Liao v. Fisher Asset Management, LLC

• Court: District Court, N.D. California
• Decided: June 16, 2025
• Docket: 4:24-cv-02036
• Status: Unknown

Opinion

1 2 3 4 UNITED STATES DISTRICT COURT 5 NORTHERN DISTRICT OF CALIFORNIA 6 7 FRANK LIAO, Case No. 24-cv-02036-JST

8 Plaintiff, ORDER GRANTING MOTION TO 9 v. DISMISS

10 FISHER ASSET MANAGEMENT, LLC, et Re: ECF No. 37 al., 11 Defendants.

12 13 Before the Court is Defendant Fisher Asset Management LLC and The Fisher Investments 14 401(k) Plan’s (collectively, “Fisher”) motion to dismiss. ECF No. 37. The Court will grant the 15 motion. 16 I. BACKGROUND 17 Because the facts are well-known to the parties and the Court has summarized the 18 background of this action in detail in its prior order, ECF No. 34, the Court will not repeat them in 19 full here. In sum, Plaintiff Frank Liao worked for Fisher from October 18, 2004, through July 14, 20 2006, and was a participant in Fisher’s 401(k) Plan, a tax-qualified ERISA-regulated defined 21 contribution plan. ECF No. 35 ¶¶ 4, 7. Under the Plan, participants may make 401(k) 22 contributions through payroll withholding on a pre-tax basis. ECF No. 37-1 at 118. In addition, 23 Fisher matches these contributions up to a set percent by contributing money to the participant’s 24 account. Id. at 128–129. The employer match becomes the property of the employee only after it 25 vests. Id. at 136. A participant’s “Vested Interest” in Fisher’s contributions is determined based 26 on the participant’s years of vesting service. Id. at 35, 136. For the first two years after Fisher 27 contributes to a participant account, an employee is 0% vested in the employer’s matching 1 matching contributions under the Plan. Id. The terms of the Plan provide for forfeiture of 2 unvested employer matches as follows:

3 The Term forfeiture means the amount by which a Participant’s Account balance attributable to Employer contributions exceeds his 4 or her Vested Interest in Participant’s Account balance attributable to Employer contributions as of the date elected under Section 3.11. 5 When Forfeitures Occur. As elected in the Adoption Agreement, the 6 date upon which a forfeiture occurs is either (1) the earlier of the date a Participant who Terminated Employment receives a distribution of 7 his or her Vested Interest, or the date the Participant incurs five consecutive Breaks in Service after Termination of Employment 8 [parenthetical omitted]; or (2) the date a participant incurs five consecutive Breaks in Vesting Service after Termination of 9 Employment.

10 ECF No. 35 ¶ 9. 11 During his employment, Fisher made matching contributions to Liao’s account. Id. ¶ 7. 12 Liao’s employment with Fisher ended in July 2006. Because he was employed for less than two 13 years, these match contributions had not yet vested. Id. Pursuant to Section 3.11 of the Plan, 14 forfeiture occurred on July 14, 2011, after he incurred five consecutive breaks in vesting service 15 after termination of employment. Id. ¶ 12. At that time, the amount totaled approximately 16 $26,0000. Id. However, it was not until December 13, 2023, that Fisher directed Schwab, the 17 administrator of the account, to liquidate the unvested employer contributions and their earnings 18 from Liao’s account, which had increased to $245,000. Id. ¶ 14. Liao contends that the 19 withdrawal of the post-July 14, 2011 earnings on the unvested employer contributions violated the 20 terms of the Plan and ERISA. He brought this action asserting: (1) a claim for benefits under the 21 terms of the plan pursuant to ERISA, 29 U.S.C. § 1132(a)(1)(B); (2) breach of fiduciary duty 22 under ERISA § 1132(a)(2) and § 1132(a)(3); and (3) prohibited transaction in violation of ERISA, 23 29 U.S.C. § 1106. 24 The Court previously granted Fisher’s motion to dismiss as to all claims. ECF No. 34. 25 Liao has now amended his complaint and brings the same causes of action. ECF No. 35. 26 II. LEGAL STANDARD 27 A complaint must contain “a short and plain statement of the claim showing that the 1 pleader is entitled to relief.” Fed. R. Civ. P. 8(a)(2). “Dismissal under Rule 12(b)(6) is 2 appropriate only where the complaint lacks a cognizable legal theory or sufficient facts to support 3 a cognizable legal theory.” Mendiondo v. Centinela Hosp. Med. Ctr., 521 F.3d 1097, 1104 (9th 4 Cir. 2008). A complaint need not contain detailed factual allegations, but facts pleaded by a 5 plaintiff “must be enough to raise a right to relief above the speculative level.” Bell Atl. Corp. v. 6 Twombly, 550 U.S. 544, 555 (2007). “To survive a motion to dismiss, a complaint must contain 7 sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face.” 8 Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (internal quotation marks and citation omitted). “A 9 claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw 10 the reasonable inference that the defendant is liable for the misconduct alleged.” Id. The Court 11 must “accept all factual allegations in the complaint as true and construe the pleadings in the light 12 most favorable to the nonmoving party.” Knievel v. ESPN, 393 F.3d 1068, 1072 (9th Cir. 2005). 13 However, the Court is not “required to accept as true allegations that are merely conclusory, 14 unwarranted deductions of fact, or unreasonable inferences.” In re Gilead Scis. Sec. Litig., 536 15 F.3d 1049, 1055 (9th Cir. 2008) (internal quotation marks and citation omitted). 16 III. JURISDICTION 17 The Court has jurisdiction under 28 U.S.C. § 1331. 18 IV. DISCUSSION 19 A. Claim for Benefits 20 Under 29 U.S.C. § 1132(a)(1)(B), the beneficiary of an ERISA plan may bring a civil 21 action to recover benefits due under the terms of the plan, enforce their rights under the terms of 22 the plan, or clarify their rights to future benefits under the terms of the plan. 29 U.S.C. 23 § 1132(a)(1). “To plead a violation of the statute, a plaintiff must allege the existence of an 24 ERISA plan and identify the provisions of the plan that entitle them to benefits.” Doe v. CVS 25 Pharmacy, Inc., 982 F.3d 1204, 1213 (9th Cir. 2020) (internal quotation marks, citation, and 26 alteration omitted). 27 Liao alleges that Sections 1.14, 1.127, 1.77, 3.11(a), and 3.12 of the Plan entitle him to 1 1.77 and 3.11(a) in its prior Order, see ECF No. 34 at 5–7, so it will not revisit those sections here. 2 Sections 1.14, 1.127, and 3.12 of the Plan provide, in relevant part:

3 The term Annual Additions means the sum of the following amounts credited to a Participant’s Account for any Limitation Year: (a) 4 Employer contributions; (b) Employee Contributions; (c) Forfeitures; (d) amounts allocated to an individual medical account, as defined in 5 Code §415(l)(2), which is part of a pension or annuity plan maintained by the Employer; and (e) amounts derived from contributions paid or 6 accrued that are attributable to post-retirement medical benefits, allocated to the separate account of a Key Employee, as defined in 7 Code §419A(d)(3), under a welfare fund, as defined in Code §419(e), maintained by the Employer; and (f) allocations under a simplified 8 employee plan. Annual Additions do not include Rollovers, loan repayments, Catch-up Contributions, repayments of either prior Plan 9 distributions or prior distributions of Mandatory Employee Contributions, direct transfers of contributions from another plan, 10 deductible contributions to a simplified employee pension plan, voluntary deductible contributions, and any Annual Additions in 11 excess of the limitation on Annual Additions set forth in Article 6 of this Plan. Employee and Employer make-up contributions under 12 USERRA received during the current Limitation Year shall be treated as Annual Additions with respect to the Limitation Year to which the 13 make-up contributions are attributable. Excess amounts applied in a Limitation Year to reduce Employer contributions will be considered 14 Annual Additions for such Limitation Year, pursuant to the provisions of Article 6 of this Plan. 15 Participant’s Account. The term Participant’s Account means the 16 account which represents the undistributed value of the following amounts which have been allocated to the Plan on behalf of a 17 Participant: (a) Employer contributions; (b) earnings/losses; (c) Forfeitures; and (d) the proceeds of any Policies purchased on the 18 Participant’s life under Section 7.2.

19 Allocation of Earnings and Losses. As of each Valuation Date, amounts in Participants’ accounts/sub-accounts which have not been 20 segregated from the general Trust Fund for investment purposes (accounts which have been segregated include any Directed 21 Investment Accounts established under Section 7.4) and which have not been distributed since the prior Valuation Date will have the net 22 income of the Trust Fund that has been earned since the prior Valuation Date allocated in accordance with such rules and 23 procedures that are established by the Administrator and that are applied in a uniform and nondiscriminatory manner based upon the 24 investments of the Trust Fund and the Participants’ accounts/sub- accounts to which the net income is allocated. For purposes of this 25 Section, the term "net income" means the net of any interest, dividends, unrealized appreciation and depreciation, capital gains and 26 losses, and investment expenses of the Trust Fund determined on each Valuation Date. However, Participants’ accounts and/or sub-accounts 27 which have been segregated from the general Trust Fund for only have the net income earned thereon allocated thereto. Policy 1 dividends or credits will be allocated to the Participant’s Account for whose benefit the Policy is held. 2 Liao argues that reading these three provisions together, the Plan “make[s] clear that all 3 assets in a Participant Account, other than the specific ‘amount’ calculated as a Forfeiture pursuant 4 to Section 1.77 are the sole property of the Plan participant.” ECF No. 43 at 19. Specifically, he 5 contends that Section 1.14 “demonstrates that a Participant’s Account is for the benefit of the 6 participant and belongs to the participant,” Section 1.127 “permits the temporary housing of a 7 Forfeiture, as that term is defined, in a Participant’s Account,” and Section 3.12 explains how a 8 Participant’s Account is valued in a way that suggests “that earnings on a Forfeiture (as that term 9 is defined by the Plan) are part of a Participant’s Account.” Id. Liao further argues that 10 “Defendants fail to cite a single Plan provision that entitles Defendants to anything more than the 11 defined Forfeiture.” ECF No. 43 at 20. 12 Fisher, on the other hand, argues that none of the new sections cited by Liao provide a 13 participant of the Plan to retain interest on the forfeited funds: Section 1.14 merely defines what 14 constitutes an “annual addition” under the Plan for purposes of calculating the limit for how much 15 an employee may receive from an employer’s contributions in a given year. ECF No. 46 at 14–15. 16 Section 1.127 explains that a participant’s account may house forfeitures prior to their 17 disbursement to Fisher and says nothing about entitlement to earnings on unvested Fisher 18 contributions, and Section 3.12 of the Plan simply “describes how a participant’s account is valued 19 and how earnings are added to the account.” See id. at 15. Moreover, Fisher adds, it is Liao’s 20 “burden to allege the existence of an ERISA plan and identify the provisions of the plan that 21 entitles him to benefits”—not Fisher’s burden to cite any provision entitling it to the forfeiture. Id. 22 (citing CVS Pharmacy, 982 F.3d at 1213). 23 The Court agrees with Fisher. As the Court previously found, the Plan provides that Liao 24 lost his right to continue to accrue an interest in the unvested portion of the participant’s Account 25 on July 14, 2011, after five consecutive vesting breaks in service. See ECF No. 34 at 7 (citing 26 Sections 1.77 and 3.11(a) of the Plan). So, on July 14, 2011, Liao forfeited any right to these 27 unvested funds. See id. Nothing in the new sections cited the Plaintiffs makes an exception for 1 any interest earned on the forfeited assets. They merely provide descriptions of various aspects of 2 the participant account—none of which addresses the situation here, where Liao unambiguously 3 forfeited the right to all unvested funds. Neither do these provisions change ERISA’s purpose to 4 “make the plaintiffs whole, but not to give them a windfall”—which would occur here if the Plan 5 were to give Liao the ability to recover earnings on assets that do not belong to him. See Henry v. 6 Champlain Enters., Inc., 445 F.3d 610, 624 (2d Cir. 2006). Accordingly, Liao’s claim for benefits 7 under Section 1132(a)(1)(B) fails because he has not identified a provision of the Plan, or any 8 other authority, that entitled him to the post-2011 earnings on the unvested funds. 9 B. Breach of Fiduciary Duty 10 Liao once again brings two claims for breach of fiduciary duty under Sections 1132(a)(2) 11 and 1132(a)(3). Section 1132(a)(2) provides that “[a] civil action may be brought … by a 12 participant, beneficiary or fiduciary for appropriate relief under section 1109 of this title.” Section 13 1109(a) states that a fiduciary that breaches their duties under ERISA “shall be personally liable to 14 make good to such plan any losses to the plan resulting from each such breach, and to restore to 15 such plan any profits of such fiduciary which have been made through use of assets of the plan by 16 the fiduciary, and shall be subject to such other equitable or remedial relief as the court may deem 17 appropriate.” 18 Liao’s Section 1132(a)(2) and 1132(a)(3) claims continue to be premised on Fisher’s 19 breach of fiduciary duty by “violat[ing] the terms of the Plan by forfeiting funds in excess of what 20 the Plan unambiguously authorized.” ECF No. 43 at 23–24.1 But as the Court previously found 21 and reiterates above, “Fisher did not violate the Plan’s terms by forfeiting the earnings on the 22 unvested funds.” Liao has thus failed to state a claim for breach of fiduciary duty. See Wright v. 23 Oregon Metallurgical Corp., 360 F.3d 1090, 1100 (9th Cir. 2004) (finding plaintiffs failed to state 24 a claim for breach of fiduciary duty when defendants complied with the Plan’s lawful terms). 25 C. Prohibited Transaction 26 “ERISA § 406 sets forth certain types of transactions between a plan and other parties that 27 1 are per se prohibited.” Kanawi v. Bechtel Corp., 590 F. Supp. 2d 1213, 1222 (N.D. Cal. 2008). 2 Specifically, ERISA prohibits transactions:

3 if the fiduciary knows or should know that the transaction constitutes a direct or indirect (A) sale or exchange, or lease, of any property 4 between the plan and a party in interest; (B) lending of money or other extension of credit between the plan and a party in interest; (C) 5 furnishing of goods, services, or facilities between the plan and a party in interest; (D) transfer to, or use by or for the benefit of a party 6 in interest, of any assets of the plan; or (E) acquisition, on behalf of the plan, of any employer security or employer real property in 7 violation of section 1107(a) of this title. 8 Wright, 360 F.3d at 1100 (quoting 29 U.S.C. § 1106(a)(1)). Similarly, ERISA prohibits a plan 9 fiduciary from dealing “with the assets of the plan in his own interest or for his own account.” 29 10 U.S.C. § 1106(b)(1). 11 The Court previously held that the “reallocation of funds within the Plan in accordance 12 with the Plan’s terms—forfeited funds used to defray Plan expenses . . . is not a prohibited 13 transaction under ERISA.” ECF No. 34 at 10 (citing Lockheed Corp. v. Spink, 517 U.S. 882, 888 14 (1996) and Hutchins v. HP, Inc., 23-cv-05875-BLF, 2024 WL 3049456, at *9-10 (N.D. Cal. June 15 17, 2024)). 16 Liao now alleges that “Fisher, as a party in interest under ERISA, instructed Schwab to 17 liquidate amounts from Plaintiff’s participant and account and remit those amounts to Fisher for 18 Fisher’s use and benefit.” ECF No. 43 at 30 (citing ECF No. 35 ¶ 52). 19 Liao relies heavily on Perez-Cruet v. Qualcomm Inc. to argue that he has stated a 20 prohibited transaction claim because the interest earned on the nonvested contributions constitute 21 an “asset of the plan” under ERISA. See ECF No. 43 at 31. In Perez-Cruet v. Qualcomm Inc., 22 the court found that the plaintiff had narrowly stated a claim under 29 U.S.C. § 1106(a)(1)(D) 23 based on allegations that the defendants chose “to put forfeited Plan contributions towards current 24 participants’ accounts rather than defraying administrative expenses of the Plan.” Perez-Cruet v. 25 Qualcomm Inc., No. 23-CV-1890-BEN (MMP), 2024 WL 2702207, at *1, 5 (S.D. Cal. May 24, 26 2024), reconsideration denied, No. 23-CV-1890-BEN (MMP), 2024 WL 3798391 (S.D. Cal. Aug. 27 12, 2024). 1 forfeited funds were used at all. Instead, Liao provides only the conclusory statement that the 2 || excess funds were “used by Fisher to compensate itself and/or Plan service providers which [sic] 3 at [sic] that time were ‘parties in interest.’” See ECF No. 35 9 52. The lack of factual detail here 4 || makes Liao’s claim implausible, especially when he elsewhere in the complaint continues to allege 5 that Fisher used the forfeitures to defray Plan expenses, see id. 451, which both this Court and the 6 || Perez-Cruet court determined to not be a prohibited transaction. 7 Accordingly, the Court finds that Liao has not adequately stated a claim that Fisher 8 || engaged in a prohibited transaction under 29 U.S.C. § 1106(a)(1). 9 CONCLUSION 10 For the foregoing reasons, the Court grants Fisher’s motion to dismiss without leave to 11 amend. See Kendall v. Visa U.S.A., Inc., 518 F.3d 1042, 1051-52 (9th Cir. 2008) (finding that 12 amendment would be futile where plaintiff was granted leave to amend once and the amended 13 complaint contained the same defects as the prior complaint). The clerk is directed to enter 14 || judgment for Fisher and close the case. 3 15 IT IS SO ORDERED. 16 Dated: June 16, 2025 . C ped \ a = M JON S. TIGA 18 nited States District Judge 19 20 21 22 23 24 25 26 27 28