of effort competence or loyalty by providing input investment options in this retirement plan and causing the plan to incur excessive administrative expenses the district court wrongly held but that w enough in the district court held the plaintiffs to a standard and impossible standard of pleading directly what exactly chevron the fiduciary of this plan did you know if i understand the this data correctly beyond that to show that there is only that the innocent explanation can't be true so maybe we should go through this count by count your first count though the experience was that that the stable market funds did that and so it seems to me they're sort of an innocent explanation funds over the relevant period and that allegation which we take case too is sufficient to create a plausible case that they breached if reduce your duty so it seems to me what you're saying is if you could find anybody who had a money market fund over that time period and you could show that stable funds outperformed them that you would have a you would have a triable case of breach if you do sure duty is that is tell me where i'm wrong it's not a trial case because it's not summary judgment when you know you would have a case that survived a motion to dismiss it so there so that everybody in the country who had a money market fund during that period can you complain could be filed against them that would survive a motion to dismiss well that's  honor because some plans are too small to be able have stable value funds in their portfolios this plan is one of the largest plans in the country it had over eight hundred million dollars in the money market account it clearly had the ability to use a stable value fund in fact vanguard who is using to provide the investment options and who provided the money market account in this plan itself had a stable that you fund that could have been used by the plant so all of those factors together is down so how is it that they protect the that they protect the principal the same way because the commitments that are provided by what's called the stable value wrapper providers ensure that it has a stable val and your honor may find it hard to understand how they do it but the history of these stable value investments going back in one thousand eight hundred nine through to two thousand and sixteen show that they have lower volatil might be responsible for right that's incorporated in the interest rate that shows it but so i'm still interested your position is really a percentage position is it not now that i have this report if i can find anybody who had a money market fund during this time period who was big enough to have access to a stable value fund they have per se committed a fraud that's that's not at all the case it's plausible that they have committed to what could their defense possibly be under those circumstances their defense possibly could be under the circumstances that in two thousand time or shortly before that we considered all the factors that are involved in providing a stable value option for this plan in stead of a money market account including the particulars i would apply to this plan and we consider those factors and we decided based on those factors that it was not appropriate for our plan for any number of them they could be for any number of reasons one could be we're expecting to lay off a third of our sales force our employee staff and that's going to void the stable value wrapper therefore there could be a liquidity problem that would be and let me ask let me ask the question slightly differently must each option could you answered the question that i asked if if i'd offer somebody a menu ranging from very high risk to very low risk there's a very low risk have to be have to be the very best low to i can find or can i say here's here's a really dangerous find it would you might get rich and here's one in which you'll be safe safe perfectly safe you choose among them do i have to say the one in which you're going to be perfectly safe is better than another one in which you'll be perfectly safe yes you're on the investment policy statement for this plan says that for short term investments you have to for the same level of safety get the highest return they can obtain out there now we're not saying and the difference here is not a million dollars a year without incurring any additional risk so the facts in this case are that you have this opportunity you know additional risk three times the return twenty five million dollars a year to these retirement accounts for these employees instant explanation here seems to be that the fees that were charged to the retail shares somehow or another offset some of the record keeping peace is that the way that the innocent explanation dollars per participant when the evidence shows that they could have gotten twenty five dollars for a project so what if they'd but if these these hundred dollars per participant fees were in fact used to set up some of the record keeping guys you know the net record keeping cost after whatever they're getting from these mutual funds is one hundred dollars per participant so whatever offset they're claiming they're getting from the higher share mutual fund is paying administrative expenses for the plan that are excessive that our streets times four times what they should have been and in fact when we started getting involved they changed things a lot of the that was down to their line of thought i think so you're saying that even though all of these that these excessive fees for the retail shares were being used to pay some of the administrative costs the administrative cost them selves were excessive and therefore that this doesn't work right because the higher cost classes don't justify paying administrative expenses that were themselves for the purpose of benefit of lowering the administrative expense for the plant which the employer was and so the fact that you can use revenue sharing to pay some administrative expenses whether they're excessive or not as nothing to do with the question of whether it's come up with some argument as to what we considered and again this is important if they show evidence that they considered the relevant factors and came to a reasoned decision even if that decision turns out to have been wrong they win because they had a prudent process but you can't expect participants in a retirement plan to plead those facts because they're not privy to the process that they do sure he's went through in making these decisions but if you can't prove if you can't  thanks then how do you have a case at all because it's process after all we're talking about what a prudent man would do knowing the facts so that is a process decision is not it is your honor but if you're going to say that the participants have to know with a process that they're not privy to and show why that process their decisions behind closed doors was wrong these cases are never going to occur and question is do the facts possibly show a tainted process well that's the question and here's the peers the problem that i'm struggling with let's assume that you plausibly allege that they chose options that weren't as good as other options which is i think the best you can do on these two things are more expensive version of the exact same and that's not can fair enough there's that plus is that plausibly less sufficient facts to show that they didn't make appropriate considerations and follow proper processes it just is the that's the difficulty what you're saying is the outcome the outcome must plausibly show that the process was flawed and i'm not sure that's true in the outcome often the process is often perfect and the outcome is flawed but the question is when the plane thousands have no idea what the process was what are they supposed to do you can't expect them to plead something that they don't have access to and i understand that's what i understand th flawed by showing that there could have been a better outcome it's just not that that's not what's being done here your honor at the time in two thousand and ten and you had investment options there providing the more expensive version of the exact same and  you're just rephrasing what i said in a in a more favorable way to you what would your never said what you're really saying is now looking at the out looking at the outcome i can say this was a bad outcome you should have chosen a better one but that's not i don't know how you arrive at the process of choosing the bad one but i don't have to know that when i plead my case that that's what you're saying is no no you're right that's not the outcome that's the facts that were in existence at the time of the start of fighting quote if i said facts instead of than an outcome would you have a quarrel with my wording if the facts at the beginning of the time period incident showed that they had cheaper options they could have provided the plan and did not provide those options that plausibly alleged ok so that's jetsunma that the question i've been trying to ask you you've been fighting me on so your position is if you can show that at that time there was a better alternative then that plausibly that is enough of a plausible pleading that their process in choosing the wors alternative was flawed yes ok exactly and remember is we don't have to rebut all possible lawful explanations for their conduct that's impossible that's the standard in braydon alan a circuit in seven circuit we only it any any investment that i show that the stock fund that you offer me in for one k is just terrible compared to a comparable stock fund offered by somebody else and that's all i've got so and i watched that there is do i do i then have i by then alleged enough to survive a motion to dismiss so two related answers the first is probably not but the other one is depends on the concrete allegation to make about what the fund is because a mere comparison when the plane the fiduciary has chosen a mainstream option from among among a broad competitive field that in itself that decision in itself cannot be enough to allege plausibly that the decision was so facially imprudent that we need to engage in costly litigation into the basis for the decision that has to be something more some red flag that says something about the defect in the process not just the decision itself i think there are three uncontroversial principles that when you put them together sort of answer the court's concerns and address mr waltz concerns about you know how can we ever plead a case the first is the pleading standard we've already inv to that requires a plaintiff to plead facts establishing more than the mere possibility of imprudent conduct and justice briar recently reminded us that that standard is an important mechanism for weeding out marilyn's claims in a recent future actions the second principle is the deference that is owed to discretionary decision making by is a fiduciary who remember the statute literally defines by the exercise by their exercise of discretionary authority as the armstrong case conditions and many different competing considerations and the third uncontroversial principle is the express and strict prohibition against reviewing fiduciary decisions through the lens of hindsight now those principles do not mean when you put them together that no plaintiff can ever plead a fiduciary action what they do mean is that when the plaintiff is not making concrete allegations about a defect in the process which is a possible thing i'll talk about that in a moment but they don't have that and they're trying to get there by alleging a problem with the substantive decision that was made under those circumstances the complaint must allege facts plausibl similarly situated fiduciary could have made that decision at the time given the information that was available in other words what if we do sherry chooses an option or take some action that is  were within the mainstream of choices i think you in this case you can certainly tell that they are we've already talked about the money market fund versus the stable value fund of choice their own complaint and their own complaint says that at the time  t that's that's a complete so if you know twenty percent did that it's a mainstream choice we're on the money market funds are mainstream conservative more liquid option the g a o study that they rely on which is not controversial it doesn't make any huge claims it is reports facts about money market funds versus table belief and that's as in two thousand and eleven fifty percent of plans did not have stable value funds hence the alternative would have been a money market fund so we know that's a mainstream choice  k i'm listening we're listening absolutely so turning to the claims i mean that's the best the main problem with the first claim of imprudent conduct here that the court below correctly held that they felt alleged facts permit an inference that there was a defective process in the decision to choose this mainstream option you can't just get to discovery impose the enormous litigation cost of discovery is just as briar warned about as the courts are people they warned about in concrete versus from ird and going back to very against how that we don't just welcome plaintiffs suing a wrist if you sherry's after the fact for decisions that were made that on their face or mainstream you need to come in with some sort of red flag that suggest some defect in the process cases like st vincent talk so i think your answer will be the same but i want to hear it with respect to the stock for a new question is whether or not you get retail yes or institutional shares and let's assume th ey played that institution those years were significantly cheaper why doesn't that say do so a couple of reasons as the court below pointed out and as their own complaint points out and as mr wolf again said today here in this court that claim really collapses on the question of whether or not the revenue sharing that's used from the retail share class is too excessive there briefing page forty one says the explanation the response that the retail share classes are using revenue sharing to defray expenses hinges this is there were hinges on whether or not those the compensation is too excessive and that's all about claim three so there really is no independent claim that it was imprudent to use retail share classes because their own complaint pleads a paragraph one twenty this is their complaint that the revenues from the retail share classes that delta between the retail class and the institutional class was used to pay expenses that the participants under the plan terms were supposed to pay them some were owed by them so this was a way to cover those expenses everybody agrees that that's what happened with these funds they say and he said again this morning that that's not a good enough answer because he says they that the compensation was excessive as a result that's all about claim three so let's turn to claim three what are the problems with that claim the court below found for problems with all of which of with that claim all of which are sufficient independent reasons to a dismissal one is that the complaint doesn't actually allege what the fees were there's a number one hundred nine dollars it's repeated this morning but it turns out that there's no basis for in the brief below you can see they say and twelve that's exactly so isn't it wouldn't be pretty simple to see what revenue was during that time period and figure out what the fees are sort of is the answer again if i may not know how that would have that broke down per participant but you'd certainly know what their gross fees were the abandoned changed so why isn't why isn't that enough to suggest that we do series were doing their job when figuring out what the record so much so that the first answer is the point that we don't actually even know what that number is but if you  accept ing that they plead enough to it if you if you don't know what their number is then maybe they have a good cause i'm just that well i'm just i think we know what it is the point is they have to allege concrete facts and permit an inference that it was excessive and they don't actually allege what the number is but there's a second answer which i think is equally or even more persuasive which is by definition what is referred to as asset based compensation is hindsight because what happens is you negotiate a deal in this case in two thousand and two to provide compensation based on the size and growth of assets  you don't know in two thousand and two or any point along that continuum what next year's compensation is going to be exactly how much the assets are going to grow and so what happened is in the class period here two thousand and ten to two thousand and twelve we'll all recall the economy recovered from a devastating financial crisis assets grew substantially the compensation there but we don't know what it was exactly but it surely grew substantially but nobody knew in two thousand and ten that was going to happen we don't know if there's going to another cliff if the number of  g layoffs at chevron which would shrink the size of the planned nobody could know that what did happen which we know from their own allegations is that assets increase compensation is increased and what did the prudent producers of chevron do they way to infer that the producers were employing it in imprudent process just based on the idea that asset base compensation went up rather than down or was not just you know the goldilocks standard of perfect for the the two year period you couldn't know what it would have been and when it was substantial and growing it was renegotiated just what you would want a prudent fiduciary to do there's also no allegation the third distinct point that any other that that vanguard itself or any other record keeper in the market before two thousand and twelve would have accepted lower compensation there's no concrete basis for that they say was excessive that's all they say it's a conclusory allegation which we know from twamley in a ball in other cases is not permissible is there when i read the complaint it was is there a complaint that said these are now a geisha there were lower we used revenue base fees available during the time period from comparable competitors that were big sure holders of i don't recall that so why not do that and that's exactly what's missing that kind of concrete allegation which is perfectly available to plaintiffs you know to just go out there and look in the market and preparing the case to make an actual concrete allegation of excessiveness you would have to point to other providers who at that time were as good and would would provide legal services for a substantially less amount we talk about the prohibited transaction claim the district court around them time though under north even under what northrup i mean is not controlling on this court but what the northrop district court held was that in that circumstance there were a series of transactions because each year the contract was  evaluated and re approved formally re approved so that the court was saying there's effectively a new contract that each year that was a transaction the court wasn't saying that absent that kind of transaction the mere payments the operation of the contract is talk we're not talking about substance on these coins we're talking about timeliness right yeah absolutely but what one when they're talking about the claims what they say in their brief and i think they're held to their brief is that this claim is timely because  there were payments made during this period and that and what they're talking about is the payments that were made pursuant to the pre two thousand and twelve asset based compensation arrangement which was entered into in two arrangement i don't think so i think they're focusing on the transaction the what their their first minute complaint says in progress one sixty six and one sixty seven is the transaction that they chose to identify was the asset base compensation transaction in two thousand and two that's what they refer to as the transaction i guess my question is if that were prohibited transaction wouldn't wouldn't the same logic apply to the transact of the subsequent drives action i mean that's certainly the that's only would be a transaction entering into the record keeping arrangement in two thousand and twelve we're not resisting that no no no i'm saying i'm trying to figure out why one would be a prohibited transaction and the other would not well so a couple of points the the only two as to whether or not it wasn't fact i don't believe so because we didn't take that to be their arguments it's their argument and their complaint about the district court's holding is that she got it wrong because they think under u that two thousand and two transaction could was continuing on right now as they seem to be fair i think i don't think the other side says we're making a separate attack on different transactions that's why it's timely they said if the payments continued right but i just i was trying to figure out why under the logic the second one would be as brave as the first i mean would be a transaction we don't think would ultimately be right you'd have to get them to get to prohibit right prohibition it wouldn't be and i think that's the reason i don't challenge it is they've got no chance of prevailing pleading a plausible clicked claim there because there clearly is not an argument or even an allegation that the compensation reached in two thousand and twelve was excessive which it has to be ultimately for it to be heard of unfortunate events the rest of your time also thank your honor we thank both sides for their their briefs their arguments in this case will be submitted to the final case on our calendar this morning is desperate to versus capital one