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Chevron Excessive Fee Suit Makes En Banc Bid

Having repeatedly come up short, the plaintiffs in an excessive fee case are trying again.

The plaintiffs in this case have been at it since February 2016, when they, represented by the St. Louis-based litigation powerhouse Schlichter, Bogard & Denton, first challenged the $19 billion Chevron plan’s decision to offer the Vanguard Prime Money Market Fund, rather than a lower-cost and better-performing stable value fund.

The suit claims that the plan’s investment policy statement (IPS) required the plan fiduciaries to “[u]nderstand[] the risk and return characteristics of each investment option” in the plan and to offer one investment option that will “provide a high degree of safety and capital preservation.” The IPS also required the plan fiduciaries to “seek maximum current income … consistent with preservation of capital and liquidity.” Moreover, while the Chevron plan moved to lower-priced share classes in 2012, the suit claims that those options were available to the plan “many years” before the plan made those changes.

In June 2017, Judge Phyllis J. Hamilton of the U.S. District Court for the Northern District of California rejected the claims (again) for failure to state a claim – as she had the previous August, when she also granted defendants’ motion to dismiss the complaint for failure to state a claim, but allowed the plaintiffs to amend their complaint and repetition, which they did a month later. But in that 2017 ruling, where she dismissed the claims “with prejudice,” Judge Hamilton called the plaintiffs’ claims “entirely speculative” and “unsupported by any facts.”

Appellate Affirmation

Then in November 2018, the plaintiffs appealed that decision – again unsuccessfully. The appellate court noted that dismissal of a complaint was “appropriate if it fails to "state a claim to relief that is plausible on its face,” that it must allege 'factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged,” and that where there are "two possible explanations, only one of which can be true and only one of which results in liability, plaintiff[] cannot offer allegations that are 'merely consistent with' [its] favored explanation but are also consistent with the alternative explanation."

Applying that plausibility standard, the court found that the facts alleged, viewed in the light most favorable to plaintiff White, were “insufficient to support a plausible inference of breach of the duty of loyalty, breach of the duty of prudence, or that a prohibited transaction took place. Rather, as to each count, the allegations showed only that Chevron could have chosen different vehicles for investment that performed better during the relevant period, or sought lower fees for administration of the fund,” and held that the plaintiffs failed to state a claim for breach of fiduciary duty.

The court also held that the prohibited transaction claim was time-barred “because the transaction alleged to have violated the statute — hiring Vanguard — is alleged to have occurred in 2002, and this action was not commenced until 2016.”

En Banc ‘Bid’

Now those plaintiffs have asked the full (en banc) Ninth Circuit to consider their case, arguing that the three-judge panel improperly held their claims to a strict pleading standard that conflicted with other decisions from the Ninth Circuit and other appeals courts.

The plaintiffs also argue that their case “…presents a question of exceptional importance over a rule of national application for which there is an overriding need for national uniformity, namely, the proper pleading standards to apply to a fiduciary breach claim under the Employee Retirement Income Security Act (ERISA),” specifically, is it sufficient for an ERISA plaintiff to allege indirectly that a fiduciary process was tainted by lack of effort, competence, or loyalty? The plaintiffs argue that the Seventh and Eighth Circuits hold it is, and that the Fifth Circuit and the Ninth “agree with the principles underlying those decisions” – and thus that the previous Chevron decision is in conflict, not only with those decisions, but with decisions in the Ninth Circuit itself. “The panel imposed the wrong standard, an impermissibly strict standard, which the Court en banc should correct,” they argue.

The case is Charles E. White et al. v. Chevron Corp. et al., case number 17-16208, in the U.S. Court of Appeals for the Ninth Circuit.