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Chevron Lawsuit Update

The court has upheld its August 2016 decision to dismiss the case for failure to state a claim. The plaintiffs, at the time of the first decision, were allowed to amend the complaint, which they did a month afterwards. The original lawsuit alleged that Chevron’s decision to offer the Vanguard Prime Money Market Fund instead of a “lower-cost and better-performing stable value fund” did not adhere to the plan’s investment policy statement (IPS). The suit also alleged that, although Chevron migrated to lower-priced share classes in 2012, the lower-cost options were available to the plan for years before the changes were actually implemented. In reconsidering the amended complaint, the judge stated that the latter item was contradicted by other allegations showing that during the class period the defendants transitioned to lower share classes for certain funds, and added and removed funds from the investment menu. Further, the participants could allocate up to 50% of funds invested in their accounts to investments offered through Vanguard Brokerage Services. Regarding the former item concerning the stable value fund, the court found that there were no new facts in support of the previously dismissed allegations.

New allegations were introduced with the amendment, one claiming that, with regard to casting proxy votes on behalf of their shareholders, Vanguard, one of the largest institutional holders of Chevron stock, had consistently voted in favor of Chevron management proposals and against shareholder-originated proposals, thus motivating Chevron to retain Vanguard as the Plan’s recordkeeper without proper due diligence (no-bid) and selecting higher-revenue sharing Vanguard funds to benefit Vanguard in return for Vanguard’s favorable voting with regard to Chevron stock. The judge claimed that there was no factual basis for these claims. Another new allegation is that Chevron was motivated to retain the Artisan Small-Cap Value Fund (ARTVX merged with ARTQX in 2016) through April 2014 despite poor performance so that Vanguard would receive more revenue-sharing for its recordkeeping services. Again, the court found no basis in fact, as plan fiduciaries removed the fund in April 2014, while the fund was outperforming its stated benchmark “on a long-term trailing basis.”

www.napa-net.org; June 5, 2017.