A federal judge in San Jose, Calif., has rejected a request by NVIDIA Corp. to dismiss a lawsuit by 401(k) plan participants who allege ERISA violations by fiduciaries in selecting and retaining investments.
The Sept. 11 ruling by U.S. District Court Judge Jon S. Tigar reverses a decision by a different federal judge in San Jose to dismiss the allegations in September 2021 in the case of Tobias et al. vs. NVIDIA Corp. et al.
The reason for the shift was the U.S. Supreme Court's ruling in Hughes et al. vs. Northwestern University et al. in January 2022, which occurred after the original lawsuit was dismissed but before the San Jose district court could rule on an amended complaint.
The 8-0 Supreme Court ruling re-emphasized a 2015 decision, Tibble et al. vs. Edison International et al., that sponsors had a duty to monitor investments and expenses, noting that this duty applies to all investments in a "context-specific inquiry" required by ERISA.
The original NVIDIA lawsuit was filed in August 2020, alleging, among other things, that plan executives should have offered lower-cost investments, such as institutional shares of mutual funds, compared to existing investments in the plan lineup. They said fiduciaries should have offered collective investment trusts more promptly.
They also criticized fiduciaries for using revenue sharing to pay for record-keeping expenses, saying the fiduciaries should have issued an RFP to determine if record-keeping expenses were too high.
U.S. District Court Judge Lucy H. Koh, who dismissed all allegations, wrote in her Sept. 2021 opinion that plaintiffs' arguments were insufficient to state claims.
The plaintiffs subsequently filed an amended complaint, which was reassigned to Judge Tigar. The defendants asked the judge to dismiss this complaint, but he noted that the Supreme Court's ruling changed the legal playing field and asked parties to file new legal briefs.
Judge Tigar then supported the plaintiffs, saying they had that provide sufficient information to allow the claim of excessive record-keeping fees proceed to trial. "Plaintiffs have established that defendants' decision-making process was flawed," he wrote.
"Plaintiffs also adequately allege defendants breached their fiduciary duty of prudence based on their selection and maintenance of certain investments with excessive management fees," he added. The judge also agreed with the plaintiffs' argument about the sponsor failing to monitor investments and costs.
The NVIDIA Corp. 401(k) Plan, Santa Clara, Calif., had $2.64 billion in assets as of Dec. 31, 2021, according the latest Form 5500.
