Tim Davis v. salesforce.com, Inc. ( 2022 )

NOT FOR PUBLICATION FILED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.
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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
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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
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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
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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.