February 11, 2019
Charles Schwab Corp. convinced a federal judge to dismiss all but one claim in a proposed class action targeting investments in its 401(k) plan.
Former Schwab employee Michael Dorman can move forward with a challenge to how the company replaced an affiliated stable value fund in its 401(k) plan with other funds.
But Dorman’s other allegations, which challenged the fees and performance of the plan’s Schwab-affiliated funds and certain loan transactions, were dismissed in a Feb. 8 order by Judge Claudia Wilken of the U.S. District Court for the Northern District of California.
Dorman’s surviving claim accuses Schwab of swapping out its stable value fund, a low-risk investment aimed at providing modest, guaranteed returns, for a collection of new funds that ultimately benefited Schwab in an alleged scheme aimed at avoiding statutorily prohibited transaction rules.
In allowing the claim to move forward, Wilken focused on the fact that Schwab never produced a report from Mercer LLC, the independent consultant hired to advise it on the stable value fund elimination.
Schwab produced “thousands of pages” of discovery but never produced that report, giving rise to the inference that Schwab either “never received or disregarded” Mercer’s recommendation, Wilken said. This is enough to state a claim for fiduciary breach under the Employee Retirement Income Security Act, she said.
Wilken’s decision comes while the U.S. Court of Appeals for the Ninth Circuit considers Schwab’s pending request to have the case sent to arbitration. Wilken twice rejected the company’s arbitration requests.
The arbitration requests raise a hot-button legal question that may be poised for U.S. Supreme Court review. Employees of the University of Southern California in 2018 filed a petition asking the Supreme Court to decide whether employers can use arbitration agreements to block proposed class actions brought on behalf of their retirement plan and its participants.
The Schwab employees are represented by Schneider Wallace Cottrell Konecky Wotkyns LLP and Berger Montague PC. Schwab represents itself, along with Proskauer Rose LLP and Shepherd Finkelman Miller & Shah LLP.
The case is Dorman v. Charles Schwab Corp., N.D. Cal., No. 4:17-cv-00285-CW, 2/8/19.