In the first decision since the Supreme Court ruling Hughes v. Northwestern University decision, an appeals court resuscitated plaintiffs’ case in an excessive fee case that had been dismissed at the district court level.
Now, in fairness, the decision (Davis vs. Salesforce.com, Inc., 9th Cir., No. 21-15867, unpublished 4/8/22) by the United States Court of Appeals for the Ninth Circuit made no reference to the recent Supreme Court decision, and his decision does not seem to depend on this decision. Instead, the five-page unpublished opinion essentially relied on a fairly common arbitration standard: that allegations made by the party not seeking the dismissal be accepted as true, so long as they are plausible. .
The suit in this situation involved SalesForce’s $2 billion 401(k) – a lawsuit brought by participants Tim Davis, Gregor Miguel and Amanda Bredlow – represented by Capozzi Adler PC and Rosman & Germain LLP. They claimed, as is typical for this genre, that the plan’s trustees “breached their fiduciary duty of care by selecting and maintaining investment options at high costs relative to other comparable investments” , that the “committee defendants breached their fiduciary duty of loyalty, in that some of the funds’ investment managers hold a portion [Salesforce]and that the Board, Benioff, and Salesforce breached their duty of fiduciary oversight by failing to adequately oversee committee defendants.
The lawsuit was dismissed in October 2020 by U.S. District Judge Maxine M. Chesney, who allowed the plaintiffs to amend their claims, only to dismiss them again about a year ago. The plaintiffs appealed again last May.
However, in that unpublished opinion, the Ninth Circuit repeatedly commented on the various alleged points that “in accepting the allegations of the First Amended Complaint as true, as we must, the plaintiffs have made a plausible allegation”:
- that the defendants recklessly failed to select lower-cost classes of shares or mutual funds with substantially identical underlying assets; and
- Defendants’ retention of purportedly more expensive target date funds relative to mutual fund trusts simply cannot be considered reasonable in law without further factual development.
They also acknowledged that although the Salesforce Defendants explained that an R6 class does not include revenue sharing, “which explains why this share class has a lower expense ratio than the R5 class, and thus provides an obvious alternative explanation for why the defendants offered the beneficiaries class R5 rather than R6”…and that if “this explanation is plausible, and the defendants may well be able to support it at the summary judgment stage”, the “court-noted documents relied upon by defendants in support of their case are not sufficient at the pleading stage to render plaintiffs’ apparently plausible allegations insufficient.” Essentially citing precedent, they explained that “if there is two alternative explanations, one advanced by the defendant and the other advanced by the plaintiff, both of which are plausible, the plaintiff’s complaint survives a motion to dismiss under Rule 12(b)(6). .”
Whether “the regulatory regimes governing mutual funds and mutual fund trusts justified the defendants’ delay in making the change sooner is itself a factual issue that cannot be resolved at the argument stage.”
Interestingly, a point where the appellate court agreed with the district court’s assessment, agreeing that “the plaintiffs have not plausibly alleged that the defendants breached the duty of care in failing to adequately consider the passively managed mutual fund alternatives to the actively managed funds offered by the plan.”