SU

v.

CSX TRANSPORTATION, INC.

THIS CAUSE is before the Court on the Report and Recommendation (Doc. 51; Report) entered by the Honorable Joel B. Toomey, United States Magistrate Judge, on October 11, 2023. In the Report, Judge Toomey recommends that the Court deny Defendants' Motion to Dismiss Second Amended Complaint and Memorandum of Law in Support Thereof (Doc. 47;

Motion) filed July 17, 2023. Report at 1. [fn¹] Defendants timely filed their objections to the Report on October 25, 2023. See Objections to Report and Recommendation (Doc. 54; Objections). Plaintiff has responded to the Objections. See Acting Secretary's Response to Defendants' Objections to Report and Recommendation and Memorandum of Law (Doc. 57; Response), filed November 8, 2023. In addition, Defendants filed Defendants' Notice of Supplemental Authority (Doc. 59; Supplemental Authority) on November 29, 2023. Accordingly, this matter is ripe for review. [fn²]

I. Standard of Review

The Court "may accept, reject, or modify, in whole or in part, the findings or recommendations made by the magistrate judge." 28 U.S.C. § 636(b). Pursuant to Rule 72 of the Federal Rules of Civil Procedure (Rule(s)), the Court “must determine de novo any part of the magistrate judge's disposition that has been properly objected to." See Rule 72(b)(3); see also 28 U.S.C. § 636(b)(1). However, a party waives the right to challenge on appeal any unobjected-to factual and legal conclusions. See 11th Cir. R. 3-1. [fn³] As such, the Court reviews those portions of the Magistrate Judge's findings to which no objection was filed for plain error and only if necessary, in the interests of justice. See id.; see also Thomas v. Arn, 474 U.S. 140, 150 (1985) (“It does not appear that Congress intended to require district court review of a magistrate [judge's] factual or legal conclusions, under a de novo or any other standard, when neither party objects to those findings."); Dupree v. Warden, 715 F. 3d 1295, 1304–05 (11th Cir. 2013) (recommending the adoption of what would become 11th Circuit Rule 3-1 so that district courts do not have “to spend significant amounts of time and resources reviewing every issue—whether objected to or not.").

II. Discussion

In their Motion, Defendants CSX, the Plan Administration Committee, and the Investment Committee seek dismissal of Plaintiff's Second Amended Complaint (Doc. 46; Second Amended Complaint), filed on June 26, 2023, for failure to state a claim upon which relief can be granted. [fn⁴] See Motion at 1–2. Judge Toomey recommends that the Court deny the Motion in its entirety because “accepting [the] well-pled allegations as true, Plaintiff has plausibly alleged that Defendants are liable under ERISA” as to each of the claims in the Second Amended Complaint. See Report at 13. Because the Court finds that Defendants' Objections are due to be overruled, and the Report adopted as the Court's opinion, the Court will not repeat the factual and procedural history of the case here. Instead, the Court writes briefly only to address Defendants' specific objections to the Report.

As an initial matter, the Court notes that Judge Toomey previously observed that the first amended complaint “appear[ed] to be a shotgun pleading" because it “contain[ed] 'multiple counts where each count adopts the allegations of all preceding counts." See Order (Doc. 39) at 2, entered April 20, 2023 (quoting Weiland v. Palm Beach Cnty. Sheriff's Off., 792 F. 3d 1313, 1321 (11th Cir. 2015)). Despite this, in filing the Second Amended Complaint, Plaintiff continues to incorporate all preceding allegations into each count of the Second Amended Complaint. See Second Amended Complaint ¶¶ 47, 51, 54, 58, 61 (incorporating “all preceding allegations"). While the Court reasonably might have ordered a re-pleader, the Court is not convinced that Plaintiff's pleading error is fatal under the circumstances of this case. Indeed, "this is not a situation where a failure to more precisely parcel out and identify the facts relevant to each claim materially increase[s] the burden of understanding the factual allegations underlying each count." See Weiland, 792 F. 3d at 1324. Notably, Defendants have not “move[d] for a more definite statement . . . or otherwise assert[ed] that they were having difficulty knowing what they were alleged to have done and why they were liable for doing it." See id. And the arguments presented by Defendants in the Motion show that they have had no difficulty identifying the claims Plaintiff seeks to pursue or the factual basis of those claims. [fn⁵] Accordingly, rather than require that Plaintiff replead, the Court will construe each Count in the Second Amended Complaint as incorporating only those allegations in Paragraphs¹–42, and not the allegations in any preceding Count.

Defendants' primary objection to the Report is that Judge Toomey “seems to infer that Defendants had a motive and opportunity to over-charge for their services, and the alleged lack of records showing that they did not over-charge somehow makes it plausible that they in fact did." [fn⁶] See Objections at 9 (asserting that this is “the primary basis for Defendants' Objection”). In support, Defendants argue that the alleged “motive and the opportunity [for

CSX] to overcharge” are not sufficient to establish that Defendants caused any loss to the plan or charged unreasonable fees, id. at 12, and that CSX's alleged failure to keep “contemporaneous time records” is equally insufficient because ERISA does not require such documentation. Id. at 13. The problem with these arguments, of course, is that Judge Toomey does not conclude that either allegation is sufficient to plausibly allege a loss to the plans. Indeed, he specifically explains that “Plaintiff does much more than complain about CSX's failure to keep detailed time records" in her Second Amended Complaint. See Report at 10. Judge Toomey also bases his recommendation on “the allegations that CSX's system of fee calculation was based on its convenience, rather than the interests of Plan participants and beneficiaries, and that there was no oversight by any fiduciary," which supports the “reasonable inference" that "the amount billed favored CSX and harmed the plans." See id. at 12– 13. Accordingly, Defendants' argument does not undermine Judge Toomey's recommended resolution as to this issue. [fn 7] [fn 8]

Defendants next argue that Plaintiff fails to plausibly allege that CSX or the Investment Committee were fiduciaries with respect to the payment of administrative expenses. See Objections at 17-21. As to the Investment Committee, Judge Toomey concludes that this entity was a fiduciary with respect to the payment of administration expenses because Plaintiff alleges that the Investment Committee is responsible for approving reasonable expenses related to administration of the plans, and the 2018 CSX Investment Committee Policies & Procedures Manual (Doc. 15-1; Committee Policies) corroborates this. See Report at 9-10. Additionally, Judge Toomey notes that even if the plan documents contradicted the allegation, “it is plausible that Defendants were acting inconsistently with the Plan documents." Id. at 10. While the Committee Policies reflect that the Investment Committee may "ensure that fees paid to service providers and other expenses of the Plans are reasonable as required by law,” see Committee Policies at 5, Defendants point higher than some theoretical alternative service.” See Cunningham, 86 F. 4th at 978. The specific procedural deficiencies in that case were insufficient to "plausibly allege that the compensation was itself unreasonable” for purposes of a prohibited transactions claim (although the court noted that they "may well be sufficient to state [a] claim for a breach of the duty of prudence"). Id. Here, however, Plaintiff alleges that CSX charged fees to the plans based on “annual estimates rather than actual time," and allocated those estimated hours among the plans based on the amount of funds in each plan, not the actual services provided. See Report at 11. Because of these significant factual differences, Defendants' reliance on Cunningham is unavailing.

out that this document also says that “[t]he Investment Committee and Plan Administrator will consider the fees and expenses applicable to their oversight areas[.]" [fn 10] Objections at 18 (quoting Committee Policies at 16 (alterations in original)). Defendants argue that the “Plaintiff herself describes the expenses as being related to ‘administrative services,' which certainly suggests that they fall under the ‘Administration' Committee's scope of authority," as opposed to that of the Investment Committee. See id. at 18–19.

But while the names of the two committees may “suggest[ ]" that the Plan Administration Committee (as opposed to the Investment Committee) exercised control over the administrative services fees, see id. at 19, the Court must draw all reasonable inferences in Plaintiff's favor in resolving the Motion. See Omar ex rel. Cannon v. Lindsey, 334 F. 3d 1246, 1247 (11th Cir. 2003) (per curiam); see also Pledger v. Reliance Trust Co., 240 F. Supp. 3d 1314, 1324 (N.D. Ga. 2017) (noting that courts “have been hesitant to resolve breach of fiduciary claims under ERISA due to a purported lack of fiduciary status at the motion to dismiss stage, particularly where, as here, the plaintiffs allege the various defendants are interrelated" (collecting cases)). [fn 11] The Committee Policies appear to reflect that the Investment Committee had authority to ensure that all administrative fees were reasonable. See Committee Policies at 5; see also Master Pension Trust Agreement of CSX Corporation and Affiliated Companies (Doc. 10-3; Trust Agreement) at 6 (“The Investment Committee . . . shall be responsible for the administration and management of the Fund held by the Trustee under this Agreement . . . ."). [fn 12] Even assuming that the administrative services fees were outside the Investment Committee's normal oversight area, the Investment Committee's obligation to “consider the fees and expenses applicable to [its] oversight area,” Objections at 18 (quoting Committee Policies at 16), does not contradict the allegation that it also had authority with respect to other fees and expenses—regardless of whether other entities had concurrent authority in this area. Accordingly, this argument is unavailing.

Judge Toomey also concludes that Plaintiff plausibly alleges “that CSX acted as a functional fiduciary regarding the payment of administrative expenses" based on allegations that it “controlled, directed, and engaged in the subject transactions despite what the Plan documents said." See Report at 8– 9. Defendants argue that this was an error because “merely requesting payment for its services” is not a fiduciary function, and because the ability to appoint fiduciaries makes CSX “a fiduciary only with respect to the exercise of this appointment power.” See Objections at 20. These arguments miss the mark. The Court does not read the Report to suggest that the act of “charging for services”—standing alone—was a fiduciary act, see id. at 20 n.3, or that the "allegations about the power to appoint fiduciaries were sufficient to plausibly allege that CSX was itself a fiduciary" with respect to the payment of administrative fees. [fn 13] See id. at 21. Rather, Plaintiff alleges that (1) CSX had absolute authority to appoint committee members, (2) those committee members did not review the reasonableness of CSX's fees despite their obligation to do so, and instead of appointing new committee members, (3) CSX

“streamlined [its] fees calculations to the detriment of the Plans." See Report at 3, 9; Second Amended Complaint ¶ 24. Accepting these allegations as true (as the Court must), Plaintiff plausibly alleges that CSX did not simply charge for its services or appoint members of the committees, but “caused the Master Pension Trust to pay itself Service Fees without any oversight." [fn 14] See Second Amended Complaint ¶ 12; Report at 9. Accordingly, Plaintiff sufficiently alleges "that CSX acted as a functional fiduciary regarding the payment of administrative expenses.” See Report at 9.

For these reasons, Defendants' Objections are unavailing. Upon independent review of the file and for the reasons set forth above, the Court will overrule Defendants' Objections and accept and adopt the Report as the opinion of the Court. Accordingly, it is

ORDERED: