Troudt et al v. Oracle Corporation et al

Filing 67

ORDER Overruling Objections to and Adopting Recommendation of United States Magistrate Judge. Defendants' Objections to Report and Recommendation [#63] [# 65 ] are overruled. The Recommendation Regarding Defendants' Superseding Motion To Dismiss the Complaint [# 63 ] is approved and adopted as an order of this court. Defendants' Superseding Motion To Dismiss the Complaint [# 36 ] is denied. By Judge Robert E. Blackburn on 03/22/2017. (athom, )

IN THE UNITED STATE DISTRICT COURT
FOR THE DISTRICT OF COLORADO
Judge Robert E. Blackburn
Civil Action No. 1:16-cv-00175-REB-CBS
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 401(k) Savings and Investment Plan,
Plaintiffs,
v.
ORACLE CORPORATION,
ORACLE CORPORATION 401(K) COMMITTEE, and
JOHN DOES 1-20.
Defendants.

ORDER OVERRULING OBJECTIONS TO AND ADOPTING
RECOMMENDATION OF UNITED STATES MAGISTRATE JUDGE
Blackburn, J.
The matters before me are (1) the magistrate judge’s Recommendation
Regarding Defendants’ Superseding Motion To Dismiss the Complaint [#63],1 filed
February 16, 2017; and (2) Defendants’ Objections to Report and Recommendation
[#63] [#65], filed March 2, 2017. I overrule the objections, approve and adopt the
recommendation, and deny the underlying motion to dismiss.

1

“[#63]” is an example of the convention I use to identify the docket number assigned to a
specific paper by the court’s case management and electronic case filing system (CM/ECF). I use this
convention throughout this order.

As required by 28 U.S.C. § 636(b), I have reviewed de novo all portions of the
recommendation to which objections have been filed. I have considered carefully the
recommendation; the objections and the response thereto; the underlying motion,
response, and reply, as well as the parties’ submissions of supplemental authorities; the
complaint to which the motion is directed; and all applicable caselaw.
It is clear from both the recommendation and the magistrate judge’s comments to
the parties at the hearing on the motion (see Transcript [#64], filed February 27,
2017),2 that he believed this case to be extraordinarily close and exceptionally contextspecific. My own thorough de novo review of the allegations of the complaint, the
competing arguments, and the conflicting legal authorities in this area confirms that
characterization, in spades.3
In general, therefore, caution is indicated. While context is important in the
vetting of any complaint, see Gee v. Pacheco, 627 F.3d 1178, 1185 (10th Cir. 2010),
the Supreme Court specifically has endorsed a “careful, context-sensitive scrutiny of a
complaint's allegations” in ERISA cases. Fifth Third Bancorp v. Dudenhoeffer, – U.S.
–, 134 S. Ct. 2459, 2470, – L.Ed.2d – (2014). Even the authorities on which defendants
rely in support of their motion to dismiss suggest caution in proceeding in a case of this
nature on a barren factual record. See, e.g., Tibble v. Edison International, 729 F.3d
1110, 1135 (9th Cir. 2013) (there are “simply too many relevant considerations” for a
2

The hearing initially was set to consider oral arguments on the motion. However, the magistrate
judge forestalled further argument, noting that, in preparing for the hearing, he had come to the
conclusions now set forth in his recommendation and saw no benefit in further argument.
3

Similarly, the sheer number of lengthy documents defendants append to their motion (the
majority of which the magistrate nevertheless considered) suggests the particularly fact-intensive nature of
the inquiry.

2

“bright-line approach to prudence to be tenable”), vacated, 135 S. Ct. 1823 (2015);
Hecker v. Deere & Co., 569 F.3d 708, 711 (7th Cir. 2009) (court’s decision“was tethered
closely” to the facts), cert. denied, 130 S.Ct. 1141 (2010) (emphases in original). Other
federal courts have found likewise. See, e.g., Tussey v. ABB, Inc., 746 F.3d 327, 336
(8th Cir.), cert. denied, 135 S.Ct. 477 (2014); Lorenz v. Safeway, Inc., 2017 WL
952883 at *10 (N.D. Cal. March 13, 2017) (slip op.); Board of Trustees of Southern
California IBEW-NECA Defined Contribution Plan v. Bank of New York Mellon
Corp., 2011 WL 6130831 at *3 (S.D.N.Y. Dec. 9, 2011).
Heeding those admonitions, the court cannot adopt defendants’ proposal to
dismiss Count I of the complaint on the theory that the plan’s fee structure fell within a
presumptively reasonable range of expense ratios.4 See Lorenz, 2017 WL 952883 at
*10 (rejecting approach which “would effectively carve out a presumption of prudence
for expense ratios that fell within a certain range” and thus “immunize an investment
from scrutiny” based on that consideration alone). Contrary to defendants’ arguments,
the question is not “whether a revenue-sharing model is within the range of reasonable

4

More fundamentally,“in Hecker, there was no argument that the administrative fees were not
reasonable.” Spano v. The Boeing Co., 125 F.Supp.3d 848, 866 (S.D. Ill. 2014). See also George v.
Kraft Foods Global, Inc., 674 F.Supp.2d 1031, 1048, n.17 (N.D. Ill. 2009) (“[A]t a fundamental level,
Hecker says nothing regarding the duty a fiduciary holds with respect to a 401(k) investment plan's
administrative services fees.”). Plaintiffs here, by contrast, do not allege merely that revenue sharing per
se violates ERISA, which has been found insufficient to state a claim under ERISA, see Tibble, 729 F.3d
at 1135; White v. Chevron Corp., 2016 WL 4502808 at *14 (N.D. Cal. Aug. 29, 2016), but rather that
defendants failed to monitor the fees paid to the administrator to ensure their continuing reasonableness
as plan assets increased (Compl. ¶¶ 58-63 at 18-20). See Lorenz, 2017 WL 952883 at *13 (noting that
“responsible plan fiduciaries must assure that the compensation the plan pays directly or indirectly . . . for
services is reasonable, taking into account the services provided to the plan as well as all fees or
compensation received by [the service provider] in connection with the investment of plan assets,
including any revenue sharing.’”) (quoting Employee Benefits Security Administration of the U.S.
Department of Labor, Advisory Opinion 2013-03A (July 3, 2013)) (internal quotation marks omitted;
alterations in original).

3

choices a fiduciary might make” (Obj. at 10), but whether this revenue sharing
arrangement was reasonable under all the circumstances. See Hecker, 569 F.3d at
711 (narrow issue court determined, in granting 12(b)(6) motion, was whether “this
complaint, alleging that [the employer] chose this package of funds . . . failed to state a
claim upon which relief can be granted”) (emphases in original). That determination
must account for all the factors which informed the fiduciaries’ decisionmaking,5 not all
of which are presently known to plaintiffs based, allegedly, on their wrongful failure to
disclose such information. (See Compl. ¶ 59 at 18-19.) See Braden v. Wal-Mart
Stores, Inc., 588 F.3d 585, 598 (8th Cir. 2009) (“No matter how clever or diligent, ERISA
plaintiffs generally lack the inside information necessary to make out their claims in
detail unless and until discovery commences.”).
Nor do I find the allegations comprising Count II of the complaint insufficient to
state a plausible claim for breach of fiduciary duty in the selection of particular allegedly
imprudent investments. Although defendants insist this claim is based impermissibly on
nothing more than hindsight, see Pension Benefit Guaranty Corp. v. Morgan Stanley
Investment Management, Inc., 712 F.3d 705, 718 (2nd Cir. 2013), plaintiffs allege two
of the funds had inadequate performance histories to warrant investment in them at all

5

Nor am I wholly convinced that an allegation of some additional nefarious motive on the part of
the fiduciary is a necessary – as opposed to a merely sufficient – precondition to this claim. See Braden,
588 F.3d at 596 (ERISA fiduciaries’ decisionmaking process may be “tainted by failure of effort,
competence, or loyalty”) (emphasis added). To the extent plaintiffs are required to plead some “plus” factor
in connection with their revenue sharing allegations, the allegations of the complaint permit a reasonable
inference that this method of compensating the plan administrator drove up the costs in a way that was
completely untethered from the value of the services provided. (See Compl. ¶ 60 at 19-19 & n.2.) See
Tibble, 729 F.3d at 1136.

4

(see Compl. ¶ 65 at 21, ¶ 69 at 23; ¶ 71 at 25).6 See Pension Benefit Guaranty
Corp., 712 F.3d at 719. The third is alleged to have greatly underperformed its
benchmark in four out of five years before it was removed from the plan. (Compl. ¶¶
66-67 at 21-22.) See Lorenz, 2017 WL 952883 at *9. These allegations are sufficient
to suggest a lack of prudence in the selection of the first two funds and in the retention
of the third. See Allen v. GreatBanc Trust Co., 835 F.3d 670, 678 (7th Cir. 2016).
Moreover, and here again, plaintiffs allege they were not privy to the process by which
defendants selected investment options, which both explains their inability to plead with
more factual specificity and underscores the necessity for discovery. (Compl. ¶ 75 at
26-27.)7 See Braden, 588 F.3d at 596.
Defendants’ arguments for dismissal of Count IV are likewise untenable. Their
suggestion that this claim must fail because the complaint fails to show the
compensation paid to Fidelity was unreasonable relies on an exemption under ERISA
constituting an affirmative defense which plaintiffs have no burden to disprove. See
Braden, 588 F.3d at 601-03. Defendants’ further argument that revenue sharing
payments are not plan “assets” ignores the plain language of the statute, which is not so
limited. See 29 U.S.C. § 1106(a)(1)(A) & (C) (See also supra, n. 6.) Nor is this claim
plainly time-barred, as plaintiffs properly have alleged they did not have actual
6

Defendants’ brief and underdeveloped argument that plaintiffs lack standing to challenge the
plan’s investment in one of the funds because none of them were invested in that fund is premised on
evidentiary material (see Def. Motion App., Exh. I) which the magistrate judge properly refused to
consider (see Recommendation at 8).
7

For this same reason, defendants’ argument that plaintiffs “do not allege any specific facts
regarding Oracle’s actual process for monitoring the Committee” (Def. Motion at 21) is not fatal at this
juncture. Otherwise, because (as defendants acknowledge) Count III is derivative of the breach of
fiduciary duty claims pled in Counts I and II, it also survives dismissal for now.

5

knowledge of the allegedly prohibited transactions.8 (See Compl. ¶¶ 73-75 at 26-27.)
See International Union of Electronic, Electric, Salaried, Machine and Furniture
Workers, AFL-CIO v. Murata Erie North America, Inc., 980 F.2d 889, 900 (3rd Cir.
1992).
I therefore concur with the magistrate judge’s conclusion that the allegations of
the complaint are sufficient to state plausible claims which should not be dismissed at
this early juncture. Moreover, prudential considerations – which the magistrate judge
presciently discussed at the hearing (see Transcript at 20 [#64], filed February 27,
2017) – further counsel against dismissal in a case as close as this one. Specifically,
this putative class action has now been pending more than a year. No pretrial
deadlines have been set, pending resolution of the instant motion. (See Scheduling
Order ¶ 9.a. at 15-16 [#40], filed April 6, 2016.)9 Because there thus is no deadline to
amend the pleadings, I would be hard-pressed to deny any request to amend which
plaintiffs might make were their present complaint dismissed. See FED. R. CIV. P.
15(a)(2). The only possible basis on which leave to amend might be denied would be
futility,10 see Minter v. Prime Equipment Co., 451 F.3d 1196, 1229 (10th Cir. 2006), but
that inquiry would simply return the court to the fact-intensive, context-specific analysis

8

Likewise, plaintiffs plainly have alleged facts sufficient to support a plausible inference that the
statute of limitations should be tolled. (See Compl. ¶¶ 73-75 at 26-27.) See 29 U.S.C. § 1113; Fulghum
v. Embarq Corp., 785 F.3d 395, 415 (10th Cir. 2015).
9

Perforce, no trial dates have been established either.

10

Plaintiffs plainly could not be accused of undue delay in seeking amendment, see Minter v.
Prime Equipment Co., 451 F.3d 1196, 1207-08 (10th Cir. 2006), nor is there any apparent basis to
conclude that defendants have been unduly prejudiced, since this case essentially has been stalled, see
Bylin v. Billings, 568 F.3d 1224, 1230 (10th Cir. 2009), cert. denied, 130 S.Ct. 1506 (2010).

6

which makes dismissal of the instant complaint inappropriate. Such a tautological
exercise is inimical to the overarching purpose of the Federal Rules of Civil Procedure:
the “just, speedy, and inexpensive determination of every action and proceeding.” FED.
R. CIV. P. 1.
For these reasons, the court approves and adopts the magistrate judge’s
recommendation as an order of the court. Defendants’ motion to dismiss accordingly is
denied.
THEREFORE, IT IS ORDERED as follows:
1. That the objections stated in Defendants’ Objections to Report and
Recommendation [#63] [#65], filed March 2, 2017, are overruled;
2. That the Recommendation Regarding Defendants’ Superseding Motion
To Dismiss the Complaint [#63], filed February 27, 2017, is approved and adopted as
an order of this court; and
3. That Defendants’ Superseding Motion To Dismiss the Complaint [#36],
filed March 29, 2016, is denied.
Dated March 22, 2017, at Denver, Colorado.
BY THE COURT:

7