Court Opinion

ID: 6331264
Source: CourtListenerOpinion
Date Created: 2022-04-13 20:00:48.138285+00
Date Added: 2024-06-11T09:23:09.549593
License: Public Domain

NOT FOR PUBLICATION                           FILED
                     UNITED STATES COURT OF APPEALS                       APR 8 2022
                                                                      MOLLY C. DWYER, CLERK
                                                                       U.S. COURT OF APPEALS
                           FOR THE NINTH CIRCUIT

TIM DAVIS; et al.,                              No.    21-15867

                Plaintiffs-Appellants,          D.C. No. 3:20-cv-01753-MMC

 v.
                                                MEMORANDUM*
SALESFORCE.COM, INC.; et al.,

                Defendants-Appellees.

                   Appeal from the United States District Court
                      for the Northern District of California
                   Maxine M. Chesney, District Judge, Presiding

                       Argued and Submitted March 7, 2022
                                Phoenix, Arizona

Before: HAWKINS, PAEZ, and WATFORD, Circuit Judges.

      Plaintiffs Tim Davis, Gregor Miguel, and Amanda Bredlow appeal from the

district court’s order granting defendants’ motion to dismiss their action under the

Employee Retirement Income Security Act of 1974 (ERISA) for failure to state a

claim. We reverse and remand for further proceedings.

      1. Plaintiffs adequately alleged a claim for breach of the duty of prudence

      *
             This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
                                                                            Page 2 of 5

under the pleading standard articulated in Bell Atlantic Corp. v. Twombly, 550 U.S.

544 (2007), and Ashcroft v. Iqbal, 556 U.S. 662 (2009). ERISA’s duty of prudence

is “derived from the common law of trusts,” such that a fiduciary “has a continuing

duty of some kind to monitor investments and remove imprudent ones.” Tibble v.

Edison Int’l, 575 U.S. 523, 528–30 (2015) (citation omitted); see 29 U.S.C.

§ 1104(a)(1)(B). Accepting the allegations in the first amended complaint as true,

as we must, plaintiffs have stated a plausible claim that defendants imprudently

failed to select lower-cost share classes or collective investment trusts with

substantially identical underlying assets.

      Plaintiffs identify two lower-cost JPMorgan share classes (R5 and R6) that

they allege were available substitutes for nine JPMorgan SmartRetirement mutual

funds offered by the plan during the class period. As to those nine JPMorgan

funds, plaintiffs allege that “the more expensive share classes chosen by

Defendants were the same in every respect other than price [as] their less

expensive counterparts.” Accepted as true, plaintiffs’ allegations plausibly suggest

that defendants acted imprudently by failing to switch to the lower-cost

alternatives. As we have held, “a trustee cannot ignore the power the trust wields

to obtain favorable investment products, particularly when those products are

substantially identical—other than their lower cost—to products the trustee has

already selected.” Tibble v. Edison Int’l, 843 F.3d 1187, 1198 (9th Cir. 2016) (en
                                                                           Page 3 of 5

banc).

         Defendants respond by arguing, as a factual matter, that the plan held R5

class shares of the nine JPMorgan SmartRetirement funds all along. According to

defendants, documents of which the district court took judicial notice show that the

Institutional class shares held by the plan were simply renamed R5 in 2017. But

even if defendants are correct on this point—a matter we do not think can be

resolved based on the judicially noticed documents alone, which themselves

contain ambiguities—plaintiffs also allege that defendants acted imprudently by

failing to switch to the R6 class earlier, and the judicially noticed documents

support plaintiffs’ allegation that the R6 class had a lower expense ratio than the

R5 class.

         Defendants further argue that the R6 class did not include revenue sharing,

which explains why that class of shares had a lower expense ratio than the R5

class, and thus provides an obvious alternative explanation for why defendants

offered beneficiaries the R5 class rather than the R6 class. That explanation is

plausible, and defendants may well be able to substantiate it at the summary

judgment stage. But the judicially noticed documents on which defendants rely to

support their argument are not sufficient at the pleading stage to render plaintiffs’

facially plausible allegations inadequate. “If there are two alternative explanations,

one advanced by defendant and the other advanced by plaintiff, both of which are
                                                                            Page 4 of 5

plausible, plaintiff’s complaint survives a motion to dismiss under Rule 12(b)(6).”

Starr v. Baca, 652 F.3d 1202, 1216 (9th Cir. 2011).

      Plaintiffs have also adequately alleged, in the alternative, that defendants

imprudently failed to investigate and timely switch to available collective

investment trusts, which plaintiffs allege had “the same underlying investments

and asset allocations as their mutual fund counterparts” but had better annual

returns and a lower net expense ratio. Plaintiffs allege that (1) defendants replaced

the nine JPMorgan SmartRetirement mutual funds with lower-cost collective

investment trusts in 2019, (2) defendants could have done so as early as 2010,

(3) the plan’s written investment policy expressly permitted investment in

collective investment trusts, and (4) defendants’ decision “to switch the Plan’s

JPMorgan target date funds in 2019 to JPMorgan target date [collective investment

trusts] was an unjustified delay that cost Plan participants millions of dollars.”

Based on these allegations, which again we must accept as true, defendants’

retention of allegedly higher-cost target date funds over collective investment

trusts cannot simply be deemed reasonable as a matter of law without further

factual development. See Tibble, 575 U.S. at 530. Whether the different

regulatory regimes governing mutual funds and collective investment trusts

justified defendants’ delay in making the switch earlier is itself a factual issue that
                                                                              Page 5 of 5

cannot be resolved at the pleading stage.1

      2. The parties agree that plaintiffs’ duty-to-monitor claim is derivative of

their duty-of-prudence claim. Thus, when the district court found that plaintiffs

had not adequately alleged a breach of the duty of prudence, the court dismissed

their duty-to-monitor claim without further analysis. Because we conclude that

plaintiffs have adequately alleged a claim for breach of the duty of prudence, we

also reverse the district court’s dismissal of their duty-to-monitor claim.

      REVERSED and REMANDED.

      Plaintiffs’ motion to file a supplemental brief (Dkt. 48) is DENIED.

1
 We agree with the district court that plaintiffs have not plausibly alleged that
defendants breached the duty of prudence by failing to adequately consider
passively managed mutual fund alternatives to the actively managed funds offered
by the plan.