Hutchins v. HP Inc.

• Court: District Court, N.D. California
• Decided: February 5, 2025
• Docket: 5:23-cv-05875
• Status: Unknown

Opinion

1 2 3 4 UNITED STATES DISTRICT COURT 5 NORTHERN DISTRICT OF CALIFORNIA 6 SAN JOSE DIVISION 7 8 PAUL HUTCHINS, Case No. 5:23-cv-05875-BLF

9 Plaintiff, ORDER GRANTING MOTION TO 10 v. DISMISS PLAINTIFF’S FIRST AMENDED CLASS ACTION 11 HP INC., et al., COMPLAINT 12 Defendants. [Re: ECF No. 59]

13 14 This is Defendant HP Inc.’s (“HP”) second effort to dismiss this putative class action 15 regarding certain of its obligations under the Employee Retirement Income Security Act 16 (“ERISA”). Plaintiff Paul Hutchins (“Plaintiff” or “Hutchins”) alleges that HP breached its 17 fiduciary duties and engaged in self-dealing in violation of ERISA when it decided to use 401(k) 18 Plan “forfeitures” to reduce employer contributions rather than to pay administrative costs. ECF 19 No. 56 (“FAC”) ¶¶ 2–3. Following the Court’s grant of HP’s first motion to dismiss, Plaintiff 20 filed a First Amended Class Action Complaint and HP moved once again for dismissal. ECF No. 21 59 (“Mot.”). Plaintiff opposes the motion, ECF No. 61 (“Opp.”), and Defendant filed a reply in 22 support of the motion, ECF No. 62 (“Reply”). The Court held a hearing on December 19, 2024. 23 ECF No. 65. 24 For the following reasons, the Court GRANTS the Motion to Dismiss Plaintiff’s First 25 Amended Class Action Complaint (ECF No. 59). 26 I. BACKGROUND 27 A. Factual Background 1 California. FAC ¶ 7. Plaintiff is a former employee of HP and a participant in HP’s 401(k) Plan 2 (the “Plan”). Id. ¶¶ 3, 10. The Plan is a defined contribution, individual account, employee 3 pension benefit plan under 29 U.S.C. §§ 1002(2)(A) and 1002(34). FAC ¶ 6. 4 The Plan is subject to the provisions of ERISA pursuant to 29 U.S.C. § 1003(a). FAC ¶ 6. 5 Under ERISA, an individual account or defined contribution plan “means a pension plan which 6 provides for an individual account for each participant and for benefits based solely upon the 7 amount contributed to the participant’s account, and any income, expenses, gains and losses, and 8 any forfeitures of accounts of other participants which may be allocated to such participant’s 9 account.” 29 U.S.C. § 1002(34); see also FAC ¶ 13. The Plan is funded by wage withholdings 10 from Plan participants as well as matching contributions from HP, both of which are deposited 11 into a Plan trust fund. FAC ¶ 14. HP matches the first 4 percent of eligible earnings that a 12 participant contributes each pay period at 100 percent, and HP is required to pay all matching 13 contributions that have accrued through a given calendar year as soon as reasonably practicable 14 after the end of that calendar year. Id. ¶ 15. Plan expenses are paid from assets in the Plan and 15 charged to participants’ accounts unless HP decides otherwise. Id. ¶ 20; Plan § 17(b). 16 HP’s contributions are subject to a three-year cliff vesting schedule, in which a participant 17 who stays employed by HP for three years becomes 100 percent vested in employer contributions 18 in the participant’s account. FAC ¶ 18. If a participant experiences a “break in service” prior to 19 this full vesting of HP’s matching contributions, the participant forfeits the balance of HP’s 20 unvested matching contributions in the individual’s Plan account. Id. ¶ 19. HP then has control 21 over how those forfeited matching contributions are used, id., with the Plan indicating that 22 forfeited amounts may be used to “reduce employer contributions, to restore benefits previously 23 forfeited, to pay Plan expenses, or for any other permitted use.” Plan § 11(h); see FAC ¶ 22–23. 24 Unless HP allocates forfeitures to pay Plan expenses, those administrative expenses are charged to 25 Plan participants’ accounts. FAC ¶ 20. Plaintiff alleges that, during the class period alleged in the 26 First Amended Class Action Complaint, each participant’s account was charged “a fixed amount 27 of $34 per year for recordkeeping services.” Id. 1 B. Procedural Background 2 Plaintiff initiated this lawsuit on November 14, 2023. ECF No. 1 (“Compl.”). Following a 3 May 9, 2024 hearing, see ECF No. 44, the Court granted HP’s motion to dismiss with leave to 4 amend, ECF No. 53 (“MTD Order”). On July 17, 2024, Plaintiff filed a First Amended Class 5 Action Complaint against Defendant HP Inc. and Does 1–10. ECF No. 56. In the First Amended 6 Class Action Complaint, Plaintiff brings three claims under ERISA: (1) breach of the fiduciary 7 duty of loyalty, 29 U.S.C. § 1104(a)(1)(A); (2) breach of the fiduciary duty of prudence, 29 U.S.C. 8 § 1104(a)(1)(B); and (3) self-dealing, 29 U.S.C. § 1106(b)(1). FAC ¶¶ 44–62. Plaintiff seeks to 9 represent a class of participants and beneficiaries of the Plan in challenging Defendants’ use of the 10 forfeited funds. Id. ¶¶ 33–43. 11 II. LEGAL STANDARD 12 Under Federal Rule of Civil Procedure 12(b)(6), a court must dismiss a complaint if it fails 13 to state a claim upon which relief can be granted. To survive a Rule 12(b)(6) motion, the plaintiff 14 must allege “enough facts to state a claim to relief that is plausible on its face.” Bell Atl. Corp. v. 15 Twombly, 550 U.S. 544, 570 (2007). A claim is facially plausible when the plaintiff pleads facts 16 that allow the court to “draw the reasonable inference that the defendant is liable for the 17 misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citation omitted). There must 18 be “more than a sheer possibility that a defendant has acted unlawfully.” Id. While courts 19 generally do not require “heightened fact pleading of specifics,” a plaintiff must allege facts 20 sufficient to “raise a right to relief above the speculative level.” See Twombly, 550 U.S. at 555, 21 570. 22 When determining whether a claim has been stated, the Court accepts as true all well-pled 23 factual allegations and construes them in the light most favorable to the plaintiff. Reese v. BP 24 Expl. (Alaska) Inc., 643 F.3d 681, 690 (9th Cir. 2011). However, the Court need not “accept as 25 true allegations that contradict matters properly subject to judicial notice” or “allegations that are 26 merely conclusory, unwarranted deductions of fact, or unreasonable inferences.” In re Gilead 27 Scis. Sec. Litig., 536 F.3d 1049, 1055 (9th Cir. 2008) (internal quotation marks and citations 1 matters judicially noticeable. See MGIC Indem. Corp. v. Weisman, 803 F.2d 500, 504 (9th Cir. 2 1986); N. Star Int’l v. Ariz. Corp. Comm’n, 720 F.2d 578, 581 (9th Cir. 1983). 3 In deciding whether to grant leave to amend, the Court must consider the factors set forth 4 by the Supreme Court in Foman v. Davis, 371 U.S. 178 (1962), and discussed at length by the 5 Ninth Circuit in Eminence Capital, LLC v. Aspeon, Inc., 316 F.3d 1048 (9th Cir. 2003). A district 6 court ordinarily must grant leave to amend unless one or more of the Foman factors is present: 7 (1) undue delay, (2) bad faith or dilatory motive, (3) repeated failure to cure deficiencies by 8 amendment, (4) undue prejudice to the opposing party, or (5) futility of amendment. Eminence 9 Capital, 316 F.3d at 1051–52. “[I]t is the consideration of prejudice to the opposing party that 10 carries the greatest weight.” Id. at 1052. However, a strong showing with respect to one of the 11 other factors may warrant denial of leave to amend. Id. 12 III. JUDICIAL NOTICE 13 A court generally cannot consider materials outside the pleadings on a motion to dismiss 14 for failure to state a claim. See Fed. R. Civ. P. 12(b)(6). A court may, however, consider items of 15 which it can take judicial notice without converting the motion to dismiss into one for summary 16 judgment. Barron v. Reich, 13 F.3d 1370, 1377 (9th Cir. 1994). A court may take judicial notice 17 of facts “not subject to reasonable dispute” because they either “(1) [are] generally known within 18 the trial court’s territorial jurisdiction; or (2) can be accurately and readily determined from 19 sources whose accuracy cannot reasonably be questioned.” Fed. R. Evid. 201(b). A court may 20 additionally take judicial notice of “‘matters of public record’ without converting a motion to 21 dismiss into a motion for summary judgment.” Lee v. City of Los Angeles, 250 F.3d 668, 689 (9th 22 Cir. 2001) (quoting MGIC Indem. Corp., 803 F.2d at 504). Under the incorporation by reference 23 doctrine, courts may consider documents “whose contents are alleged in a complaint and whose 24 authenticity no party questions, but which are not physically attached to the [plaintiff’s] pleading.” 25 In re Silicon Graphics Inc. Sec. Litig., 183 F.3d 970, 986 (9th Cir. 1999) (quoting Branch v. 26 Tunnell, 14 F.3d 449, 454 (9th Cir. 1994)) (alteration in original). 27 Once again, Plaintiff requests that the Court take judicial notice of certain excerpts from 1 Opp. at 3 n.1; ECF Nos. 61-1, 61-2, 61-3, 61-4, 61-5 (Forms 5500). For the same reasons stated in 2 the MTD Order—that they are matters of public record not subject to reasonable dispute and of 3 which courts in this district routinely take judicial notice—the Court again takes judicial notice of 4 the Plan’s Form 5500 filings. MTD Order at 4 (citing Tobias v. NVIDIA Corp., No. 20-cv-06081, 5 2021 WL 4148706, at *5 (N.D. Cal. Sept. 13, 2021)). The Court does not take notice of the truth 6 of any of the facts asserted in these documents. See City of Sunrise Firefighters’ Pension Fund v. 7 Oracle Corp., No. 18-cv-04844, 2019 WL 6877195, at *23 (N.D. Cal. Dec. 17, 2019). 8 Accordingly, Plaintiff’s request for judicial notice is GRANTED. 9 Likewise, Defendants again note that the Court may consider the HP Inc. 401(k) Plan, As 10 Amended and Restated January 1, 2017, under the incorporation by reference doctrine. See Mot. 11 at 3 n.1. The Court will consider this document as incorporated by reference into the First 12 Amended Class Action Complaint for the same reasons previously stated in the MTD Order: that 13 it forms the basis of Plaintiff’s claims and no party contests its authenticity. MTD Order at 5 14 (citing B.R. v. Beacon Health Options, No. 16-cv-04576, 2017 WL 2351973, at *3 (N.D. Cal. May 15 31, 2017)); see In re Silicon Graphics Inc. Sec. Litig., 183 F.3d at 986. 16 IV. DISCUSSION 17 The Court’s Order on HP’s earlier motion to dismiss resolved in Plaintiff’s favor the 18 question of whether Plaintiff had adequately alleged that Defendant was acting as a fiduciary when 19 it allocated forfeited amounts, MTD Order at 7–8, and the Court does not revisit that ruling now. 20 This order is therefore focused only on whether Plaintiff has adequately alleged that HP breached 21 its fiduciary duties of loyalty and prudence, and whether Plaintiff has adequately alleged that HP 22 engaged in self-dealing. 23 A. Defendant’s Preliminary Arguments 24 Before addressing each of Plaintiff’s claims directly, HP presents two overarching 25 arguments: First, that Plaintiff is seeking a categorical increase in benefits provided under the 26 Plan, Mot. at 6–8; Reply at 3–4, and second, that Plaintiff’s arguments ignore “decades of settled 27 law” allowing defined contribution plans to use forfeitures exactly as HP did, Mot. at 8–14; Reply 1 greater benefits than the Plan provides; to the contrary, he argues that HP selected a Plan structure 2 that commits the decision of whether to use Plan assets to pay administrative expenses or reduce 3 HP’s contributions to the Plan administrator acting as a fiduciary, and he merely seeks to hold the 4 administrator to its fiduciary obligations in making that determination. Opp. at 19–20. On the 5 latter point, Plaintiff argues that HP’s “asserted compliance with the Plan and ‘settled law’ does 6 not establish” that HP fulfilled its fiduciary obligations. Opp. at 14. 7 The Court agrees with HP on both points. First, “[n]othing in ERISA requires employers 8 to establish employee benefits plans,” and ERISA does not specifically “mandate what kind of 9 benefits employers must provide if they choose to have such a plan.” Lockheed Corp. v. Spink, 10 517 U.S. 882, 887 (1996). Rather, ERISA “seek[s] to ensure that employees will not be left 11 empty-handed once employers have guaranteed them certain benefits.” Id.; Hughes Aircraft Co. v. 12 Jacobson, 525 U.S. 432, 446 (1999). The Court acknowledges Plaintiff’s argument that, in 13 structuring the Plan as it did, HP assigned the decision of how reallocate forfeited contributions to 14 the Plan administrator as fiduciary, thereby guaranteeing to Plan participants that the decision 15 would be made pursuant to fiduciary obligations. Specifically, the Plan documents state that 16 forfeitures “may be used to reduce employer contributions, to restore benefits previously forfeited, 17 to pay Plan expenses, or for any other permitted use.” ECF No. 59-1, Declaration of Deborah S. 18 Davidson in Support of Defendant’s Motion to Dismiss Plaintiff’s First Amended Class Action 19 Complaint (“Davidson Decl.”), Ex. A § 11(h). As the Court has already explained, Defendant’s 20 implementation of that decision is a “decision[] of Plan administration rather than Plan design,” 21 and therefore Plaintiff adequately alleged that Defendant was acting as a fiduciary when deciding 22 how to allocate the forfeitures. MTD Order at 8 (citing Waller v. Blue Cross of California, 32 23 F.3d 1337, 1342 (9th Cir. 1994)). 24 Where Plaintiff goes awry is in his implicit suggestion that “act[ing] in the best interests of 25 the plan participants and beneficiaries,” Opp. at 7 (quoting Barker v. Am. Mobil Power Corp., 64 26 F.3d 1397, 1403 (9th Cir. 1995), as amended (Nov. 15, 1995)), requires “maximiz[ing] pecuniary 27 benefits” to individual plan participants or “resolv[ing] every issue of interpretation in favor of 1 (quoting Collins v. Pension & Ins. Comm. of So. Cal. Rock Prods. & Ready Mixed Concrete 2 Ass’ns, 144 F.3d 1279, 1282 (9th Cir. 1998) (per curiam)). It does not. Wright, 360 F.3d at 1100. 3 Instead, an ERISA fiduciary’s duty is to ensure that all participants have received the full benefit 4 guaranteed to them by the plan documents. Here, as Defendant points out, Plaintiff has not 5 alleged that any Plan participant “received less than the full employer contributions” promised 6 them under HP’s Plan documents. Mot. at 6. Nor has he alleged that the administrative costs 7 charged to him and to other Plan participants were excessive or unnecessary. Plaintiff’s theory is 8 that, in broadly stating that forfeitures could be used “to reduce employer contributions, to restore 9 benefits previously forfeited, to pay Plan expenses, or for any other permitted use,” Davidson 10 Decl., Ex. A § 11(h), HP effectively intended to create an additional benefit: that in any year in 11 which there were forfeitures, those forfeitures would first be used to reduce administrative 12 expenses for individual Plan participants. This proposition is at odds with the Ninth Circuit’s 13 holding in Wright as well as with HP’s Plan documents themselves, which state that the company 14 retains discretion over whether to pay Plan expenses out of the Plan trust. See Davidson Decl., Ex. 15 A § 17(b). 16 The latter point—about HP’s retention of discretion—merits a clarification regarding the 17 Court’s Order on HP’s first motion to dismiss. There, the Court determined that Plaintiff was 18 attacking Defendant’s implementation of a specific Plan term: § 11(h), which states that 19 “[a]mounts forfeited . . . may be used to reduce employer contributions, to restore benefits 20 previously forfeited, to pay Plan expenses, or for any other permitted use.” See MTD Order at 8; 21 Davidson Decl., Ex. A § 11(h). In finding that Plaintiff had adequately alleged that HP acted as a 22 fiduciary when it implemented that Plan term, MTD Order at 8, the Court determined that HP acts 23 as a fiduciary when it takes the concrete action of allocating forfeitures. 24 Importantly, however, the fiduciary allocation decision is restricted by the reservation in 25 Plan § 17(b). In that section of the Plan, the document states that “[t]he Company shall have 26 complete and unfettered discretion whether an expense of the Plan or Trust shall be paid by the 27 Participating Companies or out of the Trust Fund, and this Section shall not be construed to 1 Decl., Ex. A § 17(b). This Plan term indicates that HP acting as settlor determines whether, in a 2 given year, Plan expenses will be paid by HP or charged to Plan participants’ accounts. Id.; see 3 Hughes Aircraft Co., 525 U.S. at 444 (explaining that decisions about “who is entitled to receive 4 Plan benefits and in what amounts” are settlor functions). Then, HP acting as fiduciary 5 implements the allocation of the forfeitures. See MTD Order at 8 (citing Waller, 32 F.3d at 1342). 6 Thus, HP (as fiduciary) will only use those forfeitures to pay Plan expenses if HP (as settlor) 7 decided that year that the Plan administrator should use at least some forfeitures to pay Plan 8 expenses. Plaintiff’s theory would require the Court to find that the language of Plan § 11(h), in 9 combination with ERISA’s general fiduciary duty provisions, overrides the language of Plan 10 § 17(b). The Court declines to do so. 11 Second, the Court agrees that Plaintiff’s theory seems to ignore “decades of settled law.” 12 See Mot. at 8. The Court has already found that Plaintiff’s theory is implausible in light of the 13 long history of using forfeitures to reduce employer contributions. MTD Order at 12. As 14 previously discussed, id., the Treasury Department has proposed regulations that seek to “clarify 15 that forfeitures arising in any defined contribution plan . . . may be used for one or more of the 16 following purposes, as specified in the plan: (1) to pay plan administrative expenses, (2) to reduce 17 employer contributions under the plan, or (3) to increase benefits in other participants’ accounts in 18 accordance with plan terms.” Use of Forfeitures in Qualified Retirement Plans, 88 Fed. Reg. 19 12282-01, 12283 (proposed Feb. 27, 2023). These clarifications are “[c]onsistent with changes 20 made by [the Tax Reform Act of 1986, Pub. L. No. 99-514, 100 Stat. 2085],” which provided 21 “uniform rules for the use of forfeitures in defined contribution plans.” Id. Moreover, the 22 Conference Report accompanying the Tax Reform Act of 1986 indicates that the use of forfeitures 23 in defined contribution plans to “reduce future employer contributions” predated enactment of that 24 law. Id. (citing H.R. Rep. No. 99-841, at II-442 (1986)). Again, this authority is not binding in 25 the present litigation. See MTD Order at 6. The proposed regulation applies only to plan years 26 beginning on or after January 1, 2024, 88 Fed. Reg. at 12285, while Plaintiff challenges HP’s use 27 of forfeitures between 2019 and 2023. However, the proposed rule helps to illustrate the difficulty 1 ERISA abrogates these long-settled rules regarding the use of forfeitures in defined contribution 2 plans. See MTD Order at 12. 3 Consistent with the Court’s conclusion in its prior Order, id. at 10, the breadth of 4 Plaintiff’s theory continues to make it implausible. It is still true that, under Plaintiff’s theory, in 5 every plausible instance where HP, as fiduciary, would be given the option between using 6 forfeited funds to pay administrative costs or reduce employer contributions, the fiduciary would 7 always be required to choose to pay administrative costs. That result would be contrary to the 8 Plan and to ERISA. Plaintiff seeks both to stretch the fiduciary duties of loyalty and prudence 9 beyond the law and to create benefits beyond what was promised in the Plan itself. The Court 10 cannot agree with such a far-reaching theory, and further, Plaintiff has still not come forward with 11 any intervening changes in the law or any particularized facts justifying departure from the 12 aforementioned settled rules regarding use of forfeitures in defined contribution plans. See id. at 13 12. 14 B. Breach of Fiduciary Duty of Loyalty (Claim 1) 15 In this second motion to dismiss, HP again argues that Plaintiff has failed to plausibly 16 allege a breach of ERISA’s duty of loyalty, because HP acted in accordance with ERISA when it 17 “used forfeitures to ‘provid[e] benefits to participants.’” Mot. at 15 (quoting 29 U.S.C. 18 § 1104(a)(1)(A)(i)). Plaintiff responds that he has adequately alleged that “HP has a conflict of 19 interest in administering the Plan’s forfeiture provision,” which is sufficient to state a claim for 20 breach of ERISA’s duty of loyalty. Opp. at 11–12. 21 ERISA requires the Plan fiduciary to “discharge his duties with respect to a plan solely in 22 the interest of the participants and beneficiaries and . . . for the exclusive purpose of: (i) providing 23 benefits to participants and their beneficiaries; and (ii) defraying reasonable expenses of 24 administering the plan.” 29 U.S.C. § 1104(a)(1). These provisions set out the basic ERISA 25 fiduciary duty of loyalty. It is true that ERISA’s fiduciary duties “draw much of their content 26 from the common law of trusts,” since that was “the law that governed most benefit plans before 27 ERISA’s enactment.” Varity Corp. v. Howe, 516 U.S. 489, 496 (1996) (citing Cent. States, Se. & 1 enumerating all of the powers and duties of trustees and other fiduciaries, Congress invoked the 2 common law of trusts to define the general scope of their authority and responsibility.”), and H.R. 3 Rep. No. 93–533, pp. 3–5, 11–13 (1973)). 4 But the Supreme Court has noted that “[a]lthough trust law may offer a ‘starting point’ for 5 analysis [of ERISA] in some situations, it must give way if it is inconsistent with ‘the language of 6 the statute, its structure, or its purposes.’” Hughes Aircraft Co., 525 U.S. at 447 (quoting Varity 7 Corp., 516 U.S. at 497); cf. Conkright v. Frommert, 559 U.S. 506, 512 (2010) (“Because ERISA’s 8 text does not directly resolve the matter, we looked to ‘principles of trust law’ for guidance.” 9 (quoting Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 111 (1989))). Thus, though a 10 common law trustee usually “wears only his fiduciary hat when he takes action to affect a 11 beneficiary,” an ERISA fiduciary “may wear different hats,” including by acting as both a plan 12 fiduciary and as the plan sponsor. Pegram v. Herdrich, 530 U.S. 211, 225 (2000). And, as 13 previously discussed, “ERISA ‘does not create an exclusive duty to maximize pecuniary benefits’” 14 to individual plan participants. Wright, 360 F.3d at 1100 (quoting Collins, 144 F.3d at 1282). 15 Instead, the fiduciary duty is fulfilled where the fiduciary ensures that participants have received 16 their promised benefits. See Foltz v. U.S. News & World Rep., Inc., 865 F.2d 364, 373 (D.C. Cir. 17 1989) (“Section 404 creates no exclusive duty of maximizing pecuniary benefits. Under ERISA 18 the fiduciaries’ duties are found largely in the terms of the plan itself.”). 19 As a result, Plaintiff’s argument that HP’s actions “violate ERISA’s loyalty requirement” 20 is unpersuasive. Opp. at 11 (citing Pilkington PLC v. Perelman, 72 F.3d 1396, 1401 (9th Cir. 21 1995)). Plaintiff believes the allegations here—that in January of each year from 2019 until 2023, 22 HP decided to use forfeited funds to pay “outstanding and unpaid matching contributions” for the 23 prior year, effectively lowering the cost to HP of providing benefits under the prior-year plan, 24 FAC ¶¶ 33–37—state a claim for breach of fiduciary of loyalty based on a conflict of interest.1 25 1 The Court notes that HP’s claim that it was “free as the Plan’s sponsor to reduce its [future] 26 contributions—or even eliminate them entirely,” Mot. at 17, is beside the point. Under the facts alleged in the First Amended Complaint, HP was deciding whether to use forfeited funds to 27 decrease matching contributions it already owed under the prior year’s Plan. E.g., FAC ¶ 33. HP 1 However, Plaintiff’s cases do not establish that the existence of a possible conflict of interest 2 automatically amounts to a breach of ERISA’s fiduciary duty of loyalty. To the contrary, cases 3 like Metropolitan Life Insurance Company v. Glenn, 554 U.S. 105 (2008), and Burke v. Pitney 4 Bowes Inc. Long-Term Disability Plan, 544 F.3d 1016 (9th Cir. 2008), illustrate how very 5 frequently potential conflicts of interest arise in the administration of ERISA plans. See Wehner v. 6 Genentech, Inc., No. 20-cv-06894, 2021 WL 2417098, at *11 (N.D. Cal. June 14, 2021) (noting 7 that showing “at most the potential for a conflict of interest . . . without more, is not synonymous 8 with a plausible claim of fiduciary disloyalty” under ERISA). For that reason, a plaintiff seeking 9 to establish a claim of disloyalty under ERISA must provide specific facts that move the needle on 10 his claim from “speculative” to “plausible.” One way that he might do so is by showing a failure 11 to fulfill the ERISA plan terms, which might permit a court to infer that the plan fiduciary engaged 12 in an improper decisionmaking process. 13 For example, in Rodriguez v. Intuit, No. 23-cv-05053, 2024 WL 3755367 (N.D. Cal. Aug. 14 12, 2024), the plaintiff alleged that the defendant company made certain decisions that were not 15 authorized by its ERISA plan documents, meaning that it violated the plan terms. Id. at *6. And 16 in Pilkington PLC v. Perelman, 72 F.3d 1396 (9th Cir. 1995), plan participants lost benefits to 17 which they were entitled, while a significant amount of plan assets reverted to the defendant 18 company. See id. at 1397–98. Plaintiff’s case, however, presents different facts. Here, the 19 forfeitures did not “revert” back to HP; instead, they were used—as required—to “provid[e] 20 benefits to participants and their beneficiaries.” 29 U.S.C. § 1104(a)(1)(A)(i). And there is no 21 allegation that Plaintiff or any Plan participant did not receive the benefits due under the Plan. 22 Moreover, where the terms of an ERISA plan comply with the law, the plan fiduciary is 23 not authorized to provide Plan participants with more benefits than the Plan documents set out. 24 See Foltz, 865 F.2d at 373 (“Under ERISA the fiduciaries’ duties are found largely in the terms of 25 the plan itself.”); Wright, 360 F.3d at 1100 (“ERISA requires fiduciaries to comply with a plan as 26 written unless it is inconsistent with ERISA.”); Fifth Third Bancorp v. Dudenhoeffer, 573 U.S. 27 409, 421 (2014) (discussing “the statute’s requirement that fiduciaries act ‘in accordance with the 1 consistent with’” the statute (citing section 1104(a)(1)(D))). In this case, HP’s Plan documents 2 expressly reserve “complete and unfettered discretion to determine whether an expense of the Plan 3 or Trust shall be paid by the Participating Companies or out of the Trust Fund.” Davidson Decl., 4 Ex. A § 17(b). Therefore, if a Plan administrator used forfeitures to pay Plan expenses in direct 5 contravention of HP’s determination that expenses would be charged to Plan participants that year, 6 the Plan fiduciary would be violating the Plan terms and providing Plan participants with an 7 additional benefit that HP did not offer. Such a deviation is not permitted where, as here, there is 8 no allegation that the Plan itself either (1) fails to comply with ERISA, or (2) requires a fiduciary 9 to breach its duties. Since the First Amended Class Action Complaint indicates only that HP 10 “complied with the Plan’s lawful terms” and “provided Plaintiff[] [and other participants] with 11 their benefits due,” Plaintiff’s claim that HP violated its fiduciary duty of loyalty remains 12 implausible. See Wright, 360 F.3d at 1100. 13 Finally, HP’s allocation of forfeitures is not a “cutback” under 29 U.S.C. § 1054(g)(1). 14 That provision bars retroactively decreasing (via plan amendment) a participant’s “accrued 15 benefit.” Id. Here, the plan is an individual account plan, so “accrued benefit” is defined as “the 16 balance of the individual’s account.” Id. § 1002(23)(B). Plaintiff does not allege that the balance 17 of Plaintiff’s (or any other Plan participant’s) individual account was decreased. He alleges only 18 that unallocated forfeiture amounts were reallocated to provide benefits to participants, thereby 19 increasing the balance of individual participants’ accounts. 20 Defendant’s motion to dismiss Plaintiff’s Breach of Fiduciary Duty of Loyalty claim is 21 GRANTED. Having already provided Plaintiff with an opportunity to amend this claim, the Court 22 finds that a further opportunity to amend is not appropriate and would be prejudicial to Defendant. 23 See Eminence Capital, 316 F.3d at 1051–52. Thus, Claim One is DISMISSED WITHOUT 24 LEAVE TO AMEND. 25 C. Breach of Fiduciary Duty of Prudence (Claim 2) 26 HP’s argument in favor of dismissal of Plaintiff’s second claim in the First Amended Class 27 Action Complaint parallels the arguments from the first motion to dismiss. Specifically, HP says 1 increase Plaintiff’s benefits” through payment of administrative costs—despite the fact that the 2 statute and the Plan both expressly permit use of forfeited amounts to reduce employer 3 contributions. Mot. at 18 (emphasis in original). HP critiques Plaintiff’s new allegations that HP 4 used a flawed process in deciding how to allocate the forfeitures, see FAC ¶¶ 28–29, 54, as 5 conclusory and insufficient, given that Plaintiff fails to offer specific facts about HP’s purportedly 6 flawed process. Mot. at 19. In response, Plaintiff explains that his allegation is that HP “utilized 7 an imprudent and flawed process” to decide how to reallocate forfeited amounts, and that it is this 8 process failure that evinces a breach of the duty of prudence. Opp. at 13 (citing FAC ¶ 54). 9 Additionally, Plaintiff argues that because facts regarding HP’s decisionmaking procedures are 10 “likely within the sole control” of HP, it is sufficient to allege facts supporting an inference that 11 HP “failed to conduct an adequate inquiry.” Id. (quoting Gamino v. KPC Healthcare Holdings, 12 Inc., No. 20-cv-01126, 2021 WL 162643, at *3 (C.D. Cal. Jan. 15, 2021)). 13 In carrying out its obligations, an ERISA plan fiduciary must act “with the care, skill, 14 prudence, and diligence under the circumstances then prevailing that a prudent man acting in a like 15 capacity and familiar with such matters would use in the conduct of an enterprise of a like 16 character and with like aims.” 29 U.S.C. § 1104(a)(1)(B); see Fifth Third, 573 U.S. at 419 17 (“Section 1104(a)(1)(B) ‘imposes a “prudent person” standard by which to measure fiduciaries’ 18 investment decisions and disposition of assets.’” (quoting Massachusetts Mut. Life Ins. Co. v. 19 Russell, 473 U.S. 134, 143 n.10 (1985))). “[C]ategorical rule[s] [are] inconsistent with the 20 context-specific inquiry that ERISA requires.” Hughes v. Nw. Univ., 595 U.S. 170, 173 (2022). 21 The Court dismissed Plaintiff’s original Complaint because it evinced an implausible 22 breadth and was “in tension with the Supreme Court’s . . . emphasi[s] that the plausibility of 23 allegations of breach of fiduciary duty should consider the context and circumstances of the 24 fiduciary’s actions.” MTD Order at 10 (citing Fifth Third, 573 U.S. at 418–27). Plaintiff’s First 25 Amended Class Action Complaint has failed to address those concerns. Although Plaintiff 26 attempts to limit the theory by superficially focusing on whether HP’s annual decision regarding 27 whether to use forfeited funds to reduce its own matching contributions or pay Plan expenses used 1 implications of Plaintiff’s First Amended Complaint are unchanged. Except where a company is 2 at risk of defaulting on its matching contribution obligations, the same categorical rule implicit in 3 Plaintiff’s initial Complaint pervades the revised pleading: forfeitures must always be used to pay 4 Plan participants’ administrative expenses before they can be allocated to reducing a company’s 5 matching contributions. Such a rule flies in the face of decades of ERISA practice. It also 6 disregards the fact that HP’s Plan provides that expenses will be charged to Plan participants 7 unless HP decides otherwise in a given year, see Davidson Decl., Ex. A § 17(b), a Plan term that 8 Plaintiff acknowledges in the First Amended Class Action Complaint, see FAC ¶ 20. 9 The problem, once again, is that the facts as alleged do not invite a plausible inference of 10 wrongdoing on HP’s part. It is true, as Plaintiff argues, that “facts detailing the investigative 11 process are likely within the sole control of the trustee and other ERISA defendants and, 12 consequently, ‘an ERISA plaintiff alleging breach of fiduciary duty does not need to plead details 13 to which she has no access.’” Gamino, 2021 WL 162643, at *3 (quoting Allen v. GreatBanc Tr. 14 Co., 835 F.3d 670, 678 (7th Cir. 2016)). But the plaintiff does need to plead details “support[ing] 15 an inference that the defendant failed to conduct an adequate inquiry.” Id. (internal alterations 16 omitted). In this case, Plaintiff does not—and apparently cannot—allege that Plaintiff or any 17 other Plan participant did not receive the benefits to which he was entitled under the Plan. Thus, 18 Plaintiff fails to plausibly allege that a “proper” investigation would have led to a different 19 outcome. Plaintiff ignores that he is only entitled to the benefits provided under the Plan and that 20 Plan § 17(b) reserves to HP, as settlor, the decision to defray administrative costs borne by Plan 21 participants. The Plan cannot fairly be read to delegate the decision over whether to increase 22 benefits to the fiduciary. 23 Of course, in limited circumstances, “the duty of prudence trumps the instructions of a plan 24 document,” such that an ERISA fiduciary could breach its duty of prudence despite adhering 25 precisely to the governing plan terms. Fifth Third, 573 U.S. at 421; accord Rodriguez, 2024 WL 26 3755367, at *7 (“[I]t is plausible that the defendants could have breached their duty of prudence 27 even while complying with the terms of the Plan Document.”). But again, plausibly alleging a 1 fiduciary might not have conducted the requisite inquiry. There must be specific facts alleged that 2 invite the inference that the fiduciary actually engaged in imprudent conduct. In Fifth Third, for 3 example, the complaint alleged that there was both public and nonpublic information that certain 4 stock was overvalued, about which the fiduciaries knew or should have known prior to a market 5 crash that ultimately “eliminated a large part of the retirement savings that the participants had 6 invested.” 573 U.S. at 413–14. In this case, Plaintiff has included no such specific allegations 7 indicating a failure to make an appropriate inquiry. Where, as here, all Plan participants received 8 all of their promised benefits and Plaintiff is unable to point to any circumstances rendering the 9 case unique among the countless ERISA plans permitting the same use of forfeitures, the Court 10 still simply finds Plaintiff’s claim implausible. 11 Accordingly, the Court concludes that Plaintiff’s First Amended Class Action Complaint 12 still fails to state a plausible claim for Breach of Fiduciary Duty of Prudence, and Defendant’s 13 motion to dismiss the claim is GRANTED. For the same reason stated with regard to Claim One, 14 supra section IV.B, Claim Two is DISMISSED WITHOUT LEAVE TO AMEND. 15 D. Self-Dealing (Claim 3) 16 HP seeks dismissal of Plaintiff’s third claim by arguing that Plaintiff still fails to identify a 17 “transaction” that would bring the facts of this case within the ambit of ERISA’s prohibited 18 transaction provisions. Mot. at 20. Plaintiff responds that HP’s argument improperly imports the 19 “transaction” requirement of section 1106(a) into 1106(b), which is actually broader in scope and 20 “proscribe[s] self-dealing and certain transactions by fiduciaries.” Opp. at 21–22 (emphasis in 21 original) (quoting Int’l Bhd. of Painters and Allied Trades Union & Indus. Pension Fund v. Duval, 22 925 F. Supp. 815, 825 (D.D.C. 1996)). 23 Plaintiff’s “self-dealing” claim is based upon 29 U.S.C. § 1106(b), which states: 24 A fiduciary with respect to a plan shall not— 25 (1) deal with the assets of the plan in his own interest or for his own account, (2) in his individual or in any other capacity act in any transaction involving the plan on 26 behalf of a party (or represent a party) whose interests are adverse to the interests of the plan or the interests of its participants or beneficiaries, or 27 (3) receive any consideration for his own personal account from any party dealing with 1 29 U.S.C. § 1106(b). During the proceedings on the motion to dismiss Plaintiff’s initial 2 Complaint, the Court carefully considered the application of Lockheed Corporation v. Spink, 517 3 U.S. 882 (1996), to this subsection of the statute. As explained in that Order, Spink makes clear 4 that using plan assets to pay plan benefits is not a “transaction” under the prohibited transactions 5 provisions of ERISA. MTD Order at 18. Rather, section 1106 encompasses various “commercial 6 bargains that present a special risk of plan underfunding” or “involve uses of plan assets that are 7 potentially harmful to the plan.” Spink, 517 U.S. at 893 (citing Comm’r v. Keystone Consol. 8 Indus., Inc., 508 U.S. 152, 160 (1993)). But that type of factual scenario is not present in the 9 allegations currently before this Court. Here, the plan assets at issue were used to fulfill 10 participants’ benefits under the Plan, and there was no apparent risk of Plan underfunding. In 11 short, the Court has already determined that HP’s conduct, as alleged by Plaintiff, is not a 12 “prohibited transaction,” and the Court adheres to that conclusion. 13 In an effort to circumvent this prior determination, which is fatal to his claim, Plaintiff now 14 argues that the specific provision he invokes—29 U.S.C. § 1106(b)(1)—does not require a 15 “transaction.” Opp. at 22–24. But as the Court stated in its previous MTD Order, Wright v. 16 Oregon Metallurgical Corporation, 360 F.3d 1090 (9th Cir. 2004), expressly mentions both 17 section 1106(a) and section 1106(b). MTD Order at 19; 360 F.3d at 1101. Wright is binding 18 precedent applicable to this case. Under Wright, it is clear that both subsections apply only where 19 there has been a qualifying “transaction.” 360 F.3d at 1100–01 (“The Supreme Court has 20 interpreted § 1106 to prohibit fiduciaries from involving the plan and its assets in certain kinds of 21 business deals. Congress enacted § 1106 to bar categorically a transaction that is likely to injure 22 the pension plan. . . . Plaintiffs fail to identify any transaction that falls within § 1106(a)(1) or 23 (b).” (quoting Spink, 517 U.S. at 888) (internal alterations omitted)). Based on that binding 24 authority, the Court rejects Plaintiff’s argument that section 1106(b) can apply even to non- 25 transactional “dealing” with account assets. See Opp. at 22–24. Therefore, since Plaintiff still 26 cannot identify a “transaction” under section 1106, Plaintiff has failed to state a claim. 27 Defendant’s motion to dismiss Claim Three is GRANTED. For the same reason stated 1 TO AMEND. 2 || V. ORDER 3 For the foregoing reasons, IT IS HEREBY ORDERED that: 4 1. Defendant’s Motion to Dismiss Claim One (Breach of Fiduciary Duty of Loyalty) is 5 GRANTED; 6 2. Defendant’s Motion to Dismiss Claim Two (Breach of Fiduciary Duty of Prudence) is 7 GRANTED; 8 3. Defendant’s Motion to Dismiss Claim Three (Self-Dealing) is GRANTED. 9 4. The First Amended Class Action Complaint is DISMISSED WITHOUT LEAVE TO 10 AMEND. 11 12 IT IS SO ORDERED.

14 Dated: February 5, 2025 hoping LLM 2 TH LABSON FREEMAN 16 United States District Judge

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