Dueling Dismissal Motions Denied in BlackRock Self-Dealing Lawsuit

A new ruling has been issued by the U.S. District Court for the Northern District of California in an Employee Retirement Income Security Act (ERISA) lawsuit involving BlackRock.

Underlying the lawsuit are allegations that BlackRock engaged in self-dealing within its own retirement plan. The complaint suggests plan fiduciaries selected and retained high-cost and poor-performing investment options with “excessive layers of hidden fees that are not included in the fund expense ratios.”

Technically, the new ruling comes in response to several motions before the court, including the defendants’ motion for summary judgment, the plaintiffs’ cross-motion for partial summary judgment and a motion to strike. The parties also filed numerous administrative motions to file documents under seal in connection with their briefs. In sum, it denies both motions for summary judgment and the motion to strike, while granting the parties’ administrative motions to file under seal. Short of a voluntary withdrawal by the plaintiffs, such a ruling allows the case to proceed to either a trial or settlement.

The text of the short ruling covers each of these motions in turn, starting with plaintiffs’ motion for partial summary judgment, in which they argue that there are no genuine disputes of material fact as to render a trial necessary. Their motion suggests the record clearly establishes that fiduciary violations occurred.

“The court finds that there are genuine disputes of material fact relevant to whether defendants failed to follow the BlackRock plan’s investment policy statement [IPS] and whether they thereby violated their fiduciary duties,” the ruling counters. “To give one, non-exhaustive, example, plaintiffs argue that defendants failed to obtain an opinion of counsel as required by the IPS before including BlackRock-affiliated funds in the BlackRock plan. The IPS does not define what qualifies as ‘an opinion of counsel.’ Defendants point to evidence in the record that BlackRock’s ERISA counsel were present at the relevant investment committee meetings. … Similarly, the court also finds that there are genuine disputes of material facts relevant to liability under [the U.S. Code].”

The defendants’ motion for summary judgment is similarly rejected.

“Like plaintiffs, defendants also seek resolution of disputed issues of material fact in their favor in their motion for summary judgment,” the ruling states. “As discussed with regard to plaintiffs’ motion, there is a genuine dispute as to whether defendants complied with the IPS’s direction to ‘obtain an opinion of counsel’ that a prohibited transaction exemption [PTE] applied when selecting a fund managed by BlackRock or one of its subsidiaries. This disputed issue is material to the court’s fiduciary duty analysis.”

The ruling notes that the defendants also argue that they are entitled to summary judgment on plaintiffs’ prohibited transactions claims because their actions satisfied certain prohibited transaction exemptions.

“But these exemptions require that the court analyze the reasonableness of the compensation received by defendants,” the ruling states. “As discussed above in relation to plaintiffs’ motion for summary judgment on their [fiduciary liability] claims, analysis of the reasonableness of defendants’ compensation requires resolution of disputed issues of fact; summary judgment is therefore inappropriate.”

On the plaintiffs’ motion to strike the expert testimony of a defense witness, the court is also skeptical. 

“[The witness] is not being offered as an expert in ERISA law but rather as an expert on the processes 401(k) plan fiduciaries apply in their selection and monitoring of funds for plan participants,” the ruling states. “Given the purposes for which [her] testimony is being offered, the court finds that her qualifications provide a reliable basis in the knowledge and experience of the relevant discipline. Given that plaintiffs’ claims are based on defendants’ alleged breaches of fiduciary duty, the testimony about fiduciary processes and practices is also relevant. Therefore, plaintiffs’ motion to strike is denied.”

The full text of the ruling is available here.