CHRISTINE BAUER-RAMAZANI and CAROLYN B. DUFFY, on behalf of themselves and all others similarly situated, Plaintiffs,
TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA-COLLEGE RETIREMENT AND EQUITIES FUND, COLLEGE RETIREMENT AND EQUITIES FUND, TIAA-CREF INVESTMENT MANAGEMENT, LLC, TEACHERS ADVISORS, INC., TIAA-CREF INDIVIDUAL & INSTITUTIONAL SERVICES, LLC, and TEACHERS' INSURANCE AND ANNUITY ASSOCIATION OF AMERICA, Defendants.
MEMORANDUM AND ORDER (DOCS. 341, 358)
J. GARVAN MURTHA, District Judge.
Defendants Teachers Insurance and Annuity Association of America-College Retirement and Equities Fund, College Retirement and Equities Fund, TIAA-CREF Individual & Institutional Services, LLC, TIAA-CREF Investment Management, LLC, Teachers Advisors, Inc., and Teachers' Insurance and Annuity Association of America (collectively, "Defendants" or "TIAA-CREF") move for summary judgment under Federal Rule of Civil Procedure 56(a) (Doc. 341) and to strike plaintiffs' demand for a jury trial (Doc. 358). Plaintiffs Christine Bauer-Ramazani and Carolyn Duffy (collectively, "Plaintiffs") oppose the motions. (Docs. 367, 372.) In reply in support of their motion for summary judgment, Defendants request the Court hear oral argument. (Doc. 376.) This request is denied. See D. Vt. L.R. 7(a)(6). For the following reasons, Defendants' motion for summary judgment is granted in part and denied in part and Defendants' motion to strike is granted.
This case was originally filed by Norman Walker in August 2009. (Doc. 1.) He alleged Teachers Insurance and Annuity Association of America-College Retirement and Equities Fund wrongfully "kep[t] customer accounts open for days or weeks after receiving instructions to close them, and retain[ed] all investment income earned in the interim for itself." (Doc. 1 at 1.) In September 2011, Mr. Walker was denied class certification and Defendants were granted summary judgment. See Dkt. Entry No. 108 (Minute Entry Sept. 19, 2011); Doc. 186. Walker's Employee Retirement Income Security Act ("ERISA") claims were dismissed because Defendants demonstrated he received what the prospectus governing his accounts required: payment within seven days from the business day chosen for his transfer to take effect. (Doc. 186 at 3 (citing Doc. 61-4 at 51, 62).)
In August 2011 and October 2012, respectively, the current Plaintiffs and class representatives, Christine Bauer-Ramazani and Carolyn Duffy, were granted intervention. See Doc. 101; Dkt. Entry No. 202 (Minute Entry Oct. 3, 2012). They also assert ERISA claims against Defendants. (Doc. 205 ("Compl.").) In May 2013, the Court certified a class defined as:
All persons, including all persons' as defined by 29 U.S.C. § 1002(9), who at any time during the Class Period requested a transfer or distribution of funds held in a CREF or TIAA variable annuity account covered by ERISA whose funds were not transferred or distributed within seven days of the date the account was valued and were denied the investment gains.
(Doc. 327 at 2; see also Doc. 306.) The Class Period is defined as August 17, 2003 through May 9, 2013. (Doc. 306 at 19.) Plaintiffs allege the class exceeds 20, 000. Compl. ¶¶ 32-33.
The Consolidated Fourth Amended Complaint, the current class action complaint, alleges Defendants engaged in prohibited transactions and wrongfully used customer funds in violation of their fiduciary duties of loyalty and impartiality by keeping the funds invested for purposes other than the customers' benefit after a transfer or redemption request and subsequently compensating some, but not all, customers for delayed payment. See Compl. There are three separate ERISA counts in the complaint: (1) breach of fiduciary duty of loyalty; (2) breach of fiduciary duty of impartiality; and (3) prohibited transactions. Id . ¶¶ 1, 41-55. Plaintiffs seek, on behalf of the class, compensatory damages and equitable relief, including disgorgement, under ERISA section 502(a), and attorney's fees. Id. at 13-14.
Both Bauer-Ramazani and Duffy are St. Michael's College ("St. Michael's") professors and were account owners of TIAA-CREF retirement accounts until 2007, during the time the St. Michael's retirement plan placed retirement assets of plan participants with TIAA-CREF. (Doc. 342 ¶ 94; Doc. 366 ¶ 94.) In 2006, St. Michael's, as administrator of the plan, directed TIAA-CREF to transfer plan participants' retirement accounts to another mutual fund platform, Milliman USA. (Doc. 342 ¶ 86; Doc. 366 ¶ 86.) TIAA-CREF refused, claiming the college had no authority to direct it to transfer the accounts because they were subject to individual contracts between TIAA-CREF and the participants. Compl. ¶ 15. The plan obtained and forwarded to TIAA-CREF the individual signatures of over 750 St. Michael's employees to authorize the transfer. (Doc. 342 ¶¶ 88-89; Doc. 366 ¶¶ 88-89.) The accounts were to be valued as of May 1, 2007. Compl. ¶ 19; Doc. 342 ¶ 93; Doc. 366 ¶ 93. The prospectuses state transfers "are effective at the end of the business day we receive your request and all required documentation, " or a client could "choose to have [a] transfer... take effect at the end of any future business day." (Doc. 61-4 at 51.) The prospectuses in effect during the Class Period provide TIAA-CREF will make payments on transfer and withdrawal requests within seven days from the effective date. See Doc. 342 ¶ 43; Doc. 366 ¶ 43.
Because each TIAA-CREF variable annuity account is valued daily, an account's value may increase or decrease between the effective date and the date a transfer or withdrawal is completed, i.e. the processing date. (Doc. 342 ¶ 45; Doc. 366 ¶ 45.) Plaintiffs claim "TIAA-CREF must disgorge the investment gains generated by [their] funds after [they] requested them back, or pay other compensation for the use of such funds." (Doc. 204 at 3.) TIAA-CREF refers to the increase or decrease in account values as Transactional Fund Earnings or Transaction Fund Expense (collectively, "TFE"), respectively. (Doc. 342 ¶ 47; Doc. 366 ¶ 47.) For withdrawals or transfers, if the market value of an account declines between the effective date and processing date of a transaction, the difference in value is recorded as a TFE loss on a TIAA-CREF expense account. Conversely, if the market value of an account increases between the dates, the difference in value is recorded as a TFE gain on the TIAA-CREF account. (Doc. 342 ¶ 48; Doc. 366 ¶ 48.) If the total TFE gains are greater than the TFE losses for a given quarter, operating costs for the next quarter are reduced by the net TFE gain; if the total TFE gains are less than the total TFE losses for a given quarter, operating costs will be higher as a result of the net TFE loss. (Doc. 342 ¶ 52; Doc. 366 ¶ 52.)
Defendants received Duffy's transfer authorization prior to May 1. Compl. ¶ 18; Doc. 342 ¶ 96; Doc. 366 ¶ 96. Duffy's account was partially transferred on May 7, 2007, and the transfer completed on May 9, 2007. Compl. ¶¶ 23-24; Doc. 342 ¶ 97; Doc. 366 ¶ 97. The check sent represented the value of her account as of May 1 though she alleges the account value had increased by more than $1, 000.00 in the interim. Compl. ¶ 24. She alleges funds in her account remained invested between May 1 and May 9. Id . TIAA-CREF paid Duffy "delayed payment interest" and "top-up" payments in connection with the transfer of her account to Milliman. (Doc. 342 ¶ 69; Doc. 366 ¶ 69.)
Defendants received Bauer-Ramazani's transfer authorization on May 17. Compl. ¶ 18; Doc. 342 ¶ 98; Doc. 366 ¶ 98. Bauer-Ramazani's account was transferred on May 21, 2007, and the check represented the value of her account as of May 1 though the account value had increased "by thousands of dollars" in the interim. Compl. ¶ 22; Doc. 342 ¶ 100; Doc. 366 ¶ 100. She alleges the funds in her account remained invested between May 1 and May 21. Compl. ¶ 22. TIAA-CREF paid Plaintiff Bauer-Ramazani "delayed payment interest" and "top up" payments (Doc. 342 ¶ 69; Doc. 366 ¶ 69) to "provide compensation for the delays [she] experienced" (Doc. 138-3 at 2).
Delayed payment interest ("DPI") is payments TIAA-CREF has made to investors since 2003 to compensate investors when payment on a transfer or withdrawal request is not made within seven days of the effective date. (Doc. 342 ¶ 61; Doc. 366 ¶ 61.) TIAA-CREF calculates DPI by applying a set interest rate to the value of the investor's account on the effective date for the period of time between the effective date and processing date. (Doc. 342 ¶ 62; Doc. 366 ¶ 62.) In 2004, TIAA-CREF began to convert from one computer recordkeeping system to another which caused TIAA-CREF to process a number of investors' transfer and withdrawal payments beyond seven days. (Doc. 342 ¶ 64; Doc. 366 ¶ 64.) In 2008, TIAA-CREF voluntarily made additional, one-time "top-up" payments of DPI to investors who made a withdrawal between October 2005 and March 2008, and experienced a payment delay of greater than three days. (Doc. 342 ¶ 66; Doc. 366 ¶ 66.) The top-up payments were also calculated using a set interest rate. (Doc. 342 ¶ 67; Doc. 366 ¶ 67.) Investors who received DPI payments and qualified for top-up payments were given the difference between the top-up payment and DPI payment(s) they had already received. (Doc. 342 ¶ 68; Doc. 366 ¶ 68.) As noted above, Plaintiffs Duffy and Bauer-Ramazani each received DPI and top-up payments. (Doc. 342 ¶ 69; Doc. 366 ¶ 69.)
In October 2007, Richard Rink, a college professor in Kentucky, filed a class action lawsuit against College Retirement Equities Fund ("CREF") alleging CREF delayed his distribution request for over six weeks and seeking the investment gains allegedly gained on his funds between the effective date of the request and the date the funds were actually sent. See Doc. 342 ¶ 71; Doc. 366 ¶ 71. In May 2012, the parties entered into a Settlement Agreement providing each class member "the difference between the amount CREF distributed or transferred... and the per-unit price times total number of units associated with each distributed or transferred fund(s) governed by a CREF Contract... on the date of distribution or transfer" plus interest. See Doc. 342 ¶ 71; Doc. 366 ¶ 71; Doc. 342-34 (Rink Settlement Agreement) at 7. The Kentucky state court issued final approval of the Settlement Agreement in September 2012. (Doc. 342 ¶ 73; Doc. 366 ¶ 73; Doc. 342-35 (Rink Order of Final Approval).) The class consisted of individuals with non-ERISA accounts (Doc. 342 ¶ 74; Doc. 366 ¶ 74) with a class period of October 1, 2005 to March 31, 2008. (Doc. 342-35 at 5.) The Settlement Agreement stated CREF entered the agreement "without acknowledging any fault, liability, or wrongdoing of any kind, " "expressly den[ying] that it  engaged in any misconduct, " and "agree[ing] to settle to avoid the continued expense and distraction of litigation." (Doc. 342-35 at 23.)
This case is specially assigned for trial from January ...