Tobias v. Nvidia Corp.

CRISTINA TOBIAS, ANTHONY BRIGGS, ANN MACDONALD and DAVID CALDER, individually and on behalf of all others similarly situated, Plaintiffs, v. NVIDIA CORPORATION, et al., Defendants.

No. 20-CV-06081-LHK

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

September 13, 2021

ORDER GRANTING WITH LEAVE TO AMEND MOTION TO DISMISS COMPLAINT

LUCY H. KOH UNITED STATES DISTRICT JUDGE

Plaintiffs Cristina Tobias, Anthony Briggs, Ann MacDonald, and David Calder (collectively, “Plaintiffs”), on behalf of themselves and all others similarly situated, bring this action against the NVIDIA Corporation; the Board of Directors of the NVIDIA Corporation and its members; and the 401(k) Benefits Plan Committee of the NVIDIA Corporation and its members (collectively, “Defendants”), alleging violations of the Employee Retirement Income Security Act (“ERISA”). Before the Court is Defendants' motion to dismiss Plaintiffs' class action complaint. ECF No. 130 (“Mot.”). Having considered the parties' briefing, the relevant law, and the record in this case, the Court GRANTS with leave to amend Defendants' motion to dismiss Plaintiffs' complaint.^[1]

I. BACKGROUND

A. Factual Background

1. The Parties

Plaintiff Cristina Tobias (“Tobias”) is a resident of Santa Clara, California. During Tobias' employment with the NVIDIA Corporation (“NVIDIA”), she participated in the investment options offered by the NVIDIA 401(k) Retirement Plan (“the Plan”). Complaint, ECF No. 1, at ¶ 18 (“Compl.”). Plaintiff Anthony Briggs (“Briggs”) is a resident of Marion, Texas. During Briggs' employment with NVIDIA, he participated in the investment options offered by the Plan. Id. at ¶ 19. Plaintiff Ann MacDonald (“MacDonald”) resides in Bend, Oregon. During MacDonald's employment with NVIDIA, she participated in the investment options offered by the Plan. Id. at ¶ 20. Plaintiff David Calder (“Calder”) resides in Austin, Texas. During Calder's employment with NVIDIA, he participated in the investment options offered by the Plan. Id. at ¶ 21. Plaintiffs' complaint does not state whether any of the named Plaintiffs are still employed by NVIDIA or remain enrolled in the Plan.

Plaintiffs name as defendants NVIDIA; the NVIDIA Board of Directors and its members (collectively, “Board Defendants”); and the NVIDIA Corporation 401(k) Benefits Plan Committee and its members (collectively, “Committee Defendants”). Id. at ¶¶ 26-39. Plaintiffs do not allege the names of the Board or Committee Defendants and instead sue the Board Defendants as John Does 1-10 and the Committee Defendants as John Does 11-20. Id. at ¶¶ 35, 39.

2. The Plan

According to Plaintiffs, the NVIDIA Corporation 401(k) Plan (“the Plan”) is a “defined contribution” or “individual account” plan within the meaning of ERISA § 3(34), 29 U.S.C. § 1002(34). Id. at ¶ 42. As such, the Plan provides “individual accounts for each participant and for benefits based solely upon the amount contributed to those accounts, and any income, expense, gains and losses, and any forfeitures of accounts of the participants which may be allocated to such participant's account.” Id.

Plaintiffs allege that in general, all full-time employees of NVIDIA are eligible to participate in the Plan, with the exception of residents of Puerto Rico and employees covered by a collective bargaining agreement. Id. at ¶ 43. Plaintiffs further allege there are multiple forms of contributions that can be made to participants' Plan accounts, including a “employee salary deferral contribution, an employee Roth 401(k) contribution, an employee after-tax contribution, catch-up contributions for employees aged 50 and over, rollover contributions, and employer matching contributions based on employee pre-tax, Roth 401(k), and employee after-tax contributions.” Id. at ¶ 43.

For participants in the Plan, there are several fund options available for investment each year. Id. at ¶ 52. However, Plaintiffs do not name or otherwise identify the available fund options in which participants may choose to invest through the Plan. Plaintiffs do allege that participants in the Plan may “direct all contributions to selected investments as made available and determined by the Committee.” Id. The Committee is responsible for selecting and monitoring the performance of the available fund options. Id. at ¶ 51.

3. The Conduct of the Plan Fiduciaries

Plaintiffs allege that each of the Defendants is a fiduciary of the Plan under ERISA § 3(21)(A), 29 U.S.C. § 1002(21)(A). Id. at ¶¶ 26, 34, 38. Specifically, NVIDIA is the Plan sponsor and a named fiduciary. Id. at ¶ 26. The Board Defendants are fiduciaries of the Plan and had the “discretionary authority to appoint and/or monitor the Committee, which had control over Plan management and/or authority or control over management or disposition of Plan assets.” Id. at ¶ 34. Finally, the Committee Defendants are Plan fiduciaries and each “exercised discretionary authority over management or disposition of Plan assets.” Id. at ¶ 26.

Plaintiffs allege that as fiduciaries, Defendants are required by ERISA § 404(a)(1), 29 U.S.C. § 1104(a)(1), “to manage and administer the Plan, and the Plan's investments, solely in the interest of the Plan's participants and beneficiaries and with the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent person acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims.” Id. at ¶ 65. In violation of this duty, Plaintiffs allege that Defendants “included and retained in the Plan many mutual fund investments that were more expensive than necessary and otherwise were not justified on the basis of their economic value to the Plan.” Id. at ¶ 70. Furthermore, Plaintiffs allege that Defendants “failed to leverage the size of the Plan to negotiate for (1) lower expense ratios for certain investment options maintained and/or added to the Plan during the Class Period; and (2) a prudent payment arrangement with regard to the Plan's recordkeeping and administrative fees.” Id. at ¶ 71.

Specifically, Plaintiffs first allege that Defendants failed to utilize lower cost share classes of mutual funds when such options were available. Id. at ¶ 82. Mutual funds often offer multiple classes of shares in a fund and offer lower cost share classes to larger institutional investors. Id. Plaintiffs allege that although the only difference between the share classes is the cost, Defendants failed to negotiate the lowest (and therefore cheapest) share classes for several mutual funds offered by the Plan. Id. at ¶¶ 83-87. According to Plaintiffs, a “prudent fiduciary conducting an impartial review of the Plan's investments would have identified the cheaper share classes available and transferred the Plan's investments in the above-referenced funds into the lower share classes at the earliest opportunity.” Id. at ¶ 90.

Second, Plaintiffs allege that Defendants failed to utilize collective trusts when such options were available. Id. at ¶ 94. Plaintiffs allege that most mutual fund strategies are available in a collective trust format. Collective trusts allegedly hold the same investments as those held by mutual funds, except they cost less. Id. Collective trusts were available to the Plan throughout the Class Period. In 2018, the Plan switched to a collective trust version of the T. Rowe Price target date funds. However, these collective trust options had been available since 2012. Id. At ¶ 102. Plaintiffs allege that “[a] prudent fiduciary conducting an impartial review of the Plan's investments would have identified all funds that could be converted to collective trusts at the earliest opportunity.” Id. at ¶ 94.

Third, Plaintiffs allege that Defendants failed to utilize lower cost passively managed and actively managed mutual funds. Id. at ¶ 108. Allegedly, Defendants failed to consider materially similar, but less expensive, mutual fund alternatives throughout the Class Period. Id. at ¶¶ 109- 110. These alternatives allegedly had no material difference in risk or return profiles and were less expensive. Id. Plaintiffs allege that a “prudent investigation would have revealed the existence of these lower-cost and better performing alternatives to the Plan's funds.” Id. at ¶ 112.

Fourth, Plaintiffs allege that the expense rations of several Plan funds were excessive in relation to comparable funds. Id. at ¶ 78.

4. The Plan's Recordkeeping Expenses

Throughout the putative Class Period, which runs from August 28, 2014 through the date of any judgment in this case, the Plan's recordkeeper was Fidelity Management Trust Company (“Fidelity”). Id. at ¶ 114. A recordkeeper performs a number of administrative services associated with maintaining defined contribution plans like the one in the instant case. Id. at ¶ 115. Recordkeeping expenses can either be paid directly from assets of a plan, or indirectly by the plan's investments. This later practice is known as “revenue sharing.” Id. at ¶ 118. Thus, revenue sharing refers to the practice by which fees charged in connection with specific funds are used “to pay for recordkeeping and other administrative services provided by the Plan.” Davis v. Salesforce.com, Inc. (“Davis I”), 2020 WL 5893405, at *5 (N.D. Cal. Oct. 5, 2020). Plaintiffs allege that “[a]lthough utilizing a revenue sharing approach is not per se imprudent, unchecked, it could be devastating for Plan participants” because it can have the effect of hiding fees from participants in a plan. Compl. at ¶ 119.

Plaintiffs further allege that in order to prevent recordkeeping expenses from growing over time, plan fiduciaries should regularly conduct a “Request for Proposal” (“RFP”) process to evaluate...