Mims v. Matrix Trust Company

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The following constitutes the ruling of the court and has the force and effect therein described.

Signed May 5, 2021 Wb

United States Bankruptcy Judge

IN THE UNITED STATES BANKRUPTCY COURT

FOR THE NORTHERN DISTRICT OF TEXAS

DALLAS DIVISION

IN RE: §

§

VANTAGE BENEFITS § CASE NO. 18-31351-SGJ-7

ADMINISTRATORS, INC., §

Debtor. § (Chapter 7)

JEFFREY MIMS, as Chapter 7 §

Trustee for Vantage Benefits §

Administrators, Inc., § Adversary No. 20-03055

Plaintiff, §

§

§

MATRIX TRUST COMPANY, MATRIX §&

SETTLEMENT & CLEARANCE §

SERVICES, LLC, JEFFREY RICHIE, §

and WENDY RICHIE, §

Defendants, §

TO DISMISS: (A) DENYING IT AS TO COUNTS 1-3 & 6-7: (B) GRANTING IT AS TO

COUNT 4 (WITH CONSENT OF PLAINTIFF);1 AND (C) GRANTING PLAINTIFF 14

DAYS’ LEAVE TO AMEND AS TO COUNTS 8-102

A. Introduction

The above-referenced adversary proceeding (“Adversary Proceeding”) relates to the

Chapter 7 bankruptcy case of Vantage Benefits Administrators, Inc. (“Vantage”). According to

the live complaint (“Second Amended Compliant” or “SAC”) in this Adversary Proceeding,

Vantage was founded in or about 1997, and its primary business activity was providing a full

spectrum of services as a “third-party administrator” (“TPA”) for numerous employee

retirement benefit plans of several third-party companies.3

TPAs, like Vantage, contract with clients/companies to provide services such as record-

keeping, processing of plan participants’ requests for distributions, and providing information

to participants about their accounts. Vantage charged fees for its TPA services. Vantage had 50

employees. Significant to this Adversary Proceeding, Vantage did not actually handle the

retirement funds—rather it contracted out the custodial services for the retirement accounts to

two entities referred to as the “Matrix Defendants” in this Adversary Proceeding (who are later

defined). The relationship among Vantage and the Matrix Defendants was memorialized in: (a)

a “Services Agreement”4 dated September 27, 2012, to which Vantage and both Matrix

Defendants were parties; and (b) various “Custodial Account Agreements” to which Vantage,

Vantage’s clients, and one of the Matrix Defendants was a party.

1 As later explained herein, Plaintiff is given 14 days’ leave to amend his Count 1, to incorporate Plaintiff’s Count 4

theories into his Count 1 breach of contract claim.

2 As later explained herein, in the event Plaintiff does not amend Counts 8-10, this court will send this Memorandum

and Opinion to the District Court, with a cover Report and Recommendation that it dismiss Counts 8-10, with prejudice

to Plaintiff’s re-filing them.

3 Vantage also had a more recently established “fiduciary services” line of business with 10-15 clients and developed

related software.

4 This Services Agreement should not be confused with separate services agreements that Vantage had with clients to

whom it provided TPA services.

An involuntary Chapter 7 bankruptcy petition was filed against Vantage by certain of its

creditors on April 19, 2018. The involuntary petition was commenced approximately six

months after Vantage’s headquarters were raided by the Federal Bureau of Investigation (“FBI”)

on October 25, 2017, and its co-owners, Jeff and Wendy Richie (the “Richies”), husband and

wife, were arrested for (and later pleaded guilty, in June 2020, to) a massive embezzlement

scheme. The embezzlement scheme involved unauthorized distribution requests sent by the

Richies to the Matrix Defendants, requesting transfers of funds from 13 different pension plans

and 7 retirement plan accounts that Vantage administered, which occurred over several years,

and resulted in the theft of millions of dollars. Some of these retirement plans were those of

large and impressive clients such as Texas A&M University Optional Retirement Plan, Dallas

County Community College, and Collin County Community College. Certain employees of

Vantage were whistleblowers—having reported irregularities and concerns to federal officials.

More specifically, the Adversary Proceeding involves allegations that the Richies created and

transmitted false and illegal “distribution requests” to the Matrix Defendants, requesting

disbursements of funds allegedly on behalf of plan participants, but the funds were requested to

go (and went) to a Vantage operating account and, in some cases, to the Richies’ personal

bank accounts.

The Chapter 7 bankruptcy trustee is the Plaintiff in this Adversary Proceeding. The

theory of his case is that the Matrix Defendants “enabled” the Richies’ embezzlement of funds

by failure to provide statements or online access to plans (which presumably would have

contradicted the fabricated account statements and information on the Vantage website that was

being created by the Richies); creating and providing software which allowed “under the table”

payment requests by the Richies; and failing to send mandatory IRS Form 1099s for the illegal

payments. The Trustee further alleges that the Matrix Defendants’ utilization of a highly

automated business model (e.g., use of certain software called “BridgeNet”)—allegedly

involving little if any human review and aimed at reducing costs—likely prevented the Matrix

Defendants from seeing “red flags” that might have revealed the embezzlement. For example,

“all or substantially all of the transfers (there were hundreds) by Matrix were made to the same

account—the Vantage operating account—despite the fact that the transfers were purportedly

‘disbursements’ or ‘distributions’ to individual plan participants.” SAC, ¶ 45.

In summary, the Trustee argues that the Matrix Defendants’ overall way of doing

business “made it easy” for the Richies to embezzle in the manner they did—the Matrix

Defendants had exclusive control over plan assets, and they did not implement appropriate

measures and controls. The Matrix Defendants earned transaction-based fees for making the

various illegal payments. The Matrix Defendants allegedly also did not report the various

payments to the plan beneficiaries or to the IRS as legally required. All of the collective actions

of the Matrix Defendants and the Richies are alleged to have destroyed the business of

Vantage—which, prior to these activities of the Richies—had been a legitimate TPA.

The Trustee filed his original complaint on April 6, 2020 and the Second Amended

Complaint on November 16, 2020, which asserts 10 causes of action (nine of which are against

the Matrix Defendants):

• Count 1 – Breach of Contract against the Matrix Defendants (with respect to the

Services Agreement);

• Count 2 – Negligence against the Matrix Defendants (breach of duty to Vantage to act as

a reasonable, prudent custodian);

• Count 3 – Willful Misconduct and Gross Negligence against the Matrix Defendants

(conduct in performing under the Services Agreement was allegedly reckless and

involved extreme risk);

• Count 4 – UCC5 Duty of Good Faith and Commercial Reasonableness against the

Matrix Defendants (Services Agreement is alleged to have been governed by the UCC

and there was an unwaivable obligation of good faith and commercial reasonableness in

the performance thereof);

• Count 5 – State Law Breach of Fiduciary Duties by the Richies (asserted against

Richies only);

• Count 6 – State Law Participation in Breach of Fiduciary Duties and Aiding and

Abetting the Richies’ Breach of Fiduciary Duties, against the Matrix Defendants;

• Count 7 – State Law Breach of Fiduciary Duties as Agent against the Matrix

Defendants (as alleged agents of Vantage);

• Count 8 – ERISA6 Breach of Fiduciary Duties against the Matrix Defendants (brought

on behalf of the Vantage 401(k) plan only);

• Count 9 – ERISA Prohibited Transactions against the Matrix Defendants (brought on

behalf of the Vantage 401(k) plan only); and

• Count 10 – ERISA Co-Fiduciary Liability against the Matrix Defendants (brought on

behalf of the Vantage 401(k) plan only)

5 “UCC” refers to the Uniform Commercial Code.

6 “ERISA” refers to the Employee Retirement Income Security Act of 1974 (Pub. L. 93-406, 88 Stat. 829, enacted

Sept. 2, 1974, codified in part at 29 U.S.C. § 1001 et seq.).

B. Motion to Dismiss

Pending before the court is a Motion to Dismiss and Memorandum in Support Thereof

(“Motion to Dismiss”) filed by the Matrix Defendants. The Matrix Defendants seek to dismiss all

claims brought against them in the SAC under theories of lack of standing, the doctrine of in pari

delicto, and for failure to state a claim upon which relief can be granted pursuant to Federal Rule

of Civil Procedure 12(b)(6) (which is made applicable in this adversary proceeding pursuant to

Bankruptcy Rule 7012).

Further, as to Counts 2, 3, 6, and 7 (i.e., the various state law tort claims), the Matrix

Defendants argue such claims are barred by contract and economic-loss doctrines under New

York law, in that they are based on the same conduct and duties as the breach of contract claim.

Additionally, the Matrix Defendants seek to dismiss Count 4 for breach of the UCC duties of good

faith and commercial reasonableness, contending that it is not an independent cause of action.7

Notably, the Matrix Defendants contend that New York law should apply in this Adversary

Proceeding, due to a choice of law provision in the Services Agreement. On the contrary, the

Trustee argues that Texas law applies, since New York has no substantial relationship to the

Services Agreement, the parties, or their acts, and Vantage was engaged in business in Texas.

Neither side has fully addressed the application of both New York and Texas law as to each claim

asserted and, instead, has analyzed each claim under the law that each respective side thinks

applies.8

7 For clarity, Count 5 is not being asserted against the Matrix Defendants—only against the Richies—and is not

addressed by the Motion to Dismiss.

8 While the Services Agreement includes a New York choice of law provision (see Matrix Defendants’ App. 325, DE

# 49 in the AP), the court notes that the exemplar Custodial Account Agreement has a Colorado choice of law provision

(see Matrix Defendants’ App. 347, DE # 49 in the AP).

In deciding the Motion to Dismiss, the court refers to: (1) the SAC [DE # 43 in the AP]9,

(2) the Motion to Dismiss and Brief in Support [DE ## 45 & 48 in the AP], (3) the Trustee’s

Response Opposed to the Motion to Dismiss and Brief in Support [DE ## 54 & 55 in the AP], and

(4) Matrix’s Reply to the Trustee’s Response [DE # 56 in the AP]. Based upon the facts alleged in

the SAC and the arguments presented to the court, the court rules as follows on the Motion to

Dismiss: (a) it is denied as to Counts 1-3 and 6-7; (b) Count 4 is dismissed by consent of the

Trustee and the Matrix Defendants, but the Trustee is granted leave to amend Count 1 to

incorporate the UCC-related arguments into Count 1 as part of the breach of contract claim;10 (c)

the court will recommend that the District Court dismiss Counts 8-10—the ERISA claims—unless,

within 14 days of this Order, the Trustee further amends the SAC, to establish statutory standing,

as articulated in this Order, under ERISA and the Bankruptcy Code. To be clear, the court is

granting the Trustee leave to amend Counts 1, 8, 9, and 10. But if Counts 8, 9, and 10 are not

timely amended, this court will make a Report and Recommendation to the District Court that

Counts 8-10 be finally dismissed.

C. Jurisdiction

This bankruptcy court has authority to exercise bankruptcy subject matter jurisdiction,

pursuant to 28 U.S.C. § 157(a) and the Standing Order of Reference of Bankruptcy Cases and

Proceedings (Misc. Rule No. 33), for the Northern District of Texas, dated August 3, 1984.

However, on May 21, 2020, the Matrix Defendants filed an unopposed motion to withdraw

the reference seeking a jury trial in this Adversary Proceeding in the District Court. The Trustee

9 References to “DE # ___ in the AP” refer to the docket entry number at which a pleading appears in the Bankruptcy

Clerk’s docket maintained in the Adversary Proceeding.

10 This is consistent with what was announced at the hearing on the Motion to Dismiss, held on March 10, 2021. The

court hastens to add that it is highly skeptical as to the UCC’s application to the Services Agreement and Custodial

Account Agreements, since they do not involve a sale of goods, lease of goods, or secured transactions.

and the Matrix Defendants have stipulated that: (i) all of the claims asserted by the Trustee in the

Adversary Proceeding are non-core claims, (ii) the Trustee’s claims and the Matrix Defendants’

defenses thereto are all to be tried by the District Court, and (iii) the Matrix Defendants and the

Trustee are entitled to a jury trial. The Trustee and the Matrix Defendants agree that the bankruptcy

court will hear pretrial matters in this Adversary Proceeding. Accordingly, the bankruptcy court

previously submitted its Report and Recommendation [DE #35 in the AP] to the District Court,

which adopted the bankruptcy court’s Report and Recommendation withdrawing the reference but

deferring all pretrial matters to the bankruptcy court.

D. Parties

Plaintiff, Jeffrey Mims, is the Chapter 7 trustee for the bankruptcy estate of Vantage, duly

appointed after entry of an order of relief by the United States Bankruptcy Court of the Northern

District of Texas, Dallas Division on June 5, 2018.

The Debtor, Vantage, was a corporation formed under the laws of California with its

principal place of business at 1201 Elm Street, Suite 1600, Dallas, TX 75270. Vantage was a TPA

for its own employee benefit plan and 21 other employee benefit plans located primarily in Texas

but also throughout the country. The majority of the plans were ERISA-qualified, while some were

exempt from ERISA.

Defendant Matrix Trust Company (“Matrix Trust”) is a Colorado chartered bank which

served as the custodian for the plans that Vantage administered. It contracted with Vantage to

provide its services through the Services Agreement, dated September 27, 2012, earlier mentioned.

It also contracted with Vantage and the various retirement plans through a separate form of

agreement called a Custodial Account Agreement (various dates). As custodian, Matrix Trust

maintained possession of all the plan assets, including cash and securities. Matrix Trust used a

single bank account to write checks and direct wire transfers for every single disbursement for all

of the plans.

Defendant Matrix Settlement & Clearance Services, LLC (“Matrix Clearance,” and

together with Matrix Trust, the “Matrix Defendants”) is an affiliate of Matrix Trust and both

companies operate under the same parent companies. The SAC does not indicate in which

jurisdiction Matrix Clearance was formed, but the Services Agreement (attached to the Motion to

Dismiss) indicates that it is a New York limited liability company. Matrix Clearance also

contracted with Vantage, as a party to the Services Agreement, to perform custodial services for

Vantage. It appears from the allegations that Matrix Clearance acted as the intermediary between

Matrix Trust and Vantage.

Defendants Jeffrey and Wendy Richie were last known to be residents of Dallas County,

Texas and last worked at 1201 Elm Street, Suite 1600, Dallas, TX 75270. Jeffrey Richie founded

Vantage in 1997 and was the President and CEO of Vantage. Wendy Richie, his wife, was the

Vice President of Administration of Vantage. Each was indicted and pleaded guilty to theft from

an employee benefit plan, as well as aggravated identity theft (Wendy Richie) and aiding and

abetting (Jeffrey Richie). The United States District Court of the Northern District of Texas

sentenced Wendy Richie to 132 months in prison and Jeffrey Richie to 87 months in prison on

December 4, 2020.

E. Legal Standard Applicable to the Motion to Dismiss

In evaluating a Motion to Dismiss under Federal Rule of Civil Procedure 12(b)(6), a

complaint is to be charitably construed, with all well-pleaded factual allegations being accepted as

true and with any reasonable inferences from those facts being drawn in favor of the non-moving

party (here, the Trustee).11 “[A] plaintiff's obligation to provide the grounds of his entitlement to

relief requires more than labels and conclusions, and a formulaic recitation of the elements of a

cause of action will not do.”12 Moreover, “factual allegations must be enough to raise a right to

relief above the speculative level on the assumption that all the allegations in the complaint are

true (even if doubtful in fact).”13 In 2009, the Supreme Court clarified the Twombly pleading

standard and elaborated that, to survive a motion to dismiss, a civil complaint must contain

sufficient factual matter, accepted as true, to “state a claim to relief that is plausible on its face.”14

In ruling on a Rule 12(b)(6) motion, the material to which the court may refer is limited,

and the court should not look beyond the pleadings.15 The pleadings include the complaint and any

documents attached to it.16 However, the Fifth Circuit has recognized “[t]he court may also

consider documents attached to either a motion to dismiss or an opposition to that motion when

the documents are referred to in the pleadings and are central to a plaintiff's claims.”17 Here, the

Matrix Defendants attached a 675-page appendix to the Motion to Dismiss. At the hearing on the

Motion to Dismiss, the court denied consideration of any of the documents attached to the Motion

to Dismiss, except for the Services Agreement. The Trustee conceded the Services Agreement was

referred to in the SAC and is central to his claims asserted.18

11 Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555-56 (2007).

12 Id. at 555 ; Colony Ins. Co., 647 F.3d 248, 252 (5th Cir. 2011).

13 Twombly, 550 U.S. at 555-56.

14 Ashcroft v. Iqbal, 556 U.S. 662, 678-680 (2009) (the Court also affirmed the Twombly two-pronged approach to

deciding motions to dismiss: first, determine what is a factual allegation versus a legal conclusion, as only factual

allegations will be accepted as true; and second, determine whether the factual allegations state a plausible claim for

relief).

15 Spivey v. Robertson, 197 F.3d 772, 774 (5th Cir. 1999).

16 Collins v. Morgan Stanley Dean Witter, 224 F.3d 496, 498–99 (5th Cir. 2000).

17 Brand Coupon Network, L.L.C. v. Catalina Mktg. Corp., 748 F.3d 631, 635 (5th Cir. 2014) (citing Collins, 224 F.3d

at 498-99).

18 This court has decided, post-hearing, to also consider the exemplar form of Custodial Account Agreement, as part

of considering the Motion to Dismiss, as the court concludes it is also central to the claims asserted by the Trustee

(see Matrix Defendants’ App. 325 & 347, DE # 49 in the AP). Collins, 224 F.3d at 498-99.

E. Analysis of the Motion to Dismiss

a. Standing

In the Motion to Dismiss, the Matrix Defendants have argued that the Trustee lacks

standing to bring any of the claims he has alleged against them. To understand this issue, the court

focuses first on (i) Counts 1-3 & 6-7 (i.e., the breach of contract and state law tort claims that are

allegedly owned by and brought on behalf of the Vantage estate) and then on (ii) Counts 8-10

(the ERISA claims that are allegedly owned by and brought on behalf of the Vantage 401(k)

plan— that is, the retirement plan of the Vantage employees, as opposed to the other retirement

plans Vantage administered for various third-party clients).

Distilled to its essence, the standing argument of the Matrix Defendants made regarding

the breach of contract and state law tort claims seems primarily based on an argument that—

regardless of labels used and damages alleged—the Trustee is seeking to recover funds that are

not owed to the Vantage bankruptcy estate but, rather, are owed to the retirement plans

themselves and the beneficiaries of those plans. This appears to be an Article III standing

argument.

In contrast, the standing argument of the Matrix Defendants with respect to the ERISA

claims (Counts 8-10) seems primarily based on an argument that the Trustee lacks statutory

standing under ERISA and the Bankruptcy Code to bring these counts, because the Trustee is

not currently the plan administrator as to the Vantage 401(k) plan. The argument alleges the plan

is defunct and there was nothing for the Trustee to administer as of the time the Vantage

bankruptcy case was commenced. Each of these standing arguments are discussed in order below.

1. Article III Standing as to the Breach of Contract and Tort Claims

(Counts 1-3 & 6-7).

The court starts with the general premise that a Chapter 7 Trustee has capacity to pursue

litigation claims owned by the bankruptcy estate. 11 U.S.C. § 323(b). A chapter 7 trustee is also

charged with (among other things) collecting and reducing to money the property of the

bankruptcy estate. 11 U.S.C. § 704(a). Property of the estate is broadly defined to include “all

legal and equitable interests of the debtor in property as of the commencement of the case.” 11

U.S.C. § 541(a)(1). Property of the estate includes causes of action. A cause of action belongs to

a bankruptcy estate where it “explicitly or implicitly allege[s] harm to the debtor” and “the debtor

could have raised the claim as of the commencement of the [bankruptcy] case.”19

With regard to Counts 1-3 and 6-7, they are breach of contract and various state law tort

claims. There were obviously contracts (i.e., the Services Agreement and the Custodial Account

Agreements) among Vantage and the Matrix Defendants, as well as a multi-year business

relationship and transactions among them. Regardless of labels or theories, the Matrix Defendants

argue that the Trustee is simply attempting to recover damages for an amount equal to the funds

that the Matrix Defendants allegedly disbursed improperly from the various third-party retirement

plan accounts for which Vantage served as a TPA. The harms, they argue, were suffered by the

plan beneficiaries, not Vantage. They cite certain Supreme Court and Fourth Circuit authority

standing for the proposition that bankruptcy trustees lack standing to assert claims on behalf of

creditors and are not authorized to collect money not owed to the estate.20 According to the Matrix

Defendants, the right to bring any claim pertaining to funds that were misappropriated from third-

19 Schertz-Cibolo-Universal City Indep. Sch. Dist. v. Wright (In re Educators Grp. Health Trust), 25 F.3d 1281, 1284

(5th Cir. 1994).

20 See, e.g., Caplin v. Marine Midland Grace Trust Co., 406 U.S. 416, 428 (1972); Logan v. JKV Real Estate Servs.

(In re Bogdan), 414 F.3d 507, 511 (4th Cir. 2005).

party retirement plans belongs to the retirement-plan creditors whose funds were

misappropriated, and not the Trustee on behalf of Vantage. The Matrix Defendants cite to prior

holdings of the bankruptcy court pertaining to who owns claims pertaining to retirement plan

losses. See Order dated 7/17/20, DE # 138 in underlying Bankruptcy Case # 18-31351.

In the Supreme Court’s Lujan case, it stated that, in order for constitutional standing under

Article III to exist, there must be three elements present as to each claim or cause of action: (1)

injury in fact, (2) a causal connection, and (3) redressability.21 First, injury in fact requires there to

be an “invasion of a legally protected interest which is (a) concrete and particularized, and (b)

actual or imminent, not ‘conjectural’ or ‘hypothetical.’”22 “Second, there must be a causal

connection between the injury and the conduct complained of, the injury has to be ‘fairly traceable

to the challenged action of the defendant, and not the result of an independent action of some third

party not before the court.’”23 Finally, for a harm to have redressability, “it must be ‘likely,’ as

opposed to merely ‘speculative,’ that the injury will be ‘redressed by a favorable decision.’”24

An opinion entitled Osherow v. York dealt with a standing argument in a situation that was

analogous to this case.25 In Osherow, two principals of a debtor had used investor funds, that were

meant to be held in escrow by a third-party bank, for illicit purposes (including running a pyramid

scheme) after the bank made allegedly improper distributions under the applicable contract. There,

similar to the Matrix Defendants in this case, the bank made the argument that the bankruptcy

trustee, Mr. Osherow, lacked standing to bring his suit because he was essentially alleging damages

that were suffered by the investors, not damages that were suffered by the debtor itself. The bank

21 Lujan v. Defenders of Wildlife, 504 U.S. 555 (1992).

22 Id. at 560.

23 Id.

24 Id. at 561.

25 No. 5:17-CV-483-DAE, 2019 WL 6048017 at *1-2 (W.D. Tex. August 5, 2019).

urged that, as there were improper distributions made to the debtor, no harm could have occurred

to the debtor.26 In response, the trustee argued that he indeed had standing to sue for breach of a

contract, in that he was taking the place of a contractual counterparty (i.e., the debtor), and the

bank’s breach of contract had caused money to be misappropriated that otherwise would have been

out of the reach of the debtor’s nefarious principals.27

The court in Osherow articulated two conclusions relevant to Article III standing. First, the

debtor and the bank were parties to a contract, and “parties to a contract have standing to sue for

breach of contract.”28 Second, ambiguity over the extent of damages does not strip a party of

standing to bring a cause of action.29

Here, the Trustee has alleged a breach of contract claim in his SAC, Count 1, for Matrix’s

breach of the Services Agreement. Similar to Osherow, this court easily concludes that the Trustee

has standing to sue for breach of a contract (i.e., the Service Agreement) to which both the Debtor

and the Matrix Defendants were parties. This is a cause of action that might have been asserted

by Vantage—as a party to the Services Agreement—and, thus, was inherited by the Trustee.

Moreover, all of the state law torts (Counts 2-3 and 6-7) likewise pertain to the direct dealings and

transactions among Vantage and the Matrix Defendants pursuant to the Services Agreement and

Custodial Account Agreements. Vantage itself—not merely the retirement plan beneficiaries—

had rights, obligations, and legally cognizable interests vis-à-vis these agreements. As with any

contractual relationship, several duties automatically flowed back and forth among the parties. The

Matrix Defendants had certain duties with regard to Vantage, pursuant to the Services Agreement,

26 Id. at *4-5.

27 Id. at *5.

28 Id.

29 Id.

and Matrix Trust had certain duties with regard to Vantage and the retirement plan participants

pursuant to the Custodial Account Agreements.

Additionally, “it is entirely possible for a bankruptcy estate and a creditor to own separate

claims against a third party arising out of the same general series of events and broad course of

conduct.”30 The Trustee’s claims against the Matrix Defendants, as pleaded, are based primarily

on the Debtor’s separate contract and relationship with the Matrix Defendants. The claims are

plausibly pleaded as wholly independent from duties that the Matrix Defendants owed to third

parties. The SAC explicitly or implicitly alleges harm to Vantage, and it appears that Vantage

could have raised the claims as of the commencement of the bankruptcy case.

Next, in establishing injury in fact, this court agrees with the reasoning regarding damages

set out in Osherow—ambiguity regarding the amount of damages does not deprive a party of

standing. Again, the Matrix Defendants point to the Trustee alleging the same amount of damages

as the amounts disbursed improperly from the various third-party retirement plans as being

damages belonging to retirement-plan creditors. However, the Trustee has pleaded in the SAC that

Vantage suffered harms outside of those suffered by the retirement-plan creditors. The Trustee

has alleged that the ultimate destruction of the Vantage enterprise, through a loss of revenue from

its three lines of business and millions in judgments brought against it due to the alleged

wrongdoing of the Richies and the Matrix Defendants, resulted in independent damage to

Vantage.31 The damages asserted purport to reflect a readily available number that the Trustee can

assign to the alleged harms caused by the Matrix Defendants, until discovery can be conducted to

assign a more certain and particularized amount of damages to the alleged wrongdoing. Any

30 Highland Capital Mgmt. LP, et. al., v. Chesapeake Energy Corp. (In re Seven Seas Petroleum, Inc.), 522 F.3d 575,

584 (5th Cir. 2008).

31 SAC, DE #43 in the AP, at ¶ 92.

ambiguity of damages is not enough to strip the Trustee of standing. The possibility that the

Vantage enterprise suffered injury due to the alleged actions/inactions of the Matrix Defendants is

not pure speculation and fantasy.32

The other two elements of Article III standing under Lujan were not addressed in the

Motion to Dismiss, but the court concludes that a sufficient causal connection and redressability

have been plausibly pleaded in the SAC. Thus, in summary, the Trustee—in the shoes of

Vantage—has plausibly articulated Article III standing with regard to the breach of contract and

state law tort claims (Counts 1-3 and 6-7).33

2. Statutory Standing as to the ERISA Claims Brought on Behalf of the

Vantage 401(k) Plan (Counts 8-10)

With regard to Counts 8-10, the Trustee does not allege that these Counts are owned by or

brought on behalf of the Vantage bankruptcy estate. Rather, he alleges that they are owned by

and brought on behalf of the Vantage 401(k) plan that was established for the benefit of Vantage’s

employees (in contrast to the various other retirement plans that Vantage administered for third-

party clients’ employees). The Trustee alleges he has standing to bring these claims because

Vantage was formerly the plan administrator for the Vantage 401(k) plan and, thus, was a

“fiduciary” which could bring suit on the plan’s behalf. The Trustee has essentially inherited

standing from Vantage, as its bankruptcy estate representative.

32 See Lujan, 504 U.S. at 567.

33 Having concluded the Trustee has constitutional standing to pursue Counts 1-3 and 6-7 since he has plausibly

pleaded injury to the Vantage estate and the other Lujan factors, the court further concludes that statutory standing is

not an issue here and easily exists, due to sections 323(b), 541(a)(1), and 704(a) of the Bankruptcy Code, as earlier

referenced.

Generally speaking, in order to have statutory standing and a right to recover damages, a

plaintiff must fall within a class of people defined by Congress as having a private right of action.

Here, it is appropriate to consult both ERISA and the Bankruptcy Code.34

Under ERISA, several parties have standing to pursue a private right of action for breaches

of ERISA’s provisions with regard to an employee benefit plan: (a) plan participants, (b) plan

beneficiaries, (c) the Secretary of Labor, and (d) fiduciaries of the plan. The persons empowered

to bring civil actions are found at 29 U.S.C. § 1132(a), which provides:

(a) Persons empowered to bring a civil action: A civil action may be brought—

(1) by a participant or beneficiary—

(A) for the relief provided for in subsection (c) of this section, or

(B) to recover benefits due to him under the terms of his plan, to

enforce his rights under the terms of the plan, or to clarify his rights

to future benefits under the terms of the plan;

(2) by the Secretary, or by a participant, beneficiary or fiduciary for

appropriate relief under section 1109 of this title35 (emphasis added);

(3) by a participant, beneficiary, or fiduciary (A) to enjoin any act or

practice which violates any provision of this subchapter or the terms of

the plan, or (B) to obtain other appropriate equitable relief (i) to redress such

34 This discussion of statutory standing only with regard to Counts 8-10 should not be interpreted to suggest that

constitutional standing need not be analyzed. Constitutional standing always must be considered with regard to any

cause of action (although Congress may sometimes modify or define what is an injury in fact). See Lujan, 504 U.S.

at 578. However, there appears to be no genuine dispute that this is a situation in which a concrete injury has been

suffered by many persons who were beneficiaries/plan participants in the Vantage 401(k) plan and that the three Lujan

factors are plausibly present. The issue is whom, by statute, may bring a cause of action for the Vantage 401(k) plan

(an ERISA-qualified plan).

35 29 U.S.C. § 1109. Liability for breach of fiduciary duty

(a) Any person who is a fiduciary with respect to a plan who breaches any of the responsibilities, obligations, or duties

imposed upon fiduciaries by this subchapter shall be personally liable to make good to such plan any losses to the plan

resulting from each such breach, and to restore to such plan any profits of such fiduciary which have been made

through use of assets of the plan by the fiduciary, and shall be subject to such other equitable or remedial relief as the

court may deem appropriate, including removal of such fiduciary. A fiduciary may also be removed for a violation of

section 1111 of this title.

(b) No fiduciary shall be liable with respect to a breach of fiduciary duty under this subchapter if such breach was

committed before he became a fiduciary or after he ceased to be a fiduciary.

violations or (ii) to enforce any provisions of this subchapter or the terms of

the plan;

…

Since the Trustee is not a plan participant, a plan beneficiary, nor the Secretary of Labor,

the question is whether he is a fiduciary for purposes of this ERISA statute. A “person is a

fiduciary with respect to a plan to the extent (i) he exercises any discretionary authority or

discretionary control respecting management of such plan or exercises any authority or control

respecting management or disposition of its assets, . . . or (iii) he has any discretionary authority

or discretionary responsibility in the administration of such plan. 29 U.S.C. § 1002(21)(A). The

term ‘‘fiduciary’’ is liberally construed in keeping with the remedial purpose of ERISA.36

Here, the Debtor, Vantage, undoubtedly was an ERISA fiduciary for multiple plans for

which it served as TPA—including being a fiduciary of its own 401(k) plan (the only one that is

at issue here). But what about a bankruptcy trustee? The Bankruptcy Code includes a provision

defining the obligation of a bankruptcy trustee to step into the shoes of a debtor who is an ERISA

plan administrator. Section 704(a)(11) of the Bankruptcy Code provides in relevant part:

(a) The trustee shall—

…

(11) if, at the time of the commencement of the case, the debtor (or any entity

designated by the debtor) served as the administrator (as defined in section 3 of the

Employee Retirement Income Security Act of 1974) of an employee benefit plan,

continue to perform the obligations required of the administrator; and

…

11 U.S.C. § 704(a)(11). In other words, section 704(a)(11) requires a chapter 7 trustee to

perform the obligations required of the ERISA plan administrator if the debtor served as an

36Am. Fed. of Unions Local 102 Health & Welfare Fund v. Equitable Life Assurance Soc’y of the United States, 841

F.2d 658, 662 (5th Cir.1988).

administrator at the time the bankruptcy case was commenced. Thus, it seems plausible that a

trustee should be able to bring suit, if the debtor served as a plan administrator as of the time of

the commencement of the case, as part of his “obligations” under section 704(a)(11)—particularly

if no other party—not a plan participant or beneficiary or the Secretary of Labor—is bringing a

suit when harm is alleged.

The Matrix Defendants argue that the language of section 704(a)(11) requires Vantage to

have been acting as an administrator at the commencement of the bankruptcy case, or else the

Trustee is unable to step into the shoes of the Debtor as an ERISA administrator. They argue that

the Debtor was not acting as an administrator of the Vantage 401(k) plan at the time of the

commencement of the bankruptcy case, as the plan was “defunct” and Vantage had been

essentially shut down. Further, the Matrix Defendants argue that neither a former, nor successor,

fiduciary is included by 29 U.S.C. 1132(a) as a “fiduciary.”

The Trustee in his SAC does not, in fact, plead that Vantage was acting as the administrator

of its own 401(k) retirement plan at the time of the commencement of the bankruptcy case but

calls the Matrix Defendants’ distinction between former and current fiduciaries a red herring in his

Response to the Motion to Dismiss. The Sixth Circuit has addressed the standing distinction

between current and former fiduciaries, through dicta, determining that if a trustee “had not been

a plan fiduciary when this lawsuit was originally filed, he would have had no authority to bring

the action under ERISA in the first place.”37 The Eighth Circuit addressed the distinction in

Blackmar v. Lichtenstein when it determined, once the former trustee was replaced by his

successor trustee, he ceased to be a fiduciary under ERISA and “no longer had the capacity to sue

for violations which may have occurred” under ERISA.38 To be clear, here, the Trustee has only

37 Corbin v. Blankenburg, 29 F.3d 650, 652-53 (6th Cir. 1994).

38 603 F.2d 1306, 1310 (8th Cir. 1979).

pleaded the administrator status of the Debtor in the past tense. The Trustee has pleaded that the

Debtor “was” a fiduciary or “had been” acting as a fiduciary prior to the Petition Date, but never

explicitly states that the Debtor was acting as a fiduciary at the Petition Date.39

It is not clear to this court—based on the SAC as pleaded—whether Vantage was still

technically in place as an administrator and fiduciary as of the commencement of the bankruptcy

case. Thus, it is unclear if Vantage was a “fiduciary” with standing under 29 U.S.C. § 1132, so that

the Trustee could then step into Vantage’s place as a plan fiduciary, pursuant to section 704(a)(11).

Moreover, it is not clear to this court—based on the SAC as pleaded and the authorities presented

by the parties—whether the Trustee in this situation (where there is presumably a defunct plan

and there was never a successor plan administrator appointed, post-Vantage)—would have section

29 U.S.C. § 1132 standing to pursue a cause of action on behalf of the defunct plan. Frankly, the

literal wording of section 704(a)(11) does not seem to support standing even in the context of a

defunct plan—if Vantage was not in any way acting as an administrator at the time of the

commencement of the case.

Accordingly, the court finds that the Trustee has not pleaded sufficient statutory standing

under ERISA or section 704(a)(11) of the Bankruptcy Code to bring the ERISA Claims (Counts

8-10). The court will grant leave of 14 days for the Trustee to further amend the SAC as to the

ERISA Claims, Counts 8-10, to attempt to establish statutory standing under ERISA and the

Bankruptcy Code by pleading, among other things, that Vantage was still a plan

administrator/fiduciary at the commencement of the bankruptcy case and, thus, the Trustee

stepped into its shoes. The court hastens to add that: (a) there are other parties with standing to

bring these ERISA Counts (plan participants, beneficiaries, and the Secretary of Labor); and (b) it

39 SAC, DE # 43 in the AP, at ¶ 120.

would appear that any recovery under Counts 8-10 would go to the Vantage 401(k) and its

beneficiaries, not the bankruptcy estate as a whole.

b. Choice of Law

Before this court can address the remaining arguments in the Motion to Dismiss, including

whether the claims are barred by the doctrine of in pari delicto and whether the Trustee has

otherwise failed to state a claim upon which relief can be granted, the court must address the choice

of law conundrum here. The Trustee’s SAC assumes that Texas law applies, and the Matrix

Defendants contend that New York law applies. This is significant because there could be different

results in this lawsuit depending on which law applies—for example, New York law has developed

quite differently with regard to the in pari delicto doctrine.

Starting with the Matrix Defendants, they point to a choice of law provision in the Services

Agreement that was entered into among the Debtor and the Matrix Defendants pre-petition. The

choice of law provision states as follows:

Governing Law. This Agreement shall be governed by and construed in accordance

with the laws of the State of New York, without regard to the choice of law

principles thereof.

Further, they point to the Restatement (Second) Conflicts of Laws § 187 (“Restatement”),40

which states as follows:

(1) The law of the state chosen by the parties to govern their contractual rights and

duties will be applied if the particular issue is one which the parties could have

resolved by an explicit provision in their agreement directed to that issue.

(2) The law of the state chosen by the parties to govern their contractual rights and

duties will be applied, even if the particular issue is one which the parties could not

40 Both the Fifth Circuit and Texas courts have stated that the choice-of-law analysis in the Restatement provides the

appropriate analytical framework. See Fishback Nursery v. PNC Bank, 920 F.3d 932, 935-936 (5th Cir. 2019); In re

MC Asset Recovery, LLC v. Commerzbank A.G, et al. (In re Mirant Corp)., 675 F.3d 530, 536 (5th Cir. 2012); Exxon

Mobil Corp. v. Drennen, 452 S.W.3d 319, 324 (Tex. 2014), reh’g denied (Feb 27. 2015).

have resolved by an explicit provision in their agreement directed to that issue,

unless either:

(a) the chosen state has no substantial relationship to the parties or the

transaction and there is no other reasonable basis for the parties' choice, or

(b) application of the law of the chosen state would be contrary to a

fundamental policy of a state which has a materially greater interest than

the chosen state in the determination of the particular issue and which, under

the rule of s 188, would be the state of the applicable law in the absence of

an effective choice of law by the parties.

The Matrix Defendants further argue, in their Reply, that Section 187(2) is inapplicable

and, even if it were to apply in this situation, the Trustee has failed “to carry his burden”41 that

subsection (a) or (b) are met. The Matrix Defendants contend that subsection (a) is not met because

Matrix Clearance was a New York limited-liability company and that alone creates a substantial

relationship to New York. Second, the Matrix Defendants argue that, under Fifth Circuit law, the

choice of law provision is still enforceable if the parties “had a reasonable basis for their choice.”42

Finally, the Matrix Defendants argue that subsection (b) has not been met because the Trustee has

not pleaded that applying New York law “would be contrary to a fundamental policy” of Texas.

The Trustee, in his Response, takes a more methodical approach on this choice of law

conundrum. First, he notes that a federal court sitting in a diversity case applies the choice of law

rules of the forum state (this court notes that, while this is an Adversary Proceeding rooted in

bankruptcy subject matter jurisdiction, not diversity jurisdiction, courts have applied the choice of

law rules of the forum state in the bankruptcy adversary proceeding context as well).43 Second,

the Trustee notes that Texas has adopted the Restatement approach to contractual choice of law

provisions, and that the default position is that they are enforceable (i.e., the “party autonomy rule”

41 Reply, DE # 56 in AP, at p.3.

42 Drennen, 452 S.W.3d at 325.

43 See Mirant Corp., 675 F.3d at 536.

typically applies), unless the chosen law has no substantial relationship to the parties or the

transaction or application of the law chosen would be contrary to a fundamental policy of a state

that has a materially greater interest than the chosen state in the determination of a particular issue.

The Trustee argues that there is simply no substantial relationship to New York to warrant

application of the choice of law provision in the Services Agreement, and Texas has the most

significant relationship to the dispute. The Trustee argues in similar fashion that the UCC-related

claims are not subject to the choice of law provision because there is no “reasonable relation” to

the transactions at issue.44 Further, the Trustee argues that the choice of law provision in the

Services Agreement is not capable of encapsulating the tort claims asserted in this Adversary

Proceeding, because it cannot be read to go beyond the formation and breach of the contract at

issue.45

This court first agrees with the Trustee that this court should apply the law of the forum

state, Texas, in undertaking this choice of law analysis. And Texas law does, indeed, recognize

the “party autonomy rule,” pursuant to which parties can agree to be governed by the law of another

state and, thus, the “default position” is that choice of law provisions are enforceable.46 However,

it is not uncommon for a party to overcome a choice of law provision.47 The Fifth Circuit has

specifically stated in the Cardoni case (among others) that, “[c]ontractual choice-of-law provisions

are not so unassailable. Unlike arbitration and forum selection clauses, which dictate where a

dispute will be heard, choice-of-law provisions dictate the law that will decide the dispute, and

thus create more tension with a state's power to regulate conduct within its borders.”48 The Fifth

44 See Tex. Bus. & Com. Code Ann. § 1.301.

45 See Benchmark Electronics, Inc. v. J.M. Huber Corp., 343 F.3d 719, 726 (5th Cir. 2003).

46 Cardoni v. Prosperity Bank, 805 F.3d 573, 580 (5th Cir. 2015) (“We are accustomed to giving effect to the knowing

and voluntary agreement of parties, especially sophisticated ones.”).

47 Id. at 581.

48 Id. at 580 (citations omitted) (in reviewing a preliminary injunction, court held that a choice of law provision in a

noncompete agreement was likely unenforceable).

Circuit elaborated that a court must look at Section 187(2) of the Restatement and determine

whether the state chosen in the choice of law provision has no substantial relationship to the parties

or transaction and whether there is no reasonable basis for the choice, or whether the law chosen

would be contrary to a fundamental policy of a state which would appear to have a material greater

interest than the chosen state on an issue.49 The “more significant relationship” determination is

made by examining various contacts, including: (a) the place of contracting, (b) the place of

negotiation of the contract, (c) the place of performance, (d) the location of the subject matter of

the contract, and (e) the domicile, residence, nationality, place of incorporation and place of

business of the parties.50 These contacts should be weighed by their quality rather than how many

are met.51 Moreover, the Fifth Circuit has held in the Benchmark Electronics case that, while

Texas law generally defaults to choice of law clauses regarding construction of a contract, when a

narrow choice of law provision is involved, tort claims will not be governed by the narrow choice

of law provision and “Texas law requires an issue-by-issue choice of law analysis” in such a

situation.52 In the Benchmark case, there was a contract at issue with a narrow choice of law

provision that simply provided: “Agreement shall be governed by, and construed in accordance

with, the internal laws of the State of New York....”53 This is virtually identical to the choice of

law provision in the Services Agreement among Vantage and the Matrix Defendants. The Fifth

Circuit held that it respected the parties’ determination that their agreement would be construed

under New York law, but the “contractual choice of law clause does not, however, address the

parties' entire relationship; Benchmark's claims of fraud and negligent misrepresentation are not

49 Id. at 581.

50 Id. at 583.

51 Id.

52 343 F.3d at 727.

53 Id. at 726.

governed by the parties' narrow choice of law provision.”54 The Fifth Circuit held that Texas had

“the dominant contacts with the parties and the transaction, while New York is an adventitious

location, which, apart from the choice of law clause in the parties' contract, is simply the domain

of the professionals” who documented the agreement at issue.55

This court concludes that the determination of whether New York versus Texas law should

apply in this Adversary Proceeding must entail an intensely factual inquiry. The Trustee pleaded

in the SAC that Vantage was located in Texas, the Richies were located in Texas, the funds

misappropriated were transferred to accounts located in Texas, and the Matrix Defendants are

located in Colorado.56 Moreover, this court also notes that the sample Custodial Account

Agreement that the Matrix Defendants submitted in their Appendix, unlike the Services

Agreement, states that it is governed by Colorado law, not New York law.57 Additionally, the

choice of law provision in the Services Agreement is virtually identical to the one in Benchmark

where the Fifth Circuit held that such a provision should not be applied to fraud and

misrepresentation tort claims.

To be clear, it is plausible that Texas law applies to some or all of the claims the Trustee

has asserted against the Matrix Defendants. This court cannot possibly ascertain at this stage of

the litigation whether the choice of law provision in the Services Agreement should be enforced

without going beyond the four corners of the SAC and Services Agreement. While Matrix

Clearance is a New York limited liability, as per the Services Agreement, this is certainly not

dispositive as to choice of law.58 Accordingly, the court concludes that the Trustee has pleaded

54 Id.

55 Id. at 728.

56 SAC, DE #43 in the AP, at ¶ 10-15. MSCS, one of the Matrix parties to the Services Agreement, was listed in

Services Agreement as a New York limited liability company. The parties, as previously mentioned, stipulated that

the Services Agreement would be considered with the SAC for the motion to dismiss phase.

57 See Matrix Defendants’ App., DE # 49 in the AP, at pgs. 325 & 347.

58 See Drennen, 452 S.W.3d at 325.

enough facts in the SAC for this court to determine that Texas law could plausibly apply to all of

the claims against the Matrix Defendants in the SAC—especially the tort claims.59 Thus, since

Texas law could plausibly apply (as contended by the Trustee), the court will analyze the Matrix

Defendants’ in pari delicto argument and their other Rule 12(b)(6) arguments through the lens of

Texas law, to assess whether the Trustee has pleaded plausible claims.

c. In Pari Delicto Doctrine

Pursuant to the reasoning above, the court will follow Texas law (and cases within the Fifth

Circuit construing it) in assessing: (a) whether the Trustee has asserted plausible claims against

the Matrix Defendants; and (b) whether the in pari delicto doctrine that has been raised defensively

by the Matrix Defendants (as to all claims against them) bars or absolutely defeats the Trustee’s

claims as a matter of law.

The parties have not cited (and the court is not aware of) any Fifth Circuit opinion squarely

addressing the in pari delicto doctrine in the context of a bankruptcy trustee.60 However, the Fifth

Circuit has stated, in the context of a receivership case, the following description of the doctrine

of in pari delicto:

The doctrine embodies “the common-law notion that a plaintiff's recovery

may be barred by his own wrongful conduct, and is undergirded by the concerns,

first, that courts should not lend their good offices to mediating disputes among

wrongdoers; and second, that denying judicial relief to an admitted wrongdoer is

an effective means of deterring illegality.” Rogers v. McDorman, 521 F.3d 381,

385 (5th Cir.2008) (internal quotation marks and footnote omitted). A court will

not extend aid to either of the parties to a criminal act or listen to their complaints

against each other but will leave them where their own acts have placed them. In

pari delicto is an equitable, affirmative defense, which is controlled by state

common law. See Pinter v. Dahl, 486 U.S. 622, 632, 108 S.Ct. 2063, 100 L.Ed.2d

59 The SAC included locations of the parties being primarily in Texas, Debtor business (including that of the Richies)

occurring within Texas, and the subject-matter funds of Texas entities being transferred improperly within Texas.

60 There is a passing reference to a chapter 7 trustee being in pari delicto in the penultimate sentence of Sandoz v.

FDIC (In re Pernie Bailey Drilling Co., Inc.), 993 F.2d 67, 70 (5th Cir. 1993), but the reference seems to pertain solely

to the trustee’s accusation that a defendant-bank had taken “fatally inconsistent positions” in the litigation—with the

Fifth Circuit suggesting that the trustee had also been inconsistent (in pari delicto literally means “in equal fault” in

Latin).

658 (1988); see also In re Food Mgmt. Grp., 380 B.R. 677, 693

(Bankr.S.D.N.Y.2008). 61

Thus, in pari delicto is an equitable defense. It has sometimes been referred to as the

“unlawful acts” rule in Texas.62

In the Jones v. Wells Fargo case quoted above, the Fifth Circuit affirmed the district court,

which had declined to apply the doctrine to a receiver. In that case, Mr. Wahab, a principal of W

Financial (the entity that had gone into a receivership), had—pre-receivership—gone to a Wells

Fargo branch and obtained on behalf of W Financial a large cashier’s check payable to the Lateefs.

Mr. Wahab then went to another Wells Fargo branch and presented the check—which had never

been seen, much less endorsed, by the Lateefs. Mr. Wahab instructed Wells Fargo to deposit the

check into the bank account of another company that Mr. Wahab controlled. The receiver later

sued Wells Fargo for conversion of the check, in following Mr. Wahab’s instructions. Wells Fargo

argued the defense of in pari delicto against the receiver, since Mr. Wahab, as a principal of W

Financial, had played a central role in the conversion. The Fifth Circuit, in affirming the district

court’s rejection of this defense, stated:

Wells Fargo's in pari delicto argument fails to acknowledge the important

distinction between W Financial as a corporation and Wahab as an individual.

While it is undisputed that Wahab played a central role in the conversion of the

cashier's check, W Financial is composed of more than Wahab or the other

individuals who operated the company. “The legal concept that a corporation is a

distinct entity separate from its stockholders, officers and directors is fundamental

to the law of corporation.” Wynne v. Adcock Pipe & Supply, 761 S.W.2d 67, 68

(Tex.App.—San Antonio 1988) (citation omitted). A corporation is “separate and

distinct from the members who comprise it, with attributes, rights, and liabilities of

its *966 own,” even though it must act through its officers or agents. Hirsch v. Tex.

Lawyers' Ins. Exch., 808 S.W.2d 561, 563 (Tex.App.—El Paso 1991); see also

61 Jones v. Wells Fargo Bank, N.A., 666 F.3d 955, 965 (5th Cir. 2012).

62 Hill v. Day (In re Today’s Destiny, Inc.), 388 B.R. 737, 748 (Bankr. S.D. Tex. 2008). See also Rico v. Flores, 481

F.3d 234, 241-42 (5th Cir. 2007) (tracing the doctrine in Texas back to the case of Gulf, Colorado & Santa Fe Railway

Co. v. Johnson, 71 Tex. 619, 9 S.W. 602, 603 (1988) (“It may be assumed, as undisputed doctrine, that no action will

lie to recover a claim for damages if, to establish it, the plaintiff requires aid from an illegal transaction, or is under

the necessity of showing or in any manner depending upon an illegal act to which he is a party ....” )).

Singh v. Duane Morris, L.L.P., 338 S.W.3d 176, 181–82 (Tex.App.—Houston [14

Dist.] 2011) (“A corporation is a separate legal entity from its shareholders,

officers, and directors.”) (citation omitted). To conclude that W Financial stands in

pari delicto simply because Wahab is a wrongdoer ignores the fundamental

distinction between a corporation and its officers. W Financial itself does not stand

in pari delicto to Wells Fargo, even if Wahab does.63

The Fifth Circuit went on to add that:

The distinction between a corporation and its officers or agents is reinforced

by the appointment of a receiver. A receiver is “the representative and protector of

the interests of all persons, including creditors, shareholders and others, in the

property of the receivership.” [Citations omitted.] Although a receiver generally

“has no greater powers than the corporation had as of the date of the receivership,”

it is well established that “when the receiver acts to protect innocent creditors ... he

can maintain and defend actions done in fraud of creditors even though the

corporation would not be permitted to do so.” [Citations omitted.] The receiver thus

acts on behalf of the corporation as a whole, an entity separate from its individual

bad actors.64

While the Jones v. Wells Fargo case dealt with a receivership and would seem, at first

blush, to be quite analogous to the situation of a bankruptcy trustee, it is not at all clear that the

Fifth Circuit would go the same way in connection with a bankruptcy case. In fact, the court noted

that such a situation might be different because of section 541(a) of the Bankruptcy Code, which

limits the debtor estate to interests of the debtor “as of the commencement of the case.”65

Additionally, several Circuit courts have applied the in pari delicto defense to bankruptcy

trustees.66

63 Jones, 666 F.3d at 966-67.

64 Id. at 966.

65 Id. at 967.

66 Official Comm. of Unsecured Creditors of PSA, Inc. v. Edwards, 437 F.3d 1145, 1151 (11th Cir.2006) (“If a claim

of ETS would have been subject to the defense of in pari delicto at the commencement of the bankruptcy, then the

same claim, when asserted by the trustee, is subject to the same affirmative defense.”) (citing Grassmueck v. Am.

Shorthorn Ass'n., 402 F.3d 833, 837 (8th Cir.2005); Official Comm. of Unsecured Creditors v. R.F. Lafferty & Co.,

267 F.3d 340, 356–57 (3rd Cir.2001); Terlecky v. Hurd (In re Dublin Sec. Inc.), 133 F.3d 377, 381 (6th Cir.1997);

Sender v. Buchanan (In re Hedged–Inv. Assocs.), 84 F.3d 1281, 1285 (10th Cir.1996); Official Comm. of Unsecured

Creditors of Color Tile v. Coopers & Lybrand, LLP, 322 F.3d 147, 158–66 (2nd Cir.2003).

Assuming that the in pari delicto defense might, indeed, bar a bankruptcy trustee’s claims

in this jurisdiction, it seems clear that it will not always bar them. Rather, under Texas law, even

when parties are in pari delicto, relief from the doctrine will sometimes be granted if public policy

or the equities demand it. In fact, the Texas Supreme Court stated in a case called Lewis v. Davis that:

The rule is adopted not for the benefit of either party and not to punish either

of them, but for the benefit of the public ... There is often involved, in reaching a

decision as to granting or withholding relief, the question whether the policy against

assisting a wrongdoer outweighs the policy against permitting unjust enrichment of

one party at the expense of the other. The solution of the question depends upon the

peculiar facts and equities of the case, and the answer usually given is that which it

is thought will better serve public policy.67

In other words, a policy analysis must occur on a case-by-case basis.

The Southern District of Texas previously ruled on an in pari delicto defense in the context

of a motion to dismiss, in which a chapter 7 trustee had sued lenders to a corporate debtor (among

others) and found, “[p]rior to an evidentiary hearing in which the Court can consider how the

particular facts and equities of this case influence in pari delicto, the Court can not dismiss the

Trustee’s claim under Rule 12(b)(6).”68 Similarly this court also has heard an in pari delicto

argument in the context of a summary judgment motion and determined it was too factually

intensive of an inquiry to conduct even at summary judgment. In the case of in In re TOCFHBI,

Inc. this court stated:

The court determines that, even if the in pari doctrine is available to use against a

bankruptcy trustee, it is not a basis to grant summary judgment in favor of Settle

Pou in the case at bar, because such defense is intensely factual and there are

genuine issues of disputed fact relevant to this defense.69

In summary, while the defense of in pari delicto may sometimes bar a bankruptcy trustee’s

claims (again, assuming the Fifth Circuit would rule this way), this court believes that the

67 Lewis v. Davis, 145 Tex. 468, 199 S.W.2d 146, 151 (1947).

68 Today’s Destiny,, 388 B.R. at 749.

69 413 B.R. 523, 537 (Bankr. N.D. Tex. 2009).

applicability of the defense necessitates an intensely factual inquiry and, thus, is not a proper

subject for a Rule 12(b)(6) motion. Here, the four corners of the SAC affirmatively state that the

Richies were engaged in illegal conduct. However, this does not justify Rule 12(b)(6) dismissal.

In pari delicto would not be an automatic bar. The court must consider the facts and equities of

the overall case and how they interact with the policy that in pari delicto was designed to serve.

“The need to consider the ‘peculiar facts and equities’ is particularly acute when a defendant is

asserting the defense against a Trustee who seeks recovery for the benefit of creditors of a

wrongdoer rather than the wrongdoer himself.”70 Thus, the in pari delicto defense raised in the

Motion to Dismiss as to all claims is denied.

d. The Plausibility of the Tort Claims Generally and the “Economic Loss”

Doctrine

The Matrix Defendants have raised yet a couple more theories defensively—these

pertaining to all of the state law tort claims asserted against them. Specifically, the Matrix

Defendants argue that Counts 2-3 & 6-7 fail as a matter of law based on the following: (a) all of

the torts fail because they are based on the same conduct and duties that allegedly support the

Trustee’s breach of contract claim; and (b) the “economic-loss doctrine” prevents the Trustee

from receiving any damages for at least the negligence cause of action (the Matrix Defendants

assert that the economic-loss doctrine, under New York law, “prevents a plaintiff from recovering

purely economic losses in a negligence action”).71 The Matrix Defendants contend that the Trustee

is seeking purely monetary relief on the same allegations as his breach-of-contract claim and in

the same amount. These theories warrant separate discussion before addressing all the individual

Counts.

70 Today’s Destiny, 388 B.R. at 749.

71 Cruz v. TD Bank, N.A., 855 F. Supp. 2d 157, 178 (S.D.N.Y. 2012).

First, as discussed in detail above, for purposes of ruling on the Motion to Dismiss, this

court has concluded that the Trustee has made a plausible claim that Texas law applies (particularly

to the torts). Therefore, in the further exercise of charitably construing the SAC, it is appropriate

to analyze these theories, as to the permissibility of the torts, under Texas law.

First, Texas jurisprudence has long stated that the contractual relationship of the parties

may create duties under both contract and tort law.72 The acts of a party may breach duties in tort

or contract alone or simultaneously in both. The nature of the injury most often determines which

duty or duties are breached.

In Scharrenbeck, often considered the Texas Supreme Court’s seminal case for this notion,

a plaintiff had entered into a contract to have a kerosene hot water heater repaired by the defendant.

The plaintiff alleged that the water heater was negligently repaired since the water heater set fire

to and destroyed the plaintiff’s house two hours after the repairs were made. The Texas Supreme

Court reasoned that “[a] contract may create the state of things which furnishes the occasion of a

tort.” Further, “[a]ccompanying every contract is a common-law duty to perform with care, skill,

reasonable expedience and faithfulness the thing agreed to be done, and a negligent failure to

observe any of these conditions is a tort, as well as a breach of contract.” The Texas Supreme

Court found that the defendant could be held liable in tort, even though the relationship and harms

arose from duties under a contract to which both were parties.

However, breach of contract and torts cannot always co-exist. Enter the “economic loss”

doctrine. When the harms of the tort claims arise only out of economic loss based on a contractual

expectancy, the economic loss doctrine may preclude viability of the tort:

Texas courts follow “[t]he economic loss rule [which] generally precludes recovery

in tort for economic losses resulting from a party's failure to perform under a

contract when the harm consists only of the economic loss of a contractual

72 Montgomery Ward & Co. v. Scharrenbeck, 146 Tex. 153, 204 S.W.2d 508 (1947).

expectancy.” Chapman Custom Homes, Inc. v. Dallas Plumbing Co., 445 S.W.3d

716, 718 (Tex. 2014) (per curiam). Under this doctrine, “if the defendant's conduct

... would give rise to liability only because it breaches the parties' agreement, the

plaintiff's claim ordinarily sounds only in contract.” Sw. Bell Tel. Co. v.

DeLanney, 809 S.W.2d 493, 494 (Tex. 1991).73

While the economic loss doctrine appears to have originated in product defects and

property damages cases, a more recent Texas Supreme Court applied it in a commercial dispute

where there was a contract involved and a plaintiff was “clearly seeking to recover the benefit of

his bargain,” in the form of lost profits.74 In Southwestern Bell Telephone Co. v. DeLanney, a

business owner had contracted with Southwestern Bell for it to publish an advertisement in the

Yellow Pages, but the advertisement was, mistakenly, automatically deleted under internal

procedures when a telephone line of the customer was canceled. The customer brought a suit for

negligent omission for failing to publish the Yellow Pages advertisement, seeking economic loss

including loss profits. The Texas Supreme Court determined that Southwestern Bell's duty to

publish arose solely from its contract with the plaintiff and negligent failure to print the plaintiff’s

Yellow Page advertisement did not create tort liability for the plaintiff’s lost business profits.75

Legal scholars and others have commented that, “Texas law is murky, to say the least, on

the question of whether a plaintiff can recover under a ‘tort’ theory (rather than merely a ‘contract’

theory) for economic consequences of negligence during a defendant's performance (or non-

performance) of contractual obligations.”76 In fact, the “‘economic loss’ rule is somewhat of a

misnomer. Plaintiffs routinely recover economic damages, such as lost wages, hospital bills, etc.,

in negligence and strict products liability actions when they also suffer personal injury or property

73 Shakeri v. ADT Sec. Servs., Inc., 816 F.3d 283, 292 (5th Cir. 2016).

74 Sw. Bell Tel. Co. v. DeLanney, 809 S.W.2d 493, 495 (Tex.1991).

75 See also Jim Walter Homes, Inc. v. Reed, 711 S.W.2d 617 (Tex. 1986).

76 William Powers Jr. & Margaret Niver, Negligence, Breach of Contract, and the Economic Loss Rule, 23 TEX. TECH.

L. REV. 477 (1992).

damage. The ‘economic loss’ rule precludes recovery only when the plaintiff suffers nothing other

than economic loss.” (Emphasis added.)77

Perhaps most important for purposes of this Motion to Dismiss, it appears that the

"economic loss" rule has never been a general rule of tort law. Rather, it appears to be a rule in

negligence and strict product liability. It appears that it does not preclude recovery for pure

economic loss in cases involving intentional torts including fraud, negligent misrepresentation,

intentional interference with contract, or other intentional torts.78 Pure economic loss is commonly

recoverable in certain torts, such as fraud and intentional interference with contract.79 Moreover,

pure economic loss is often recoverable in the situations of legal and accounting malpractice

(where there was an underlying engagement agreement). This may be attributable to the fact that

these professionals serve in a special, fiduciary relationship to their clients.80

Applying this murky area of law to the Motion to Dismiss, the court concludes as follows.

First, torts can co-exist with breach of contract claims. Thus, the torts asserted by the Trustee are

not automatically barred as a matter of law. Second, the economic loss doctrine does not appear

to apply with regard to intentional torts. Therefore, the only potential bar the economic loss

doctrine would present here would be with regard to the negligence claim (Count 2). The court

does not believe that the economic loss rule bars the negligence claim for the following reason.

The Trustee has pleaded that the Matrix Defendant served in a fiduciary capacity vis-à-vis their

77 Id. at 477.

78 Id. at 492.

79 Id. See also, e.g., American Nat'l Petroleum Co. v. Transcontinental Gas Pipe Line Corp., 798 S.W.2d 274, 278

(Tex. 1990); Shatterproof Glass Corp. v. James, 466 S.W.2d 873, 877 (Tex. Civ. App.-Ft. Worth 1971, writ refd

n.r.e.). See also Sharyland Water Supply Corp. v. City of Alton, 354 S.W.3d 407, 418 (Tex. 2011). But see Hebisen

v. Nassau Dev. Co., 754 S.W.2d 345, 348 (Tex. App.-Houston [14th Dist.] 1988, writ denied); Rio Grande Land &

Cattle Co. v. Light, 749 S.W.2d 206, 210 (Tex. App.-San Antonio), rev'd in part, 758 S.W.2d 747 (Tex. 1988).

80 “[L]ittle doubt exists that in some relationships, specifically fiduciary relationships . . . a duty of good faith and fair

dealing exists and that breach of this duty gives rise to a tort action and potential punitive damages.” Powers, supra

note 75, at 491.

contractual arrangements with Vantage and under ERISA. This would be a special relationship

obviously. While this court cannot determine at this juncture whether the Matrix Defendants

absolutely rose to the level of fiduciaries, the Trustee has pleaded a plausible set of facts that might

lead to such a conclusion. Here, the Trustee has plausibly asserted that the Matrix Defendants

acted negligently, grossly negligent, or willfully in breaching duties beyond the duties explicitly

set out under the Services Agreement. Such allegations include, but are not limited to, the Matrix

Defendants’ duty of care in failing to implement reasonable policies and procedures to safeguard

assets in the Matrix’s Defendants’ control.81 The Trustee asserts that the Matrix Defendants knew

or should have known based on numerous red flags, such as depletion of accounts by more than

90% in a just a few months, that the disbursements being requested were improper.82 Further, the

Trustee has alleged damages that go beyond “benefit of the bargain” or “any anticipated benefit”

of the Services Agreement.83 Damages that would be included in the “benefit of the bargain” and

arise solely as a breach of contract would be lost profits, fees paid to the Matrix Defendants, or

costs associated with finding a replacement for the Matrix Defendants, to name a few examples.

But a siege of judgments resulting in the destruction of the Debtor’s business due to the alleged

misconduct of the Matrix Defendants cannot be considered a loss of an anticipated benefit of the

Services Agreement.

As pleaded by the Trustee in the SAC, the allegations of tort claims can exist despite the

existence of the Services Agreement and contractual duties between the two parties under Texas

law.

81 SAC, DE #43 in the AP, at ¶ 51-77.

82 Id. at ¶ 76.

83 See DeLanney, 809 S.W.2d at 495; See also Chapman, 445 S.W.3d at 718-19.

e. 12(b)(6)-Failure to State a Claim

Turning finally to the individual claims, the Matrix Defendants have challenged all claims

asserted against them under Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim

upon which relief can be granted. The court will address each count of the SAC in turn. All of the

court’s reasoning and rulings on standing, choice of law, in pari delicto, and the economic-loss

doctrine above are incorporated when ruling on the Matrix Defendants’ Rule 12(b)(6) challenge.

1. Count 1 – Breach of Contract

In Texas, the elements of a claim for breach of contract are: (1) a valid contract between

the plaintiff and the defendant, (2) performance or tender of performance by the plaintiff, (3)

breach by the defendant, and (4) damage to the plaintiff as a result of the breach.84

The Matrix Defendants contend that Count 1, for breach of contract, should be dismissed

for a failure to state a plausible claim under three arguments. First, they argue that Vantage did not

perform its obligations under and breached the Services Agreement, citing improper instructions

it attributes to Vantage. Second, the Matrix Defendants claim the SAC does not allege any actual

breach of the Services Agreement because the Matrix Defendants were under no duty to investigate

instructions of Vantage. Finally, the Matrix Defendants argue that the Services Agreement requires

an act or omission to be not in good faith, grossly negligent, or willful misconduct to be actionable

and the Trustee fails to allege sufficient facts.

The Trustee responds by refuting each of these three arguments. First, the Trustee states

that the Matrix Defendants received full compensation and fees they were owed under the Services

Agreement, and any misconduct in violation of the Services Agreement was committed by the

Richies outside of the scope of their employment. Also, the Trustee views this argument as another

84 Lawyers Title Ins. Corp. v. Doubletree Partners, L.P., 739 F.3d 848, 858 (5th Cir. 2014).

in pari delicto argument that is factually intensive and not appropriate on a Rule 12(b)(6) motion.85

Second, the Matrix Defendants were not allowed to blindly follow the instructions they were given

as they cannot waive duties under ERISA and could not follow instructions that required them to

commit illegal acts.86 Finally, the Trustee argues he has met his burden under the Services

Agreement to have an actionable claim by alleging the Matrix Defendants knew of the illegal acts

of the Richies and, as such, were not simply exercising an alleged right not to investigate.

The court is required to charitably construe the Second Amended Complaint, with all well-

pleaded factual allegations being accepted as true and with any reasonable inferences from those

facts being drawn in favor of the Trustee. The court concludes that a determination as to such

things as whether the Richies were acting independently and outside the scope of their employment

in the commission of illegal acts, and what the Matrix Defendants knew or had reason to know,

would require an intensive factual inquiry that is inappropriate at the motion to dismiss phase. The

court agrees with the Trustee’s authority that holds that a dispute over whether a plaintiff to a

breach of contract claim committed a material breach is not properly done at the motion to dismiss

phase.87

As such, the court must accept the allegations that the Richies committed acts independent

of Vantage and against the interest of Vantage as true. As alleged, Vantage fully performed under

the Services Agreement. The Services Agreement has been included in consideration of the Motion

to Dismiss by stipulation at the hearing conducted on the Motion to Dismiss. The court finds when

interpreting facts and making inferences in favor of the non-moving party, the Trustee, the

85 See In re InSITE Servs. Corp., 287 B.R.79, 93 (Bankr. S.D.N.Y. 2002)(determining whether there were material

breaches on behalf of a plaintiff in a breach of contract dispute, when highly disputed, is not proper for a motion to

dismiss).

86 See 29 U.S.C. § 1110 (stating any agreement governed by ERISA which purports to relieve a fiduciary of

responsibility or liability is void as against public policy).

87 See In re InSITE Servs. Corp., 287 B.R. at 93.

provisions of the Service Agreement do not wholly bar the breach of contract claim alleged by the

Trustee.

Accordingly, the Trustee has plausibly alleged the existence of a contract, adequate

performance by Vantage, breach by the Matrix Defendants, and actual damages. Thus, the Trustee

has alleged a plausible claim for breach for contract and the claim survives the Rule 12(b)(6)

challenge.

2. Count 2 & 3 – Negligence & Gross Negligence/Willful Misconduct

The majority of the Matrix Defendants’ argument in the Motion to Dismiss against Counts

2 & 3 arises from arguments addressed above in the discussion of the economic-loss doctrine.

As the court addressed above, the Texas Supreme Court has found that “[a]ccompanying

every contract is a common-law duty to perform with care, skill, reasonable expedience and

faithfulness the thing agreed to be done, and a negligent failure to observe any of these conditions

is a tort, as well as a breach of contract.”88 As such, the court follows this precedent in concluding

that conduct that causes a breach of contract can also create an action under tort. Further, as stated

by the Texas Supreme Court, by entering a contract, tort duties can arise in executing the contract.89

Here, the Trustee alleges that the Matrix Defendants did not perform their duty of care, skill, or

faithfulness as part of his assertion of his negligence and gross negligence/willful misconduct

claims. The Trustee did so in pleading allegations such as the Matrix Defendants knew ERISA

prevented transfers of plan assets to parties in interest, and the Matrix Defendants knew Vantage

and the Richies were not allowed to handle plan assets.90 Thus, Counts 2 & 3 of the Trustee’s SAC

are pleaded sufficiently to survive the Motion to Dismiss.

88 Scharrenbeck, 204 S.W.2d at 510.

89 See id.

90 SAC, DE #43 in the AP, at ¶ 72.

3. Count 4 – UCC Claim

The Trustee has asserted a claim under the UCC of an unwaivable obligation of

good faith and commercial reasonableness. The Motion to Dismiss to the UCC claim, Count 4, is

dismissed by consent, since the Trustee acknowledged at oral argument that there is no

independent claim or cause of action for breach of a UCC duty of good faith, per se. Specifically,

the Trustee stated during oral argument that Count 4 is basically an elaboration on his breach of

contract claim (Count 1)—further stating that the Services Agreement between Vantage and the

Matrix Defendants was subject to the UCC91 and that, “therefore, the duty of good faith applies”

and it "cannot be waived.” Counsel for the Trustee reiterated that this Count “dovetails with the

contract claim” and that “the remedy is still a breach of contract remedy, just unwaivable.”

Given that the Trustee has acknowledged that he has not articulated an independent cause

of action for which relief can be granted with regard to this Count, this Count will be

dismissed. However, the court will grant leave of 14 days to the Trustee to amend Count 1--the

breach of contract claim--to articulate and give the Matrix Defendants notice of this UCC-based

theory that is part of the Trustee's breach of contract claim.

4. Counts 6 & 7 – Aiding and Abetting & Breach of Fiduciary Duties

Generally, the elements of a claim for breach of fiduciary duty are (1) the existence of a

fiduciary duty, (2) breach of the duty, (3) causation, and (4) damages.92 As for the aiding and

abetting claim, the Texas Supreme Court “has not expressly decided whether Texas recognizes a

cause of action for aiding and abetting.”93

91 The court notes anecdotally that the Services Agreement and Custodial Account Agreements do not involve a sale

of goods, a lease of goods, or a secured transaction. Thus, this court is highly skeptical that the UCC, in fact, applies

here.

92 See, e.g., ERI Consulting Eng'rs, Inc. v. Swinnea, 318 S.W.3d 867, 873 (Tex.2010).

93 First United Pentecostal Church of Beaumont v. Parker, 514 S.W.3d 214, 224 (Tex.2017) (the Court assumed for

the purposes of its opinion an aiding and abetting claim existed because the issue was not briefed).

The Matrix Defendants have contested Counts 6 & 7 under the theories that not only did

the Matrix Defendants not owe fiduciary duties to the Debtor, but the SAC also has pleaded no

facts to show that the Matrix Defendants knowingly assisted the Richies in the breach of their

fiduciary duties. The Trustee in response, and in the SAC, has pleaded that the Matrix Defendants

were fiduciaries because they were agents of the Debtor.94 Further, the Matrix Defendants were in

a position of trust and confidence in relation to the plans Vantage serviced and exercised

discretionary and unauthorized control over the plans’ assets administered by the Debtor.95

Given that the Texas Supreme Court has yet to decide whether aiding and abetting is a

recognized cause of action, this court is unable to conclude as a matter of law that the Trustee is

unable to bring a cause of action or has not met his burden pleading under Texas law.96

As to the claim for breach of a fiduciary duty as an agent, under Texas law, an agency

relationship imposes certain fiduciary duties on the parties.97 But, even in an agency relationship

such as employer-employee, courts take all aspects of the relationship into consideration when

determining the nature of fiduciary duties flowing between the parties.98 Further, “factors which

must be taken into consideration when determining the scope of an agent's fiduciary duty to his or

her principal include not only the nature and purpose of the relationship, but also agreements

between the agent and principal.”99 The Services Agreement limits, on its face, the Matrix

Defendants’ duty to investigate and their liability for certain actions. However, the relationship

between the Matrix Defendants and Vantage certainly included a level of trust that the Matrix

Defendants would safeguard employee benefit assets that were being serviced. In making

94 SAC, DE #43 in the AP, at ¶ 115.

95 Id.

96 Parker, 514 S.W.3d at 224.

97 Johnson v. Brewer & Pritchard, P.C., 73 S.W.3d 193, 199 (Tex.2002).

98 Id. at 200.

99 National Plan Adm’rs, Inc. v. National Health Ins. Co., 235 S.W.3d 695, 700 (Tex.2007).

favorable inferences for the Trustee in analyzing the SAC and Services Agreement, it appears

plausible that the Matrix Defendants could be deemed to be Vantage’s agent and owe fiduciary

duties that covered transfers made by the Matrix Defendants that they knew or should have known

were illegal and not in the best interest of the Debtor or the plan participants, as alleged by the

Trustee.100 Thus, Counts 6 & 7 survive the Motion to Dismiss as stating a plausible claim for relief

under Texas law.

5. Counts 8-10 – ERISA Claims

The ERISA claims, Counts 8-10, are brought by the Trustee on behalf of the Vantage Plan

and not any of the other administered plans. The court earlier discussed at length that it does not

believe that the Trustee has effectively pleaded standing as to Counts 8-10. Assuming the Trustee

can amend and plausibly plead standing, the court next needs to turn to whether the Trustee has

plausibly pleaded that the Matrix Defendants are fiduciaries under ERISA, since these ERISA

claims depend upon the Matrix Defendants being fiduciaries under the statute. The ERISA statute

provides a definition for a fiduciary at 29 U.S.C. § 1002(21)(A):

“Except as otherwise provided in subparagraph (B), a person is a fiduciary with

respect to a plan to the extent (i) he exercises any discretionary authority or

discretionary control respecting management of such plan or exercises any

authority or control respecting management or disposition of its assets, (ii) he

renders investment advice for a fee or other compensation, direct or indirect, with

respect to any moneys or other property of such plan, or has any authority or

responsibility to do so, or (iii) he has any discretionary authority or discretionary

responsibility in the administration of such plan.”

The Supreme Court has ruled “[i]n every case charging breach of ERISA fiduciary duty,

then, the threshold question is not whether the actions of some person employed to provide services

under a plan adversely affected a plan beneficiary's interest, but whether that person was acting as

100 SAC, DE #43 in the AP, at ¶ 115-16.

a fiduciary (that is, was performing a fiduciary function) when taking the action subject to

complaint.”101 The Fifth Circuit has found “[t]he term “fiduciary” is liberally construed in keeping

with the remedial purpose of ERISA” and extends to anyone who exercises any authority or

control.102 Further, the Fifth Circuit has said, in dicta, that “[a]ll plan administrators, officers,

trustees, and custodians are fiduciaries for the purposes of ERISA.”103

The Matrix Defendants contend that they never provided discretionary custodial services

that allowed them to exercise sufficient authority or control of the Vantage Plan to qualify as a

fiduciary under ERISA. The Matrix Defendants cite numerous provisions from the Custodial

Account Agreement for the proposition that there was a lack of discretion in the custodial services

provided by them. Additionally, in their Reply in Support of Motion to Dismiss, they stated that

“the Fifth Circuit has never held that ‘all custodians are fiduciaries.’”104 Also, on the same page of

the Reply, they cited a Fifth Circuit case, Kirschbaum v. Reliant Energy, 526 F.3d 243, 251 (5th

Cir. 2008), for the proposition that ERISA fiduciary status is context specific and not an “all or

nothing” concept.

First, the claim that the Fifth Circuit has never held that all custodians are fiduciaries under

ERISA is a bit disingenuous in light of the Total Plan Servs., Inc. case cited above.105 While dicta,

the Fifth Circuit has broadly interpreted the meaning of “fiduciary” under ERISA to include all

plan administrators, officers, trustees, and custodians.106 Additionally, at the pin-cite provided by

the Matrix Defendants in Kirschbaum, the Fifth Circuit was addressing whether the parties were

acting in their roles that created the fiduciary status, or wearing a different hat, at the time of the

101 Pegram v. Herdrich, 530 U.S. 211, 226 (2000).

102 Bannister v. Ullman, 287 F.3d 394, 401 (5th Cir. 2002).

103 Total Plan Servs., Inc. v. Texas Retailers Ass’n Inc., 825 F.2d 142, 143 (5th Cir. 1991) (emphasis added).

104 Reply, DE #56 in the AP, at pg. 9.

105 825 F.2d at 143.

106 Total Plan Servs., Inc., 825 F.2d at 143.

alleged actions.107 This does not bear on whether a custodian, acting as a custodian, is a fiduciary

under ERISA. The Trustee has pleaded that the Matrix Defendants were acting as custodians under

the parties’ agreements and the Matrix Defendants have not contended that there were custodians,

of some variation, under the agreements.108 This court concludes that the SAC has plausibly

pleaded that the Matrix Defendants were acting as custodians when allegedly disbursing funds

improperly and, thus, they may have been acting as fiduciaries under ERISA at the time of the

disbursements.

The Matrix Defendants have not contested any other elements of the ERISA claims (except

for standing, as discussed earlier). As stated earlier, the Trustee has not pleaded sufficient statutory

standing under ERISA or section 704(a)(11) of the Bankruptcy Code to bring the ERISA Claims.

The court will grant leave of 14 days for the Trustee to further amend the SAC as to the ERISA

Claims, Counts 8-10, to establish statutory standing under ERISA and the Bankruptcy Code by

pleading that Vantage was a fiduciary at the commencement of the bankruptcy case.

F. Conclusion

Based upon the facts alleged in the SAC and the arguments presented to the court, the

court rules as follows on the Motion to Dismiss: (a) it is denied as to Counts 1-3 and 6-7; (b)

Count 4 is dismissed by consent of the Trustee and the Matrix Defendants, but the Trustee is

granted 14-days’ leave to amend Count 1 to incorporate the UCC-related arguments into Count 1

as part of the breach of contract claim;109 (c) the court will recommend that the District Court

dismiss Counts 8-10—the ERISA claims—unless, within 14 days of this Order, the Trustee further

107 Kirschbaum, 526 F.3d at 251.

108 SAC, DE #43 in the AP, at ¶ 51-52.

109 This is consistent with what was announced at the hearing on the Motion to Dismiss, held on March 10, 2021. As

mentioned earlier, the court is skeptical as to the UCC’s application to the Services Agreement and Custodial Account

Agreements.

amends the SAC, to establish statutory standing, as articulated in this Order, under ERISA and

the Bankruptcy Code. To be clear, the court is granting the Trustee leave to amend Counts 1, 8,

9, and 10. But if Counts 8, 9, and 10 are not timely amended, this court will make a Report and

Recommendation to the District Court that Counts 8-10 be finally dismissed.

Accordingly, it is

ORDERED that the Motion to Dismiss is DENIED as to Counts 1-3 and Counts 6-7 of

the SAC; it is further

ORDERED that the Motion to Dismiss is GRANTED by consent as to Count 4 (however,

the Trustee is granted 14 days’ leave to amend the complaint to incorporate his UCC arguments

into Count 1, if he so chooses); it is further

ORDERED the Motion to Dismiss is DENIED as to Counts 8-10, solely conditional on

the Trustee further amending the SAC, within 14 days, to establish statutory standing, as

articulated in this Order, under ERISA and the Bankruptcy Code. If the complaint is not amended

to establish statutory standing as to Counts 8-10, the court will submit a report and

recommendation to the District Court suggesting dismissal of Counts 8-10.

###END OF MEMORANDUM OPINION AND ORDER###