Court Dismisses Retirement Plan Suit Against Disney

U.S. District Judge Percy Anderson of the U.S. District Court for the Central District of California has dismissed a lawsuit in which a participant in the Disney Savings and Investment Plan challenged plan fiduciaries’ continued offering of The Sequoia Fund as a plan investment option.

According to the complaint, the Sequoia Fund is a high cost mutual fund run by adviser Ruane, Cunniff & Goldbarb and its portfolio managers, Robert D. Goldfarb and David M. Poppe. The lawsuit claims that, in violation of plan investment policies, the fund managers concentrated The Sequoia Fund’s assets in a single stock, Valeant Pharmaceuticals, Inc.

Anderson noted that generally, plaintiffs in federal court are required to give only “a short and plain statement of the claim showing that the pleader is entitled to relief.” However, in Bell Atlantic Corp. v. Twombly, the Supreme Court rejected the notion that “a wholly conclusory statement of a claim would survive a motion to dismiss whenever the pleadings left open the possibility that a plaintiff might later establish some set of undisclosed facts to support recovery.” Instead, Anderson said in his opinion, the court adopted a “plausibility standard,” in which the complaint must “raise a reasonable expectation that discovery will reveal evidence of [the alleged infraction].”

In construing the Twombly standard, the Supreme Court has advised that “a court considering a motion to dismiss can choose to begin by identifying pleadings that, because they are no more than conclusions, are not entitled to the assumption of truth. While legal conclusions can provide the framework of a complaint, they must be supported by factual allegations.”

Anderson also considered the Supreme Court decision inFifth Third Bancorp v. Dudenhoeffer. “As Dudenhoeffer instructs, the precipitous decline in the value of Valeant’s stock does not alone suggest that Plaintiffs have stated a plausible fiduciary duty claim against the Plan. The Consolidated Complaint contains no allegations of ‘special circumstances’ that could support even an inference that the Plan had any reason not to rely on the market’s valuation of Valeant up until the collapse in its price. More fundamentally, the Consolidated Complaint alleges no facts plausibly suggesting that the Plan had any reason to investigate the prudence of continuing to include the Sequoia Fund as one of the investment options for the Plan’s participants,” Anderson wrote in his opinion.

Anderson found it particularly implausible, under the plaintiff’s theory of liability, the implication that problems at Valeant, which the market price did not capture, somehow triggered the plan’s duty of prudence to remove the Sequoia Fund from the plan. “Without any factual allegations suggesting a situation that would cause a reasonably prudent fiduciary to remove the Sequoia Fund from the Plan’s investment options during the class period prior to the precipitous drop in Valeant’s stock price, and the resulting loss of value for the Sequoia Fund, Plaintiffs have failed to state a viable claim that the Plan breached its duty of prudence,” Anderson wrote.

He noted that the plaintiffs’ theory of liability, if accepted, would require plan fiduciaries to monitor the market and publicly available information about every holding maintained by every mutual fund included within the plan, the concentration of all stocks held by each mutual fund within the plan, and whether that concentration was the result of an imprudent acquisition of additional shares or the dramatic appreciation in value of any particular mutual fund’s original investment. “Plaintiffs have cited to no case that establishes that the duty of prudence imposes such obligations, and the Court concludes that such a duty would not be reasonable or appropriate in the context within which the Plan operated during the relevant time period,” Anderson concluded.

Although the plaintiff did not specifically request leave to amend, Anderson said she could have until December 5, 2016, to file a First Amended Consolidated Complaint. If she has not done so by that date, Anderson said he will issue a judgment dismissing the suit with prejudice.

The order for In re Disney ERISA Litigation is here.