Miguel v. Salesforce.com, Inc.

Background

Gregor Miguel and Amanda Bredlow are former Salesforce employees who participated in the Salesforce 401(k) Plan. The plan is a defined-contribution plan, meaning participants’ benefits depend on contributions and the investment gains, losses, expenses, and other amounts allocated to their accounts. The plan offered mutual funds and additional investment options through a brokerage link and had more than $2 billion in assets under management as of December 31, 2018.

The operative complaint alleged that Salesforce, the Salesforce Board of Directors, the plan’s Investment Advisory Committee, and individual defendants breached fiduciary duties under the Employee Retirement Income Security Act of 1974. The two claims alleged a breach of the duty of prudence and failure to adequately monitor fiduciaries. The district court had dismissed the operative complaint, but the Ninth Circuit earlier affirmed part of that decision and reversed part of it. In particular, the appeals court concluded that the plaintiffs had not plausibly alleged imprudence based on a failure to consider passively managed alternatives to actively managed funds, but had plausibly alleged that the defendants failed to select lower-cost share classes or collective investment trusts with substantially identical underlying assets. The district court later granted class certification, and a trial was set for May 6, 2024.

Proposed Amendment

The plaintiffs sought leave to file an amended class-action complaint adding allegations supporting their claims about imprudent investments. They proposed allegations that the plan’s fiduciaries relied almost exclusively on advice from Bridgebay, that Bridgebay data was deficient, and that better-performing alternatives were available. They also proposed charts comparing the plan’s funds with those alternatives.

The defendants argued that the plaintiffs had relied on the wrong legal standard. Because the motion was filed after the deadline in the court’s scheduling order, defendants argued that Federal Rule of Civil Procedure 16(b), rather than Rule 15(a)(2), governed the request. The scheduling order set October 3, 2022, as the deadline for amending pleadings.

Under Rule 16(b), a scheduling order may be changed only for “good cause.” The court explained that this standard primarily focuses on the diligence of the party seeking the change. If the party was not diligent, the inquiry ends; only after good cause is shown does the court consider whether the proposed amendment is proper under Rule 15.

Court’s Analysis

The plaintiffs argued that they acted diligently because they discovered the relevant information around mid-April 2023. They relied particularly on a 2019 Bridgebay report and April 2019 meeting minutes from Salesforce’s Investment Advisory Committee. They said those materials showed that plan investments had serious performance problems and that defendants knew about them.

The court was not persuaded. It found that most of the proposed allegations consisted of performance comparisons based on Morningstar data. The plaintiffs did not dispute the defendants’ assertion that this information was public and had always been readily available. As to the Bridgebay allegations, the defendants stated that the 2019 report had been produced on March 29, 2023, rather than on the later date asserted by the plaintiffs. The plaintiffs did not refute that point. The court also noted that the plaintiffs conceded that other documents they relied on had been produced in October 2022.

The court further reasoned that the Ninth Circuit had already found that the plaintiffs adequately alleged a prudence claim based on the plan’s use of the JPMorgan target-date series. In the district court’s view, the plaintiffs were attempting to strengthen an existing claim by belatedly adding allegations that did not change the substance of that claim. The court concluded that these circumstances did not establish good cause under Rule 16. Because of that conclusion, it did not address the parties’ arguments under Rule 15.

Disposition

The court found that the plaintiffs failed to demonstrate good cause to amend the scheduling order and therefore denied their motion for leave to file an amended class-action complaint. Judge Maxine M. Chesney signed the order. The opinion does not state that the underlying action was dismissed or that the denial was with or without prejudice.