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Compliance September 17, 2021
Complex Ruling Sees Nvidia ERISA Lawsuit Dismissed, For Now
The dismissal order in the case includes several points of success for the plaintiffs, and while the suit has been tossed out due to a lack of standing, the court has left room for them to file an amended complaint.
Reported by John Manganaro
The U.S. District Court for the Northern District of California, San Jose Division, has filed an order granting the defense’s motion to dismiss an Employee Retirement Income Security Act (ERISA) fiduciary breach lawsuit filed against the Nvidia Corp. and several related defendants.
The underlying complaint in the case emerged a little more than a year ago, when the plaintiffs, who are participants in a defined contribution (DC) retirement plan offered by Nvidia, accused the computer graphics technology company of failing to prudently manage the plan’s expenses or exercise appropriate judgment to scrutinize each investment option that was offered in the plan to ensure it was prudent. In addition, the complaint says that, in many instances, the defendants failed to use the lowest cost share class for many of the mutual funds within the plan and failed to consider certain collective investment trusts (CITs) available during the class period “as alternatives to the mutual funds in the plan, despite their lower fees and materially similar investment objectives.”
In the text of the dismissal ruling—which was filed with leave for the plaintiffs to amend and refile their complaint—the court notes that a hearing on the motion to dismiss was originally scheduled for April 22. On March 12, the parties filed a stipulation to continue the hearing on the motion to dismiss to June 17, or to a subsequent date convenient to the court. The parties requested a continuation of the hearing date because the plaintiffs’ primary counsel had to leave the country for a family emergency and did not expect to return to the United States before the April 22 hearing date. The parties also requested that the court stay discovery until the defendants’ motion to dismiss was decided. On March 16, the court granted the parties’ stipulation, continued the hearing date on the instant motion to dismiss to June 17, and stayed the case until the court ordered otherwise.
After going through this timeline, the order then offers a brief discussion of some important issues relating to “judicial notice” and the use of certain documents and facts in the complaint. According to Cornell Law School, judicial notice is used by a court when it declares a fact presented as evidence as true without a formal presentation of evidence. As the court explains, public records, including judgments and other publicly filed documents, are proper subjects of judicial notice. However, to the extent any facts in documents subject to judicial notice are themselves subject to reasonable dispute, the court will not take judicial notice of those facts.
In this case, the defendants’ dismissal motion argues, in essence, that certain facts and documents included in the plaintiffs’ complaint are actually supportive of their position that the suit should be tossed out, as opposed to supporting the plaintiffs’ allegations that fiduciary breaches occurred. In response, the plaintiffs argue that the defendants are improperly attempting to use these documents to rebut allegations in the plaintiffs’ complaint. For this reason, the plaintiffs argue that the court should in fact deny the defendants’ request for judicial notice of items (mainly plan documents and disclosures) they included by reference in their complaint.
“The court agrees that Exhibits 1 through 17 are properly incorporated by reference,” the ruling states. “Courts within this district routinely grant requests for judicial notice of plan documents of the kind before the court in the instant case.”
From here, the order turns to analyzing the actual dismissal of the suit.
“The defendants first argue that the plaintiffs lack standing to bring the claims asserted in this case and lack standing to seek prospective injunctive relief,” the ruling states. “The defendants explain that throughout the class period, the plan offered approximately 50 different investment options, each with different investment styles, risk profiles and investment management fees. The defendants argue that the plaintiffs appear to challenge some subset of these investment funds offered by the plan, but do not specify which funds the plaintiffs invested in and whether the plaintiffs remain invested in those funds. Accordingly, the defendants argue that the plaintiffs lack standing to bring both Claims I and II and any injunctive relief sought.”
The court addresses each argument in turn, relying on precedents set by the 9th U.S. Circuit Court of Appeals. Ultimately, to the extent any named plaintiffs took full distribution of benefits during the class period, those named plaintiffs have Article III standing under the U.S. Constitution to bring Counts I and II. Accordingly, the court denies the defendants’ motion to dismiss the plaintiffs’ complaint for lack of Article III standing to bring Claims I and II on behalf of the putative class.
The defendants next argue that the plaintiffs lack Article III standing to seek injunctive relief, with the same result that their dismissal motion, on these specific grounds, is denied.
From here, the order turns in favor of the defense, stepping through the plaintiffs’ arguments and in each case determining other issues pertaining to standing support dismissal of the suit.
“The plaintiffs acknowledge that revenue-sharing fees generated in connection with the 14 mutual funds in the plan that the plaintiffs challenge were used to pay for recordkeeping and other administrative services provided by the plan,” the ruling states. “Thus, the defendants argue, there is an ‘obvious, alternative explanation’ for why the committee defendants selected higher-cost class shares rather than lower-cost class shares: The higher-cost class shares provided revenue-sharing fees that offset recordkeeping and administrative costs charged by Fidelity. Accordingly, the defendants argue, the plaintiffs have failed to state a claim for imprudence on the basis of the committee defendants’ selection and retention of the higher-cost class shares. The court agrees.”
Following other courts in the circuit that have considered similar allegations, this court finds that the plaintiffs’ allegations regarding the availability of lower-cost share classes are, without more details, insufficient to state a claim for breach of the duty of imprudence. Similarly, the court agrees with the defendants that the plaintiffs’ allegations regarding the availability of collective trust funds fail to state a claim for imprudence.
The plaintiffs have 30 days from the filing of the court order to amend their complaint.
The full text of the ruling is available here.