Chevron Wins Dismissal of Amended Complaint Regarding Fund Choices

A federal judge found plaintiffs failed to correct deficiencies in their original complaint, and a new claim of conflicts-of-interest was unsupported by facts.

By Rebecca Moore | June 05, 2017
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For the second time, Chevron Corporation has won dismissal of a lawsuit alleging it caused participants to pay excessive fees due to its choices of funds offered in its 401(k) plan.

U.S. District Judge Phyllis J. Hamilton in the U.S. District Court for the Northern District of California found that for repeated claims the plaintiffs failed to correct the deficiencies in the original complaint identified by the court in its prior order dismissing the suit

Hamilton repeatedly noted in her new order that the plaintiffs failed to distinguish between the Employee Retirement Income Security Act’s (ERISA)’s duties of loyalty versus prudence.

Specifically, the six plaintiffs who filed the proposed class action alleged that plan fiduciaries “breached their duties of loyalty and prudence by providing participants with a money market fund as a capital preservation option, instead of offering them a stable value fund; by providing retail investment options that charged higher management fees than lower-cost institutional versions of the same investments; by providing mutual funds that charged higher management fees than other lower-cost investment options such as collective trusts and separate accounts; by failing to put plan administrative services out for competitive bidding on a regular basis, and instead paying excessive administrative fees to Vanguard as recordkeeper through revenue sharing from plan investment options; and by retaining the Artisan Small Cap Value Fund as an investment option despite its underperformance compared to its benchmark, peer group, and lower-cost investment alternatives.”

All of these claims were again dismissed.

However, in their amended complaint, the plaintiffs offered a new claim that "conflicts of interest" arose from the fact that Vanguard both owned significant amounts of Chevron stock, and also was doing business with Chevron as the plan's investment provider. They assert that defendants could at any time have hired “a pure recordkeeper to provide the same level of services to Plan participants to avoid an arrangement 'infected by conflicts of interest.'" Plaintiffs contend that Vanguard "holds" $13 billion of Chevron stock, which makes it the largest institutional holder of Chevron stock, and that Vanguard has consistently voted in favor of Chevron management proposals and against Chevron shareholder-originated proposals.

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