Following a recommendation made in February by U.S. Magistrate Judge Craig B. Shaffer of the U.S. District Court for the District of Colorado, arguing for the denial of Oracle’s motion to dismiss, a district court judge has formally ruled the company will in fact have to defend itself at trial.
The allegations in the underlying lawsuit will not be novel to retirement plan industry professionals. Plaintiffs allege the Oracle Corporation 401(k) Savings and Investment Plan “caused participants to pay recordkeeping and administrative fees to Fidelity that were multiples of the market rate available for the same services.” In addition, the complaint says, because of the way the trust agreements with Fidelity are structured, Fidelity “is the sixth largest institutional holder of Oracle stock, owning over $2 billion shares.” Thus, plaintiffs suggest, Fidelity “has the influence of a large stockholder in light of its stock ownership.” The result is that “Oracle has chosen and maintained funds from one of its largest shareholders, Fidelity, to be investment options in the plan.” Plaintiffs suggest this relationship has led to conflicts of interest that have harmed participants and retirement plan performance.
Commenting on the details of the challenge, district court Judge Robert E. Blackburn says he “believes this case to be extraordinarily close and exceptionally context-specific … De novo review of the allegations of the complaint, the competing arguments, and the conflicting legal authorities in this area confirms that characterization, in spades … In general, therefore, caution is indicated.”
The judge goes on: “Heeding those admonitions, the court cannot adopt defendants’ proposal to dismiss Count I of the complaint on the theory that the plan’s fee structure fell within a presumptively reasonable range of expense ratios … Contrary to defendants’ arguments, the question is not whether a revenue-sharing model is within the range of reasonable choices a fiduciary might make, but whether this revenue sharing arrangement was reasonable under all the circumstances … That determination must account for all the factors which informed the fiduciaries’ decisionmaking, not all of which are presently known to plaintiffs based, allegedly, on their wrongful failure to disclose such information.”
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