Schlichter Suit Moves Forward

The law firm of Schlichter Bogard & Denton has racked up another victory.

This win came in the form of a federal judge’s rejection of a motion to dismiss an excessive fee lawsuit against Oracle Corporation. The suit, filed in the District of Colorado a little more than a year ago, alleged that Oracle allowed the plan record keeper Fidelity to be paid between $68 to $140 per participant rather than what the plaintiffs said would be a reasonable per head fee of $25 for a plan the size of Oracle’s. The complaint also alleged that the plan provided “at least 3 imprudent investment options,” which it says “consistently underperformed their designated benchmarks, consistently underperformed the majority of other funds of the same investment style, charged excessive fees, and paid revenue sharing to Fidelity far beyond a reasonable rate for the services provided.”

Additionally, the complaint noted that Fidelity is the sixth largest institutional holder of Oracle stock, owning more $2 billion in shares, and “Thus, Fidelity has the influence of a large stockholder in light of its stock ownership.”

In essence, according to United States Magistrate Judge Craig B. Shaffer, “Plaintiffs allege that Defendants breached their [fiduciary] duty in two primary respects: (1) causing the Plan to pay unreasonable administrative expenses; and (2) providing three investment options that consistently underperformed and did not justify their selection or retention in the Plan.”

Motion Considered

In considering the motion, Judge Shaffer noted that Oracle had moved to dismiss because revenue-sharing is “perfectly legal” and because “nothing in ERISA requires fiduciaries to solicit bids [for record keeping services]” through a competitive process, and that the second claim is “predicated entirely, and impermissibly, on hindsight.” He noted that they said that “plaintiffs do not allege Defendants selected [the allegedly underperforming funds] for impermissible reasons” and that the second claim “is devoid of any supporting factual allegations sufficient to raise a plausible inference of misconduct.”

Noting that the court can dismiss a complaint for “failure to state a claim upon which relief can be granted,” but that the court must “accept as true all well-pleaded factual allegations … and view these allegations in the light most favorable to the plaintiff.”

After a detailed discussion of the legal thresholds for considering the claims of the parties, as well as the various considerations for reviewing fiduciary obligations, Judge Shaffer concluded by stating, “…I offer no opinions regarding ultimate merits of Plaintiffs’ claims and I do not discount any of the arguments or authorities advance in Defendants’ briefing. Although Defendants raise some significant questions regarding the merits of Plaintiffs’ claims, I am guided by the Tenth Circuit’s admonition in Tal, 453 F.3d at 1266, that ‘Rule 12(b)(6) motions to dismiss are not designed to weigh evidence or consider the truth or falsity of an adequately pled complaint.’” He also said that he “takes to heart Judge Blackburn’s comments in Kennedy v. Finley” that said that “the nature and specificity of the allegations required to state a plausible claim will vary based on context and will “require[ ] the reviewing court to draw on its judicial experience and common sense.”

That said, he ended by stating that, “For purposes of the pending motion, I must construe those allegations in a light most favorable to Plaintiffs. While I am not discounting the possibility that Defendants may ultimately prevail on the merits, for purposes of the pending motion, I believe Plaintiffs have met their pleading obligations,” going on to “conclude that the legal and factual merits of Plaintiffs’’claims are better resolved on a fuller factual record, either in the context of a motion for summary judgment or at trial.”

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