Brannen v. First Citizens Bankshares Inc. Employee Stock Ownership Plan with 401(k) Provisions et al
Filing
71
ORDER granting in part and denying in part Defendants' motions to dismiss Counts IV and V of Plaintiff's Complaint: 39 Motion to Dismiss, 40 Motion to Dismiss, 41 Motion for Joinder in Motion to Dismiss; and terminating Plaintiff's 61 Motion for Hearing. Signed by Judge J. Randal Hall on 8/26/2016. (jah)
IN THE UNITED
STATES
SOUTHERN
DISTRICT
DISTRICT
STATESBORO
CARRIE BRANNEN,
both
COURT
FOR THE
OF GEORGIA
DIVISION
*
individually and on behalf of
*
the Plan (First Citizens
*
Bankshares Inc. Employee Stock
Ownership Plan with 401(k)
provisions) ,
*
*
*
*
6:15-cv-30
*
Plaintiff,
*
v.
FIRST CITIZENS BANKSHARES
INC.
*
EMPLOYEE STOCK OWNERSHIP PLAN
*
WITH 401(k)
al.,
*
*
PROVISIONS,
et
*
Defendants.
*
ORDER
This
case
governed by the
concerns
Employee
an
employee-stock-ownership
Retirement
and Security Act
et seq.
("ERISA")
as codified at 29 U.S.C.
§ 1001,
dismiss Counts
of Plaintiff's Complaint are before the
IV and V
Defendants'
plan
motions to
Court.1
Upon due consideration and with the benefit of oral
argument
(Doc.
39-41)
70) , the Court GRANTS Defendants'
motions
(Docs.
IN PART and DENIES their motions IN PART.
1 Most Defendants filed a single motion to dismiss on September
21, 2015. (Doc. 39.)
The remaining Defendants each filed "joinder"
motions seeking dismissal on the same grounds as the principle motion.
(Docs.
40,
41.)
I.
For
assumes
purposes
the
of
truth
BACKGROUND
Defendants'
of
the
motions
following
to
dismiss,
allegations
the
Court
contained
in
Plaintiff's Complaint.
Plaintiff
Bank"),
formerly
thirty-five
retiring
by
First
(Compl.
and
rising
1
the
Plan,
is
by
the
and
a
defined
is
a
plans,
the
Plan
known
Stock
sponsoring employer
(Id.
before
Bank.
(Id.
in
the
First
Plan
plan
SI
this
with
governed
21)
More
and employee-stock-ownership
plan
invests
("Company Stock"),
in
in
that
(Id.)
the
this
provides
Like most
shares
case,
of
the
its
Bank.
SI 23.)
Defendant
as
as
Ownership
contribution
primarily
for
employment,
Defendant
individual accounts for each plan participant.
ESOP
Inc.,
employee-stock-ownership
formally
the Plan is a 401(k)
("ESOP"),
her
an employee-pension-benefit
sponsored
("the
vice-president
During
Plan
Employee
Inc.
Bankshares
to
Bank's
The
Inc.
Bankshares,
25.)
The
2.)
Provisions,
in
S
Citizens
(Id. )
Bankshares
particularly,
plan
as
2004.
Plan") .
ERISA
Defendant
eventually
(Id. 1
matter.
401(k)
known
participated
("the
Citizens
for
years,
in
Plaintiff
plan
worked
a
(Id.
member
SI 4.)
Dana
of
the
Potts
administered
Bank's
Board
of
the
Plan
Directors
and
also
("the
served
Board").
Plaintiff is suing Defendant Potts in her capacity
as Plan Administrator and as a board member.
(Id.)
In addition
to Defendant Potts, thirteen other members or former members of
2
the Board are Defendants.
(IcL_ SIS! 5-17.)
The Bank's Board of
Directors was responsible for appointing a trustee to manage the
Plan's investments.
appointed
(Id. SI 24.)
Investment
In addition to the trustee,
Committee
shared
managing the Plan's investments.
responsibility
(Id.)2
(Id.
The Board selected Defendant Sterne, Agee & Leach,
serve as Plan trustee.
When
Plaintiff
distribution
prove
In
quarter of
(Id.
half
(Id.
On
distribution
of
relevant
SIS! 26,
its
May
the
to
last
SI 26.)
resulted
approximately
26.)
Inc. to
she
25.)
2009,
not
That
of
2008
statements
take
decision
Plaintiff
quarter
Those
did
her
would
received
and the
ESOP
first
indicated that
Company Stock had declined from $340 per share to
Stock
SI
2004,
(Id. . SI
the
(Id.
$167 per share.
Company
for
2009.
the value of
Plan.
in
early-to-mid
statements
SI
SI 19.)
retired
from the
costly.
account
(Id.
for
The Board oversees and
monitors both the trustee and the investment committee.
24.)
an
her
in
claims
during
2009,
ESOP
The drop in the value of
Plaintiff's
value
27,
42-42.)
the
(Id.
issue
in
account
preceding
Plaintiff
account.
at
ESOP
six
months.
a
lump-sum
requested
SI
this
27.)
losing
Although
motion,
not
Plaintiff
alleges that the Bank never made the distribution and offered no
2
Plaintiff's
investment
18.)
an
Complaint
committee members
indicates
are
In their brief and at the hearing,
investment
committee
was
that
Defendants
never
twenty
in this
case.
"John
Doe"
(Compl.
SI
Defendants represented that
created.
The
existence
investment committee has no effect on the present motion.
of
an
justification for failing to comply with the Plan's terms.
SIS!
28-34.)
before
According
filing
share.
(Id.
suit,
to
they
that
knew
(Id. )
recent
valuation
worth
available
just over
$29 per
SI 44. )
investment
alleges
most
Company Stock was
Despite the decline
Plan's
the
(Id.
in
in value,
Company
Defendants
or
should
Further,
she
Defendants
Stock.
(Id.
maintained
have
known
alleges
the
the
that
the
have
SI
retained the
45.)
Plaintiff
investment
investment
Plan's
even
was
though
imprudent.
fiduciaries
failed
to conduct an investigation into whether the investment remained
prudent
and that
such an
investigation would have
imprudence under then-prevailing circumstances.
Plaintiff brings
the
Plan.
violated
In
ERISA
investments
in
investments
concerning
Plaintiff
counts,
by,
among
Company
other
Stock,
failing
ESOP
Stock
to
as
alleges
things,
failing
Stock
distribution.
to
were
Defendants
negative
and
Complaint
whether
under
the
information
failing
to
pay
identifies
six
which can be summarized as follows:
•
imprudent
investigate
prudent
investment,
Her
that
maintaining
disclose
an
(Id.)
her behalf and on behalf of
Plaintiff
Company
Company
her
case on
general,
in
circumstances,
this
revealed its
Count I by Plaintiff individually against
the
Plan and the Bank for a
declaratory
judgment
that
Plaintiff's
rights
were
violated when Plaintiff's claim' requesting
her ESOP distribution was not properly and
timely paid;
•
Count
the
II
Plan
rightful
by
Plaintiff
and
the
ESOP
Bank
individually
for
the
distribution
against
amount
plus
of
her
prejudgment
interest;
•
Count III by Plaintiff individually against
Dana Potts as Plan Administrator for failing
to provide requested Plan documents;
•
Count IV by Plaintiff on behalf of the Plan
for damages from the Board, the Investment
Committee,
and the Trustee for breach of
their fiduciary duties of prudence,
loyalty,
and to monitor appointed fiduciaries;
•
Count V by Plaintiff on behalf of the Plan
for equitable relief from the Board,
the
Investment Committee,
and the Trustee for
breach
of
their
fiduciary
duties
of
prudence, loyalty, and to monitor appointed
fiduciaries;
•
Count
VI
for
reasonable
attorneys'
fees
and
costs.
(Compl.
SIS! 55-77.)
Though
only Counts
Plaintiff
IV and V
asserts
are
six
claims
presently at
against
issue.
Defendants,
Count
IV pleads
"breaches of the fiduciary duties of prudence and loyalty,
separate breach
(Compl.
SI
breaches.
71.)
of
the
Count
(Compl.
filed their motions
SI
to
duty
V
to
seeks
74.)
monitor
appointed
equitable
relief
On
dismiss
September
Counts
21,
fiduciaries."
for
2016,
IV and V.
and a
these
same
Defendants
(Docs.
39-41.)
Those motions are now ripe for adjudication.
II.
Under Federal Rule of
LEGAL
Civil
STANDARD
Procedure
8(a)(2),
must contain "a short and plain statement of the
a complaint
claim showing
that the pleader is entitled to relief" to give the defendant
fair notice 'of both the claim and the supporting grounds.
Atl.
Corp.
v.
defendant's
complaint
right
must
to
Twombly,
Rule
must
550
12(b)(6)
include
relief
550
above
U.S.
Rule 12(b)(6)
allegations,
than
Rule
motion
the
relief that
570.
and
of
a
failure to
the
of
and
action
can
(1957);
see
formulaic
will
not
more
raise
on
a
facts
its
face."
attacked by
recitation
do."
Id.
than
accusation."
a complaint
Bd.
(11th
Kabir
at
a
an
at
of
the
555.
The
unadorned,
the-
Ashcroft
556 U.S.
v.
Iqbal,
at 555).
should not be dismissed for
Cir.
set
of
Conley v.
v.
*2
of Educ.
accept as true all
reasonable
no
relief."
also
Marshall Cty.
all
to
and those
is plausible
(quoting Twombly,
prove
4500050,
1174
plaintiff's
allegations
level,"
survive a
state a claim "unless it appears beyond a doubt that
him to
1171,
(2009)
same time,
entitle
WL
a
standard "demands
678
plaintiff
2011
a
Although a complaint
conclusions,
cause
662,
the
To
dismiss,
speculative
defendant-unlawfully-harmed-me
At
to
(2007).
motion need not be buttressed by detailed factual
8 pleading
556 U.S.
555
the plaintiff's pleading obligation "requires more
labels
elements
at
544,
enough ''factual
"state a claim to
Twombly,
U.S.
Bell
inferences
Gibson,
Statebridge
(N.D.
v.
1993)).
facts
circumstances
Ga.
Co.,
this
27,
Gas
stage,
the
light
most
41,
45-46
1:ll-cv-2747,
2011)
Dist.,
the
alleged in the complaint
in
would
U.S.
No.
Sept.
Marshall Cty.
At
355
that
(citing
992
F.2d
Court
must
and construe
favorable
to
the
plaintiff.
Cir.
Hoffman-Pugh
v.
Ramsey,
312
F.3d
1222,
Rule
12(b)(6)
of
limitations
"if it is apparent from the
grounds is appropriate
dismissal
on
statute
face of the
complaint that the claim is time-barred.'" Perez v.
Package
2014)
Sys.,
Inc.,
(quoting La
840,
845
587
Grasta
(11th Cir.
v.
Counts
Board
of
violated
IV
and
the
appointed
V
Directors,
separate
Board
Fed.
Appx.
First
603,
Union
605
Sec,
Fedex Ground
(11th
Inc.,
Cir.
358
F.3d
2004)).
III.
of
the
DISCUSSION
Plaintiff's
Investment
fiduciary duties
also
violated
fiduciaries.
Count
Committee,
of
their
IV
Complaint
allege
seeks
the
the
and
loyalty and
prudence
fiduciary
that
and
duty
damages
seeks equitable relief for these alleged breaches.
74.)
(11th
2002).
"A
that
1225
to
while
Trustee
monitor
Count
(Id.
V
SISI 72,
The Court separately addresses each claimed breach below.
A. Duty of Prudence
Defendants
argue
that
the
statute
of
limitations
bars
Plaintiff's duty-of-prudence claim and that Plaintiff failed to
satisfy the Twombly-Iqbal pleading standard.
At
the hearing,
the Court suggested that Plaintiff's duty-
of-prudence claim could be viewed as two different claims or two
different alleged breaches of the duty of prudence.3
alleged breach challenged Defendants'
Company Stock during 2008-09.
The first
decision to buy and hold
(See Compl.
1
45.)
Defendants'
brief refers to such a claim as a stock-drop claim because these
claims often arise where
knew or
should have
a plaintiff alleges
that a fiduciary
known that particular stock was
or excessively risky for a plan's objectives.
overvalued
The second claim
is that Defendants breached the duty of prudence by failing to
investigate whether it was prudent to continue holding Company
Stock.
(See id.)
Both
parties
rejected
the
Court's
interpretation
of
Plaintiff's Complaint and argued that Plaintiff only brings one
prudence
claim.
revealed
that
claim
while
claim.
arguments
believe
breaches
that
of
the
Defendants
Plaintiff
This
on
But
motion.
Plaintiff's
the
duty
believe
believes
difference
this
parties'
of
in
briefing
that
it
is
claim
a
Court,
Complaint
prudence
drives
however,
alleges
and
is
arguments
a
stock-drop
failure-to-investigate
perspective
The
and
two
addresses
the
parties'
continues
to
independent
each
alleged
breach separately below.
3 Pleading in this fashion is similar to a plaintiff pleading one
negligence count but alleging two breaches of the duty of care.
8
1. Decision to Hold First Citizens Bank Stock
The
Court
begins
with
Plaintiff's
allegation
that
Defendants breached the duty of prudence by continuing to hold
Company
Stock.
Defendants
argue
that
ERISA's
statute
of
limitations bars this claim.
The relevant statute of limitations provides as follows:
action
may
be
commenced
under
this
No
subchapter with respect to a fiduciary's
breach
of
any
responsibility,
duty,
or
obligation under this part, or with respect
to
a violation of this part,
after the
earlier of—
(1) six years after (A) the date of the
last action which constituted a part of
the breach or violation, or (B) in the
case
of
which
an
the
omission
the
fiduciary
latest
could
the breach or violation,
date
have
on
cured
or
(2) three years after the earliest date
on
which
the
plaintiff
had
actual
knowledge of the breach or violation;
Except
that
in
the
case
of
fraud
or
concealment,
such action may be commenced
not later than six years after the date of
discovery of such breach or violation.
29 U.S.C.
because
§ 1113.
Defendants argue that § 1113(2)
Plaintiff
possessed
"actual
knowledge"
alleged breach since "early-to-mid 2009."
at
15.)
the
"Actual
Plaintiff
knowledge,"
"must
have
had
as
used
specific
breach of duty upon which he sues."
753,
755
(11th Cir.
1987).
in
bars Count IV
of
(Defs.'
Defendants'
Br.,
§ 1113(2),
knowledge
Brock v.
of
Doc.
means
the
Nellis,
39
that
actual
809 F.2d
According
when,
last
to
the
Complaint,
it was
in
upon receiving quarterly ESOP account
quarter of
2008
and the
first
early-to-mid
statements
quarter of
2009,
In response to the sudden decrease,
lump sum distribution of
to
rollover
to
an
(Id.
1
27.)
the
(Compl.
SI
Plaintiff "requested a
her ESOP account,"
IRA.
for
Plaintiff
learned of the 50% decline in Company Stock value.
26.)
2009
which
she
Defendants
intended
contend
that
Plaintiff had actual knowledge of the facts giving rise to the
alleged
breach
Defendant,
at
this
time.
Conversely,
Plaintiff
by continuing to hold the Company Stock,
violation
of
ERISA
such
that
the
statute
of
believes
remained in
limitations
never
began to run.
all
In
relevant
indistinguishable
Supp.
nom.
3d
599,
from
602
respects,
In
re
(S.D.N.Y.
Citigroup
2015),
In re Citigroup ERISA Litig.,
2015),
and
2461-cv,
affTd
2016
sub
WL
nom.
2956958
this
Cir.
Erisa
breach
Litig.,
reconsideration
112
Muehlgay
(2d
alleged
F. Supp.
v.
May
23,
104
F.
denied
3d 156
Citigroup
is
Inc.,
sub
(S.D.N.Y.
15-
There,
2016) .
No.
the
plaintiffs alleged that the defendants breached their fiduciary
duties
making
imprudent
investments
in
Citigroup.
The defendants moved to dismiss the plaintiffs'
609.
on
by
the
grounds
plaintiffs'
that
it
possessed
was
"actual
barred
by
knowledge"
§
1113(2)
of
the
the investment three years before filing the suit.
court
noted
that
the
plaintiffs'
10
complaint
Id.
at
complaint
because
the
imprudence
of
The district
alleged
that
Citigroup's
"perilous
clear . . . , based on,
continuous
decline
downgrades,
. . . ."
that
was
among other things,
plaintiffs'
the
condition
in
price
Id.
at
per
share
610.
Citigroup stock's
[and]
ratings
The district
possessed
abundantly
actual
agency
court concluded
knowledge
of
the
imprudence of continued investment in Citigroup by December 2008
and ruled that § 1113(2) barred the plaintiffs'
claims.
Id.
at
610-11.
Here,
the
three-year
face of Plaintiff's Complaint indicates that the
limitations
period
began
to
run
when
Plaintiff
learned of the precipitous drop in the value of Company Stock in
early-to-mid
2009.
(See
Compl.
limitations
period
ran
in
H
26-27.)
early-to-mid
Accordingly,
2012,
well
the
before
Plaintiff filed her Complaint.
Plaintiff's
this
case
1829
counterargument is unconvincing.
resembles
(2015).
In
Tibbie
Tibbie,
fiduciary breached the
monitor
Supreme
investments
Court
v.
Edison
the
duty of
and
held that
plaintiff
prudence by
remove
"so
Int'l,
imprudent
long
as
the
regardless
selected.
U.S.C.
Id.
Notably,
§ 1113(1) (A),
period "after
of
(A)
when
the
however,
which
135
alleged,
Tibbie's
for
Ct.
a
1823,
"that
a
failing to properly
ones."
suit,
imprudent
provides
S.
Id.
alleged breach
continuing duty occurred within six years of
timely"
In her view,
The
of
the
the claim is
investment
holding concerns
was
29
six-year-limitations
the date of the last action which constituted
11
a
part
of
the
breach
or
violation,
or
(B)
in
the
case
of
an
omission the latest date on which the fiduciary could have cured
the
breach
therefore,
or
violation."
29
concerned with the
U.S.C.
§
1113.
Tibbie
was,
question of when a breach occurs
for purposes of § 1113(1) and not when a participant possesses
"actual
knowledge"
of
a
Citigroup ERISA Litig.,
(finding
this
on
breach
analysis
§
1113(2).
112 F. Supp. 3d 156, 159
reconsideration
Court's
under
of
that
"[n]othing
in
why the plaintiffs'
See
In
(S.D.N.Y.
Tibbie
claims
re
2015)
affects
are barred
under the three-year statute of limitations in § 1113(2)").
For these reasons,
prudence
claim
Defendants'
Court
to
the Court DISMISSES Plaintiff's duty-of-
the
extent
that
the
alleged
imprudent decision to hold Company Stock.
considers
Defendants'
whether
breach
of
Plaintiff
the
duty
states
of
a
viable
prudence
by
breach
is
Next,
the
claim
for
failing
to
investigate whether the Plan should continue to hold investments
in Company Stock.
2. Failure to Investigate
Count
breached
IV
the
of
Plaintiff's
duty
of
Complaint
prudence
by
alleges
failing
to
prudence of continuing to hold Company Stock.
that
this
alleged
breach
should
be
dismissed
that
Defendants
investigate
the
Defendants argue
because
it
is
barred by the statute of limitations and fails to state a claim
for
relief.
12
As
not
had
an
initial
matter,
"actual
knowledge"
whether
investment,
see
the
statute-of-limitations
bar a claim based on this alleged breach.
investigate
suit
ERISA's
within
statute
alleged
29
what
Company
U.S.C.
§ 1113 (l)'s
of
of
of
the
Stock
§
does
duty
Plaintiff never
Defendants
continued
1113(2),
six-year
limitations
breach
actions
and
to
of
bar
be
Plaintiff
limitations
not
a
took
a
the
filed
her
Because
based
Court
to
prudent
window.
claim
prudence,
does
on
this
turns
to
whether Plaintiff satisfied the Twombly-Iqbal pleading standard.
ERISA requires
the care,
skill,
fiduciaries to discharge their duties
prudence,
"with
and diligence under the circumstances
then prevailing that a prudent man acting in a like capacity and
familiar
with
enterprise of
such
This
to
"Under trust
monitor
trust
continuing
duty
trustee's duty to
the
outset."
intervals
(quoting
A.
Trustees
§
use
in
the
conduct
exists
a
trustee
and
separate
has
remove
and
a
of
29 U.S.C.
continuing
imprudent
apart
an
ones.
from
the
exercise prudence in selecting investments at
135
conside[r]
to
Hess, G.
684
law,
investments
Tibbie,
"systematic[ally]
regular
would
a like character and with like aims."
§ 1104(a)(1)(B).
duty
matters
S.
at
1828.
A
trustee
must
all the investments of the trust at
ensure
Bogert,
(2009))
Ct.
that
&
G.
(internal
they
are
Bogert,
appropriate."
Id.
Law
and
quotations
of
Trusts
omitted).
"[A]
trustee's duties apply not only in making investments but also
in monitoring and reviewing investments, which is to be done in
13
a manner that
investments,
is reasonable
courses
of action,
(quoting Restatement
Further,
and appropriate
(Third)
"[m]anaging
monitoring"
see
also
U.L.A.
(noting
Unif.
that
Prudent
§
2(d)
Id.
Comment b (2007)).
and
"a
trustee
has
suitability of
(quoting Unif. Prudent Inv'r
7B U.L.A. 21 (1995))
omitted);
21
Id.
particular
involved."
for oversight of the
the investments already made."
Act § 2, Comment,
the
and strategies
of Trusts § 90,
embraces
continuing responsibility
to
(internal quotation marks
Inv'r
"carries
Act
§
2,
forward
responsibility of the fiduciary investor to
likely to bear importantly on the value
Comment,
the
7B
traditional
examine information
of the
security of an
investment").
Accordingly,
failure
to
at
least in some circumstances,
investigate
constitute a breach of
LaSalle Bank Nat.
trustee
who
increased
the
imprudent").
of
loss
Moreover,
the continued prudence
of
446 F.3d 728,
ignored
risk
prudence
an
the duty of prudence.
Ass'n,
simply
the
the
of
an
734
changed
to
the
failure
a fiduciary's
investment
See Armstrong v.
(7th Cir.
circumstances
trust's
to
may
2006)
("[a]
that
have
beneficiaries
monitor
or
is
investigate
investment may breach the duty of
prudence "even if adequate monitoring would have resulted in the
same
action
(or
inaction)."
Int'l Union-Indus.
13-CV-4484,
see
also
2014
Bd.
of
Pension
WL
Fund v.
4627904,
Trs.
of
United
the
at
*4
Food
Commercial
Workers
Bank of New York Mellon,
(N.D.
Operating
14
&
111.
Eng'rs
Sept.
16,
Pension
No.
2014);
Trust
v.
JPMorgan Chase Bank,
(S.D.N.Y.2013)
careless
("One
'hold'
imprudence,
prudence.
the
N.A., 2013 U.S.
decision
another
may
That the resulting loss
former
of,
nor
condemn
Dist LEXIS 43746,
the
may
have
have
been
been
based
to,
based
on
on
careful
not
is the same does
latter
at *27-28
relieve
liability.").
The
question is whether a prudent man would investigate whether the
Plan
should
continue
to
invest
in
Company
Stock
under
the
circumstances prevailing in 2008 and 2009.
Plaintiff
alleges
that
"the
Plan's
fiduciaries
failed
to
conduct an appropriate investigation into whether Company Stock
was
a
prudent
investigation
that
investment
"would
investment
by
for
have
the
the
Plan"
revealed
Plan
in
to
alleges
that
Defendants
protect
Plan participants
Stock
(Compl.
"failed to
from investment
that
reasonable
Company
circumstances was clearly imprudent."
further
a
and
these
Plaintiff
any action"
losses.
(Id.
Plaintiff's Complaint is not particularly detailed,
S[
never
conducted
Plan should continue
take any action to
47.)
Although
it
an
into
investing in Company Stock,
protect the
is
investigation
Defendants'
47.)
that
whether
the
and failed to
Plan from losses.
plausible that
to
but she does
allege that the Plan invested in Company Stock before 2008,
Defendants
an
fiduciary
under
! 45.)
take
such
(Id.
IS!
45,
failure to act
resulted from a considered decision-making process
following an
investigation into the merits of investing in Company Stock,
it
is equally plausible that no investigation occurred and that the
15
Plan's
buy-and-hold
"care,
skill,
strategy
prudence
See § 1104(a)(1)(B).
resulted
and diligence"
The Court,
from
the
absence
required of
therefore,
of
the
fiduciaries.
finds that Plaintiff
has stated a claim for breach of the fiduciary duty of prudence.
See United Food, 2014 WL 4627904, at *4 ("the alleged fact that
BNY
Mellon
adopted
a
'hold'
strategy
and
therefore
did
not
monitor the Lehman Note is a sufficient factual allegation that
stands on its
own without
further explanation
(and,
if untrue,
is easy to refute at the appropriate stage)").
Briefly,
the
Court
addresses
the
applicability
Supreme Court's decision in Fifth Third Bancorp v.
134
S.
Ct.
Plaintiff
2459
fails
(2014)
to
to
this
a
claim
state
claim.
for
the
Dudenhoeffer,
Defendants
relief
of
argue
because
she
that
did
not
"plausibly allege an alternative action that the defendant could
have
laws
taken
and
a
viewed as
it."
Id.
at
consistent
fiduciary
more
likely to
2472.
that
in
This
the
with
the
the
same
circumstances
harm the
quotation,
securities
fund than to
stripped
alternative-action
of
its
requirement
The Court concludes
not.
Court's
applicability
vigorously
been
every potential prudence claim.
it does
holding
prudent
suggests
applies to
The
have
have
context,
that
would
that
would not
help
that
to
conclusion
privately
disputed.
regarding
The
inside
does
held
Court
not
companies,
assumes
information
16
turn
on
Fifth
which
that
would
Third's
the
parties
Fifth
Third's
apply
in
those
circumstances.
Instead,
the
relevant
distinction
is
between
cases alleging imprudent investment decisions and those alleging
a failure
Armstrong,
review
to investigate and reach a considered decision.
446 F.3d at 733-34
standard
where
a
(declining to apply a deferential
trustee
ignores
changed
circumstances
and does not exercise a discretionary judgment).
itself makes
this clear.
Cf.
The opinion begins
Fifth Third
by describing the
question before the Court as "whether, when an ESOP fiduciary's
decision to buy
court,
the
or hold the employer !s stock is challenged in
fiduciary is entitled to a defense-friendly standard
that the lower courts have called a
Fifth
Third,
describing
that
the
lawsuit
134
the
S.
Ct.
district
district
ESOP
2463
court's
court
challenges
at
^presumption of prudence.'"
(emphasis
order,
"began
from
fiduciaries'
the
the
added).
Supreme
premise
investment
When
Court
that
noted
where
decisions,
a
the
plan fiduciaries start with a presumption that their decision to
remain invested in employer securities was reasonable."
2464
(emphasis
added)
(internal
omitted).
Finally,
requirement,
the Supreme Court held that it
a
claim
for
breach
when
quotations
of
inside information," id.
party alleges
investment
introducing
the
at
duty
2472,
that a defendant
decision
based
review of cases relying on
on
of
the
and
Id.
at
citations
alternative-action
applies "[t]o state
prudence
on
the
basis
of
meaning that it applies when a
should have
inside
reached a different
information.
The
Court's
Fifth Third indicates that district
17
courts
apply
the
alternative-action
requirement
to
claims
alleging that parties knew or should have known that a stock was
improperly valued or risky based on inside information.4
Court's
knowledge,
alternative-action
breached
the
prudence
of
no
court
requirement
duty
of
an
by
failing
investment.
Third's command to apply a "careful,
of
a complaint's
that,
at
applied
Fifth
Third's
to a claim alleging a fiduciary
prudence
remaining in
has
To the
allegations,"
id.
the motion-to-dismiss
to
investigate
Consistent with
the
Fifth
context-sensitive scrutiny
at
stage,
2570-71,
the
there
no
is
Court
finds
alternative-
action requirement in a case alleging that a Defendant breached
the duty of prudence by failing to conduct an investigation into
the prudence of continuing to hold an investment.
For these
dismiss
reasons,
Plaintiff's
investigate basis.
the Court DENIES
duty-of-prudence
Defendants'
claim
on
the
motions
to
failure-to-
Plaintiff may proceed with this claim based
4 See Hill v. Hill Bros. Constr. Co., Inc., No. 3:14-cv-213, 2016
WL 1252983,
at
*4
(N.D.
Miss.
Mar.
28,
2016)
noting that the Supreme
Court
applied
Fifth
Third's
alternative-action
requirement
"to
plaintiffs' allegations regarding [investment decisions based on] non
public information available only to the fiduciaries because they were
Fifth Third insiders, . . . ."), reconsideration denied, No. 3:14-cv213, 2016 WL 4132255 (N.D. Miss. Aug. 2, 2016); In re Lehman Bros.
Sec. & ERISA Litig.,
113 F.
Supp. 3d 745, 751
(S.D.N.Y.
2015)
(applying Fifth Third's alternative-action requirement
to claims
asserting that continued investment in company stock was imprudent
based on inside information) , aff'd sub nom.
Rinehart v.
Lehman Bros.
Holdings Inc., 817 F.3d 56 (2d Cir. 2016);
In re Jpmorgan Chase & Co.
Erisa Litig., No. 12 CIV. 04027 (GBD), 2016 WL 110521, at *4 (S.D.N.Y.
Jan. 8, 2016) (applying Fifth Third's alternative-action reguirement
where "plaintiffs allege fraud and artificial inflation").
18
on
her
allegation
prudence
by
that
failing
Defendants
to
breached
investigate
whether
their
the
duty
Plan
of
should
continue to hold Company Stock.
B. Duty to Monitor Appointed Fiduciaries
In
this
claim,
Plaintiff
alleges
that
the
Board
(Compl. 11
its fiduciary duty to monitor appointed fiduciaries.
46,
70-71) .
asserted
claim.
19);
The
in
parties
Count
(Defs.'
IV
Br.,
agree
is
that
derivative
In their briefs,
that
Plaintiff
Because
claim
the
on
claim.
the
the
to
did
Br.,
Doc.
52 at
690
(11th
Defendants argue that if the Court
state
not
claim
duty-of-prudence
744 F.3d 685,
it should also dismiss the
Defendants made no
failed
Court
of
Inc.,
dismissed the duty-of-prudence claim,
duty-to-monitor
duty-to-monitor
Doc. 39 at 17; PL's Resp.
see Fuller v. SunTrust Banks,
Cir. 2014).
the
breached
a
claim
dismiss
independent
for
failure
Plaintiff's
failure-to-investigate
basis,
to
argument
monitor.
duty-of-prudence
the
Court
DENIES
Defendants' motion to dismiss Plaintiff's duty-to-monitor claim.
C. Duty of Loyalty
Plaintiff
Defendants.
also
asserts
11
(Compl.
48,
a
duty-of-loyalty
70-71.)
claim
Plaintiff
against
alleges
that
"Defendants regularly communicated with the Plan's Participants,
including
investment
alleges
Plaintiff,
in
that
yet
Company
failed
to
Stock."
"Defendants
disclose
(Compl.
allowed
19
the
SI
the
48.)
Plan's
imprudence
She
of
further
participants
to
follow
their
natural
bias
towards
investment
in
the
employer by not disclosing negative material
their
concerning
investment
added.))
According
prevented
Plan
regarding
their
in
Company
to
Plaintiff,
Participants
investments
Federal
Rule
of
Civil
dismiss
this
claim,
from
in
arguing that
(Id.
Defendants'
(emphasis
nondisclosure
informed
Plan.
(Id.)
12(b)(6),
decisions
Pursuant
Defendants
Plaintiff
of
information
making
the
Procedure
Stock."
stock
moved
failed to
to
to
meet
the
participants
may
Twombly-Iqbal pleading standard
Courts
have
concluded
that
ERISA
plan
state a cause of action for breach of fiduciary duty based on a
failure to disclose information to plan participants.
v. Am.
2004)
2d
Gen.
Life & Ace.
Ins.
(collecting cases);
1361,
1368
(N.D.
Ga.
Co.,
Hill v.
2004).
370 F.3d 1065,
1072
BellSouth Corp.,
Courts
are,
See Jones
(11th Cir.
313
however,
F.
Supp.
reluctant
to require disclosure in cases based on inside information.
In re
2d
Enron Corp.
511,
duty
to
law").
1267
555
(S.D.
disclose
For
(11th
defendants
Sec,
Derivative & ERISA Litig.,
Tex.
is
instance,
Cir.
an
2003)
area
of
their
the
that
Home
of
and
Depot,
plaintiffs
duty
"[t]he
developing
in Lanfear v.
2012),
violated
(noting
284
Supp.
fiduciary's
controversial
Inc.,
alleged
loyalty
F.
Cf.
by
679
F.3d
that
the
"failing
to
disclose any information to the Plan participants regarding Home
Depot's
deceitful
business
practices
and
how
these
activities
adversely affected Company stock as a prudent investment option
20
under
the
plan."
Id.
Just
dismiss
for
failure
granted
the
plaintiff's
Circuit affirmed.
In
to
Id.
as
state
here,
a
motion
the
defendants
claim.
to
The
dismiss,
moved
district
and
the
to
court
Eleventh
at 1286.
affirming the district court,
the Eleventh Circuit held
that plan fiduciaries are not under a duty to disclose material
nonpublic information.
Court reasoned,
Id. at 1285-86.
"would force
if so to what extent,
the
price
disclose
believe
effect
of
that
on
the
to guess whether,
and
[fiduciaries]
stock,
information
the
the
adverse nonpublic information will affect
employer
that
To hold otherwise,
and
then
would
require
to
the
plan
participants
information
will
have
a
them
value
of
the
investment
if
materially
fund."
Id.
at
to
they
adverse
1285.
The
Eleventh Circuit recognized multiple problems with such a rule.
First,
Second,
it
would turn
the
participants
market,
of
release
would
"thus
And finally,
of
likely
blowing
the Court
nonpublic
market
fiduciaries
any
investment
nonpublic
become
to
would
Plan
give
them an
not
attempts
to
distinguish
plan
on
sense,
Plaintiff
is
correct:
21
the
participants."
Id.
selective disclosure
over
advantage
in
non-plan
the
stock
Id.
Lanfear
because
she
alleging failure to disclose "nonpublic" information.
narrow
Id.
to
available
participants
market to which they are not entitled.
Plaintiff
the
recognized that the
to
advisors.
information
immediately
benefit
information
participants
into
her
Complaint
does
is
In a
not
allege that any of this information is "nonpublic";
instead,
she
only alleges that Defendants failed to disclose "the imprudence
of
investing
information"
motion,
Company
in
concerning
Plaintiff
Stock"
Company
further
and
"negative
Stock.
argued
At
that
a
material
hearing
this
should
Defendants
on
have
disclosed the "riskiness" of the investing in Company Stock.
Plaintiff
all
out
that
failure-to-disclose claims.
recently
their
denied
[company]
3234,
in
fiduciary
information
a
existence
material
case
duties
to
the
stock."
by
In fact,
v.
at *7
that
providing
members
Wagner
Lanfear does
alleging
Plan
2015 WL 4557686,
in part,
v.
also points
(N.D. Ga.
foreclose
summary judgment was
defendants
false
about
Stiefel
not
and
the
Labs.,
"breached
incomplete
true
Inc.,
value
No.
of
l:12-cv-
June 18, 2015).
At least
the Wagner decision relied on a disputed fact as to the
of
special
nonpublic
information.
BellSouth Corp.,
a
circumstances
(noting
that
trigger
heightened
suggests
that
313
F.
"special
if
a
See
Supp.
requiring
id.
2d 1361,
circumstance"
disclosure
plaintiff
at
disclosure
*16;
1369
will
(N.D.
be
obligations).
can
then,
demonstrate
in
contrast
see
of
also Hill
Ga.
2004)
required
Thus,
to
Wagner
the
existence
of
to
Lanfear,
a
"special
circumstances"
plaintiff
can maintain a claim for failure to disclose material
nonpublic information.
The Court,
contours
of
however,
Defendants'
need not take a position on the precise
disclosure
22
obligation.
Plaintiff's
Complaint is devoid of
"negative material
any specific factual allegations of what
information"
Defendants
possessed but
failed
to disclose or what "special circumstances" required disclosure.
By
comparison,
allegations
allegations
the
plaintiffs
concerning
the
in
Wagner
defendants'
that the defendants
provided
detailed
misconduct,
including
affirmatively misled plaintiffs
regarding the value of the stock and management's plans for the
company.
Id.
at
*7.
Additionally,
these
events
allegedly
occurred in connection with "special circumstances," namely the
defendant
company's
ultimately
successful
merger,
which
trigger a duty to disclose confidential information.5
*16;
see Hill,
at
313 F. Supp. 2d at 1369.
Plaintiff's
and conclusions,
pleading obligation "requires more
than
labels
and a formulaic recitation of the elements of a
cause of action will not do."
factual
Id.
can
allegations
of
what
Twombly,
550 U.S.
Defendants
at 555.
failed
to
what special circumstances warranted disclosure,
Absent
disclose
and
Plaintiff fails
to state a cause of action based on failure to disclose negative
material
information
regarding
the
prudence
of
investing
in
Company Stock.
5 To be more precise,
disclosure
of
additional
the Wagner
facts
about
decision appears
the
company's
to require
impending
merger
only because the defendants had actively misled plan participants
concerning the potential for a significant change in the company such
as taking the company public or merging.
In other words, the Wagner
result may have been different had defendants remained silent; it was
their provision of misleading information which required corrective
disclosure.
23
For these reasons,
the Court GRANTS Defendants'
motion to
dismiss on Plaintiff's duty-of-loyalty claim.
D. Equitable Claims
Defendants
Complaint,
which
1132(a)(3)
a
moved
to
seeks
dismiss
Count
equitable
V
relief
of
under
for breach of fiduciary duties,
Plaintiff's
29
U.S.C.
for failure to
§
state
claim.
In
Varity
Supreme
Court
individuals
upon
Seafood Corp.,
7,
of
516
Congress
fiduciary
'catchall'
Court's
U.S.
No.
1088
that
an
§ 1132(a)(3)."
(1996)
the
claims
[29
This
holding
v.
King
while
had
no
& Prince
In Katz v.
Comprehensive Plan Of Grp.
Ins.,
197
(11th Cir.
1999),
remedy
cannot
Katz,
1132(a)(1)(B)
here
was
Ga.
the Eleventh Circuit affirmed
for
a
under Varity,
claim
alternatively
197 F.3d at 1088
for
plead
"a plaintiff
benefits
and
proceed
Plaintiff
and
equitable
alternatively
24
under
under
(emphasis added).
on the
grounds that
it concerned alternative pleading between a claim for
§
§
(S.D.
Plaintiff attempts to distinguish Katz
under
by
U.S.C.
plaintiffs
2006 WL 2367130,
"the
at *8
adequate
§ 1132(a)(1)(B)
under
Rosario
the district court's conclusion that,
with
512
authorized
provision.
finding
2:04-cv-036,
489,
duties
remedy under ERISA."
2006) .
F.3d 1084,
breach
the
Howe,
that
ERISA's
other available
Mar.
v.
held
for
1132(a)(3)],
premised
Corp.
relief
pleaded
under
a
§
benefits
1132(a)(3)
fiduciary-duty
claim
under
§
1132(a)(2)
equitable
relief.
The
import
clear
This
of
and
is
the
§
1132(a)(3)
a distinction without
Varity and Katz
is
that
§
claim
a
for
difference.
1132(a) (3)
only
provides equitable relief where other remedial sections of ERISA
are inadequate.
Plaintiff's
relief she
brief
Complaint
seeks
opposing
questioned
in
at
the
the
motion
related to
Complaint
is
not
specify
Moreover,
hearing,
fiduciary duty claims
from
case.
Defendants'
equitable relief
the
this
does
does
not
specify
response
and,
counsel
when
discussed
distribution claim,
asserted in Count
that
equitable
Plaintiff's
Plaintiff's
Plaintiff's
what
Plaintiff
IV.
seeks
What
this
is
not
clear
unspecified
equitable relief for the same alleged misconduct that underlies
her
§ 1132(a)(2)
claims
for
breach
of
fiduciary
duties.
Plaintiff's allegations of misconduct are sufficient to
claim
are,
under
"then
§
1132(a)(2),
Plaintiffs
and
are
of
claim under
[§ 1132(a)(3)]."
these
misconduct
reasons,
the
Court
precluded
allegations
For
the
through
a
from
above
of
they
these
same
fiduciary
duty
2006 WL 2367130,
GRANTS
state a
that
asserting
breach
Rosario,
Court
held
If
Defendants'
at
*10.
motion
to
dismiss Count V of Plaintiff's Complaint.
IV.
As
PART
stated
above,
Defendants'
the
motions
CONCLUSION
Court
to
GRANTS
dismiss
25
IN
PART
Counts
AND
IV
DENIES
and
V
IN
of
Plaintiff's Complaint.
(Docs. 39-41.)
Because the Court heard
argument on this motion on August 12, 2016
(Doc.
70),
the Court
DIRECTS the Clerk to TERMINATE Plaintiff's motion for a hearing.
(Doc.
61.)
ORDER ENTERED
August,
at
Augusta,
Georgia,
this
r>,(^
day
2016.
J. RANDAL HALL
UNITED/ STATES DISTRICT JUDGE
SOUTHERN DISTRICT OF GEORGIA
26
of
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