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United States District Court 

Northern District of California 

IN THE UNITED STATES DISTRICT COURT 

FOR THE NORTHERN DISTRICT OF CALIFORNIA 

MICHAEL F. DORMAN, individually 

as a participant in the SCHWAB 

PLAN RETIREMENT SAVINGS AND 

INVESTMENT PLAN and on behalf 

of a class of all those 

similarly situated, 

Plaintiff, 

v. 

THE CHARLES SCHWAB 

CORPORATION; CHARLES SCHWAB & 

CO INC.; SCHWAB RETIREMENT 

PLAN SERVICES INC.; CHARLES 

SCHWAB BANK; CHARLES SCHWAB 

INVESTMENT MANAGEMENT, INC.; 

WALTER W. BETTINGER III; 

CHARLES R. SCHWAB; JOSEPH R. 

MARTINETTO; MARTHA TUMA; JAY 

ALLEN; DAVE CALLAHAN; BRADLEY 

PETERSON; JOHN C. CLARK; KATHY 

ANDERSON; NAUREEN HASSAN; ED 

OBUCHOWSKI; DIANE RUSSELL; 

BRIAN MCDONALD; JONATHAN 

BEATTY; JOHN DOES 12-50; and 

XYZ CORPORATIONS 1-5, 

Defendants. 

Case No. 17-cv-00285-CW 

ORDER ON DEFENDANTS’ MOTION 

TO DISMISS IN PART SECOND 

AMENDED COMPLAINT 

(Dkt. No. 113) 

Defendants The Charles Schwab Corporation, Charles Schwab & 

Co. Inc., Schwab Retirement Plan Services Inc., Charles Schwab 

Bank, Charles Schwab Investment Management, Inc., Schwab 

Retirement Plan Services, Inc., Charles Schwab Bank, Walter W. 

Bettinger III, Charles R. Schwab, Joseph Martinetto, Martha Tuma, 

Jay Allen, Dave Callahan, Bradley Peterson, John C. Clark, Kathy 

Anderson, Naureen Hassan, Ed Obuchowski, Diane Russell, Brian 

McDonald, and Jonathan Beatty move to dismiss in part Plaintiff 
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United States District Court 

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Michael F. Dorman’s Second Amended Complaint (SAC). Defendants 

also filed a request for judicial notice in support of their 

motion. Dorman opposes the motion to dismiss but does not oppose 

the request for judicial notice. Having considered the papers, 

the Court DENIES in part and GRANTS in part Defendants’ motion to 

dismiss without leave to amend. The Court also GRANTS 

Defendants’ request for judicial notice. 

BACKGROUND 

This is an action brought under the Employee Retirement 

Security Act of 1974 (ERISA) by Dorman on behalf of himself and 

similarly situated participants in the Plan, an employee pension 

benefit plan. All eligible employees of Charles Schwab 

Corporation (CSC) and its affiliates may participate in the Plan. 

SAC ¶ 32. Participants in the Plan may choose to invest in 

various Schwab-affiliated and unaffiliated investment options. 

In his SAC, Dorman has sued three groups of Defendants. The 

first is the Entity Defendants: CSC; Charles Schwab & Co, Inc. 

(CS&Co), allegedly the Plan administrator; Charles Schwab 

Investment Management, Inc. (CSIM), a participating employer in 

the Plan; Charles Schwab Bank (CSBank), a Schwab subsidiary that 

allegedly became the Plan’s trustee; and Schwab Retirement Plan 

Services, Inc. (SRPS), a participating employer in the Plan which 

allegedly provided recordkeeping and related services to the 

Plan. The second group is the Fiduciary Defendants, which 

includes the Entity Defendants listed above as well as members of 

the Plan’s Employee Benefits Administration Committee (EBAC), who 

allegedly chose the investments, paid fees from the Plan’s 

assets, generally administered the Plan and periodically reported 
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to CSC’s Board. Individual members named as Fiduciary Defendants 

are Tuma, Allen, Callahan, Peterson, Clark, Anderson, Hassan, 

Obuchowski, Russell, McDonald and Beatty. The third group is the 

Board of Director Defendants, which consists of several 

individual members of the board of CS&Co. They are Bettinger 

III, Schwab and Martinetto. 

Dorman participated in the Plan from 2009 to 2015. During 

his participation, Dorman invested in both affiliated and 

unaffiliated options. SAC ¶ 43. 

Dorman’s First Amended Complaint (FAC) alleged five counts: 

(I) that the Fiduciary Defendants breached their ERISA §§ 

404(a)(1)(A) and (B) duties of loyalty and prudence by including 

certain funds without investigating cheaper, better performing 

alternatives; (II) that the Fiduciary Defendants violated ERISA § 

406(a), which proscribes ERISA fiduciaries from causing ERISA 

plans to engage in certain enumerated prohibited transactions 

with parties in interest; (III) that the Board of Director 

Defendants violated their duties of prudence and loyalty under 

ERISA § 404(a)(1)(A) and (B); (IV) that the Fiduciary Defendants 

are liable under ERISA § 405 for the misconduct of other 

fiduciaries; and, (V) that he is entitled to equitable relief 

under ERISA § 502(a)(3) against the Entity Defendants who 

knowingly participated and received the benefits of the fiduciary 

breaches and transactions above. 

On September 20, 2018, the Court granted in part and denied 

in part Defendants’ first motion to dismiss, addressing Dorman’s 

FAC. Docket No. 104 (Order). The Court granted leave to amend 

counts I, III and IV, except as to the self-directed brokerage 
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fund, which the Court dismissed without leave to amend. The 

Court denied Defendants’ motion to dismiss counts II and V. 

Dorman subsequently filed his SAC alleging the same five counts. 

Defendants now move to dismiss counts I, III and IV. Dorman’s 

SAC includes new allegations to support his breach of fiduciary 

duty claim (count I); he argues that his failure to monitor claim 

(count III) and breach of co-fiduciary duty claim (count IV) 

survive to the extent count I now survives. 

Dorman’s SAC alleges three main actions which he argues were 

breaches of Fiduciary Defendants’ fiduciary duties. The first is 

EBAC’s process in selecting affiliated capital preservation 

options to replace the Schwab Stable Value Fund (SVF). Schwab’s 

SVF was terminated in 2012. SAC ¶ 70. EBAC delegated the task 

of selecting alternative funds to its independent consultant, 

Mercer LLC (Mercer), because EBAC was conflicted. EBAC then 

chose a blend of affiliated and unaffiliated funds. Seventy 

percent of the Plan’s Schwab SVF investment was transferred to 

the JPMorgan Short Duration Bond Fund and PIMCO Low Duration 

Fund, which were unaffiliated funds. Id., ¶ 79. Thirty percent 

was transferred to the Schwab Value Advantage Money Market Fund 

(Schwab Money Market Fund), an affiliated fund.1 Dorman alleges 

that, after two years, the funds from JPMorgan Short Duration 

Bond, PIMCO Low Duration and Schwab Money Market Fund were all 

transferred to the Schwab Bank Savings Cash Account (Schwab 

Savings Account). Id., ¶¶ 79-80. He further alleges that EBAC 

 1 This decision to allocate seventy percent of the Schwab SVF 

investment to unaffiliated funds and thirty percent to Schwab’s 

Money Market Fund will hereinafter be referred to as the 

“Seventy/Thirty Plan.” 
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ignored a recommendation from Mercer, and that the Seventy/Thirty 

Plan was only an interim plan, which resulted in losses to Plan 

participants while EBAC tried to devise a plan to transfer these 

funds back into a Schwab fund that would fit into a prohibited 

transaction exemption. 

The second action Dorman alleges as breaches of Fiduciary 

Defendants’ fiduciary duties relates to EBAC’s decision to 

continue investing in certain affiliated funds, specifically the 

Schwab International Index Fund, Schwab Small-Cap Index Fund, 

Schwab’s Managed Retirement Trust Funds (SMRT Funds), which 

comprise a family of ten target date funds, and Schwab Money 

Market Fund, along with selecting the Schwab Savings Account. 

Dorman alleges all these affiliated funds and Schwab Savings 

Account persistently and materially underperformed and charged 

excessive management fees. Id., ¶¶ 60-68, 87. 

The third action pertains to unallocated cash from the Plan, 

which consisted of new contributions, other assets awaiting 

investment pending distributions, and rollovers. Dorman alleges 

the unallocated cash was loaned to CSC’s affiliated entity CSBank 

without enough limitations. Specifically, Fiduciary Defendants 

allegedly loaned CSBank the money without requiring interest on 

the loan, violating § 406(a). Id., ¶¶ 101-03. 

LEGAL STANDARD 

A complaint must contain a “short and plain statement of the 

claim showing that the pleader is entitled to relief.” Fed. R. 

Civ. P. 8(a). The plaintiff must proffer “enough facts to state 

a claim to relief that is plausible on its face.” Ashcroft v. 

Iqbal, 556 U.S. 662, 697 (2009) (quoting Bell Atl. Corp. v. 
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Twombly, 550 U.S. 544, 570 (2007)). On a motion under Rule 

12(b)(6) for failure to state a claim, dismissal is appropriate 

only when the complaint does not give the defendant fair notice 

of a legally cognizable claim and the grounds on which it rests. 

Twombly, 550 U.S. at 555. A claim is facially plausible “when 

the plaintiff pleads factual content that allows the court to 

draw the reasonable inference that the defendant is liable for 

the misconduct alleged.” Iqbal, 556 U.S. at 678. 

In considering whether the complaint is sufficient to state 

a claim, the court will take all material allegations as true and 

construe them in the light most favorable to the plaintiff. 

Metzler Inv. GMBH v. Corinthian Colleges, Inc., 540 F.3d 1049, 

1061 (9th Cir. 2008). The court’s review is limited to the face 

of the complaint, materials incorporated into the complaint by 

reference, and facts of which the court may take judicial notice. 

Id. at 1061. However, the court need not accept legal 

conclusions, including threadbare “recitals of the elements of a 

cause of action, supported by mere conclusory statements.” 

Iqbal, 556 U.S. at 678 (citing Twombly, 550 U.S. at 555). 

DISCUSSION 

I. Defendants’ Request for Judicial Notice 

As a preliminary matter, Defendants request the Court take 

judicial notice of seventeen documents. Docket No. 115 (Request 

for Judicial Notice). The first thirteen are documents 

consisting of the Plan’s summary plan description, the Plan’s 

2016 Form 5500, various notices to plan participants regarding 

the Plan’s investment options and a prospectus filed with the 

Securities Exchange Commission. See Request for Judicial Notice 
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at 3-5. Defendants had requested the Court take judicial notice 

of these documents in support of their first motion to dismiss. 

Dorman did not oppose Defendants’ request then nor does he now. 

The Court finds they are judicially noticeable. 

The other four documents are excerpted reports from Mercer 

to EBAC specifying how various funds in the Plan performed. 

Dorman does not oppose Defendants’ request. These four reports 

contain figures which Dorman has relied upon although he did not 

cite them in his SAC. These four reports are judicially 

noticeable for purposes of a Rule 12(b)(6) motion because the 

documents are incorporated by reference into Dorman’s SAC. See 

Hoey v. Sony Elecs. Inc., 515 F. Supp. 2d 1099, 1103 (N.D. Cal. 

2007) (granting party’s request for judicial notice because 

“[e]ven if a document is not attached to a complaint, it may be 

incorporated . . . if the plaintiff refers extensively to the 

document or the document forms the basis of the plaintiff’s 

claim”) (internal citations omitted). 

II. Breach of Fiduciary Duty Claim (Count I) 

Defendants move to dismiss count I, Dorman’s ERISA claim 

against the Fiduciary Defendants for breach of the fiduciary 

duties of prudence and loyalty. “An ERISA fiduciary must 

discharge his responsibility with the care, skill, prudence, and 

diligence that a prudent person acting in a like capacity and 

familiar with such matters would use.” Tibble v. Edison Int’l, 

135 S. Ct. 1823, 1828 (2015). The duty of loyalty requires an 

ERISA fiduciary to act “solely in the interest of the 

participants and beneficiaries.” White v. Chevron Corp., 16-cv0793-PJH, 2016 WL 4502808, at *1 (N.D. Cal. Aug. 29, 2016) (White 
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I) (quoting § 404(a)(1)(A)). Dorman has amended his complaint to 

add facts to support three arguments, along with a catch-all 

argument, as to how Fiduciary Defendants have breached their 

fiduciary duties of loyalty and prudence. He argues that the SAC 

now sufficiently alleges: (i) facts showing that EBAC’s process 

in replacing the Schwab SVF was deficient and that EBAC failed to 

follow its own procedure and/or disregarded its independent 

consultant’s recommendation; (ii) facts showing that the 

affiliated funds purportedly persistently and/or materially 

underperformed; (iii) that because Dorman was found to have 

sufficiently alleged a claim of prohibited transactions, he 

therefore also sufficiently alleges a breach of fiduciary duty 

claim as to the earnings from the unallocated cash; and, (iv) 

lastly, as a catch-all, that viewing all of the allegations 

together creates an inference of imprudence and disloyalty by 

Defendants. 

A. EBAC’s Process of Selecting Alternative Funds to 

Replace the Terminated Schwab SVF 

The Court dismissed Dorman’s breach of fiduciary duty claim 

(count I) as to the terminated SVF alternatives because Dorman 

had conceded that seventy-percent of the SVF was transferred to 

unaffiliated funds, making a claim of improper self-dealing 

“implausible,” and because Defendants were not, per se, required 

to include a stable value fund in their Plan. Order at 9. 

Dorman now alleges facts challenging EBAC’s process in selecting 

SVF replacements. Specifically, Dorman asserts that EBAC had a 

deficient selection process because he has alleged the following 

facts: (i) the Seventy/Thirty Plan was a result of EBAC’s 
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purported original failed plan to transfer all the funds from 

Schwab’s SVF to an affiliated fund; (ii) the Seventy/Thirty Plan 

was an interim move as part of Defendants’ prohibited transaction 

exemption strategy; (iii) EBAC had already determined a stable 

value fund was the most appropriate capital preservation option; 

(iv) a majority of plans, as identified by Dorman, that 

previously held the Schwab SVF had replaced it with another 

stable value fund; and, (v) the unaffiliated funds were not 

comparable alternatives to the SVF. 

Dorman has pleaded sufficient facts to give rise to an 

inference of a breach of fiduciary duty. Dorman argues that a 

deficient process can be inferred based on EBAC meeting minutes 

produced in discovery. Specifically, Dorman’s SAC alleges that 

EBAC meeting minutes show it had delegated its role in selecting 

a Schwab SVF replacement to an independent consultant, Mercer, 

because EBAC had a conflict, and Mercer was to prepare a 

recommendation as to how EBAC should proceed in replacing the 

terminated SVF. However, because no such report was produced in 

discovery, SAC ¶¶ 80-82, despite the production of other EBAC 

minutes and Mercer reports, and because Defendants maintain that 

all non-privileged and responsive EBAC documents have been 

produced, id., ¶ 82-83, Dorman argues the Court should infer that 

no such report exists or that EBAC ignored the recommendation 

from Mercer, id. Defendants maintain that this Mercer report was 

not produced because it was outside the scope of claims Dorman 

could bring in arbitration in that he never invested in the 

Schwab SVF or Schwab Money Market Fund. The Court does not find 

this persuasive because Defendants, as they themselves claimed, 
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have produced “thousands of pages” of discovery, including other 

EBAC meeting minutes and Mercer reports containing financial 

information about Schwab’s SVF and Money Market Fund. See 

Declaration of Tulio D. Chirinos (Chirinos Decl.), Ex. 14 at 15, 

Ex. 15 at 24, Ex. 16 at 21, Ex. 17 at 23, 27. The Court finds 

that, viewing the allegations in the light most favorable to 

Dorman, the absence of such a Mercer report or EBAC meeting 

minutes showing Mercer’s recommendation gives rise to an 

inference that EBAC either never received or disregarded Mercer’s 

recommendation. This sufficiently alleges that Fiduciary 

Defendants breached their fiduciary duties because EBAC failed to 

follow its own process to prudently and loyally investigate 

options before selecting alternatives for Schwab’s SVF. Order at 

7 (noting that Dorman needed to allege facts to show how “the 

process by which [Fiduciary Defendants] managed the Plan was 

flawed”). 

However, Dorman’s other allegations as to a deficient 

process fail. To the extent Dorman argues again that replacing 

Schwab’s SVF with another stable value fund, as opposed to the 

Schwab Money Market Fund, would have been the prudent action, see 

SAC ¶ 97, Table 3 (showing a majority of thirty-eight plans 

replaced the Schwab SVF with another stable value fund), this 

fails as it did the first time because “Defendants are not 

required to provide a stable value fund.” Id. at 9 (citing White 

v. Chevron Corp., 16-cv-0793-PJH, 2017 WL 2352137, at *11 (N.D. 

Cal. May 31, 2017) (White II)). 

Dorman also argues that EBAC’s process was deficient because 

it ignored years of data showing the SMRT Funds were 
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underperforming.2 However, SMRT Funds were not part of the SVF 

replacement funds. Moreover, assuming this was to show EBAC’s 

deficient selection process separate from the SVF replacements, 

this still fails. The only factual allegations to support this 

conclusion was the purported underperformance of the SMRT Funds 

themselves. Dorman cannot use the funds’ purported 

underperformance as factual support of a deficient process when 

the funds’ underperformance, as discussed later, is insufficient 

to infer imprudence and must be supported by facts alleging a 

deficient process. Dorman cannot use each conclusory statement 

to bolster the other. 

Dorman lastly argues that EBAC’s process was deficient 

because transferring the SVF to the unaffiliated replacements did 

not guarantee against a loss and the unaffiliated funds were not 

a comparable replacement as capital preservation options. 

However, Dorman has pleaded no facts to support this conclusory 

allegation. 

While Dorman’s other allegations as to EBAC’s deficient 

process fail, because the lack of any Mercer report or EBAC 

minutes stating the independent consultant Mercer’s 

recommendation does give rise to an inference of imprudence and 

disloyalty in EBAC’s process, the Court DENIES Defendants’ motion 

to dismiss count I to the extent it relies on this theory. 

 2 The analysis of allegedly underperforming SMRT Funds is 

separate from the analysis of the alleged underperformance of the 

affiliated capital preservation options, Schwab Money Market Fund 

and Schwab Savings Account. As discussed below, Dorman’s 

allegations as to the capital preservation options, viewed with 

allegations of EBAC’s deficient process as to selecting the SVF 

replacements, sufficiently raises an inference of imprudence and 

disloyalty. 
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B. Schwab’s Affiliated Funds and Options 

In the SAC, Dorman adds new allegations relating to Schwabaffiliated funds in support of his breach of fiduciary duty claim 

(count I). He alleges that the selection and retention of the 

Schwab International Index Fund, Schwab Small-Cap Index Fund and 

SMRT Funds, along with the Schwab Money Market Fund and Schwab 

Savings Account, were breaches of fiduciary duties by the 

Fiduciary Defendants because these funds generated excessive 

management fees while underperforming. 

1. Excessive Management Fees of the Schwab 

International Index Fund, Schwab Small-Cap Index 

Fund and SMRT Funds 

The Court rejected Dorman’s argument that Schwab’s 

affiliated funds charged excessive fees on the last motion to 

dismiss, finding that “Schwab funds appear to have charged only 

slightly higher fees and underperformed by only a modest amount” 

and citing Schwab’s S&P 500 Index Fund fees as an example. Order 

at 6. The Court further held that these modest differences are 

insufficient because a fiduciary may consider other relevant 

factors and not just fees when selecting certain funds. Id. at 

7. Dorman alleges no new facts as to excessive management fees 

for the Schwab International Index Fund, Schwab Small-Cap Index 

Fund and SMRT Funds, but argues that this is sufficient to 

survive Defendants’ motion to dismiss because the fees charged by 

the SMRT Funds were three times higher than comparable Vanguard 

funds, because he omitted Schwab’s S&P 500 Index Fund from his 

SAC and because it is Defendants’ burden to identify the other 

relevant factors that were available when considering selection 

of these funds. First, Dorman’s excessive management fees theory 
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fails because he has alleged no new facts to address the 

deficiencies identified by the Court and merely recharacterizes 

them. For example, he has not alleged certain fees that would be 

outside the range of “modest differences.” See Order at 6-7 

(noting acceptable expense ratios can range from .03% to 2% or 

.07% to 1%). Here, the expense ratio range is purported to be 

.07% to .93%. Chirinos Decl., Ex. 3 at 2-7; Ex. 12 at 2-7. 

Further, Dorman misconstrues the Court’s Order. The Court 

cited Schwab’s S&P 500 Index Fund fees as an example of a fund 

charging slightly higher fees. The Court’s reasoning that 

slightly higher fees of the S&P 500 Index Fund alone were 

insufficient to state a cognizable breach of fiduciary duty claim 

extends to all management fees alleged to be excessive by Dorman 

here. Merely deleting the S&P 500 Index Fund allegations does 

not cure the deficiency. Moreover, the burden is not on 

Defendants to identify other relevant factors; rather, the 

Court’s Order stated that modest differences in fees do not give 

rise to a breach of fiduciary duty as to the excessive fees 

allegations because fiduciaries may take other factors into 

consideration. Plaintiffs must generally plead facts showing 

more than just high fees to show that defendants were imprudent 

in selecting certain funds. 

2. EBAC’s Decision to Include Underperforming Schwab 

International Index Fund, Schwab Small-Cap Index 

Fund and SMRT Funds 

The Court rejected Dorman’s theory in count I that Fiduciary 

Defendants breached their fiduciary duties based on the 

affiliated funds’ underperformance, finding, “Standing alone, 

offering and retaining funds that have underperformed modestly 
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and have somewhat higher fees is not enough to show malfeasance.” 

Order at 6; see also White II, 2017 WL 2352137, at * 20 

(rejecting plaintiff’s allegation that defendants’ failure to 

remove a fund due to its “consistent underperformance” was 

insufficient because “poor performance, standing alone, is not 

sufficient to create a reasonable inference that plan fiduciaries 

failed to conduct an adequate investigation . . . . ERISA 

requires a plaintiff to plead some other indicia of imprudence”). 

Dorman offers new allegations, which he argues cure the 

deficiencies identified by the Court because these allegations 

now show “material” and “persistent” underperformance. These new 

allegations do not remedy the previous deficiencies. First, 

Dorman has provided no new allegations of “other indicia of 

imprudence.” At most, construed in the light most favorable to 

Dorman, his new allegation that Defendants failed to pursue a 

“meaningful investigation, or ignored recommendations of advisors 

or consultants,” SAC ¶ 55, would be “other indicia” of 

malfeasance as to the SMRT Funds,3 but is conclusory and 

unsupported by any factual allegations. Thus, Dorman has not 

provided factual allegations of “other indicia” and his new 

allegations pertain only to underperforming funds, which alone, 

as the Court has said, are insufficient to survive a motion to 

dismiss and fail for that reason. 

 3 Dorman does not provide any new allegations of 

underperformance by the other challenged affiliated funds, Schwab 

International Index Fund or Schwab Small-Cap Index Fund. His 

only new allegations of underperformance relate to the SMRT Funds 

and Money Market Fund. Thus, Dorman’s allegations of 

underperformance as to the former funds independently fail 

because he has failed to offer new allegations to cure the 

deficiencies identified by the Court. 
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Separately, the allegations here do not, as Dorman argues, 

indicate the SMRT Funds “persistent[ly]” or “materially” 

underperformed. Dorman now alleges that some of Schwab’s SMRT 

Funds underperformed, measured on a five-year basis using the 

Schwab Managed Retirement Trust Index (Index) and the Mercer 

Mutual Fund Lifecycle Universe Median (Universe Median) as 

benchmarks. As compared to these benchmarks, Dorman’s SAC shows 

that Schwab’s family of ten SMRT Funds both underperformed and 

outperformed or matched at various times, ranging from zero out 

of ten funds underperforming in one year up to six out of ten 

funds underperforming in another year. See SAC ¶¶ 62-66. This 

contradicts Dorman’s own allegations that SMRT Funds 

“persistent[ly]” underperformed. For example, in 2013, all ten 

SMRT Funds outperformed or matched the Index benchmark in the 

previous five years, and eight out of the ten funds outperformed 

or matched the Universe Median in the previous five years. See 

Chirinos Decl., Ex. 17 at 22; compare with Terraza v. Safeway, 

Inc., 241 F. Supp. 3d 1057, 1071 (N.D. Cal. 2017) (finding 

plaintiff’s allegations, inter alia, that “during the pertinent 

period, almost all of the investment options . . . underperformed 

compared to their benchmark” was sufficient to create a plausible 

inference that defendants’ decision-making process was flawed). 

Moreover, Dorman alleges persistent underperformance, citing 

Mercer reports showing consistent quarters of underperformance of 

SMRT Funds, including periods as long as thirteen, seventeen or 

twenty-one quarters. However, converted into years, this 

translates into three to five years, which are still considered 

relatively short periods of underperformance. See Jenkins v. 
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Yager, 444 F.3d 916, 925-26 (7th Cir. 2006) (finding defendant 

did not breach his fiduciary duties retaining funds that 

underperformed for three years because “investment 

strategy . . . to find long-term, conservative, reliable 

investments that would do well during market fluctuations” for 

long-term investment was not unreasonable or imprudent); Order at 

7. 

3. Excessive Management Fees and Underperformance of 

the Schwab Money Market Fund and Schwab Savings 

Account 

As to the Schwab Money Market Fund’s and Schwab Savings 

Account’s management fees and underperformance allegations, 

because Dorman has sufficiently alleged facts supporting a claim 

of breach of fiduciary duty under the theory of a deficient 

process selecting the SVF replacements (i.e., the Money Market 

Fund and Schwab Savings Account), the allegations of excessive 

management fees and underperformance as to the Fund and Account 

also survive as Dorman has alleged “some other indicia of 

imprudence.” See e.g., White II, 2017 WL 2352137, at *20. 

For the foregoing reasons, apart from the Schwab Money 

Market Fund and Schwab Savings Account, none of Dorman’s new 

allegations as to his affiliated funds theory sufficiently 

alleges facts to infer a breach of Fiduciary Defendants’ 

fiduciary duties (count I). 

C. Earnings from Unallocated Cash 

Dorman argues that Fiduciary Defendants were imprudent and 

disloyal because they gave CSBank an interest-free loan using 

extraneous unallocated cash from the Plan in violation of 29 

C.F.R. § 2550.408b-2(e). Dorman has alleged these new facts to 
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flesh out his prohibited transaction claim and appears to argue 

that this also sufficiently alleges Defendants breached their 

fiduciary duties because these allegations show a prohibited 

transaction.4 Regulation § 2550.408b-2 is an explicit exemption 

from the prohibitions in § 406(a) (i.e., prohibited transactions) 

promulgated pursuant to § 408(b)(2) under ERISA. 29 C.F.R. § 

2550.408b-2(a). The regulation states, “Section 408(b)(2) of the 

Act does not contain an exemption from other provisions of the 

Act, such as § 404 [i.e., the statutes pertaining to the 

fiduciary duties of prudence and loyalty] . . . which may impose 

requirements or restrictions relating to the transactions which 

are exempt under section 408(b)(2).” Id., subd. (a)(3) (emphasis 

added). Thus, while a transaction may be exempt under § 

408(b)(2), it could nevertheless still be subject to the 

fiduciary duties of prudence and loyalty. However, aside from 

conclusory allegations that Defendants failed to make meaningful 

investigations, see SAC ¶¶ 104-05, Dorman has not identified any 

facts nor regulations under § 404 showing how Defendants here 

violated their duties of prudence or loyalty as to the 

unallocated earnings. Instead, Dorman argues because the loan is 

allegedly a prohibited transaction, it should also be a per se 

violation of Defendants’ fiduciary duties of prudence and 

loyalty. This is insufficient to state a claim of a breach of 

fiduciary duty. 

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prohibited transaction claim, a claim which the Court had 

previously allowed to proceed, and Defendants do not oppose these 

amendments to the extent they support the prohibited transaction 

claim, the Court will allow the amendments as to count II. 
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D. Viewing All Allegations in Their Totality 

Aside from Dorman’s allegedly deficient process inferred 

from the lack of any Mercer report or meeting minutes and the 

excessive fees and underperformance of the SVF replacements, all 

of the other theories fail for the reasons identified above; 

thus, viewing these all together also does not sufficiently state 

a breach of fiduciary duty claim. 

However, the Court finds that Dorman has sufficiently 

alleged facts giving rise to an inference of imprudence and 

disloyalty as to his theory of Defendants’ deficient process in 

selecting the Schwab SVF replacements based on the lack of a 

report or meeting minutes, along with the allegations of 

excessive fees and underperformance of these SVF replacements. 

Thus, to the extent Dorman’s breach of fiduciary duty claim 

relies on these theories, the Court DENIES Defendants’ motion to 

dismiss count I. However, because Dorman has failed to cure the 

deficiencies as to his other theories despite an opportunity to 

do so, the Court GRANTS Defendants’ motion to dismiss count I as 

to the other theories without leave to amend. 

III. Dorman’s Derivative Claims (Counts III & IV) 

Dorman also alleges that the Board of Director Defendants 

failed to monitor the Fiduciary Defendants (count III). “The 

Ninth Circuit has recognized that where members of an employer’s 

board of directors have responsibility for the appointment and 

removal of ERISA trustees, those directors are themselves subject 

to ERISA fiduciary duties, albeit only with respect to trustee 

selection and retention.” Solis v. Webb, 931 F. Supp. 2d 936, 

952-53 (N.D. Cal. 2012) (internal citations omitted). Here, 
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Dorman has sufficiently alleged a duty to monitor claim, alleging 

that Board of Director Defendants had authority to appoint 

individuals to EBAC, failed to investigate and monitor whether 

Fiduciary Defendants (which includes EBAC members) were 

fulfilling their fiduciary roles and failed to act to correct any 

imprudent and disloyal actions. See SAC ¶¶ 150-51; see also 

Fernandez v. Franklin Resources, Inc., 17-cv-6409, 2018 WL 

1697089, at *7 (N.D. Cal. Apr. 6, 2018). The basis for this 

claim would be failing to act to correct EBAC’s allegedly 

deficient process in selecting the SVF replacement. 

Further, Dorman’s breach of co-fiduciary duty claim (count 

IV) against the Fiduciary Defendants also survives because Dorman 

has sufficiently alleged that Fiduciary Defendants had knowledge 

of the alleged imprudent or disloyal acts that this Court found 

sufficiently state a claim for Dorman’s breach of fiduciary duty 

claim (count I). See Woods v. Southern Co., 396 F. Supp. 2d 

1351, 1379 (N.D. Ga. 2005) (finding allegation that cofiduciaries had “knowledge” of purported wrongdoing sufficiently 

stated a claim and citing cases stating the same). 

CONCLUSION 

For the foregoing reasons, Defendants’ motion to dismiss in 

part Dorman’s SAC is GRANTED in part without leave to amend and 

DENIED in part. Defendants’ motion is denied to the extent that 

counts I, III & IV are based on the theories of a deficient 

process in selecting a replacement for the SVF and of excessive 

fees and underperformance of such SVF replacements. The motion 

is otherwise granted without leave to amend. A further case 

management conference is set for March 12, 2019 at 2:30 p.m., a 
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joint case management statement is due a week before on March 5, 

2019. 

IT IS SO ORDERED. 

Dated: February 8, 2019 

CLAUDIA WILKEN 

United States District Judge