Oracle Fails to Get 401(k) Excessive Fee Suit Dismissed

A judge concluded that the legal and factual merits of plaintiffs’ claims are better resolved on a fuller factual record, either in the context of a motion for summary judgment or at trial.

A federal magistrate judge has recommended Oracle Corporation 401(k) Committee’s motion to dismiss a lawsuit regarding excessive plan fees be denied.

In the lawsuit filed in January, plaintiffs in Troudt vs. Oracle 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 described by the plaintiffs as “the sixth largest institutional holder of Oracle stock, owning over $2 billion shares. Thus, Fidelity has the influence of a large stockholder in light of its stock ownership.” The complaint continues, “Oracle has chosen and maintained funds from one of its largest shareholders, Fidelity, to be investment options in the Plan.”

In moving to dismiss, the Oracle defendants insist that the plaintiffs’ first claim for excessive fees and revenue-sharing fails because revenue-sharing is “perfectly legal” and because “nothing in ERISA [Employee Retirement Income Security Act] requires fiduciaries to solicit bids [for record keeping services]” through a competitive process. Defendants further contend that the first claim rests on nothing more than implausible conclusory allegations. The Oracle defendants also argue that claims by plaintiffs are “predicated entirely, and impermissibly, on hindsight;” “do not allege Defendants selected [the allegedly underperforming funds] for impermissible reasons;” and are “devoid of any supporting factual allegations sufficient to raise a plausible inference of misconduct.”

U.S. Magistrate Judge Craig B. Shaffer of the U.S. District Court for the District of Colorado noted in his opinion that the law firms of the parties in the case refer to other cases in which they prevailed, but “Tenth Circuit case law, however, does not figure prominently in either party’s arguments.” Shaffer said his own research has not found any controlling Tenth Circuit ERISA precedents on point. “At best, each side is relying on non-binding authority that it believes, from its own particular perspective, is enlightening,” he wrote.

NEXT: Specific facts are not necessary

In considering the arguments advanced by the parties, Shaffer carefully considered the “Facts Applicable to All Counts,” many of which he says could be described as generic allegations that might be found any ERISA pleading. Other paragraphs present legal arguments or mere conclusory statements. ”Depending on one’s particular perspective, I suppose, many of Plaintiffs allegations might be considered ‘conclusory’ or ‘legal conclusions masquerading as facts,’” he wrote.

Shaffer noted that other case law finds “conclusory allegations without supporting averments are insufficient to state a claim upon which relief can be based.” However, the Tenth U.S. Circuit Court of Appeals has acknowledged that “the plausibility standard has been criticized by some as placing an improper burden on plaintiffs,” particularly where “there is asymmetry of information.” Shaffer also cited the Supreme Court’s decision in Erickson v. Pardus, decided very shortly after Bell Atlantic Corp. v. Twombly, which re-affirmed that under Rule 8(a)(2), “[s]pecific facts are not necessary; the statement need only ‘give the defendant fair notice of what the ... claim is and the grounds upon which it rests.’”

Shaffer offered no opinions regarding ultimate merits of plaintiffs’ claims and said he does not discount any of the arguments or authorities advance in defendants’ briefing. “Although Defendants raise some significant questions regarding the merits of Plaintiffs’ claims, I am guided by the Tenth Circuit’s admonition … that ‘Rule 12(b)(6) motions to dismiss are not designed to weigh evidence or consider the truth or falsity of an adequately pled complaint,’” Shaffer wrote.

He went on to say that the complaint in the case presents allegations that challenge actions and omissions on the part of the defendant fiduciaries of the Oracle Corporation 401(k) Savings and Investment Plan, and for purposes of the pending motion, he must construe those allegations in a light most favorable to plaintiffs. “While I am not discounting the possibility that Defendants may ultimately prevail on the merits, for purposes of the pending motion, I believe Plaintiffs have met their pleading obligations,” Shaffer wrote.

He concluded that the legal and factual merits of plaintiffs’ claims are better resolved on a fuller factual record, either in the context of a motion for summary judgment or at trial.