The U.S. District Court for the District of Colorado has issued summary judgement largely in favor of the defense in a long-running Employee Retirement Income Security Act (ERISA) lawsuit targeting fiduciaries of the 401(k) plan offered to employees of the Oracle Corporation.
The law firm of Schlichter, Bogard and Denton filed the proposed class action suit back in January 2016, claiming the Oracle Corporation breached ERISA in various ways through mismanagement of the 401(k) plan. As an example, the lawsuit claimed Oracle Corporation breached its fiduciary duties by causing participants to pay recordkeeping and administrative fees to Fidelity that were “multiples of the market rate available for the same services.”
The text of the complaint further suggested defendants “breached their fiduciary duties of loyalty and prudence and engaged in transactions expressly prohibited by ERISA … by failing to act solely in the interest of plan participants and failing to adequately monitor the investment options in, and service providers to, the plan.” The defendants were also accused of “preventing participants in the plan from discovering their breaches through a series of false and misleading communications to plan participants.”
In February 2018, the district court granted class certification. However, the federal judge on the case changed the class definition for certain imprudent investment claims because class representatives were not all invested in the funds challenged. Despite this setback for Oracle at the class certification stage, the new ruling pushes strongly against many of the plaintiffs’ claims.
Evidentiary Objections and Statute of Limitation Issues
Before addressing the substance of plaintiffs’ claims, the decision first addresses their objections to certain evidence submitted in support of the defense’s summary judgment motion. The court also considers defendants’ statute of limitations arguments. In both cases the defense gets the better of the ruling, though on the limitations issue plaintiffs are given a little breathing room.
In their evidentiary challenge, the plaintiffs object to seven documents produced by defendants after discovery in this case closed on December 1, 2017. After some brief consideration, the judge rules there is no basis to exclude this evidence under Rule 37(c)(1), essentially because the defense produced the documents as soon as they were either created and feasibly available. The decision also points favorably to the defendants’ quick supply of additional requested documents and information.
“Plaintiffs objections based on hearsay and lack of foundation are wholly conclusory and completely undeveloped,” the text of the ruling states. “I am neither required nor inclined to guess at the substance of such arguments. … Accordingly, I overrule plaintiffs’ objections and will consider the documents if and where appropriate.”
The defense similarly succeeds with its statute of limitations arguments, with the judge ruling to limit claims across a variety of areas.
“In certifying this matter as a class action, I defined all three subclasses to commence on January 1, 2009, noting it was premature to determine at that juncture whether plaintiffs could establish facts sufficient to toll limitations,” the decision says. “I now find and conclude plaintiffs have failed to adduce sufficient evidence in that regard. Accordingly, any claim based on conduct occurring before January 22, 2010, is time-barred.”
Most ERISA Claims Fall Flat
Turning to the substance of this case, the decision first considers the plaintiffs’ claim that the Oracle fiduciary defendants failed to monitor the recordkeeping fees paid to Fidelity, resulting in the payment of excessive fees.
“Plaintiffs maintain that allowing Fidelity to recoup recordkeeping fees based on a percentage of the plan’s assets, rather than on a fixed per-participant amount, resulted in unwarranted and excessive increases to Fidelity’s compensation as the plan grew in size, without a corresponding increase in the services rendered,” the decision states. “I find these allegations untenable. The committee, together with representatives of Mercer and Fidelity and outside counsel, met at least quarterly. Mercer produces quarterly reports for the plan which, among other things, report the expense ratios for each fund in the plan and show the administrative fees paid, both in total and on a per-participant basis.”
Plaintiffs argue these actions were insufficient because there is, they claim, little evidence that the committee ever specifically considered the fees paid to Fidelity on a per-participant basis or requested Mercer perform an analysis of the reasonableness of Fidelity’s recordkeeping fees on a per-participant basis.
“Plaintiffs apparently divine this fact from the absence of a specific mention of these issues or documents in the minutes of the committee’s meetings,” the decision states. “However, they ignore testimony to the effect that such information, in fact, was reviewed at every quarterly meeting, with no expectation that such review necessarily would be reflected in the minutes. … Indeed, it appears abundantly clear the committee regularly did consider information regarding the plan’s recordkeeping costs as a percentage of total costs, a figure which declined during every year of the class period.”
For similar reasons, plaintiffs’ related assertion that the committee was imprudent in failing to negotiate Fidelity’s fees did not survive summary judgment.
“Plaintiffs’ arguments regarding this aspect of their claim appear to be based on an amorphous, but artificially narrow conception of what ‘negotiation’ must look like,” the decision states. “Whatever plaintiffs feel may have been lacking in the manner by which the plan secured price concessions from Fidelity related to the cost of its administrative services, the evidence nevertheless demonstrates the plan did receive significant concessions during the class period.”
The text of the opinion shows plaintiffs’ evidence as to the purported unreasonableness of Fidelity’s recordkeeping fees is premised on the expert opinion of Michael Geist, who generated a table of what he claimed to be reasonable per-participant recordkeeping fees for each year of the class period, to which he compared the fees paid by the plan. However, because Geist failed to disclose the methodology by which he derived these allegedly more reasonable recordkeeping fees, the court struck his opinion.
“Plaintiffs thus have no evidence to suggest that defendants’ alleged lack of prudence caused losses to the plan,” the decision states. “Absent such proof, these aspects of plaintiffs’ breach of fiduciary duty claim would fail even if the evidence substantiated an actual lack of prudence on defendants’ part, which it does not.”
The plaintiffs’ duty of prudence claims are similarly rejected.
“Yet here again, assuming [for the sake of argument] Geist’s opinion on this matter is sufficient to create a genuine dispute of material fact as to liability, without his further opinion that less costly alternatives were available, plaintiffs have no evidence that the plan could have paid less for recordkeeping services than it did, and therefore that it suffered compensable losses,” the decision states. “Without such evidence of damages, this claim also must fail.”
The decision then moves on to consider duty of loyalty claims to the effect defendants breached this duty by allowing the plan to pay allegedly excessive recordkeeping fees in order to maintain a favorable business relationship with Fidelity, which was also a customer of Oracle. There are at least two problems with this argument, the decision says.
First, “a conflict of interest is not a per se breach: nowhere in the statute does ERISA explicitly prohibit a trustee from holding positions of dual loyalties. Instead, in order to prove a violation of the duty of loyalty, the plaintiff must go further and show actual disloyal conduct.”
Here, the disloyal conduct plaintiffs claim is the committee’s alleged failure to secure a lower recordkeeping fee for the plan. As noted, plaintiffs have failed to prove that such was the case.
Second, “the evidence plaintiffs have adduced shows merely that members of Oracle’s sales team and various of its senior management—none of whom were fiduciaries with respect to the plan or are named defendants in this lawsuit—discussing among themselves how to leverage Oracle’s business relationship with Fidelity. The actions of such non-fiduciaries are irrelevant. The threshold question under ERISA 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 a fiduciary (that is, performing a fiduciary function) when taking the action subject to complaint.”
The text of the ruling concludes by noting the several areas where plaintiffs’ claims can proceed.
“For the reasons set forth herein, I grant defendants’ motion for summary judgment in part and deny it in part,” the decision concludes. “Based on those rulings, I perceive the claims remaining for determination at trial are (1) the allegedly imprudent investment in the Artisan Fund (Count II); (2) the allegedly imprudent retention of the TCM Fund (Count II); (3) the alleged failure to monitor the breach of fiduciary duty in the retention of these two allegedly imprudent investments. All other claims in this suit will be dismissed with prejudice.”
The full text of the lawsuit, which includes extensive discussion of these issues as well as numerous citations of relevant preceding cases, is available here.