Miguel v. Salesforce.com, Inc.

Background

The plaintiffs are former Salesforce employees who participated in the Salesforce 401(k) Plan. They alleged that Salesforce, the Salesforce Board of Directors, Marc Benioff, the Investment Advisory Committee, Joseph Allanson, Stan Dunlap, and Joachim Wettermark breached fiduciary duties under the Employee Retirement Income Security Act of 1974 (ERISA).

The claims against the Committee Defendants alleged a breach of the fiduciary duty of prudence. The plaintiffs challenged the defendants’ decisions to: (1) offer the Institutional share class of JPMorgan Target Date Retirement Funds rather than lower-cost R5 or R6 shares; (2) retain nine actively managed JPMorgan SmartRetirement funds instead of passively managed collective investment trusts; and (3) retain Fidelity mutual funds instead of Fidelity collective investment trusts. The plaintiffs also alleged that the Board, Salesforce, and Benioff breached a fiduciary duty to monitor the Committee Defendants.

Summary-judgment standard

Summary judgment is appropriate when the moving party shows that no genuine dispute exists about a material fact and that the law requires judgment in its favor. The court must view reasonable inferences from the evidence in favor of the party opposing the motion. The court applied this standard to the defendants’ motion.

Analysis

Prudence of the JPMorgan share class

The defendants noted that the Institutional share class was renamed the R5 share class on April 3, 2017, and argued that the record did not show a failure to select the lowest-cost option. The plaintiffs responded that the central issue was the defendants’ delay in switching from the Institutional/R5 class to the R6 class. The plaintiffs submitted evidence that the R6 class had a lower expense ratio. The defendants argued that revenue sharing made the R5 class cheaper on a net-cost basis, while the plaintiffs’ expert testified that revenue sharing did not directly offset the expense ratio because it reduced investment returns received by plan participants.

The court found sufficient evidence to create a triable issue—meaning a factual dispute for trial—about whether it was prudent to retain the Institutional/R5 share class until September 13, 2017.

Failure to switch to collective investment trusts

The court noted that the mutual-fund versions of the JPMorgan Target Date Funds had higher average expense ratios than their collective-investment-trust counterparts. The Plan became eligible for the JPMorgan collective investment trusts on September 30, 2015, but the Committee did not authorize the switch until April 19, 2019. The Fidelity mutual funds also had higher expense ratios than their collective investment-trust counterparts, and the Committee was informed that the Plan qualified for the Contrafund collective investment trust by September 30, 2016.

The defendants argued that the delay was within the range of reasonable judgments available to a prudent fiduciary. They cited concerns about the collective investment trusts’ lack of third-party evaluations, different regulatory treatment, shorter performance records, differing investment returns, and revenue sharing by the retained Fidelity funds. The plaintiffs submitted contrary expert testimony and evidence that the JPMorgan mutual funds and collective investment trusts had similar investment profiles and strategies.

The court held that the plaintiffs had produced sufficient evidence to create a triable issue about whether the defendants acted imprudently by failing to switch to the collective investment trusts earlier.

Damages

The plaintiffs asserted damages totaling $5,234,737. The defendants relied on an expert’s calculation of negative $1.1 million in alleged share-class damages and criticized the plaintiffs’ methods for calculating expense ratios, accounting for revenue sharing, and using year-end data.

The court found that the experts’ disagreement about the proper method for calculating damages reflected a material factual dispute. The court also rejected the defendants’ argument that the plaintiffs lacked a damages calculation for the failure to replace the JPMorgan Target Date Funds with collective investment trusts. The defendants had not shown that the plaintiffs suffered no losses or could not establish those damages from the record; they had only pointed out that the plaintiffs had not yet offered evidence on that issue.

Failure to monitor

Because the court found a triable issue about whether the defendants breached their fiduciary duty of prudence, it also found a triable issue on the plaintiffs’ failure-to-monitor claim. The opinion describes that claim as derivative of the underlying breach claim.

Disposition

Judge Maxine M. Chesney denied the defendants’ Motion for Summary Judgment. The order left the factual disputes concerning fiduciary prudence, damages, and monitoring for further proceedings and did not resolve whether the defendants ultimately violated ERISA.