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Zachry ERISA Litigation: Motion to Dismiss Denied

On April 22, 2021, a District Judge in the United States District Court for the Western District of Texas ruled that the motion to dismiss the class action lawsuit against Zachry Holdings, Inc. (“Zachry”), Chief Executive Officer of Zachry, the Compensation and Benefits Committee of Zachry (“Committee”), and Does 1-20 (collectively, “Defendants”) was denied, allowing Plaintiffs’ claims to proceed.

Zachry offers the ZHI 401(k) Retirement Savings Plan (“the Plan”), a defined contribution plan governed by the Employee Retirement Income Security Act of 1974 (“ERISA”). The Plan, with over 16,800 participants and assets totaling $919 million, is in the top 0.2% of all 401(k) plans by size. Participants can direct their contributions into various preselected investment options or allow their account balance to be automatically invested in the Plan’s qualified default investment alternative (“QDIA”).

Plaintiffs, represented by Miller Shah LLP, alleged that Defendants breached their fiduciary duties under ERISA, failed to monitor fiduciaries and co-fiduciaries, and are liable for knowing breach of trust by selecting and maintaining an underperforming and unreasonably expensive fund lineup. Plaintiffs allege that inclusion of the Active Suite of the Fidelity Freedom Funds, which were the Plan’s QDIA, was imprudent because (1) the Freedom Funds are too high-risk and unsuitable for the plan participants; (2) they charge higher fees than comparable funds; and (3) other plan fiduciaries and investors lost faith in the Active Suite. Plaintiffs additionally allege that the record-keeping and administrative costs of the plan were excessive.

On February 11, 2021, Defendants filed a motion to dismiss the case, arguing that (1) Plaintiffs did not plausibly allege Defendants breached their fiduciary duties by offering the Active Suite; (2) Plaintiffs failed to state a claim based on underperformance of Fidelity Mid Cap Stock Fund; (3) Plaintiffs’ challenge to the Plan’s investment management fees did not plausibly allege a fiduciary breach; (4) ERISA does not mandate the offering of collective trusts; (5) Plaintiffs’ share class challenge failed to state a claim; and (6) Plaintiffs did not plausibly allege Plan participants paid unreasonable recordkeeping fees.

The District Judge denied Defendants’ motion to dismiss in its entirety, allowing all of Plaintiffs’ claims to proceed.

Updates will be posted to this blog as the matter progresses. A class has not yet been certified in this action. The case caption for this lawsuit is James R Blackmon, et al. v. Zachry Holdings, Inc., et al., Case No. 5:20-cv-988-DAE, filed in the Western District of Texas.

The legal team at Miller Shah LLP has significant experience representing class action ERISA matters. If you have any questions regarding this subject or this post, please contact Alec Berin (ajberin@millershah.com) or Jonathan Dilger (jadilger@millershah.com). The firm can also be reached toll-free at (866) 540-5505.

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