In re LinkedIn Erisa Litig.

IN RE LINKEDIN ERISA LITIGATION

No. 5:20-cv-05704-EJD

United States District Court, N.D. California, San Jose Division

November 16, 2021

ORDER GRANTING IN PART AND DENYING IN PART MOTION TO DISMISS; DENYING MOTION TO STAY DISCOVERY

RE: DKT. NOS. 44, 46

EDWARD J. DAVILA, UNITED STATES DISTRICT JUDGE

Plaintiffs Douglas Bailey, Jason Hayes, and Marianne Robinson filed this putative class action against Defendants LinkedIn Corporation, LinkedIn Corporation's Board of Directors (“the Board”), LinkedIn Corporation's 401(k) Committee (“the Committee”), and Does 1-20 who are members of the Board or Committee or are otherwise fiduciaries of the LinkedIn Corporation 401(k) Profit Sharing Plan and Trust (“the Plan”), asserting the following claims: (1) breach of fiduciary duties under the Employee Retirement Income Security Act of 1974 (“ERISA”), 29 U.S.C. 1001 et seq.; (2) failure to monitor fiduciaries and co-fiduciary breaches under ERISA; and, in the alternative, (3) knowing breach of trust. Am Compl., Dkt. No. 27. LinkedIn Corporation, the Board, and the Committee (collectively, “LinkedIn”) now move to dismiss all claims under Federal Rule of Civil Procedure 12(b)(1) and 12(b)(6). LinkedIn's Mot. to Dismiss (“Mot.”), Dkt. No. 44. LinkedIn also moves to stay discovery pending resolution of the motion to dismiss. Dkt. No. 46.

The Court finds the matter suitable for resolution without oral argument. Civ. L.R. 7-1(b). For the reasons set forth below the Court GRANTS IN PART and DENIES IN PART LinkedIn's motion to dismiss with leave to amend and DENIES LinkedIn's motion to stay discovery.

I. BACKGROUND

LinkedIn is a Delaware corporation headquartered in Mountain View, California. Am. Compl. ¶ 12. Plaintiffs are former LinkedIn employees and current and former participants in the Plan. Id. ¶¶ 9-11. The Plan is a participant-directed 401(k) plan which permits participants to direct the investment of their contributions into various investment options the Plan offered, including various mutual funds, a collective investment trust, and a self-directed brokerage account. Id. ¶ 20. From August 14, 2014 to the present, Fidelity Management Trust Company (“Fidelity Trust”) served as the Plan trustee for Plan assets. Id. ¶¶ 23, 56.

Plaintiffs allege that LinkedIn violated its fiduciary duties in multiple ways. First, they assert that LinkedIn should not have offered as investment options certain target date funds (“TDFs”) in the Fidelity Freedom Fund suite from Fidelity Management & Research Company (“Fidelity Research”). Id. ¶¶ 25-41. In particular, Plaintiffs say that LinkedIn acted imprudently by selecting and retaining the actively managed Freedom Funds (“the Active Suite”). Id. Actively managed funds employ a manager who decides which and how many securities to buy and sell, and consequently are riskier and charge higher fees in comparison to passively managed index funds, which merely track market indices. Id. ¶¶ 25-30. In contrast, Plaintiffs say that, instead of the Active Suite, LinkedIn should have offered the Freedom index funds (“the Index Suite”), which are less risky, less expensive, and better performing. Id. ¶¶ 26-41.

In addition to the Freedom Active Suite, Plaintiffs allege that LinkedIn offered another imprudent investment option, the actively managed American Funds AMCAP Fund Class R4 and R6 (“the AMCAP Fund”). Id. ¶¶ 42-45. Plaintiffs say that the AMCAP Fund consistently and significantly underperformed its benchmark, the S&P 500 Index, and that it did not provide returns to justify its expense ratio. Id. Given that the Plan included an index fund that tracked the AMCAP Fund's stated benchmark, Plaintiffs assert that inclusion of the AMCAP Fund was unnecessary and imprudent. Id. ¶ 45.

Finally, Plaintiffs allege that LinkedIn violated its fiduciary duties by offering excessively expensive investment options. Id. ¶¶ 46-49. They say that LinkedIn failed to ensure that the Plan's investment options charged only reasonable investment management fees, and that the Plan paid management fees that were higher than average compared to other similarly sized 401(k) plans. Id. ¶¶ 46-47. Plaintiffs also allege that LinkedIn failed to monitor the Plan's investment options to ensure that the options were in the least expensive available share class with respect to the American Beacon Small Cap Value Investment Fund. Id. ¶¶ 48-49.

In sum, Plaintiffs contend that as a result of LinkedIn's actions or inactions, the value of their accounts is less than it otherwise would have been, and that LinkedIn is liable for all losses. This suit followed. On November 4, 2020, Plaintiffs filed the operative Amended Complaint. Dkt. No. 27. On January 4, 2021, LinkedIn filed the motion to dismiss now before the Court. Dkt. No. 44.

II. LEGAL STANDARD

A. Rule 12(b)(1)

“Federal courts are courts of limited jurisdiction; they are authorized only to exercise jurisdiction pursuant to Article III of the U.S. Constitution and federal laws enacted thereunder.” Am. Fed'n of Teachers v. DeVos, 484 F.Supp.3d 731, 741 (N.D. Cal. 2020); see also Henderson ex rel. Henderson v. Shinseki, 562 U.S. 428, 434 (2011) (“[F]ederal courts have an independent obligation to ensure that they do not exceed the scope of their jurisdiction”). To establish Article III standing, a plaintiff must allege: (1) an injury in fact that is concrete and particularized, as well as actual or imminent; (2) that the injury is fairly traceable to the challenged action of the defendant; and (3) that it is likely (not merely speculative) that injury will be redressed by a favorable decision. Friends of the Earth, Inc. v. Laidlaw Env't Servs. (TOC), Inc., 528 U.S. 167, 180-81 (2000); Lujan v. Defs. of Wildlife, 504 U.S. 555, 561-62 (1992).

To show an injury in fact, a plaintiff must allege that he or she suffered “an invasion of a legally protected interest” that is “concrete and particularized” and “actual or imminent, not conjectural or hypothetical.” Spokeo, Inc. v. Robins, 136 S.Ct. 1540, 1548 (2016), as revised (May 24, 2016) (quotation marks and citation omitted). To establish a traceable injury, there must be “a causal connection between the injury and the conduct complained of-the injury has to be fairly traceable to the challenged action of the defendant, and not the result of the independent action of some third party not before the court.” Lujan, 504 U.S. at 560 (simplified). Finally, it must be “likely” as opposed to merely “speculative” that the injury will be “redressed by a favorable decision.” Am. Fed'n of Teachers, 484 F.Supp.3d at 741 (citing Lujan, 504 U.S. at 561). Plaintiffs, as the parties invoking federal jurisdiction, bear the burden of establishing the existence of Article III standing and, at the pleading stage, “must clearly allege facts demonstrating each element.” Spokeo, 136 S.Ct. at 1547 (internal quotations omitted); see also Baker v. United States, 722 F.2d 517, 518 (9th Cir. 1983) (“The facts to show standing must be clearly apparent on the face of the complaint.”).

To contest a plaintiff's showing of subject matter jurisdiction, a defendant may file a Rule 12(b)(1) motion. Fed.R.Civ.P. 12(b)(1). A defendant may challenge jurisdiction “facially” by arguing the complaint “on its face” lacks jurisdiction or “factually” by presenting extrinsic evidence demonstrating the lack of jurisdiction on the facts of the case. Wolfe v. Strankman, 392 F.3d 358, 362 (9th Cir. 2004); Safe Air for Everyone v. Meyer, 373 F.3d 1035, 1039 (9th Cir. 2004). “In a facial attack, the challenger asserts that the allegations contained in a complaint are insufficient on their face to invoke federal jurisdiction. By contrast, in a factual attack, the challenger disputes the truth of the allegations that, by themselves, would otherwise invoke federal jurisdiction.” Id.

In resolving a factual attack on jurisdiction, the district court may review evidence beyond the complaint without converting the motion to dismiss into a motion for summary judgment. Id. (citing Savage v. Glendale Union High Sch., Dist. No. 205, Maricopa Cty., 343 F.3d 1036, 1039 n.2 (9th Cir. 2003)). While a district court may consider evidence outside of the pleadings to resolve a “factual” Rule 12(b)(1) motion, “a [j]urisdictional finding of genuinely disputed facts is inappropriate when the jurisdictional issue and substantive issues are so intertwined that the question of jurisdiction is dependent on the resolution of factual issues going to the merits of an action.” Safe Air for Everyone, 373 F.3d at 1039 n.3 (citing Sun Valley Gasoline, Inc. v. Ernst Enters., Inc., 711 F.2d 138, 140 (9th Cir. 1983)) (internal quotation marks omitted).

“In a class action, this standing inquiry focuses on the class representatives.” NEI Contracting & Eng'g, Inc. v. Hanson Aggregates Pac. Sw., Inc., 926 F.3d 528, 532 (9th Cir. 2019). The named plaintiffs “must allege and show that they personally have been injured, not that injury has been suffered by other, unidentified members of the class to which they belong and which they purport to represent.” Warth v. Seldin, 422 U.S. 490, 502 (1975). Standing for the putative class “is satisfied if at least one named plaintiff meets the requirements.” Bates v. United Parcel Serv., Inc., 511 F.3d 974, 985 (9th Cir. 2007). But if none of the named plaintiffs purporting to represent a class can establish standing to sue, the class action cannot proceed. See NEI Contracting, 926 F.3d at 532 (citing O'Shea v. Littleton, 414 U.S. 488, 494 (1974)).

B. Rule 12(b)(6)

Federal Rule of Civil Procedure 8(a) requires a plaintiff to plead each claim with enough specificity to “give the defendant fair notice of what the . . . claim is and the grounds upon which it rests.” Bell Atl. Corp. v....