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Chevron Corp. defeated for the second time a proposed class action accusing it of breaching fiduciary duties by allowing poorly performing investments that allegedly carried high management fees in its $19 billion 401(k) plan ( White v. Chevron Corp. , 2017 BL 183229, N.D. Cal., No. 4:16-cv-0793-PJH, 5/31/17 ).
The participants couldn’t overcome the hurdles imposed by the U.S. District Court for the Northern District of California in its previous order that dismissed the original lawsuit, the district court held May 31.
The participants didn’t allege in their amended complaint facts sufficient to raise a plausible inference that Chevron took any action for the purpose of benefiting itself or Vanguard Group Inc. at the expense of the plan participants or that it acted under conflict of interest, Judge Phyllis J. Hamilton said in dismissing the amended lawsuit. They also failed to allege sufficient facts to state a claim of fiduciary breach in connection with Chevron’s selection of a money market fund as the low-risk capital-preservation investment option in the plan instead of a stable value fund, Hamilton said. In addition, the participants’ allegations of unreasonable record-keeping fees charged until March 2012 were based on “little more than guesses” and were either “invalid or relatively incomprehensible,” Hamilton said.
The two court rulings are noteworthy for addressing several theories of liability under the Employee Retirement Income Security Act, including the inclusion of money market funds instead of stable value funds and the use of lower-fee investment options such as separate accounts and collective trusts.
Hamilton rejected for the second time the participants’ allegation that Chevron imprudently offered mutual funds when the plan could have used less expensive institutional products, including collective trusts and separate accounts.
The amended complaint failed to allege sufficient facts to state a claim of fiduciary breach in connection with Chevron’s selection of funds with allegedly higher management fees over funds with lower fees, she said. The new allegations only provide comparisons between funds that were in the plan lineup and funds that the participants alleged were less expensive, but there were no allegations that Chevron’s process of selecting funds was imprudent, Hamilton said.
Hamilton also rejected the participants’ new claim that Chevron engaged in prohibited transactions under ERISA by selecting Vanguard as the plan’s record keeper. Unlike a claim of fiduciary breach, which turns on the prudence of the decision-making process, a violation of ERISA’s prohibited transaction clause occurs when a fiduciary takes a particular action with respect to the plan, Hamilton said.
In recent years, a number of major companies have been challenged in court over the way they manage their employees’ retirement plans. Intel Corp. and CVS Health Corp. have successfully defended lawsuits by participants challenging the investment options included in their retirement plans. Other companies, including Starwood Hotels, Fujitsu, Oracle Corp., American Airlines Inc., and Safeway Inc. have lost early bids to dismiss similar lawsuits.
Schlicther Bogard & Denton LLP and Futterman Dupree Dodd Croley Maier LLP represented the participants. O’Melveny & Myers LLP represented Chevron.
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