Anderson v. Intel Corporation Investment Policy Committee

Background

Winston R. Anderson and Christopher M. Sulyma, former Intel employees and participants in the Intel 401(k) Savings Plan and Intel Retirement Contribution Plan, brought claims under the Employee Retirement Income Security Act (ERISA) on behalf of themselves and a proposed class. They sued the Intel Corporation Investment Policy Committee, the Intel Retirement Plans Administrative Committee, the Finance Committee of Intel Corporation’s Board of Directors, individual committee members and chief financial officers, and the two Intel plans as nominal defendants.

The consolidated complaint alleged that the Investment Committee improperly selected and maintained investments in hedge funds, private equity, and commodities; failed to monitor and evaluate those investments; and caused the plans to incur higher fees and obtain worse performance than allegedly comparable funds. The complaint also alleged that the Administrative Committee failed to provide adequate information about investment risks, fees, expenses, and fund managers, and failed to adequately explain those risks in the plans’ Summary Plan Descriptions. Counts IV and VI alleged failure to monitor and co-fiduciary liability against other defendants. Anderson also asserted a seventh claim concerning delay in providing documents, but defendants did not challenge that claim in this motion.

Legal standard

The defendants moved under Federal Rule of Civil Procedure 12(b)(6), which allows dismissal when a complaint does not allege enough facts to make a legal claim plausible. In deciding that motion, the court generally accepts the complaint’s factual allegations as true and views them favorably to the plaintiffs, but it need not accept legal conclusions or allegations contradicted by facts of which it could properly take notice.

Counts I and II: Investment Committee duties

The court held that the complaint failed to state claims that the Investment Committee breached ERISA’s duties of prudence and loyalty. The duty of prudence concerns the methods fiduciaries use to investigate, select, monitor, and remove investments, rather than simply whether investments performed poorly in hindsight.

The plaintiffs alleged that the Intel funds underperformed and charged more than comparable investments, but the court found that they did not provide enough facts showing that the proposed comparison funds were meaningful benchmarks. Merely calling funds “comparable,” “similar,” or “peer” was not enough. The court also held that the alleged departure from industry allocation practices, standing alone, did not establish imprudence, and that the allegations about risks known in 2011 were insufficient by themselves.

The court further found that the plaintiffs had not plausibly alleged self-dealing or a conflict of interest. The alleged overlap between companies receiving investments from private equity funds held by the Intel plans and companies receiving investments from Intel Capital showed, at most, a potential conflict. The court concluded that the allegations, considered together, did not state a claim for breach of the duty of prudence.

The court also dismissed the duty-of-loyalty claim. It found that the allegations about high fees, low performance, and inadequate monitoring were prudence allegations repackaged as a loyalty claim, and that the complaint lacked plausible facts showing that the Investment Committee acted to benefit Intel or Intel Capital at the expense of plan participants.

Counts III and V: Disclosure claims

The court dismissed Counts III and V for lack of Article III standing, the constitutional requirement that a plaintiff show a concrete injury connected to the defendant’s conduct. Count III alleged that the Administrative Committee failed to provide adequate and accurate disclosures about the plans’ investments. Count V alleged that the committee failed to prepare Summary Plan Descriptions that adequately explained the risks associated with hedge funds and private equity.

The plaintiffs argued that they could seek equitable relief without showing actual injury. The court rejected that argument, explaining that an ERISA cause of action does not eliminate the constitutional standing requirement. The plaintiffs alleged financial losses and lost opportunities, but they did not allege that they read or relied on the allegedly defective documents. Without those allegations, the court found no injury traceable to the challenged disclosures.

Counts IV and VI: Derivative claims

The court dismissed Count IV, which alleged that the Finance Committee and Intel’s chief financial officers failed to monitor the Investment and Administrative Committees. It also dismissed Count VI, which alleged co-fiduciary liability against all defendants. The court treated both claims as dependent on an underlying ERISA violation and held that they failed because the plaintiffs had not stated an underlying claim.

Disposition

Judge Lucy H. Koh granted defendants’ motion to dismiss Counts I–VI of the consolidated complaint, with leave to amend. The court found that amendment would not be futile, cause undue delay, or unfairly prejudice defendants, and that the plaintiffs had not acted in bad faith. The plaintiffs were given 30 days to file an amended complaint. The order states that failure to amend, or failure to cure the identified deficiencies, would result in dismissal of the deficient claims with prejudice. The order did not rule on the seventh claim that defendants had not challenged in this motion.