Baird v. BlackRock Institutional Trust Company, N.A.

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4 UNITED STATES DISTRICT COURT

5 NORTHERN DISTRICT OF CALIFORNIA

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7 CHARLES BAIRD, et al., Case No. 17-cv-01892-HSG

8 Plaintiffs, ORDER ON MOTION FOR PARTIAL

SUMMARY JUDGMENT, MOTION

9 v. FOR SUMMARY JUDGMENT, AND

MOTION TO EXCLUDE

10 BLACKROCK INSTITUTIONAL TRUST

COMPANY, N.A., et al., Re: Dkt. Nos. 378, 384, 385, 386, 387, 396,

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Defendants. 411, 414, 418, 421,431, 433

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13 Pending before the Court are Defendants’ motion for summary judgment, Dkt. No. 396,

14 and Plaintiffs’ motion for partial summary judgment, Dkt. No. 385, and motion to strike, Dkt. No.

15 387. The parties also filed numerous administrative motions to file documents under seal in

16 connection with their briefs. Dkt. Nos. 378, 384, 386, 411, 414, 418, 421, 431, 433. For the

17 following reasons, the Court DENIES the motions for summary judgment and the motion to strike

18 and GRANTS the parties’ administrative motions to file under seal.1

19 I. BACKGROUND

20 The Court has previously detailed the factual and procedural background of this case, most

21 recently in the Court’s order on class certification. See Dkt. No. 360 1-4. Plaintiffs are

22 participants in BlackRock’s Retirement Savings Plan (“the BlackRock Plan”). Id. Plaintiffs

23 allege that the BlackRock Defendants violated various ERISA requirements and their fiduciary

24 duty by improperly favoring their own proprietary funds when selecting investment options for the

25 BlackRock Plan, and that BTC (a BlackRock subsidiary) paid itself excessive securities lending

26 fees, all of which led to unfavorable returns for the participants. Id. The Court certified a class

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1 composed of participants (and their beneficiaries) in the BlackRock Plan during the class period of

2 April 5, 2011 through the date of judgment or settlement. Id. at 26.

3 Plaintiffs now move for partial summary judgment on the issue of Defendants’ liability and

4 move to exclude the testimony of Defendants’ expert witness. Dkt. Nos. 385 (“Pls.’ Mot.”) and

5 387 (“Pls.’ Mot. to Strike”). Defendants also move for summary judgment. Dkt. No. 396 (“Defs.’

6 Mot.”).

7 II. LEGAL STANDARD

8 Summary judgment is proper when a “movant shows that there is no genuine dispute as to

9 any material fact and the movant is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a).

10 A fact is “material” if it “might affect the outcome of the suit under the governing law.” Anderson

11 v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). And a dispute is “genuine” if there is evidence

12 in the record sufficient for a reasonable trier of fact to decide in favor of the nonmoving party. Id.

13 But in deciding if a dispute is genuine, the court must view the inferences reasonably drawn from

14 the materials in the record in the light most favorable to the nonmoving party, Matsushita Elec.

15 Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587–88 (1986), and “may not weigh the evidence

16 or make credibility determinations,” Freeman v. Arpaio, 125 F.3d 732, 735 (9th Cir. 1997),

17 overruled on other grounds by Shakur v. Schriro, 514 F.3d 878, 884–85 (9th Cir. 2008). If a court

18 finds that there is no genuine dispute of material fact as to only a single claim or defense or as to

19 part of a claim or defense, it may enter partial summary judgment. Fed. R. Civ. P. 56(a).

20 Federal Rule of Evidence 702 allows a qualified expert to testify “in the form of an opinion

21 or otherwise” where:

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(a) the expert’s scientific, technical, or other specialized knowledge

23 will help the trier of fact to understand the evidence or to determine a

fact in issue; (b) the testimony is based on sufficient facts or data;

24 (c) the testimony is the product of reliable principles and methods;

and (d) the expert has reliably applied the principles and methods to

25 the facts of the case.

26 Fed. R. Evid. 702. Expert testimony is admissible under Rule 702 if it is both relevant and

27 reliable. See Daubert v. Merrell Dow Pharm., Inc., 509 U.S. 579, 597 (1993). “[R]elevance

1 Cooper v. Brown, 510 F.3d 870, 942 (9th Cir. 2007); see also Primiano v. Cook, 598 F.3d 558,

2 564 (9th Cir. 2010) (“The requirement that the opinion testimony assist the trier of fact goes

3 primarily to relevance.”) (quotation omitted). Under the reliability requirement, the expert

4 testimony must “ha[ve] a reliable basis in the knowledge and experience of the relevant

5 discipline.” Primiano, 598 F.3d at 565. To ensure reliability, the Court “assess[es] the [expert’s]

6 reasoning or methodology, using as appropriate such criteria as testability, publication in peer

7 reviewed literature, and general acceptance.” Id. at 564.

8 III. PLAINTIFFS’ MOTION FOR PARTIAL SUMMARY JUDGMENT

9 Plaintiffs move for partial summary judgment on the issue of Defendants’ liability, arguing

10 that there are no genuine disputes of material fact as to (1) whether Defendants violated their

11 fiduciary duties by failing to follow the BlackRock Plan’s Investment Policy Statement (“IPS”);

12 and (2) whether Defendants violated 29 U.S.C. § 1106(b)(1) by paying themselves securities

13 lending fees from ERISA-protected assets. Pls.’ Mot. at 1-2.

14 The Court finds that there are genuine disputes of material fact relevant to whether

15 Defendants failed to follow the BlackRock Plan’s IPS and whether they thereby violated their

16 fiduciary duties. To give one, non-exhaustive, example: Plaintiffs argue that Defendants failed to

17 obtain an opinion of counsel as required by the IPS before including BlackRock-affiliated funds in

18 the BlackRock Plan. Pls.’ Mot. at 9-11. The IPS does not define what qualifies as “an opinion of

19 counsel.” See Dkt. No. 379-7, Ex. G at BAIRD_0041597. Defendants point to evidence in the

20 record that BlackRock’s ERISA counsel were present at the relevant investment committee

21 meetings. See, e.g., Dkt. No. 399-31, Ex. BF ¶ 48 (“These [investment committee] meetings were

22 regularly attended by outside counsel, internal counsel, Mercer, and additional BlackRock

23 attendees.”). Defendants also submit the declaration of a member of the investment committee in

24 which he states that “[t]he Committee specifically relied on legal counsel to ensure that its

25 investment selections were permitted under ERISA and its implementing regulations” and that

26 “[l]egal counsel was continuously involved in all of the Committee’s discussions and decisions

27 regarding the Plan’s investments.” Dkt. No. 419-1, Declaration of John Perlowski ¶¶5-6.

1 documentary evidence, the Court is not permitted to weigh evidence and determine credibility at

2 the summary judgment stage. The involvement of Defendants’ counsel and whether this

3 involvement was sufficient to satisfy Defendants’ fiduciary duties presents a genuine dispute of a

4 material fact and precludes summary judgment.

5 Similarly, the Court also finds that there are genuine disputes of material facts relevant to

6 liability under 29 U.S.C. § 1106(b)(1). The Court has already found, and Plaintiffs acknowledge,

7 that analyzing the lawfulness of BTC’s compensation involves disputed questions of fact. See

8 Dkt. No. 360 at 10-12 (“Accordingly, the Court would have to examine each individual [guideline

9 and fee agreement] between BTC and the plan sponsor when evaluating (1) whether BTC’s

10 compensation is ‘definitively calculable and nondiscretionary [as] clearly set forth in a contract,’

11 which would determine if BTC acted as a fiduciary with respect to its fees…and (2) whether the

12 compensation was reasonable and satisfied PTE 2006-16.”); Pls.’ Mot. at 21 (“The Court’s class

13 certification order notes that whether any plan contractually agreed to pay BTC a 50% fee split is a

14 disputed question of fact.”). Accordingly, summary judgment is inappropriate, and Plaintiffs’

15 motion is denied.2

16 IV. DEFENDANTS’ MOTION FOR SUMMARY JUDGMENT

17 Like Plaintiffs, Defendants also seek resolution of disputed issues of material fact in their

18 favor in their motion for summary judgment.

19 Defendants move for summary judgment on Plaintiffs’ claims for breaches of fiduciary

20 duty. Defs.’ Mot. at 7-15. As discussed with regard to Plaintiffs’ motion, there is a genuine

21 dispute as to whether Defendants complied with the IPS’s direction to “[o]btain an opinion of

22 counsel” that a prohibited transaction exemption applied when selecting a fund managed by

23 BlackRock or one of its subsidiaries. Dkt. No. 379-7, Ex. G at BAIRD_0041597. This disputed

24 issue is material to the Court’s fiduciary duty analysis. See California Ironworkers Field Pension

25 Tr. v. Loomis Sayles & Co., 259 F.3d 1036, 1042 (9th Cir. 2001) (“Fiduciaries who are responsible

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2 The Court has not listed, or even attempted to list, every genuine dispute of material fact

1 for plan investments governed by ERISA must comply with the plan's written statements of

2 investment policy, insofar as those written statements are consistent with the provisions of

3 ERISA.”). Therefore, summary judgment is precluded as to Plaintiffs’ breach of fiduciary duty

4 claims.3

5 Defendants’ loss causation arguments, Defs.’ Mot. at 15-22 and 27-28, also involve

6 weighing the credibility of the parties’ respective experts and their methodologies, a task which is

7 inappropriate at the summary judgment stage.

8 Defendants argue that Plaintiffs’ claims brought under 29 U.S.C. § 1106 are subject to

9 ERISA’s statute of repose and are time-barred if not brought within six years after “the date of the

10 last action which constituted a part of the breach or violations.” 29 U.S.C. § 1113(1). Defs.’ Mot.

11 at 22-23. Defendants contend that the only relevant transaction for claims based on the inclusion

12 of a fund in a plan lineup is the date the fund is initially added. Defs.’ Mot. at 23. But the

13 authority cited by Defendants does not support this broad proposition, and Plaintiffs’ claims are

14 not based solely on the inclusion of the challenged funds in a plan line up. Defendants rely

15 heavily on the district court’s decision in White v. Chevron Corp., but the plaintiffs in White based

16 their § 1106 claim on the discrete decision to hire a particular plan recordkeeper. No. 16-CV-

17 0793-PJH, 2017 WL 2352137, at *22 (N.D. Cal. May 31, 2017). The district court in White found

18 that this claim was not timely because the decision to hire was made more than six years prior to

19 the claim and there was no “continuing duty to monitor…a static decision.” Id. (“[P]laintiffs

20 allege only that engaging Vanguard in 2002 was a prohibited transaction. Plaintiffs have offered

21 no theory as to how a continuing duty to monitor affects a static decision made 14 years prior to

22 the claim that plaintiffs have asserted.”). Similarly, the other cases cited by Defendants involve

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3 Defendants also move for summary judgment of Plaintiffs’ claims against individual defendants.

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Defs.’ Mot at 28-30. Defendants’ argument is based on the premise that “[t]here is no evidence

that any [investment committee] member sought subjectively to further the Company’s

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interests…in selecting BlackRock options for the Plan lineup.” Id. at 29. But Defendants offer no

authority for the proposition that their subjective intentions are dispositive in determining whether

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they breached their fiduciaries duties. Without question, Plaintiffs’ evidence regarding the

individual defendants appears thin at best, but this is not the stage for weighing the persuasiveness

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of that evidence. Therefore, because the Court finds that there are genuine disputes of fact as to

1 the failure to remove or sell a particular investment. See Wright v. Oregon Metallurgical Corp.,

2 360 F.3d 1090, 1101 (9th Cir. 2004) (explaining that the decision to “continue to hold” a particular

3 investment is “not a transaction” for § 1106 purposes); David v. Alphin, 704 F.3d 327, 340 (4th

4 Cir. 2013) (“Courts have held that a decision to continue certain investments, or a defendant’s

5 failure to act, cannot constitute a ‘transaction’… The common understanding of the word

6 ‘transaction’ implies that an affirmative action is required.”). Plaintiffs’ § 1160 claims are

7 distinguishable because they challenge each affirmative purchase by the Plan of interests or units

8 in a particular BlackRock fund as well as the fees paid to BlackRock affiliates. Dkt. No. 154,

9 Second Amended Complaint (“SAC”) ¶¶ 512-13. 522-23. In the absence of controlling Ninth

10 Circuit authority to the contrary, the Court finds at this stage that Plaintiffs’ theory that

11 Defendants’ purchase of units in a BlackRock fund and payment of fees creates a genuine issue of

12 material fact as to whether defendants took affirmative actions under 29 U.S.C. § 1106(a)(1)(A),

13 which prohibits the “sale or exchange…of any property between the plan and a party in interest,”

14 and § 1106(a)(1)(D), which prohibits the “transfer to, or use by or for the benefit of a party in

15 interest, of any assets of the plan.”4

16 Defendants also argue that they are entitled to summary judgment on Plaintiffs’ prohibited

17 transactions claims because their actions satisfied certain prohibited transaction exemptions.

18 Defs.’ Mot. at 24-26. But these exemptions require that the Court analyze the reasonableness of

19 the compensation received by Defendants. See, e.g., 29 U.S.C. § 1108(b)(8) (exemption available

20 if certain conditions are satisfied including that “the bank, trust company, or insurance company

21 receives not more than reasonable compensation.”). As discussed above in relation to Plaintiffs’

22 motion for summary judgment on their § 1106 claims, analysis of the reasonableness of

23 Defendants’ compensation requires resolution of disputed issues of fact; summary judgment is

24 therefore inappropriate.

25 Regarding Plaintiffs’ disclosure claim, Defendants revisit the arguments they advanced in

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4 The corollary to Plaintiffs’ theory is that they will have to prove at trial that each purchase and

1 their motion to dismiss and continue to argue that the claim must be dismissed as a matter of law.

2 See Baird v. BlackRock Institutional Tr. Co., N.A., 403 F. Supp. 3d 765, 781-82 (N.D. Cal. 2019);

3 Defs.’ Mot. at 26-27. For the reasons explained in the order on the motion to dismiss, the Court

4 declines to revisit its legal ruling and denies summary judgment on the disclosure claim.

5 Therefore, the Court denies Defendants’ motion for summary judgment, with the same

6 caveat noted in footnote 3 above.

7 V. PLAINTIFFS’ MOTION TO STRIKE

8 Plaintiffs argue that Defendants’ fiduciary process expert, Eileen Kamerick, is not

9 qualified to offer expert testimony on ERISA-related fiduciary duties. Pls.’ Mot. to Strike at 1.

10 Indeed, much of Plaintiffs’ briefing on their motion to exclude Ms. Kamerick’s testimony is

11 devoted to legal argumentation about ERISA requirements. See id. at 6-9, 12-14; Dkt. 415 at 4-6,

12 10. But Ms. Kamerick is not being offered as an expert in ERISA law but rather as an expert on

13 the processes 401(k) plan fiduciaries apply in their selection and monitoring of funds for plan

14 participants. See Dkt. No. 410 at 11; Dkt. No. 411-8 ¶ 5. Given the purposes for which Ms.

15 Kamerick’s testimony is being offered, the Court finds that her qualifications5 provide “a reliable

16 basis in the knowledge and experience of the relevant discipline.” See Primiano, 598 F.3d at 565.

17 Given that Plaintiffs’ claims are based on Defendants’ alleged breaches of fiduciary duty, Ms.

18 Kamerick’s testimony about fiduciary processes and practices is also relevant. Therefore,

19 Plaintiffs’ motion to strike is denied.

20 VI. ADMINISTRATIVE MOTIONS TO SEAL

21 The parties also filed numerous administrative motions to file documents under seal in

22 connection with their briefs. Dkt. Nos. 378, 384, 386, 411, 414, 418, 421, 431, 433.

23 a. Legal Standard

24 Courts generally apply a “compelling reasons” standard when considering motions to seal

25 documents. Pintos v. Pac. Creditors Ass’n, 605 F.3d 665, 678 (9th Cir. 2010) (quoting Kamakana

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5 Among other qualifications, Ms. Kamerick oversees fiduciaries on two committees to 401(k)

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plans, serves as an independent director (in a fiduciary role) on the boards of two mutual fund

1 v. City & Cty. of Honolulu, 447 F.3d 1172, 1178 (9th Cir. 2006)). “This standard derives from the

2 common law right ‘to inspect and copy public records and documents, including judicial records

3 and documents.’” Id. (quoting Kamakana, 447 F.3d at 1178). “[A] strong presumption in favor of

4 access is the starting point.” Kamakana, 447 F.3d at 1178 (quotations omitted). To overcome this

5 strong presumption, the party seeking to seal a judicial record attached to a dispositive motion

6 must “articulate compelling reasons supported by specific factual findings that outweigh the

7 general history of access and the public policies favoring disclosure, such as the public interest in

8 understanding the judicial process” and “significant public events.” Id. at 1178–79 (quotations

9 omitted). “In general, ‘compelling reasons’ sufficient to outweigh the public’s interest in

10 disclosure and justify sealing court records exist when such ‘court files might have become a

11 vehicle for improper purposes,’ such as the use of records to gratify private spite, promote public

12 scandal, circulate libelous statements, or release trade secrets.” Id. at 1179 (quoting Nixon v.

13 Warner Commc’ns, Inc., 435 U.S. 589, 598 (1978)). “The mere fact that the production of records

14 may lead to a litigant’s embarrassment, incrimination, or exposure to further litigation will not,

15 without more, compel the court to seal its records.” Id.

16 The Court must “balance[] the competing interests of the public and the party who seeks to

17 keep certain judicial records secret. After considering these interests, if the court decides to seal

18 certain judicial records, it must base its decision on a compelling reason and articulate the factual

19 basis for its ruling, without relying on hypothesis or conjecture.” Id. Civil Local Rule 79-5

20 supplements the compelling reasons standard set forth in Kamakana: the party seeking to file a

21 document or portions of it under seal must “establish[] that the document, or portions thereof, are

22 privileged, protectable as a trade secret or otherwise entitled to protection under the law . . . The

23 request must be narrowly tailored to seek sealing only of sealable material.” Civil L.R. 79-5(b).

24 Records attached to nondispositive motions must meet the lower “good cause” standard of

25 Rule 26(c) of the Federal Rules of Civil Procedure, as such records “are often unrelated, or only

26 tangentially related, to the underlying cause of action.” See Kamakana, 447 F.3d at 1179–80

27 (quotations omitted). This requires a “particularized showing” that “specific prejudice or harm

1 307 F.3d 1206, 1210–11 (9th Cir. 2002); see also Fed. R. Civ. P. 26(c). “Broad allegations of

2 harm, unsubstantiated by specific examples of articulated reasoning” will not suffice. Beckman

3 Indus., Inc. v. Int’l Ins. Co., 966 F.2d 470, 476 (9th Cir. 1992) (quotation omitted).

4 b. Discussion

5 The parties seek to seal portions and documents which pertain to Defendants’ motion for

6 summary judgment and to Plaintiffs’ motion for partial summary judgment and motion to strike.

7 The motions for summary judgment and related filings are dispositive motions so the Court

8 applies the “compelling reasons” standard. The Court applies the lower good cause standard for

9 the motion to strike and related documents.

10 The current requests seek to seal information containing confidential and proprietary

11 information about the BlackRock CTIs, BlackRock’s securities lending business, financial

12 information, and confidential client relationships. The Court previously granted requests seeking

13 to seal materially identical information. See Dkt. Nos. 150, 340. The designating parties

14 submitted supporting declarations establishing that the information contains sensitive and

15 proprietary information. Dkt. Nos. 378-1, 384-1, 384-2, 384-3, 386-1, 411-1, 414-1, 418-1, 418-2,

16 418-3, 418-4, 421-1, 431-1, 431-2, 431-3 433-1. As the Court previously held, the information

17 contains “confidential business and financial information relating to the operations of BlackRock,”

18 constituting a sufficiently compelling reason to seal. See Dkt. No. 340 at 32 (citing Apple Inc. v.

19 Samsung Elecs. Co., Ltd., No. 11-CV-01846-LHK, 2012 WL 6115623 (N.D. Cal. Dec. 10, 2012);

20 Agency Solutions.Com, LLC v. TriZetto Group, Inc., 819 F. Supp. 2d 1001, 1017 (E.D. Cal. 2011);

21 Linex Techs., Inc. v. Hewlett-Packard Co., No. C 13-159 CW, 2014 WL 6901744 (N.D. Cal. Dec.

22 8, 2014)). The Court continues to find this information sealable. The parties are also careful to

23 request to seal only those limited portions of the briefings and supporting materials that contain

24 confidential and proprietary information.

25 Accordingly, the Court GRANTS the parties’ administrative motions to file under seal.

26 VII. CONCLUSION

27 For the foregoing reasons, the Court DENIES Plaintiffs’ Motion for Partial Summary

1 Summary Judgment, Dkt. No. 396. The Court GRANTS the parties’ administrative motions to

2 || seal. Dkt. Nos. 378, 384, 386, 411, 414, 418, 421, 431, 433.

3 IT IS SO ORDERED.

4 || Dated: 1/12/2021

5 7 Maepuread . Md, □□ □

HAYWOOD S. GILLIAM, JR.

6 United States District Judge

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