Paul Saumer, et al v. Cliffs Natural Resources Inc., et al

Filing

OPINION and JUDGMENT filed : AFFIRMED. Decision for publication. Gilbert S. Merritt, Deborah L. Cook (AUTHORING), and David W. McKeague, Circuit Judges.

Case: 16-3449

Document: 42-2

Filed: 04/07/2017

Page: 1

RECOMMENDED FOR FULL-TEXT PUBLICATION
Pursuant to Sixth Circuit I.O.P. 32.1(b)
File Name: 17a0080p.06

UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT

PAUL SAUMER; WALTER A. SKALSKY, individually and
on behalf of all others similarly situated,
Plaintiffs-Appellants,
v.
CLIFFS NATURAL RESOURCES INC., et al.,
Defendants-Appellees.

┐
│
│

>

No. 16-3449

│
│
│
│
│
│
┘

Appeal from the United States District Court
for the Northern District of Ohio at Cleveland.
No. 1:15-cv-00954—Dan A. Polster, District Judge.
Decided and Filed: April 7, 2017
Before: MERRITT, COOK, and McKEAGUE, Circuit Judges.
_________________
COUNSEL
ON BRIEF: Edward W. Ciolko, Mark K. Gyandoh, Julie Siebert-Johnson, KESSLER TOPAZ
MELTZER & CHECK, LLP, Radnor, Pennsylvania, for Appellants. John M. Newman,
Geoffrey J. Ritts, Adrienne Ferraro Mueller, Emmett E. Robinson, JONES DAY, Cleveland,
Ohio, for Appellees.
_________________
OPINION
_________________
COOK, Circuit Judge. The Employee Retirement Income Security Act (“ERISA”)
regulates employer-administered retirement plans. To safeguard employees’ retirement assets,
ERISA requires plan fiduciaries to, among other things, manage plan assets prudently and
diversify investments “so as to minimize the risk of large losses.” 29 U.S.C. § 1104(a)(1). For

Case: 16-3449
No. 16-3449

Document: 42-2

Filed: 04/07/2017

Page: 2

Saumer, et al. v. Cliffs Natural Resources, et al.

Page 2

the past forty years, however, ERISA has also encouraged employee ownership of employer
stock. To promote this goal, ERISA permits companies to offer an Employee Stock Ownership
Plan (“ESOP”)—a retirement option designed to invest primarily in employer stock.
§ 1107(d)(6)(A).

Id.

Because ESOPs are, by definition, not prudently diversified, Congress

fashioned an exemption to these core fiduciary duties: “the diversification requirement . . . and
the prudence requirement (only to the extent that it requires diversification) of [§ 1104(a)(1) are]
not violated by acquisition or holding of [employer stock].” Id. § 1104(a)(2).
This case requires us to reconcile ERISA’s requirement that a fiduciary act prudently
with its blessing of undiversified ESOPs.
I.
Cliffs Natural Resources (“Cliffs”) is a publicly traded iron-ore and coal-mining
company. Cliffs’s business depends on the price of iron ore, which in turn depends on Chinese
economic growth. In 2011, Chinese construction projects drove iron-ore prices to all-time highs.
Betting on continued high prices, Cliffs financed the purchase of a mine located in Northern
Quebec (“Bloom Lake Mine”). Projecting that the mine would increase cash-flow, Cliffs upped
its stock dividend to double the S&P 500 average.
In 2012, a global demand slump halved the price of iron ore, cutting deeply into Cliffs’s
revenue. The Bloom Lake Mine quickly turned from the company’s lifeblood to, in the words of
Cliffs’s CEO, “the cancer that we have to take out.” The mine’s costs exceeded predictions,
often by significant margins. And the company’s decreased revenue and high costs exacerbated
its financial weakness. The market responded: in 2013, Cliffs stock performed worse than any
other company in the S&P 500. All told, Cliffs lost 95% of its value between 2011 and 2015
(compared to a roughly 50% gain for the broader market during the same period).
Plaintiffs are Cliffs employees who participated in the company’s defined-contribution
plan, commonly known as a 401(k). The plan allowed participants to invest in twenty-eight
mutual funds, including an array of target-date, stock, and bond funds. The plan also offered an
ESOP that invested solely in Cliffs stock. Employees enjoyed discretion about whether to invest

Case: 16-3449
No. 16-3449

Document: 42-2

Filed: 04/07/2017

Page: 3

Saumer, et al. v. Cliffs Natural Resources, et al.

Page 3

their income and matching contributions in the ESOP. If the employee failed to choose an
investment option, the fiduciary directed contributions into a money-market fund.
After Cliffs stock cratered, plaintiffs filed a class action claiming that the plan’s
fiduciaries—investment-committee members and corporate officers—imprudently retained Cliffs
stock as an investment option. In particular, plaintiffs allege that it was imprudent to continue
investing in Cliffs stock because 1) the company’s “risk profile and business prospects
dramatically changed from when the investment was introduced . . . due to . . . the collapse of
iron ore and coal prices” and Cliffs’s deteriorating financial condition, and 2) the fiduciaries
possessed inside information showing that the stock was overvalued.
The defendants filed a motion to dismiss, which the district court granted. For the
following reasons, we AFFIRM.
II.
We review de novo the district court’s dismissal of a complaint for failure to state a
claim.

Bennett v. MIS Corp., 607 F.3d 1076, 1091 (6th Cir. 2010) (citations omitted).

We “accept all well-pleaded factual allegations as true and construe the complaint in the light
most favorable to plaintiffs.”

Id. (citation omitted).

To survive a motion to dismiss, the

complaint must include sufficient factual allegations to state a plausible claim to relief. Ashcroft
v. Iqbal, 556 U.S. 662, 678 (2009).
III.
Courts have struggled to define a fiduciary’s duties when administering an ESOP.
To understand why, one must grasp the “efficient market hypothesis” and the importance of
diversification to prudent portfolio construction.
The efficient market hypothesis posits that “a stock price on an efficient market reflects
all publicly available information.” Coburn v. Evercore Trust Co., 844 F.3d 965, 969 (D.C. Cir.
2016). According to the theory, “a security price in an efficient market ‘represents the market’s
most accurate estimate of the value of a particular security based on its’” risk profile and
expected future earnings. Id. (quoting Yesha Yadav, How Algorithmic Trading Undermines

Case: 16-3449
No. 16-3449

Document: 42-2

Filed: 04/07/2017

Page: 4

Saumer, et al. v. Cliffs Natural Resources, et al.

Page 4

Efficiency in Capital Markets, 68 Vand. L. Rev. 1607, 1633 (2015)). Fiduciaries may therefore
rely on a “security’s market price as an unbiased assessment of the security’s value in light of all
public information.”

Fifth Third Bancorp v. Dudenhoeffer, 134 S. Ct. 2459, 2471 (2014)

(quoting Halliburton Co. v. Erica P. John Fund, Inc., 134 S. Ct. 2398, 2411 (2014)).
Because new information and changing circumstances can alter the market’s assessment
of a company’s value—and cause extreme fluctuations in a security’s price—ERISA requires
fiduciaries to diversify their investments. See 29 U.S.C. § 1104(a)(1). By purchasing multiple
securities, fiduciaries can mitigate company- and industry-specific risks. See Summers v. State
St. Bank & Trust Co., 453 F.3d 404, 409 (7th Cir. 2006). Furthermore, by investing in multiple
asset classes (real estate, domestic stocks, foreign stocks, bonds) that respond differently to
market-wide economic events—such as recessions, wars, or elections—a fiduciary can craft a
portfolio with an acceptable expected rate of return and limited volatility. See Restatement
(Third) of Trusts § 90 cmt. g (Am. Law Inst. 2007).
An investor’s decision to eschew diversification and instead invest in only a single stock
can be calamitous. Many blue-chip companies—Eastman Kodak, Lehman Brothers, General
Motors, Enron, Delta Airlines, to name a few—have declared bankruptcy, resulting in staggering
losses to shareholders. Many other well-known companies have suffered losses in excess of
80%, far worse than the losses that the overall market suffered during the Great Recession.
(American Express, Amazon, Starbucks, Texas Instruments, Intel, Time Warner, Celgene,
Cooper Tire, International Paper, JC Penney, General Electric, among many others, have
suffered such losses since the turn of the century.) Among smaller companies, huge losses are
even more common. For retirees regularly withdrawing money from their investments, such
downturns—even if the stock’s price eventually recovers—are financially devastating.
Because ESOPs invest primarily in a single stock, they expose participants to the risks
inherent in an undiversified portfolio. And by investing primarily in their employer, participants
take on even greater risk because their other sources of security—their income, health insurance,
and if the company is a large regional employer, their home value—are intertwined with the
employer’s health.

Case: 16-3449
No. 16-3449

Document: 42-2

Filed: 04/07/2017

Page: 5

Saumer, et al. v. Cliffs Natural Resources, et al.

Page 5

Congress’s imposition of strict prudential standards is therefore in tension with its
blessing of undiversified ESOPs. On the one hand, the “central feature” of prudence is the
reduction of risk through diversification, Restatement (Third) of Trusts § 90 cmt. g; on the other
hand, investing primarily in one’s employer exposes retirees to excessive company-specific risk.
IV.
Plaintiffs first contend that publicly available information revealed Cliffs’s declining
revenues, high operating costs, and unmanageable debt.

Thus, plaintiffs argue that the

fiduciary’s decision to invest in “Cliffs stock was imprudent . . . because its risk profile and
business prospects dramatically” deteriorated during the class period. According to plaintiffs,
even if the market accurately priced Cliffs stock, the company’s “risk profile exceeded the
reasonable bounds for a retirement option within a plan meant for retirement savings.”
The Moench Presumption. In evaluating these types of claims, several courts, including
the Sixth Circuit, reconciled ERISA’s prudence requirement with its approval of ESOPs by
applying a now-defunct presumption: “an ESOP fiduciary who invests the [retirement] assets in
employer stock is entitled to a presumption that it acted consistently with ERISA by virtue of
that decision,” Moench v. Robertson, 62 F.3d 553, 571 (3d Cir. 1995), abrogated by
Dudenhoeffer, 134 S. Ct. at 2467, unless the “company faced ‘impending collapse’ or ‘dire
circumstances’ that could not have been foreseen by the founder of the plan,” White v. Marshall
& Ilsley Corp., 714 F.3d 980, 989 (7th Cir. 2013) (collecting cases), abrogated by Dudenhoeffer,
134 S. Ct. at 2467.

When circumstances present “unusually severe financial risks to

participants,” the fiduciary must ignore the ESOP-plan instructions and diversify the plan’s
holdings. Id. at 990 (citing Steinman v. Hicks, 352 F.3d 1101, 1106 (7th Cir. 2003)); see also
Kuper v. Iovenko, 66 F.3d 1447, 1459 (6th Cir. 1995) (adopting the Moench presumption),
abrogated by Dudenhoeffer, 134 S. Ct. at 2467.
The Moench Presumption’s Shortcomings. The Moench presumption failed to solve
ERISA’s inherent contradiction—after all, a portfolio consisting of a single stock is always
excessively risky, even if the company isn’t facing impending collapse. The presumption also
proved unworkable because neither courts nor fiduciaries knew how far a company’s financial

Case: 16-3449
No. 16-3449

Document: 42-2

Filed: 04/07/2017

Page: 6

Saumer, et al. v. Cliffs Natural Resources, et al.

Page 6

position needed to deteriorate before the fiduciary must diversify ESOP assets. As Judge Posner
put it, “determining the ‘right’ point, or even range of ‘right’ points, for an ESOP fiduciary to
break the plan and start diversifying may be beyond the practical capacity of the courts to
determine.” Summers, 453 F.3d at 411.
Even if a fiduciary divests a distressed company’s stock, such action may not help plan
participants. By the time the fiduciary perceives the danger, it’s likely too late: the market has
already digested any new negative information and tanked the stock’s price, and the fiduciary
would simply be selling low. Furthermore, a fiduciary’s decision to eliminate company stock “is
a clarion call to the investment world that the [fiduciary] lacked confidence in the value of its
stock, and could have a catastrophic effect on [the] stock price,” severely harming plan members.
In re Comput. Scis. Corp. ERISA Litig., 635 F. Supp. 2d 1128, 1136 (C.D. Cal. 2009).
Finally, fiduciaries deciding whether to maintain company stock as an investment option
face a dilemma: if they continue investing in the employer and the stock goes down, plan
participants might sue them for acting imprudently, in violation of § 1104(a)(1)(B); if they sell
the company stock and the company recovers, plan participants might sue them for disobeying
plan documents, in violation of § 1104(a)(1)(D). See Kirschbaum v. Reliant Energy, Inc.,
526 F.3d 243, 256 (5th Cir. 2008).
Dudenhoeffer. Against this backdrop, the Supreme Court decided Fifth Third Bancorp v.
Dudenhoeffer, a stock-drop case similar to the case here. The plaintiffs, Fifth-Third Bank
employees, invested heavily in the company’s stock through an ESOP. Dudenhoeffer, 134 S. Ct.
at 2464. During the 2008-09 financial collapse, Fifth Third Bank’s stock plummeted, losing most
of its value. Id. Plaintiffs sued, claiming that the Bank’s risk profile—its balance sheet included
substantial subprime mortgages—made the company an imprudent investment. Id.
Relying on ERISA’s plain language, the Court scrapped the presumption of prudence,
explaining that “ESOP fiduciaries are subject to the duty of prudence that applies to ERISA
fiduciaries in general, except that they need not diversify the fund’s assets.” Id. at 2463. The
Court also held, however, that “where a stock is publicly traded, allegations that a fiduciary
should have recognized from publicly available information alone that the market was over- or

Case: 16-3449
No. 16-3449

Document: 42-2

Filed: 04/07/2017

Saumer, et al. v. Cliffs Natural Resources, et al.

Page: 7
Page 7

undervaluing the stock are implausible as a general rule, at least in the absence of special
circumstances.” Id. at 2471. Thus, ERISA fiduciaries may “prudently rely on the market price”
when determining whether to offer company stock. Id.
Post-Dudenhoeffer Cases. Although the Court discarded the presumption of prudence,
“Dudenhoeffer appears to have raised the bar for plaintiffs seeking to bring a claim based on a
breach of the duty of prudence.” In re Lehman Bros. Sec. & ERISA Litig., 113 F. Supp. 3d 745,
755 (S.D.N.Y. 2015).

Because a fiduciary may prudently rely on a stock’s market price,

Dudenhoeffer “effectively immunizes fiduciaries from imprudence claims relating to publicly
traded securities in the absence of special circumstances.” Pfeil v. State St. Bank & Trust Co.,
806 F.3d 377, 388 (6th Cir. 2015) (White, J., dissenting).
To illustrate, in Pfeil, the plaintiffs argued that ESOP fiduciaries imprudently offered
General Motors stock as a retirement option even though “overwhelming evidence in the public
domain rais[ed] serious question[s] concerning GM’s short-term viability.” Id. at 383. We held
that the plaintiffs’ risk-based claim failed, reasoning “that the ‘excessively risky’ character of
investing ESOP funds in stock of a company experiencing serious threats to its business in 2008
‘is accounted for in the market price, and the Supreme Court held that fiduciaries may rely on the
market price, absent any special circumstances affecting the reliability of the market price.’” Id.
at 386 (quoting In re Citigroup, 104 F. Supp. 3d 599, 615 (S.D.N.Y. 2015)). Although we
acknowledged that ESOPs expose retirees to great risk, such “evils . . . are endemic to the ESOP
form established by Congress. A benefit of employees investing in their employer is that when
the employer does well, the employees do well. A risk is that when the employer goes bankrupt,
the employees do poorly.” Id. at 387.
Similarly, in Rinehart v. Lehman Bros. Holdings Inc., 817 F.3d 56 (2d Cir. 2016),
plaintiffs alleged that the fiduciary imprudently invested ESOP assets solely in Lehman Brothers.
The plaintiffs argued that even if the market accurately priced the stock, the company was
nonetheless excessively risky. Id. at 64–65. The court held that the fiduciary’s reliance on
Lehman’s market price shielded it from “all allegations of imprudence based upon public
information.” Id. at 66. “[R]egardless of whether the allegations are framed in terms of market
value or excessive risk,” the fiduciary could assume that the market price accurately reflected the

Case: 16-3449
No. 16-3449

Document: 42-2

Filed: 04/07/2017

Page: 8

Saumer, et al. v. Cliffs Natural Resources, et al.

Page 8

security’s value. Id.; see also Coburn, 844 F.3d at 971 (dismissing employees’ claim that JC
Penney’s stock was excessively risky to be a sole holding, and explaining that any “risk is
accounted for in the market price of a security” (quoting Rinehart, 817 F.3d at 66)).
Application. Applying Dudenhoeffer, we reject plaintiffs’ argument that Cliffs’s risk
profile “exceeded the reasonable bounds for a retirement option.” Dudenhoeffer plainly holds
that a fiduciary may rely on market price as an unbiased assessment of a security’s value.
Plaintiffs attempt to sidestep Dudenhoeffer, arguing that although the Court foreclosed claims
alleging that a fiduciary failed to perceive a company’s overvaluation, the Court didn’t foreclose
“classic ERISA . . . imprudence action[s].”
Plaintiffs’ argument misses the mark. The plaintiffs in Dudenhoeffer similarly argued
that the fiduciary should have known that the company’s stock was “overvalued and excessively
risky.” 134 S. Ct. at 2464 (emphasis added). The Court’s market-price-reliance rule dispatched
both the value- and risk-based claims. Id. at 2471–72. Furthermore, Pfeil, Rinehart, and Coburn
all hold that Dudenhoeffer “foreclose[d] breach of prudence claims based on public information
irrespective of whether such claims are characterized as based on alleged overvaluation or
alleged riskiness of a stock.” Coburn, 844 F.3d at 971 (alteration in original) (quoting Rinehart,
817 F.3d at 66); Pfeil, 806 F.3d at 386.
In addition, every company carries significant risk that unpredictable developments—
such as the collapse of iron-ore prices—will devastate its prospects (and stock price). Although
fiduciaries normally mitigate company- and industry-specific risks by diversifying plan assets,
see Restatement (Third) of Trusts § 90(b), Congress explicitly approved concentrating assets in
employer stock, see 29 U.S.C. § 1107(d)(6)(A). That changing conditions might undercut a
company’s stock price and eviscerate employees’ retirement funds is simply “endemic to the
ESOP form established by Congress.” Pfeil, 806 F.3d at 387.
V.
As explained, Dudenhoeffer held that, absent “special circumstances,” a fiduciary “is not
imprudent to assume that a major stock market provides the best estimate of the value of the
stocks traded on it.” 134 S. Ct. at 2471 (internal alteration omitted) (quoting Summers, 453 F.3d

Case: 16-3449
No. 16-3449

Document: 42-2

Filed: 04/07/2017

Page: 9

Saumer, et al. v. Cliffs Natural Resources, et al.

Page 9

at 408). Plaintiffs allege that the fiduciaries’ failure “to engage in a reasoned decision-making
process regarding the prudence of Cliffs Stock” constituted a “special circumstance” rendering
reliance on the market price imprudent.

The district court rejected plaintiffs’ argument,

reasoning that the only way to plead “special circumstances” was to show Cliffs traded on an
inefficient market.
In Pfeil, we left open whether a fiduciary’s failure to investigate the merits of investing in
a publicly traded company counts as a “special circumstance.” 806 F.3d at 386. We now
conclude that even if the special-circumstances exception encompasses more than market
inefficiency, it doesn’t include a fiduciary’s failure to independently verify the accuracy of the
market’s pricing.
Dudenhoeffer dictates our conclusion. The Court stated that fiduciaries may prudently
“assume” that stock markets provide the best estimate of a security’s value. Dudenhoeffer,
134 S. Ct. at 2471 (quoting Summers, 453 F.3d at 408). Accepting that the Court meant what it
said, an ESOP fiduciary may take for granted that the security’s market price reflects the
company’s value.
Furthermore, Dudenhoeffer reasoned that an investor’s inquiry into a publicly traded
company is unlikely to reveal the company’s “true” value, much less the future course of its
stock price. As the Court explained, “[m]any investors take the view that ‘they have little hope
of outperforming the market in the long run based solely on their analysis of publicly available
information,’ and accordingly they ‘rely on the security’s market price as an unbiased assessment
of the security’s value in light of all public information.’” Dudenhoeffer, 134 S. Ct. at 2471
(quoting Halliburton Co., 134 S. Ct. at 2411). And because ERISA fiduciaries “likewise could
reasonably see ‘little hope of outperforming the market . . . based solely on their analysis of
publicly available information,’ [they] may, as a general matter, likewise prudently rely on the
market price.”

Id. (alteration in original) (quoting Halliburton, 134 S. Ct. at 2411).

Dudenhoeffer’s reasoning thus supports the conclusion that a fiduciary’s failure to investigate the
accuracy of a publicly traded employer’s stock price is not a “special circumstance.”

Case: 16-3449
No. 16-3449

Document: 42-2

Filed: 04/07/2017

Saumer, et al. v. Cliffs Natural Resources, et al.

Page: 10
Page 10

In any event, although a fiduciary generally must investigate an investment’s merits, “a
fiduciary’s failure to investigate an investment decision alone is not sufficient to show that the
decision was not reasonable.” Kuper, 66 F.3d at 1459. Rather, “to show that an investment
decision breached a fiduciary’s duty to act reasonably in an effort to hold the fiduciary liable for
a loss attributable to this investment decision, a plaintiff must show a causal link between the
failure to investigate and the harm suffered by the plan.” Id. (alterations omitted). Here,
plaintiffs have not pled what, if anything, the fiduciaries might’ve gleaned from publicly
available information that would undermine reliance on the market price.
VI.
Plaintiffs alternatively allege that the fiduciaries knew the Bloom Lake Mine would not
deliver the promised profits. By withholding that information from the market, plaintiffs argue,
the fiduciaries artificially inflated Cliffs’s stock price. The complaint alleges that the fiduciaries
should have used their inside information to prevent ESOP losses by 1) divulging inside
information about the mine so that the market would correct downward and the fiduciary would
cease buying Cliffs stock at an inflated price, 2) directing that new “contributions to the
Company Stock fund be held in cash,” or 3) “clos[ing] the Company Stock itself to further
contributions and direct[ing] that contributions be diverted from Company Stock into other
(prudent) investment options.”
Supreme Court Precedent. In Dudenhoeffer, the Court explained that “[t]o state a claim
for breach of the duty of prudence on the basis of inside information,” a plaintiff must put forth
“an alternative action . . . that a prudent fiduciary in the same circumstances would not have
viewed as more likely to harm the fund than to help it.” 134 S. Ct. at 2472. And when the
plaintiff alleges that the fiduciary should have closed the fund or divulged insider information,
the court must
consider whether the complaint has plausibly alleged that a prudent fiduciary in
the defendant’s position could not have concluded that stopping purchases—
which the market might take as a sign that insider fiduciaries viewed the
employer’s stock as a bad investment—or publicly disclosing negative
information would do more harm than good to the fund by causing a drop in the

Case: 16-3449
No. 16-3449

Document: 42-2

Filed: 04/07/2017

Saumer, et al. v. Cliffs Natural Resources, et al.

Page: 11
Page 11

stock price and a concomitant drop in the value of the stock already held by the
fund.
Id. at 2473.
In Amgen, Inc. v. Harris, 136 S. Ct. 758 (2016) (per curiam), plaintiffs “allege[d] that
Amgen, a large pharmaceutical company, concealed the negative results of a clinical trial for an
anemia drug and also marketed a risky off-label use for that drug.” Harris v. Amgen, Inc.,
788 F.3d 916, 924 (9th Cir. 2014) (Kozinski, J., dissenting from denial of reh’g en banc), rev’d
by Amgen, 236 S. Ct. at 760.1 After the company disclosed the trial results, Amgen’s stock
plummeted. Employees who invested in Amgen’s ESOP sued the fiduciaries, claiming that they
“should have either removed the Amgen stock as an investment option or revealed to the general
public the test results and the alleged riskiness of the off-label use.” Id. The Ninth Circuit
agreed, reasoning that the complaint plausibly alleged that the fiduciaries should have disclosed
nonpublic information or removed the fund as an investment option. Id. at 935–39 (majority
opinion). The Supreme Court issued a per curiam reversal, reasoning that the complaint failed to
allege facts showing that the proposed “alternative action[s] . . . could plausibly have satisfied
[Dudenhoeffer’s] standards.” Amgen, 136 S. Ct. at 760. Neither Amgen nor Dudenhoeffer
articulate what factors lower courts should evaluate when determining if a complaint satisfies
this standard.
Appellate Court Precedent.

Few appellate courts have applied Dudenhoeffer’s

alternative-action pleading requirement. In Rinehart, the Second Circuit held that a “prudent
fiduciary could have concluded that divesting Lehman stock, or simply holding it without
purchasing more, ‘would do more harm than good.’” 817 F.3d at 68 (quoting Amgen, 136 S. Ct.
at 760). The court reasoned, without further analysis, that “[s]uch an alternative action in the
summer of 2008 could have had dire consequences.” Id.
Similarly, in Whitley v. BP, P.L.C., 838 F.3d 523 (5th Cir. 2016), the plaintiffs alleged
that the fiduciaries, BP corporate officers, knew BP stock was “overpriced because BP had a
greater risk exposure to potential accidents than was known to the market.” Id. at 529. When
the Deepwater Horizon explosion revealed BP’s safety defects and cratered the company’s stock,
1

We cite to the lower court opinion because the Supreme Court’s per curiam order omits background facts.

Case: 16-3449
No. 16-3449

Document: 42-2

Filed: 04/07/2017

Page: 12

Saumer, et al. v. Cliffs Natural Resources, et al.

Page 12

ESOP participants sued. In dismissing the complaint, the court explained that “the plaintiff bears
the significant burden of proposing an alternative course of action so clearly beneficial that a
prudent fiduciary could not conclude that it would be more likely to harm the fund than to help
it.” Id. Because the proposed alternative actions—disclosure of the safety defects and freezing
BP stock purchases—“would likely lower the stock price . . . it seems that a prudent fiduciary
could very easily conclude that such actions would do more harm than good.” Id.
Our Application. We reject plaintiffs’ nonpublic-information claim. Plaintiffs offer the
same alternative actions—disclosing inside information and stopping additional ESOP
contributions—that Amgen, Whitley, and Rinehart reject.

Here, too, the complaint fails to

plausibly allege that a “prudent fiduciary . . . could not have concluded that stopping
purchases . . . or publicly disclosing negative information would do more harm than good.”
Dudenhoeffer, 134 S. Ct. at 2473. Cliffs’s fiduciaries could have concluded that divulging inside
information about the Bloom Lake Mine would have collapsed Cliffs’s stock price, hurting
participants already invested in the ESOP. And closing the fund without explanation might be
even worse: “It signals that something may be deeply wrong inside a company but doesn’t
provide the market with information to gauge the stock’s true value.” Amgen, 788 F.3d at 925–26
(Kozinski, J., dissenting from denial of reh’g en banc).
Plaintiffs say not so fast: Amgen noted that removing a fund as an investment option
might satisfy the Dudenhoeffer standard, so long as the complaint includes sufficient supporting
facts. Amgen’s analysis, however, neglects to offer any guidance about what facts a plaintiff
must plead to state a plausible claim for relief. And our sister circuits have tersely rejected
similar claims. See Whitley, 838 F.3d at 529; Rinehart, 817 F.3d at 68. Accepting that there
might be “exceptional circumstances where such extreme action is compelled by ERISA,”
Amgen, 788 F.3d at 926 (Kozinski, J., dissenting from denial of reh’g en banc), we nonetheless
find plaintiffs’ complaint inadequate here.
Plaintiffs point to two allegations in the complaint supporting their argument that “no
fiduciary in the same position as the Defendants could conclude that freezing or liquidating
Company Stock would do more harm than good.”

Case: 16-3449
No. 16-3449

Document: 42-2

Filed: 04/07/2017

Saumer, et al. v. Cliffs Natural Resources, et al.

Page: 13
Page 13



“Rather than do nothing (as they did), Defendants could have taken numerous
steps to fulfill their fiduciary duties to the Plan under ERISA. As set forth
more fully below, none of these steps (a) would have violated securities laws
or any other laws, or (b) would [] have been more likely to harm the Company
Stock Fund than to help it.”



“Given the relatively small number of Cliffs shares that might not have been
purchased by the Cliffs stock fund in comparison to the enormous volume of
actively traded shares, it is extremely unlikely that this decrease in the number
of shares that would have been purchased, considered alone, would have had
an appreciable impact on the Cliffs share price.”

Neither allegation suffices. The first is a conclusion that we need not assume to be true.
See Iqbal, 556 U.S. at 679. The second is non-responsive to the Court’s twin concerns: that
ceasing purchases might indicate to the market “that insider fiduciaries viewed the employer’s
stock as a bad investment,” and that divulging negative information might cause the stock to
drop, hurting plan participants. Dudenhoeffer, 134 S. Ct. at 2473.
Accordingly, we reject plaintiffs’ nonpublic-information claims.2
VII.
Plaintiffs also argue that 1) the fiduciaries breached their duty of loyalty to plan members
and that 2) corporate officers (who are also ERISA fiduciaries) failed to monitor the investment
committee or provide them with information. For the reasons stated by the district court, we
reject plaintiffs’ arguments. Plaintiffs also contend that the district court abused its discretion
when it denied their motion for relief from judgment and motion for discovery. Because the
district court correctly dismissed the complaint, and because plaintiffs failed to explain why they
waited until after the district court entered judgment to request discovery, we discern no error.

2

Plaintiffs’ two other counterarguments warrant only brief mention. They first argue that the Department
of Labor and the Securities and Exchange Commission filed amicus briefs in Whitley that support plaintiffs’
position. But neither agency filed an amicus brief articulating their positions in this case. And, in any event, the
Fifth Circuit rejected the agencies’ position and dismissed the employees’ complaint. Whitley, 838 F.3d at 529.
Plaintiffs also note that the district court denied a motion to dismiss in a related securities fraud claim.
But “alleged securities law violations do not necessarily trigger a valid ERISA claim.” Jander v. Int’l Bus. Mach.
Corp., 205 F. Supp. 3d 538, 546, (S.D.N.Y. 2016) (citing In re Lehman Bros. Sec. & ERISA Litig., 113 F. Supp. 3d
at 768–69). Finally, we never evaluated the merits of the securities fraud claim against Cliffs’s executives because
the parties settled—the parallel securities litigation is thus unhelpful.

Case: 16-3449
No. 16-3449

Document: 42-2

Filed: 04/07/2017

Saumer, et al. v. Cliffs Natural Resources, et al.

Page: 14
Page 14

VIII.
In the Tax Reform Act of 1976, Congress “made clear its interest in encouraging
[ESOPs] as a bold and innovative method of strengthening the free private enterprise system
which will solve the dual problems of securing capital growth and of bringing about stock
ownership by all corporate employees.” Dudenhoeffer, 134 S. Ct. at 2465–66 (quoting Tax
Reform Act of 1976, § 803(h), 90 Stat. 1590).

To promote these benefits, Congress has

repeatedly enacted laws encouraging employers to offer ESOPs as a retirement option. See, e.g.,
29 U.S.C. § 1107(b) (exempting ESOPs from the generally applicable 10% limit on the portion
of plan assets that may be invested in employer stock); 26 U.S.C. § 404(k) (allowing companies
to deduct dividends on employer stock held in an ESOP); id. § 1042 (deferring taxation of
taxable gains from stock sold to an ESOP).
Regardless of the merits of employee stock ownership, the lack of safeguards ensuring
employees diversify their assets frequently begets financial ruin. Because competition and
changing circumstances will inevitably devastate some companies’ prospects, hapless employees
will continue to lose their jobs, their benefits, and their retirement savings, often in one fell
swoop. Any policy change to protect employees, however, must come from Congress, not the
courts.
For the foregoing reasons, we AFFIRM the district court’s judgment.