Following a recommendation made in February by U.S. Magistrate Judge Craig B. Shaffer of the U.S. District Court for the District of Colorado, arguing for the denial of Oracle’s motion to dismiss, a district court judge has formally ruled the company will in fact have to defend itself at trial.
The allegations in the underlying lawsuit will not be novel to retirement plan industry professionals. Plaintiffs allege the Oracle Corporation 401(k) Savings and Investment Plan “caused participants to pay recordkeeping and administrative fees to Fidelity that were multiples of the market rate available for the same services.” In addition, the complaint says, because of the way the trust agreements with Fidelity are structured, Fidelity “is the sixth largest institutional holder of Oracle stock, owning over $2 billion shares.” Thus, plaintiffs suggest, Fidelity “has the influence of a large stockholder in light of its stock ownership.” The result is that “Oracle has chosen and maintained funds from one of its largest shareholders, Fidelity, to be investment options in the plan.” Plaintiffs suggest this relationship has led to conflicts of interest that have harmed participants and retirement plan performance.
Commenting on the details of the challenge, district court Judge Robert E. Blackburn says he “believes this case to be extraordinarily close and exceptionally context-specific … De novo review of the allegations of the complaint, the competing arguments, and the conflicting legal authorities in this area confirms that characterization, in spades … In general, therefore, caution is indicated.”
The judge goes on: “Heeding those admonitions, the court cannot adopt defendants’ proposal to dismiss Count I of the complaint on the theory that the plan’s fee structure fell within a presumptively reasonable range of expense ratios … Contrary to defendants’ arguments, the question is not whether a revenue-sharing model is within the range of reasonable choices a fiduciary might make, but whether this revenue sharing arrangement was reasonable under all the circumstances … That determination must account for all the factors which informed the fiduciaries’ decisionmaking, not all of which are presently known to plaintiffs based, allegedly, on their wrongful failure to disclose such information.”
NEXT: Further reasons for dismissal denial
The judge then considers whether allegations comprising Count II of the complaint are insufficient to state a plausible claim for breach of fiduciary duty in the selection of particular allegedly imprudent investments.
“Defendants insist this claim is based impermissibly on nothing more than hindsight … Plaintiffs allege two of the funds had inadequate performance histories to warrant investment in them at all,” the judge writes. “A third [fund] is alleged to have greatly underperformed its benchmark in four out of five years before it was removed from the plan. These allegations are sufficient to suggest a lack of prudence in the selection of the first two funds and in the retention of the third.”
Moreover, the judge rules, “plaintiffs allege they were not privy to the process by which defendants selected investment options, which both explains their inability to plead with more factual specificity and underscores the necessity for discovery. Defendants’ arguments for dismissal of Count IV are likewise untenable. Their suggestion that this claim must fail because the complaint fails to show the compensation paid to Fidelity was unreasonable relies on an exemption under ERISA constituting an affirmative defense which plaintiffs have no burden to disprove.”
Finally, the judge opines that defendants’ argument that revenue sharing payments are not plan “assets” ignores the “plain language of the statute, which is not so limited … Nor is this claim plainly time-barred, as plaintiffs properly have alleged they did not have actual knowledge of the allegedly prohibited transactions.”
The full text of the new opinion is here.