Agreeing with a federal district court that plaintiffs did not allege sufficient facts to support a plausible claim that Chevron Corporation and its defined contribution (DC) plan committee breached their Employee Retirement Income Security Act (ERISA) duties of loyalty and prudence, the 9th U.S. Circuit Court of Appeals affirmed dismissal of the lawsuit.
The proposed class action alleged that plan fiduciaries “breached their duties of loyalty and prudence by providing participants with a money market fund as a capital preservation option, instead of offering them a stable value fund; by providing retail investment options that charged higher management fees than lower-cost institutional versions of the same investments; by providing mutual funds that charged higher management fees than other lower-cost investment options such as collective trusts and separate accounts; by failing to put plan administrative services out for competitive bidding on a regular basis, and instead paying excessive administrative fees to Vanguard as recordkeeper through revenue sharing from plan investment options; and by retaining the Artisan Small Cap Value Fund as an investment option despite its underperformance compared to its benchmark, peer group, and lower-cost investment alternatives.”
U.S. District Judge Phyllis J. Hamilton in the U.S. District Court for the Northern District of California found that the initial complaint pleaded no facts sufficient to raise a plausible inference that defendants took any of the actions alleged for the purpose of benefiting themselves or a third-party entity with connections to Chevron Corporation, at the expense of the plan participants, or that they acted under any actual or perceived conflict of interest in administering the plan. “Nor do plaintiffs in their opposition point to any facts suggesting that the plan fiduciaries engaged in self-dealing or failed to act solely in the interest of the plan’s participants, or identify any facts plaintiffs could add to state a claim for breach of the duty of loyalty,” she said.
Hamilton previously offered the plaintiffs a chance to amend their complaint, but following the filing of their second complaint, she found that they failed to correct the deficiencies in the original complaint.
Citing prior case precedent in its memorandum, the 9th Circuit said the complaint must allege “factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged,” and where there are “two possible explanations, only one of which can be true and only one of which results in liability, plaintiff cannot offer allegations that are ‘merely consistent with’ [its] favored explanation but are also consistent with the alternative explanation.”
Using these standards, the appellate court found that the facts alleged are insufficient to support a plausible inference of breach of the duty of loyalty, breach of the duty of prudence, or that a prohibited transaction took place. “Rather, as to each count, the allegations showed only that Chevron could have chosen different vehicles for investment that performed better during the relevant period, or sought lower fees for administration of the fund. None of the allegations made it more plausible than not that any breach of a fiduciary duty had occurred,” the memorandum says.
The appellate court also held that the prohibited transaction claim is time-barred because the transaction alleged to have violated the statute—hiring Vanguard as the plan’s recordkeeper—is alleged to have occurred in 2002, while the lawsuit was filed in 2016.