Judge Vince Chhabria held that the plaintiffs plausibly alleged the Franklin Defendants breached their duties of loyalty and prudence under ERISA by prioritizing Franklin's interest in earning investment management fees over choosing sound investments for the Plan.
The court rejected the defendants' argument that the independent fiduciary Gallagher Fiduciary Advisors' retention of the funds after 2023 validated the earlier decisions. Judge Chhabria noted that the Plan terms required Gallagher to retain certain funds unless doing so violated ERISA, and the plaintiffs alleged Gallagher failed to comply with its own fiduciary duties.
Regarding the post-2023 amendment period, the court denied Gallagher's motion to dismiss while granting it for claims predating the amendment. The judge held that the independent fiduciary structure did not lower the fiduciary responsibilities mandated by ERISA, citing Dudenhoeffer for the principle that the duty of prudence trumps plan document instructions.
The court also addressed the allocation of responsibility under the new structure, rejecting the defendants' argument that neither party was liable. Judge Chhabria noted it was unclear whether the structure permissibly allocated responsibility, especially given that both the Franklin Defendants and Gallagher disclaimed responsibility for monitoring the overall plan portfolio.
Additionally, the court held that the plaintiffs adequately pleaded a claim against Franklin for violating the duty to monitor its appointed fiduciaries — the Investment Committee prior to the 2023 amendment and Gallagher thereafter.
Gallagher's argument that the named plaintiffs lacked standing because they only invested in a subset of the proprietary funds was rejected. The court cited precedent holding that allegations of investment in a specific fund are not a prerequisite for standing to challenge plan-wide mismanagement.