[Plaintiff Name], individually and on behalf of all others similarly situated, Plaintiff,

vs.

CALIFORNIA STATE TEACHERS’ RETIREMENT SYSTEM BOARD, and DOES 1 through 50, inclusive,

Defendant.

CASE NO.: [To be assigned upon filing] ASSIGNED TO: [To be assigned upon filing]

VERIFIED COMPLAINT FOR DECLARATORY AND MANDATORY INJUNCTIVE RELIEF (Breach of Fiduciary Duty – Cal. Const. Art. XVI, § 17)

COMPLAINT FOR DECLARATORY AND INJUNCTIVE RELIEF

Plaintiff, [Plaintiff Name], by and through their undersigned counsel, alleges as follows:

I. INTRODUCTION

1. This is a class action brought by participants and beneficiaries of the California State Teachers’ Retirement System (CalSTRS or the “Fund”) against the CalSTRS Board, asserting a clear and ongoing breach of fiduciary duty under the “Prudent Expert Rule” established by the California Constitution.
2. In 2022, CalSTRS incurred a catastrophic and total loss of approximately $1.5 billion in total exposure (including illiquid fixed income and private assets) when the Russian Federation froze assets in response to international sanctions. This loss resulted directly from the Board’s failure to adequately govern and mitigate the risk of sovereign asset freezes—a well-known geopolitical risk factor.
3. Despite this clear failure and realized harm (the “Russian Precedent”), the Board has failed to adopt or implement a specific, comprehensive, and constitutionally mandated Geopolitical Sanctions Risk Mitigation Policy.
4. Consequently, the Board continues to expose billions of dollars of the Fund’s assets to an identical, unmitigated risk in other volatile jurisdictions. Most critically, CalSTRS holds significant exposure to the United Arab Emirates (UAE), including through state-affiliated debt (ADGOVT) and co-investments with sovereign entities like Mubadala Investment Company.
5. The UAE is widely documented as a critical global hub for Russian sanctions evasion, conflict financing (Sudan), and illicit gold trade. Its ongoing designation as a “Jurisdiction under Increased Monitoring” by the Financial Action Task Force (FATF “Grey List”) places it under intense scrutiny from U.S. and European regulators. This exposure is not merely a political or social risk; it is an imminent, pecuniary risk of a total sovereign asset freeze, identical to the realized $1.5 billion Russian loss.
6. Plaintiffs seek declaratory judgment that the Board has breached its fiduciary duty and a mandatory injunction compelling the Board to adopt and apply the risk mitigation policy that a “Prudent Expert” would have instituted immediately following the Russian Precedent.

II. THE PARTIES AND JURISDICTION

1. Plaintiff [Name] is a vested member of CalSTRS and brings this action on behalf of all participants and beneficiaries.
2. Defendant is the California State Teachers’ Retirement System Board, charged with the sole and exclusive fiduciary responsibility for the investment of the Fund’s assets pursuant to the California Constitution.
3. This Court has jurisdiction over this matter pursuant to California Code of Civil Procedure § 526, as it involves a request for declaratory and mandatory injunctive relief to compel the Board to fulfill a constitutional and statutory mandate.

III. LEGAL STANDARD: THE PRUDENT EXPERT RULE

1. The authority and duties of the CalSTRS Board are governed by the California Constitution, Article XVI, Section 17, which sets the highest standard for public pension fiduciaries.
2. Section 17(c) states that the members of the retirement board “shall discharge their duties with respect to the system with the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent person acting in a like capacity and familiar with these matters would use in the conduct of an enterprise of a like character and with like aims.” (Emphasis added). This is known as the Prudent Expert Rule.
3. Section 17(d) further requires the Board to “diversify the investments of the system so as to minimize the risk of loss” unless clearly not prudent to do so.
4. The duty to act with the care of a “Prudent Expert” requires the Board to evolve its governance structure to mitigate known, specific, and high-impact risks that have already materialized.

IV. STATEMENT OF FACTS

A. The Russian Precedent: A Realized and Unmitigated Risk

1. Prior to February 2022, CalSTRS held approximately $1.5 billion in Russian assets, largely in sovereign debt and state-affiliated equity.
2. This geopolitical risk—the possibility of an asset freeze in retaliation for international sanctions—was foreseeable and recognized by expert financial bodies.
3. The Board failed to implement a specific policy or execute timely liquidation to mitigate this risk.
4. Following the invasion of Ukraine and resulting sanctions, the Russian assets were rendered immediately worthless, resulting in a $1.5 billion loss of principal (representing the Fund’s total exposure to all Russian assets).
5. This loss was not due to poor market performance, but due to a complete failure of geopolitical risk governance by the Board.

B. The Ongoing and Unmitigated UAE Risk Exposure

1. Despite the Russian Precedent, the Board has failed to adopt any formalized, specific policy to identify or liquidate high-risk sovereign assets involved in sanctions evasion or conflict financing.
2. CalSTRS continues to hold significant exposure in the United Arab Emirates (UAE), a jurisdiction that has been publicly identified by U.S. and European government officials as a key evasion hub for Russia, facilitating the movement of illicit wealth and sanctioned goods.
3. This exposure includes significant co-investments with Mubadala Investment Company, an Abu Dhabi sovereign fund, which creates a direct nexus to a foreign government that is currently engaged in activities that expose it to potential secondary sanctions.
4. CalSTRS also holds Abu Dhabi Government (ADGOVT) debt, which is the asset class most vulnerable to a sovereign asset freeze, replicating the exact structure of the failed Russian sovereign debt.
5. The risk is the same: the UAE’s geopolitical conduct exposes it to potential, catastrophic U.S. or international sanctions, which would result in a total and unmitigated loss of principal, identical to the Russian Precedent.

V. CAUSE OF ACTION: BREACH OF FIDUCIARY DUTY

A. Failure of Governance (Duty of Care)

1. The failure to adopt a specific Geopolitical Sanctions Risk Mitigation Policy after the Russian Precedent constitutes a clear breach of the duty of care and diligence.
2. A “Prudent Expert” who has just lost $1.5 billion to an unmitigated risk would immediately implement a policy to prevent the recurrence of that exact loss. The Board’s failure to do so is, by definition, an act of imprudence and negligence.
3. The Board’s reliance on existing general risk or ESG policies is insufficient and therefore constitutes a breach. Existing policies address market volatility or general sustainability, not the specific, total-loss risk of a government-imposed asset freeze.

B. Failure to Minimize Risk (Constitutional Mandate)

1. The Board’s duty under Article XVI, Section 17(d) is to diversify and minimize the risk of loss.
2. By maintaining significant exposure in the UAE, a high-risk jurisdiction with demonstrable ties to sanctions evasion, the Board is accepting a known, catastrophic, and unmitigated risk that it has a constitutional mandate to minimize.
3. This failure is a systemic breach of governance that puts the retirement security of all beneficiaries at immediate and ongoing risk.

C. Anticipated Rebuttals and Counter-Rebuttal

1. Anticipated Rebuttal 1 (Business Judgment Rule): CalSTRS will argue that the court cannot substitute its judgment for that of the Board and that the decision not to divest falls under the protection of the Business Judgment Rule (BJR).
2. Counter-Rebuttal: Plaintiffs are not asking the Court to manage the portfolio; they are asking the Court to mandate the governance process required by the Prudent Expert Rule. The BJR protects sound decision-making, not a process of indifference or a failure to inform oneself following a material loss. The failure to adopt a preventative policy after a realized catastrophe ($1.5B loss) is a fundamental failure of the informed process required of a Prudent Expert, thereby voiding BJR protection.
3. Anticipated Rebuttal 2 (No Realized Harm): CalSTRS will argue that since the UAE is not currently sanctioned, the claim of loss is speculative and therefore premature.
4. Counter-Rebuttal: The breach is the failure of governance that exists right now. The breach occurred the moment the Board failed to establish the mandated policy following the Russian Precedent. The harm is the present and ongoing exposure to an unmitigated, known, and catastrophic risk, which breaches the duty to minimize the risk of loss. The Board’s ongoing imprudence is the actionable breach.

VI. CLASS ACTION ALLEGATIONS

1. Plaintiffs bring this action pursuant to California Code of Civil Procedure § 382 on behalf of all current participants and beneficiaries of the CalSTRS retirement system.
2. The class is so numerous that joinder of all members is impracticable.
3. There are questions of law and fact common to the class, including whether the Board breached its fiduciary duty by failing to adopt a risk mitigation policy following the Russian Precedent.
4. The claims of the representative plaintiffs are typical of the claims of the class.
5. The representative plaintiffs will fairly and adequately protect the interests of the class.

VII. PRAYERS FOR RELIEF

Plaintiffs, on behalf of themselves and the Class, respectfully pray for judgment against Defendant, California State Teachers’ Retirement System (CalSTRS), as follows:

1. For Declaratory Judgment. A declaration that the CalSTRS Board, by failing to adopt and implement a specific policy to mitigate the known, catastrophic risks of sovereign asset freezes following the $1.5 billion loss in Russia, has breached its fiduciary duties of care, skill, prudence, and diligence, as required by the Constitutional Prudent Expert Rule (California Constitution, Article XVI, Section 17(c)).
2. For Mandatory Injunction (Policy Creation). A mandatory injunction compelling the CalSTRS Board to immediately create, formally adopt, and implement a Geopolitical Sanctions Risk Mitigation Policy which, at minimum, must:
   
   • Explicitly define high-risk sovereign asset-freeze events as a direct pecuniary risk to the Fund.
   • Mandate the use of independent, third-party geopolitical risk metrics and watch list designations (such as FATF) for determining sanctions exposure.
   • Establish clear, quantifiable risk thresholds for investment exposure in jurisdictions flagged for high sanctions risk.
   • Contain a mandatory liquidation mandate requiring staff to immediately initiate the sale or transfer of assets in any jurisdiction that violates the established risk thresholds, consistent with the Board’s fiduciary duty to minimize risk of loss.

1. For Mandatory Injunction (Implementation). A mandatory injunction compelling the CalSTRS Board and its Investment Staff to immediately apply the newly adopted Geopolitical Sanctions Risk Mitigation Policy to the Fund’s current exposure in the United Arab Emirates (UAE) and similar high-risk, non-OECD jurisdictions to determine if a mandatory liquidation event is triggered.
2. For Ongoing Jurisdiction. An order retaining jurisdiction over this matter to ensure the Board’s policy is properly implemented, enforced, and monitored, and to address any future failures in compliance.
3. For Attorneys’ Fees and Costs. An award of reasonable attorneys’ fees, costs, and litigation expenses.
4. For Further Relief. For such other and further relief as the Court deems just and equitable.

Respectfully Submitted,

Dated: [Current Date]

[FIRM NAME]

By: _______________________________ [ATTORNEY NAME] [STATE BAR NO.] 

Attorneys for Plaintiff