007, FAF had invested the entire
Plan portfolio in equities-direct stock holdings or through
mutual funds that FAF managed ("Equities
Strategy"). According to the plaintiffs, well-accepted
principles of diversification provide that a retirement
portfolio should be invested in multiple asset classes rather
than in a single class. They alleged that diversification
among the asset classes reduces the risk of large losses and
uncertainty because different asset classes historically do
not move up or down at the same time. The plaintiffs
maintained that because the Plan was significantly overfunded
by 2007, it did not need to pursue such a
high-risk/high-reward investment strategy to meet its pension
obligations. The plaintiffs alleged that the defendants stood
to benefit from the Equities Strategy; specifically, they
claimed that U.S. Bancorp and its Board members benefitted
from the Equities Strategy because it allowed U.S. Bancorp to
increase its operating income and avoid minimum employer
contributions to the Plan. And they alleged that the Equities
Strategy benefitted the individual defendants holding stock
options, which were exercised and sold at a higher price
because U.S. Bancorp's reported income (and resulting
stock price) was increased by the excess pension income.
the defendants put all the Plan's assets in a single
higher-risk asset class, the plaintiffs alleged, in 2008, the
Plan suffered a loss of $1.1 billion. They alleged that the
Plan lost significantly more money in 2008 than it would have
if the defendants had properly diversified it. The $1.1
billion loss reduced the funding status of the Plan-it went
from being significantly overfunded in 2007 to being 84
percent underfunded in 2008.
plaintiffs claimed that the defendants failed to monitor the
investment of Plan assets and terminate the Equities
Strategy. This failure, according to the plaintiffs, (1)
violated the defendants' fiduciary duty of prudence under
ERISA because it exposed the Plan to unnecessary risk; (2)
violated their fiduciary duty to diversify plan assets under
ERISA because investing an entire retirement portfolio in a
single asset class is non-diversified on its face; and (3)
violated their fiduciary duty of loyalty under ERISA because
the Equities Strategy benefitted the defendants to the
detriment of the Plan and its participants.
plaintiffs also alleged several violations of ERISA based on
the purported conflicts of interest associated with the
Plan's assets being heavily invested in U.S.
Bancorp's own mutual funds ("FAF Funds"). By
2007, FAF had invested over 40 percent of the Plan's
assets in the FAF Funds despite their costing more than
similar alternative funds. By investing the Plan's assets
in U.S. Bancorp's own propriety mutual funds, the
plaintiffs alleged, FAF and U.S. Bancorp received management
fees from the Plan, increased the total assets under
management to $1.25 billion, and were able to attract more
investors. The plaintiffs claim that, as a result, the Plan
paid too much in management fees for the FAF Funds.
these ERISA violations caused significant losses to the
Plan's assets in 2008 and resulted in the Plan's
underfunded status in 2008 through the commencement of this
suit in 2013. The plaintiffs sought to recover Plan losses,
disgorgement of profits, injunctive relief, and other
remedial relief pursuant to ERISA Section 502(a)(2), 29
U.S.C. § 1132(a)(2), and ERISA Section 409, 29 ...