Bracalente et al v. Cisco Systems, Inc. et al, No. 5:2022cv04417 - Document 74 (N.D. Cal. 2023)
Court Description: ORDER Granting 36 Motion to Dismiss. Signed by Judge Edward J. Davila on 8/11/2023. (ejdlc2, COURT STAFF) (Filed on 8/11/2023)
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Bracalente et al v. Cisco Systems, Inc. et al Doc. 74 Case 5:22-cv-04417-EJD Document 74 Filed 08/11/23 Page 1 of 12 1 2 3 4 UNITED STATES DISTRICT COURT 5 NORTHERN DISTRICT OF CALIFORNIA 6 SAN JOSE DIVISION 7 ROBERT BRACALENTE, et al., 8 Plaintiffs, 9 v. 10 ORDER GRANTING MOTION TO DISMISS CISCO SYSTEMS, INC., et al., 11 United States District Court Northern District of California Case No. 5:22-cv-04417-EJD Defendants. 12 This putative ERISA class action is brought by individual participants (“Plaintiffs”) in 13 14 Defendant Cisco Systems, Inc.’s (“Cisco”) 401(k) Plan (“Plan”) and alleges that Cisco breached 15 its ERISA fiduciary duties by offering certain BlackRock LifePath Index Funds.1 Cisco has 16 moved to dismiss the Complaint under Rule 12(b)(6) (“Motion”), and two amicus briefs have also 17 been filed in support of Cisco’s Motion. Having reviewed the parties’ briefs, the amicus curiae 18 briefs, the statements of recent decision, and parties’ arguments at hearing, the Court GRANTS 19 Cisco’s Motion to Dismiss with LEAVE TO AMEND. 20 I. BACKGROUND 21 A. 22 Plaintiffs Robert Bracalente and Boris Gdalevich (collectively, “Plaintiffs”) have brought Parties and the Plan 23 this action both individually and on behalf of similarly situated participants and beneficiaries of 24 Cisco Systems, Inc.’s 401(k) plan (“Plan”). Class Action Compl. (“Compl.”) ¶ 1. They allege 25 26 27 28 1 Although the Complaint also named the Board of Trustees of Cisco Systems, Inc. and the Administrative Committee of the Cisco Systems, Inc. 401(k) Plan, these defendants have since been voluntarily dismissed, leaving Cisco Systems, Inc. as the sole defendant. ECF No. 35. Case No.: 5:22-cv-04417-EJD ORDER GRANTING MOTION TO DISMISS 1 Dockets.Justia.com Case 5:22-cv-04417-EJD Document 74 Filed 08/11/23 Page 2 of 12 1 that Cisco is a fiduciary under the Employee Retirement Income Security Act (“ERISA”), 2 responsible for selecting, monitoring, and retaining the Plan’s investment options. Compl. ¶ 5. United States District Court Northern District of California 3 Cisco’s Plan is a participant-directed 401(k) retirement plan, meaning that participants 4 decide where their contributions should be invested. Compl. ¶ 19. The Plan’s investment options 5 include mutual funds, collective trust funds, and target date funds (“TDFs”). Id. ¶¶ 19–21. A 6 TDF is an actively managed investment portfolio that gradually changes its investment strategies 7 to be more conservative as the “target” retirement year approaches, a transition referred to as the 8 fund’s “glide path.” Id. ¶¶ 23–25. TDF glide paths may vary based on whether they are “to” 9 retirement (assuming that the participant will withdraw the funds at or soon after the target 10 retirement year) or “through” retirement (assuming that the participant will remain invested and 11 gradually draw down on their funds while in retirement). Id. ¶¶ 24–25. TDFs may contain a 12 variety of constituent investments, which can include passively managed assets, actively managed 13 assets, or a mix of both; however, the TDF itself is inherently actively managed. Id. ¶¶ 23, 26. 14 B. 15 Most pertinent to this action, Cisco offered its employees a suite of ten BlackRock BlackRock TDFs 16 LifePath Index Funds (“BlackRock TDFs”) with multiple target retirement year “vintages.” 17 Compl. ¶ 28. Cisco designated the BlackRock TDFs as the Plan’s Qualified Default Investment 18 Alternative (“QDIA”), which is the default investment for Plan participants who do not 19 affirmatively indicate where their assets should be invested. Id. ¶ 32. 20 The Complaint alleges that the BlackRock TDFs underperformed significantly during the 21 Class Period compared to other TDF providers, so much so that a “simple weighing of the merits 22 and features of all other available TDFs . . . would have raised significant concerns for prudent 23 fiduciaries and indicated that the BlackRock TDFs were not a suitable and prudent option for the 24 Plan.” Compl. ¶ 30. Cisco purportedly decided to offer the BlackRock TDFs to “chase[] the low 25 fees charged by the BlackRock TDFs without any consideration of their ability to generate return.” 26 Id. Plaintiffs also allege that the Plan’s investment in the BlackRock TDFs have “resulted in 27 participants missing out on millions of dollars in retirement savings growth.” Id. ¶ 34. 28 Case No.: 5:22-cv-04417-EJD ORDER GRANTING MOTION TO DISMISS 2 Case 5:22-cv-04417-EJD Document 74 Filed 08/11/23 Page 3 of 12 1 C. 2 The Complaint compares the BlackRock TDFs with the four other largest TDF series, 3 which include the Vanguard Target Retirement funds, T. Rowe Price Retirement funds, American 4 Funds Target Date Retirement funds, and Fidelity Freedom Index funds (collectively, the 5 “Comparator TDFs”). Compl. ¶¶ 36–37. Specifically, the Complaint provides the three- and five- 6 year annualized returns of the BlackRock TDF for each quarter of the Class Period and juxtaposes 7 them alongside the same returns for the best and worst performing Comparator TDF in the same 8 quarter. Compl. ¶ 40. Compared alongside these Comparator TDFs, the BlackRock TDFs are the 9 third largest TDF series by total assets, possessing 8.8% market share, behind Vanguard TDFs 10 11 United States District Court Northern District of California Comparator TDFs (36.4%) and T. Rowe Price TDFs (10.7%). Id. ¶ 36. From 2016 Q2 until 2021 Q1, the BlackRock TDFs had either the worst or second worst 12 three- and five-year returns of the group of Comparator TDFs. Compl. at 17–24 (charts). During 13 this period, the BlackRock TDFs performed below the Comparator TDFs’ average three- and five- 14 year returns by up to 2 points. Compl. ¶ 41. The Complaint also aggregates the returns for all 15 vintages of the BlackRock TDFs to compare with the corresponding aggregate returns of the 16 Comparator TDFs, which yielded generally consistent underperformance until approximately 17 2021. Compl. at 28–32 (charts). Starting in Q1 2022, however, the BlackRock TDFs began 18 performing better than many of the Comparator TDFs. Compl. at 25–26. 19 D. 20 Plaintiffs filed the present Class Complaint on July 29, 2022, asserting three claims: (1) Procedural History 21 breach of ERISA fiduciary duty; (2) failure to monitor fiduciaries and co-fiduciary breaches; and, 22 in the alternative, (3) liability for knowing breach of trust. Compl. ¶¶ 67–83. 23 24 25 On October 31, 2022, Cisco moved to dismiss the Complaint. ECF No. 36. The parties subsequently agreed to stay discovery pending the resolution of Cisco’s Motion. ECF No. 59. On November 7, 2022, the Court received two amicus curiae briefs—one from a coalition 26 comprised of the American Benefits Council, American Retirement Association, Committee on 27 Investment of Employee Benefit Assets, Inc., and ERISA Industry Committee; and one from the 28 Case No.: 5:22-cv-04417-EJD ORDER GRANTING MOTION TO DISMISS 3 Case 5:22-cv-04417-EJD Document 74 Filed 08/11/23 Page 4 of 12 1 Chamber of Commerce of the United States. ECF Nos. 42, 48. After Cisco’s Motion was fully briefed but before the hearing, Cisco filed two statements 2 3 of recent decision, alerting the Court to decisions in the Western District of Washington and the 4 Eastern District of Virginia that also involved allegations based upon the same BlackRock TDFs 5 and their alleged imprudence. ECF Nos. 61, 65. 6 II. United States District Court Northern District of California 7 LEGAL STANDARD Federal Rule of Civil Procedure 8(a) requires a plaintiff to plead each claim with enough 8 specificity to “give the defendant fair notice of what the . . . claim is and the grounds upon which 9 it rests.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007) (internal quotations omitted). 10 “Dismissal under Rule 12(b)(6) is appropriate only where the complaint lacks a cognizable legal 11 theory or sufficient facts to support a cognizable legal theory.” Mendiondo v. Centinela Hosp. 12 Med. Ctr., 521 F.3d 1097, 1104 (9th Cir. 2008). When deciding whether to grant a motion to 13 dismiss, the Court must accept as true all “well pleaded factual allegations” and determine whether 14 the allegations “plausibly give rise to an entitlement to relief.” Ashcroft v. Iqbal, 556 U.S. 662, 15 679 (2009). While a complaint need not contain detailed factual allegations, it “must contain 16 sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’” 17 Ashcroft, 556 U.S. at 678 (quoting Bell Atl. Corp., 550 U.S. at 570). 18 A court generally may not consider any material beyond the pleadings when ruling on a 19 Rule 12(b)(6) motion. However, documents appended to the complaint, incorporated by reference 20 in the complaint, or which properly are the subject of judicial notice may be considered along with 21 the complaint when deciding a Rule 12(b)(6) motion. Khoja v. Orexigen Therapeutics, 899 F.3d 22 988, 998 (9th Cir. 2018); see also Hal Roach Studios, Inc. v. Richard Feiner & Co., Inc., 896 F.2d 23 1542, 1555 n.19 (9th Cir. 1990). Likewise, a court may consider matters that are “capable of 24 accurate and ready determination by resort to sources whose accuracy cannot reasonably be 25 questioned.” Roca v. Wells Fargo Bank, N.A., No. 15-cv-02147-KAW, 2016 WL 368153, at *3 26 (N.D. Cal. Feb. 1, 2016) (quoting Fed. R. Evid. 201(b)). 27 28 Case No.: 5:22-cv-04417-EJD ORDER GRANTING MOTION TO DISMISS 4 Case 5:22-cv-04417-EJD Document 74 Filed 08/11/23 Page 5 of 12 1 III. The Complaint primarily alleges that Cisco breached its fiduciary duty by imprudently 2 3 selecting, retaining, and failing to monitor the underperforming BlackRock TDFs.2 Compl. ¶¶ 30, 4 32. Specifically, Plaintiffs rely on “severe and consistent” three- and five-year performance data 5 to support the inference that Cisco acted imprudently in retaining the BlackRock TDFs. Compl. at 6 16–26 (tables); Opp. 14. Cisco moves to dismiss the Complaint and argues that underperformance 7 alone is insufficient to show that Cisco had behaved imprudently in offering the BlackRock TDFs. 8 Mot. 8–10. ERISA fiduciaries are charged with four primary duties: the duty of loyalty, 29 U.S.C. § 9 United States District Court Northern District of California DISCUSSION 10 1104(a)(1)(A); the duty of prudence, § 1104(a)(1)(B); the duty of diversification, § 1104(a)(1)(C); 11 and the duty to follow the plan’s documents, § 1104(a)(1)(D). The duty of prudence—which is 12 the primary duty Plaintiffs claim was breached here—obligates fiduciaries to discharge their duties 13 “with the care, skill, prudence, and diligence under the circumstances then prevailing that a 14 prudent man acting in a like capacity and familiar with such matters would use.” § 1104(a)(1)(B). 15 The U.S. Supreme Court has also held that the ERISA duty of prudence includes a “continuing 16 duty of some kind to monitor investments and remove imprudent ones.” Tibble v. Edison Int’l, 17 575 U.S. 523, 529 (2015). “Because the content of the duty of prudence turns on the 18 circumstances prevailing at the time the fiduciary acts, the appropriate inquiry will necessarily be 19 context specific.” Fifth Third Bancorp v. Dudenhoeffer, 573 U.S. 409, 425 (2014) (internal 20 quotation marks, brackets, and ellipses omitted). Plaintiffs may state a breach of the duty of prudence either through direct allegations of the 21 22 fiduciary’s “knowledge, methods, or investigations at the relevant times” or “circumstantial 23 24 25 26 27 28 2 The Complaint also nominally asserts breaches of the duty of loyalty, in addition to prudence. Compl. ¶ 27; Opp. 9, 23. However, neither the Complaint nor Plaintiffs’ opposition purport to show any supposed disloyalty arising from Cisco’s offering the BlackRock TDFs, such as selfdealings or a conflict of interest. See Terraza v. Safeway Inc., 241 F. Supp. 3d 1057, 1069 (N.D. Cal. 2017) (“[T]he duty of loyalty prohibits trustees from ‘engaging in transactions that involve self-dealing or that otherwise involve or create a conflict between the trustee’s fiduciary duties and personal interests.’”) (quoting Restatement (Third) of Trusts § 78 (2007)). Case No.: 5:22-cv-04417-EJD ORDER GRANTING MOTION TO DISMISS 5 Case 5:22-cv-04417-EJD Document 74 Filed 08/11/23 Page 6 of 12 1 factual allegations [from which the Court] may reasonably ‘infer from what is alleged that the 2 process was flawed.’” St. Vincent, 712 F.3d at 718 (emphasis added). “If the complaint relies on 3 circumstantial factual allegations to show a breach of fiduciary duties under ERISA, those 4 allegations must give rise to a ‘reasonable inference’ that the defendant committed the alleged 5 misconduct,” i.e., the facts alleged must be “suggestive of, rather than merely consistent with, a 6 finding of misconduct.” Id. at 718–19 (internal brackets omitted) (italics in original). 7 A. 8 To the extent the Complaint relies solely on the BlackRock TDFs’ underperformance United States District Court Northern District of California 9 Investment Underperformance compared to other TDFs’, the Court finds that these allegations are insufficient by themselves to 10 support a reasonable inference that Cisco had acted imprudently by continuing to offer the 11 BlackRock TDFs. 12 Although duty of prudence breaches may be based on circumstantial evidence and are 13 evaluated on a case-by-case basis, federal courts have nonetheless widely and consistently rejected 14 attempts to impose ERISA liability where the claims are based solely on a fund’s 15 underperformance. See, e.g., Smith v. CommonSpirit Health, 37 F.4th 1160, 1166 (6th Cir. 2022) 16 (“Merely pointing to another investment that has performed better in a five-year snapshot of the 17 lifespan of a fund that is supposed to grow for fifty years does not suffice to plausibly plead an 18 imprudent decision—largely a process-based inquiry—that breaches a fiduciary duty. . . . Any 19 other rule would mean that every actively managed fund with below-average results over the 20 most recent five-year period would create a plausible ERISA violation.”) (emphasis added); 21 Davis v. Washington Univ. in St. Louis, 960 F.3d 478, 486 (8th Cir. 2020) (“There is no question, 22 as the complaint alleges, that [the investment at issue] performed more poorly than they did over 23 certain periods of time. But fiduciaries are not required to pick ‘the best performing fund.’”) 24 (emphasis added); White v. Chevron Corp., 752 F. App’x 453, 455 (9th Cir. 2018) (affirming 25 dismissal of ERISA duty of prudence complaint where “the allegations showed only that 26 [defendant] could have chosen different vehicles for investment that performed better during the 27 relevant period, or sought lower fees for administration of the fund”); White v. Chevron Corp., 28 Case No.: 5:22-cv-04417-EJD ORDER GRANTING MOTION TO DISMISS 6 United States District Court Northern District of California Case 5:22-cv-04417-EJD Document 74 Filed 08/11/23 Page 7 of 12 1 2017 WL 2352137, at *20 (N.D. Cal. May 31, 2017), aff’d, 752 F. App’x 453 (9th Cir. 2018) 2 (“[P]oor performance, standing alone, is not sufficient to create a reasonable inference that plan 3 fiduciaries failed to conduct an adequate investigation.”). 4 With this backdrop of considerable case law holding that underperformance alone does 5 establish an ERISA imprudence claim, the Court finds that the allegations here likewise fail to 6 create a reasonable inference that Cisco breached its duty of prudence. The Supreme Court has 7 recognized that “the circumstances facing an ERISA fiduciary will implicate difficult tradeoffs, 8 and courts must give due regard to the range of reasonable judgments a fiduciary may make based 9 on her experience and expertise.” Hughes v. Nw. Univ., 142 S. Ct. 737, 742 (2022). Plaintiffs’ 10 “underperformance-only” theory, however, would flatten this nuanced prudence evaluation into a 11 one-dimensional comparison that considers only the funds’ three- and five-year performance data. 12 Despite asserting that a “simple weighing of the merits and features of all other available TDFs” 13 would reveal the BlackRock TDFs to be imprudent investments (Compl. ¶ 30), the Complaint 14 never discusses or revisits what other “merits and features”—besides the funds’ performance over 15 a specific period—would support imprudence.3 To the contrary, the Complaint’s own allegations 16 cut against an inference of imprudence, noting that the BlackRock TDFs charged “low fees” and 17 enjoyed significantly improved performance in early 2022. Id.; see also id. at 25–26. In short, 18 Plaintiffs ask this Court to infer that—just because the BlackRock TDFs were underperforming— 19 Cisco’s decision to continue offering those funds fell beyond the “range of reasonable judgments a 20 fiduciary may make based on her experience and expertise.” Hughes, 142 S. Ct. at 742. Unless 21 Plaintiffs are insinuating that a prudent fiduciary would have made investment decisions based 22 solely a fund’s underperformance, the Court cannot reasonably draw the inference they seek. It is also worth noting that at least two other district courts have recently dismissed ERISA 23 24 complaints with near-identical allegations also relating to the same BlackRock TDFs and their 25 26 27 28 3 To be clear, there is no doubt that the Complaint is replete with detailed factual allegations. See Compl. ¶¶ 40–45. However, the many pages of details and facts all converge to support the same proposition, that the BlackRock TDFs performed poorly during a specific period of time. Case No.: 5:22-cv-04417-EJD ORDER GRANTING MOTION TO DISMISS 7 United States District Court Northern District of California Case 5:22-cv-04417-EJD Document 74 Filed 08/11/23 Page 8 of 12 1 disappointing three- and five-year performance data. See Beldock v. Microsoft Corp., 2023 WL 2 3058016, at *3 (W.D. Wash. Apr. 24, 2023) (dismissing complaint with near-identical allegations 3 regarding the BlackRock TDFs and remarking “courts across the country have rejected claims for 4 breach of the fiduciary duty of prudence under ERISA where the plaintiffs allege nothing more 5 than underperformance relative to other investment vehicles”); Hall v. Cap. One Fin. Corp., 2023 6 WL 2333304, at *5–6 (E.D. Va. Mar. 1, 2023) (dismissing complaint with near-identical 7 allegations regarding the BlackRock TDFs where “[u]nderperformance of the BlackRock TDFs is 8 all that Plaintiffs allege” and concluding that better performance by other TDFs “does not suggest 9 that offering the BlackRock TDFs fell outside the ‘range of reasonable judgments’ that fiduciaries 10 may make”). The Court has undertaken its own analysis of the Complaint’s allegations here but 11 nonetheless finds these decisions’ reasoning to be sound and observations accurate. 12 Plaintiffs do not dispute that their claims are primarily premised on the BlackRock TDFs’ 13 underperformance, but their arguments in defense of the Complaint are ultimately inapposite. 14 They first reject Cisco’s characterization of the allegations as “hindsight” and contend that there is 15 no “hindsight” when Cisco should have known at the beginning of the class period that the 16 BlackRock TDFs were already then underperforming. Opp. 13–14. The Court agrees that the 17 Complaint is not alleging underperformance by hindsight, but that is also not the crux of Cisco’s 18 motion to dismiss. As addressed above, the issue with the Complaint is its reliance on the 19 BlackRock TDFs’ performance data, irrespective of temporal hindsight allegations of whether the 20 underperformance was observable in 2016 or whether the BlackRock TDF data was available to 21 Cisco during that time. See CommonSpirit, 37 F.4th at 1166 (“Merely pointing to another 22 investment that has performed better in a five-year snapshot of the lifespan of a fund that is 23 supposed to grow for fifty years does not suffice to plausibly plead an imprudent decision.”). In 24 other words, it does not matter when the BlackRock TDFs’ underperformance was recognizable 25 (either at the beginning of the class period in 2016 or when the Complaint was filed in 2022); the 26 case law teaches that underperformance alone cannot substantiate an ERISA imprudence claim. 27 28 Nor does Plaintiffs’ cited case law redeem the deficiencies in their Complaint. In support Case No.: 5:22-cv-04417-EJD ORDER GRANTING MOTION TO DISMISS 8 United States District Court Northern District of California Case 5:22-cv-04417-EJD Document 74 Filed 08/11/23 Page 9 of 12 1 of their theory that “long-term underperformance” alone would suffice to state a claim for 2 imprudence, Plaintiffs rely primarily on two out-of-circuit district court cases. Opp. 15–16 (citing 3 Moler v. Univ. of Maryland Med. Sys., 2022 WL 2756290 (D. Md. July 13, 2022); Garcia v. 4 Alticor, Inc., 2021 WL 5537520, at *1 (W.D. Mich. Aug. 9, 2021)). However, both cases are 5 readily distinguishable, and neither support the broad interpretations Plaintiffs suggest. For 6 instance, in Moler, the challenged investments did not just underperform; they had also charged 7 “grossly excessive fees in comparison to other comparable or superior alternatives,” a fact that is 8 acutely absent here. Moler, 2022 WL 2756290 at *4; see also Hall, 2023 WL 2333304, at *5 n.3. 9 (distinguishing Moler because it was based on “the selection of high-cost funds”). Although the 10 Moler opinion does contain some remarks regarding the investments’ “long-term 11 underperformance,” 2022 WL 2756290, at *4, those remarks were in the context of distinguishing 12 allegations of historic underperformance from allegations of hindsight, a distinction that the Court 13 has already accounted for and addressed above. 14 Plaintiffs’ second cited case fares no better and is distinguishable for the same reasons. To 15 begin, the allegations in Garcia v. Alticor involved much more than mere underperformance—the 16 plaintiffs there had also alleged that “the recordkeeping and administrative costs of the Plan were 17 excessive; the majority of funds chosen by the Committee were more expensive than comparable 18 funds . . . ; the Committee should have considered whether lower-cost comparable collective trusts 19 were available; the Committee could and should have selected at least one identical but lower-cost 20 share class; the Committee failed to consider materially similar but cheaper, passively-managed 21 alternatives.” 2021 WL 5537520, at *4. And, as in Moler, the Garcia opinion only touches upon 22 the historic underperformance in the context of rejecting the defendant’s “hindsight” argument. 23 Id., at *7 (“Finally, Defendants argue that Plaintiffs cannot bring a ‘hindsight-based’ claim to 24 argue that some funds in the Plan were underperforming. . . . However, Plaintiffs bring allegations 25 that the Committee failed for years to perform sufficient reviews or investigations into the Plan’s 26 performance.”). Accordingly, although Moler and Garcia may stand for the proposition that an 27 investment’s historic underperformance can rebut a defendant’s argument that the ERISA claim is 28 Case No.: 5:22-cv-04417-EJD ORDER GRANTING MOTION TO DISMISS 9 Case 5:22-cv-04417-EJD Document 74 Filed 08/11/23 Page 10 of 12 1 based on hindsight, neither case suggest that a court may infer misconduct from the BlackRock 2 TDFs’ underperformance alone.4 In summary, to the extent Plaintiffs attempt to state an ERISA claim for imprudence based United States District Court Northern District of California 3 4 solely on the BlackRock TDFs’ underperformance, the Court cannot reasonably infer from 5 underperformance alone that the BlackRock TDFs were imprudent investments. Plaintiffs’ First 6 Claim for breach of fiduciary duty under ERISA, therefore, will be DISMISSED. 7 A dismissal under Rule 12(b)(6) is typically with leave to amend unless the court 8 “determines that the pleading could not possibly be cured by the allegation of other facts.” Cook, 9 Perkiss & Liehe, Inc. v. N. California Collection Serv. Inc., 911 F.2d 242, 247 (9th Cir. 1990); 10 Fed. R. Civ. P. 15(a)(2). Here, the Court cannot conclude that the further factual allegations 11 would be futile and, accordingly, will grant Plaintiffs LEAVE TO AMEND the deficiencies 12 addressed in this Order. Plaintiffs are cautioned, however, that simply providing metrics or 13 opinions further describing the BlackRock TDFs’ underperformance is not likely to cure these 14 deficiencies. See Beldock, 2023 WL 3058016, at *3 (finding that the addition of a Sharpe ratio 15 and comparison with S&P Target Date Indices “do not save Plaintiffs’ claim for breach of the 16 fiduciary duty of prudence”); Hall, 2023 WL 2333304, at *6 (“The addition of the Sharpe ratio 17 and S&P Index to the Amended Complaint does not alter this analysis, as these are merely 18 additional measurements of investment performance.”). 19 B. 20 In addition to the parties’ dispute over the sufficiency of the Complaint’s Meaningful Comparisons 21 underperformance allegations, they also argue extensively over whether the Comparator TDFs are 22 meaningful benchmarks for evaluating the BlackRock TDFs. See Mot. 14–18; Opp. 19. 23 Because the Court finds that Plaintiffs’ allegations of underperformance alone are 24 insufficient to render an investment imprudent, the Court need not address issues relating to the 25 26 27 28 4 The BlackRock TDFs can be distinguished further from the challenged high-priced investments in Moler and Garcia because the BlackRock TDFs offered some of the lowest fees available. See Compl. ¶ 30 (referencing the “low fees charged by the BlackRock TDFs”); Mot. 9. Case No.: 5:22-cv-04417-EJD ORDER GRANTING MOTION TO DISMISS 10 Case 5:22-cv-04417-EJD Document 74 Filed 08/11/23 Page 11 of 12 1 metrics of that underperformance in comparison to other TDFs. Other district courts that similarly 2 dismissed ERISA claims for containing only underperformance allegations have also declined to 3 address these issues. See Hall, 2023 WL 2333304, at *6 n.4 (“Because the Amended Complaint’s 4 performance-only allegations are legally deficient, the Court will not address whether . . . the 5 BlackRock TDFs exhibited ‘consistently deplorable performance’ and were ‘consistently and 6 dramatically outperformed’ by the Comparator TDFs.”); Beldock, 2023 WL 3058016, at *3 n.7 7 (“[T]he court concludes that it need not consider whether Plaintiffs’ proposed comparators are 8 meaningful benchmarks against which to measure the BlackRock TDFs’ performance where 9 Plaintiffs’ breach of fiduciary claim is based solely on alleged underperformance.”). The Court United States District Court Northern District of California 10 likewise will decline to opine on whether the Comparator TDFs are meaningful benchmarks. 11 C. Derivative Claims 12 In addition to their primary claim for fiduciary breach based on a failure to monitor the 13 BlackRock TDFs, Plaintiffs also brought ancillary claims alleging that Cisco failed to oversee the 14 members of its 401(k) administrative committee and that Cisco is liable for a knowing breach of 15 trust. Compl. ¶¶ 72–83. In their opposition, Plaintiffs do not raise any independent basis for why 16 these claims should survive apart from their arguments above on underperformance. Opp. 23–24. 17 Because the Court finds that allegations of the BlackRock TDFs’ underperformance do not 18 state a claim for fiduciary breach, the Complaint also fails to state a claim that Cisco failed to 19 oversee or monitor the members of the Administrative Committee. Similarly, Cisco could not 20 have “knowingly participated in breaches of fiduciary duty by permitting the Plan to offer a menu 21 of imprudent investment options” where the BlackRock TDFs have not been alleged to be 22 imprudent. Accord Beldock, 2023 WL 3058016, at *4 (dismissing secondary claims for “failure to 23 monitor, co-fiduciary breaches, and knowing breaches of trust” where plaintiffs’ arguments for 24 survival “assumes that they have sufficiently pleaded their claim for breach of the fiduciary duty 25 of prudence”); Hall, 2023 WL 2333304, at *8 (same). 26 Accordingly, the Second and Third Claims in the Complaint will also be DISMISSED with 27 LEAVE TO AMEND. 28 Case No.: 5:22-cv-04417-EJD ORDER GRANTING MOTION TO DISMISS 11 Case 5:22-cv-04417-EJD Document 74 Filed 08/11/23 Page 12 of 12 1 2 IV. CONCLUSION Based on the foregoing, the Court GRANTS Defendant’s Motion to Dismiss. All claims in 3 the Complaint are DISMISSED WITH LEAVE TO AMEND. Any amended complaint shall be 4 filed no later than twenty-one (21) days after the date of this Order. 5 6 IT IS SO ORDERED. Dated: August 11, 2023 7 8 EDWARD J. DAVILA United States District Judge 9 10 United States District Court Northern District of California 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Case No.: 5:22-cv-04417-EJD ORDER GRANTING MOTION TO DISMISS 12
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