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Troudt v. Oracle Corporation

United States District Court, D. Colorado

February 16, 2017

DEBORAH TROUDT, BRAD STAUF, SUSAN CUTSFORTH, WAYNE SELTZER, MICHAEL HARKIN, MIRIAM WAGNER, and MICHAEL FOY, individually and as representatives of a class of plan participants, on behalf of the Oracle Corporation 401k Savings and Investment Plan, Plaintiffs,


          Craig B. Shaffer, United States Magistrate Judge

         THIS MATTER comes before the court on Defendants Oracle Corporation and the Oracle Corporation 401(k) Committee's Superseding Motion to Dismiss the Complaint (doc. #36), Plaintiffs' Response to Defendants' Superseding Motion to Dismiss (doc. #49), and Defendants' Reply in Support of Superseding Motion to Dismiss (doc. #51). In addition, each side submitted a Notice of Supplemental Authorities (doc. ## 55 and 56). The pending motion was referred to this magistrate judge by Judge Robert E. Blackburn for a Report and Recommendation. I have reviewed the briefs submitted by each side and personally read every case cited by the parties. The court also did its own legal research to supplement the cases referenced in the parties' briefs. For the following reasons, I recommend that Defendants' Superseding Motion be denied.


         This putative class action commenced on January 22, 2016 with the filing of the Complaint asserting claims against Oracle Corporation, the Oracle Corporation 401(k) Committee and John Does 1-20. The named Plaintiffs are participants in the Oracle Corporation 401(k) Savings and Investment Plan (the “Plan”), which is an “employee pension benefit plan” under 29 U.S.C. § 1002(2)(A) of the Employee Retirement Income Security Act of 1974 (ERISA). The Plan, as of December, 2014, purportedly held more than $12 billion in assets and had 65, 732 participants. See Complaint, at ¶ 11. Oracle Corporation is the named fiduciary of the Plan under 29 U.S.C. § 1102(a) and the Plan administrator under 29 U.S.C. § 1002(16)(A). Id. at ¶ 12. The Oracle Corporation 401(k) Committee is a named fiduciary under 29 U.S.C. § 1102(a), charged with “(1) the interpretation of the Plan; (2) the formulation of rules necessary to administer the Plan; (3) the final determination of participant claims; and (4) the establishment and implementation of a funding policy and method for the Plan.” Id. at ¶ 13. During the relevant time period, Fidelity Management Trust Company was the Plan trustee appointed by Oracle and responsible for providing record keeping and administrative services to the Plan pursuant to the 2004 Trust Agreement.[1] Id. at ¶¶ 18 and 19.

         As the parties are familiar with the facts at issue in this case, only a brief summary of the salient allegations is necessary to place the pending motion in context. Plaintiffs's first claim for relief alleges that Defendants breached their duty of loyalty and prudence by causing the Plan to pay excessive recordkeeping fees to Fidelity. In support of their first claim for relief, Plaintiffs allege that Fidelity has been the record-keeper for the Plan since 1993 and throughout that period of time, Defendants have not put the Plan's services out for competitive bids from outside vendors who charge on a flat per-participant fee basis. See Complaint, at ¶¶ 51 and 83. According to the Complaint, “[t]he primary method of payment to Fidelity for its recordkeeping services for the Plan has been an asset based fee and not a flat, per-participant fee.” Id. at ¶ 50. Plaintiffs contend that this uncapped, asset-based revenue sharing arrangement permitted Fidelity to receive increased payments as the assets in the Plan grew, even though the services that Fidelity provided remained the same. By failing “to prudently monitor and control Fidelity's total record keeping compensation, particularly asset-based, uncapped revenue sharing, ” Defendants alleged caused “losses to the Plan exceeding $40 million.” Id. at ¶ 63.

         Plaintiffs' second claim for relief alleges Defendants “failed to engage in a prudent process for the selection and retention of Plan investment options, ” and instead “provided and retained more expensive funds with inferior historical performance that paid revenue sharing and generated investment management fee revenues for Fidelity.” Id. at ¶ 89. The Complaint specifically cites the “consistent underperformance of the Artisan Small Cap Value Fund” (id. at ¶¶ 66-68), the “dramatic underperformance” of the Pimco Inflation Response Multi-Asset Fund (id. at ¶¶ 69-70), and the “imprudent addition” of the “underperforming” TCM Small-Mid Cap Growth Fund (id. at ¶¶ 70-71). In essence, the second claim contends that Defendants' breach of the duties of loyalty and prudence by selecting and retaining these funds “caus[ed] the Plan to lose tens of millions of dollars of participants' retirement savings.” Id. at ¶ 89.

         The third and fourth claims for relief essentially mirror claims one and two. The third claim asserts that Oracle Corporation breached its duty to monitor the activities of other fiduciaries, specifically the 401(k) Committee. The fourth claim alleges that Defendants violated 29 U.S.C. § 1106(a)(1)(A) by “causing the Plan to engage Fidelity to be the recordkeeper for unreasonable compensation” and causing “the Plan to engage in a transaction that they knew or should have known constituted a direct or indirect furnishing of services between the Plan and a party in interest.” Id. at ¶ 100.

         In essence, “Plaintiffs allege that Defendants breached their [fiduciary] duty in two primary respects: (1) causing the Plan to pay unreasonable administrative expenses; and (2) providing three investment options that consistently underperformed and did not justify their selection or retention in the Plan.” See Plaintiffs' Response to Defendants' Superseding Motion, at p. 9.

         In moving to dismiss, Defendants insist that Plaintiffs' first claim for excessive fees and revenue-sharing fails because revenue-sharing is “perfectly legal” and because “nothing in ERISA 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. Defendants argue that the second claim in Plaintiffs' Complaint is “predicated entirely, and impermissibly, on hindsight.” Defendants assert that “plaintiffs do not allege Defendants selected [the allegedly underperforming funds] for impermissible reasons” and that the second claim “is devoid of any supporting factual allegations sufficient to raise a plausible inference of misconduct.” Defendants contend that claim three fails because claims one and two fail to assert cognizable claims under Rule 12(b)(6). Similarly, Defendants argue that claim four must be dismissed because Plaintiffs “have not plausibly alleged Fidelity was overpaid for recordkeeping or trustee services” and because “a mutual fund is not a party in interest.” Defendants further argue that claim four subsumes transactions that are time-barred. Needless to say, Plaintiffs take exception to all of the foregoing arguments.


         The parties are familiar with the prevailing standard of review under Rule 12(b)(6) of the Federal Rules of Civil Procedure. Rule 12(b)(6) states that a court may dismiss a complaint for “failure to state a claim upon which relief can be granted.” See Fed. R. Civ. P. 12(b)(6). In deciding a motion under Rule 12(b)(6), the court must “accept as true all well-pleaded factual allegations . . . and view these allegations in the light most favorable to the plaintiff.” Casanova v. Ulibarri, 595 F.3d 1120, 1124-25 (10th Cir. 2010) (quoting Smith v. United States, 561 F.3d 1090, 1098 (10th Cir. 2009)). The court's analysis is two-fold.

First, the court identifies “the allegations in the complaint that are not entitled to the assumption of truth, ” that is those allegations that are legal conclusions, bare assertions, or merely conclusory. Second, the court considers the factual allegations “to determine if they plausibly suggest an entitlement to relief.”

Wood v. Wells Fargo Bank, N.A., No. 13-cv-01731-CMA-KMT, 2013 WL 5763101, at *2 (D. Colo. Oct. 23, 2013) (internal citations omitted).

         “The burden is on the plaintiff to frame ‘a complaint with enough factual matter (taken as true) to suggest' that he or she is entitled to relief.” Robbins v. Oklahoma,519 F.3d 1242, 1247 (10th Cir. 2008). However, “[t]he issue in resolving a motion to dismiss . . . is ‘not whether [the] plaintiff will ultimately prevail, but whether the claimant is entitled to offer evidence to support the claims.” In re YRC Worldwide, Inc. ERISA ...

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