Eley v. General Cable Corporation et al
Filing
52
MEMORANDUM OPINION & ORDER: That defendants' motion to dismiss 29 be, and is hereby, GRANTED. Plaintiff's Amended Complaint is hereby DISMISSED, and this matter is STRICKEN FROM THE DOCKET OF THIS COURT. Signed by Judge William O. Bertelsman on 7/23/2018.(ECO)cc: COR
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF KENTUCKY
NORTHERN DIVISION
AT COVINGTON
CIVIL ACTION NO. 17-45 (WOB-CJS)
LONNIE E. ELEY, on behalf
Of the General Cable Savings
And Investment Plan, himself,
And a class consisting of
Similarly situated participants
Of the Plan
VS.
PLAINTIFFS
MEMORANDUM OPINION AND ORDER
GENERAL CABLE CORP.,
ET AL.
DEFENDANTS
This matter is before the Court on defendants’ motion to
dismiss (Doc. 29).
The Court previously heard oral argument on
this motion and took the matter under advisement.
(Doc. 45).
Upon further study, the Court issues the following Memorandum
Opinion and Order.
Factual and Procedural Background
Plaintiff Lonnie M. Eley, on behalf of a putative class of
participants in the General Cable Savings and Investment Plan (“the
Plan”), brings this action under §§ 404, 405, 409 and 502 of the
Employee Retirement Income Security Act of 1974, as amended, for
defendants’ alleged breaches of fiduciary duties.
(Am. Compl. ¶
1) (Docs. 20, 25). 1 Count One of the Amended Class Action Complaint
alleges breach of the duty of prudence; Count Two alleges breach
of the duty of loyalty; and Count Three alleges breach of the duty
to monitor.
(Doc. 20 ¶¶ 153-188).
Plaintiff contends that defendants permitted the Plan to
continue to offer General Cable stock as an investment option even
after defendants knew or should have known that the stock was
artificially inflated because the company had not disclosed that
employees of its foreign subsidiaries had violated the Foreign
Corrupt Practices Act of 1997 (“FCPA”) by paying bribes to foreign
government officials.
(Id. ¶¶ 6-7).
Plaintiff alleges that the
stock was thus an imprudent investment, and defendants breached
their duties of prudence and loyalty in offering the stock to Plan
participants.
(Id. at 5).
From 2014 to 2016, General Cable publicly disclosed the
possible FCPA violations. As a result, General Cable’s stock price
dropped, and Plan participants lost a significant portion of their
retirement investments.
(Id. ¶ 110-114).
In December 2016, the company entered into agreements with
the
Department
of
Justice
and
the
Securities
and
Exchange
Commission to pay millions of dollars to settle FCPA-related
charges against it.
(Id. ¶¶ 115-117).
1
The Amended Complaint is filed under seal at Doc. 20.
redacted version is at Doc. 25.
2
The
In his Amended Complaint, plaintiff alleges that defendants
should have taken steps to protect Plan participants from harm:
(1) making early and candid disclosures of the company’s FCPA
violations (Id. ¶¶ 122-125); (2) freezing further purchases of
company stock and holding contributions in cash “or some other
short-term investment” (Id. ¶¶ 126-139); (3) seeking guidance from
the Department of Labor or Securities and Exchange Commission (Id.
¶ 140); (4) resigning as Plan fiduciaries to the extent that could
not act loyally and prudently (Id.); and (5) retaining outside
experts to serve as advisors or independent fiduciaries for the
Plan (Id.).
Defendants
have
moved
to
dismiss
the
Amended
Complaint,
arguing that it fails to state a claim under applicable law.
For
the reasons that follow, the Court agrees.
Analysis
A. Breach of the Duty of Prudence
ERISA requires a fiduciary to discharge his or her duties
with
respect
participants
to
and
a
Plan
solely
beneficiaries
in
and
in
the
“with
interest
the
care,
of
the
skill,
prudence, and diligence under the circumstances then prevailing
that a prudent man acting in a like capacity and familiar with
such matters would use in the conduct of an enterprise of a like
character and with like aims.”
29 U.S.C. § 1104(a)(1)(B).
3
This duty of prudence applies to employee stock ownership
plans (“ESOPs”) such as the General Cable plan, except that ESOPs
need not be diversified.
Fifth Third Bancorp v. Dudenhoeffer, 134
S. Ct. 2459, 2467 (2014).
Plaintiff alleges that defendants breached their duty of
prudence by failing to act in response to non-public, “insider”
information: knowledge of the FCPA violations by General Cable.
In Dudenhoeffer, the Supreme Court noted that such information
creates a dilemma for Plan fiduciaries because acting on such
information may violate securities laws, and not acting on the
information may expose them to suits such as this one.
134 S. Ct.
at 2472-73.
Balancing these and other considerations, the Supreme Court
set forth a stringent pleading standard for breach-of-prudence
claims based on non-public information:
To state a claim for breach of the duty of prudence on
the basis of inside information, a plaintiff must
plausibly allege an alternative action that the
defendant could have taken that would have been
consistent with the securities laws and that a prudent
fiduciary in the same circumstances would not have
viewed as more likely to harm the fund than to help it.
Id. at 2472 (emphasis added).
This standard places a “significant” burden on plaintiffs;
the plaintiff must allege an alternative course of action that is
“so clearly beneficial that a prudent fiduciary could not conclude
4
that it would be more likely to harm the fund then to help it.”
Whitley v. B.P., P.L.C., 838 F.3d 523, 529 (5th Cir. 2106).
Plaintiff first alleges that defendants should have made
“early and candid” disclosures of the FCPA violations because “the
longer the concealment continued, the more of the Plan’s good money
went into a bad investment.”
Sixth
Circuit
and
other
(Am. Compl. ¶ 122).
courts
argument after Dudenhoeffer.
have
expressly
However, the
rejected
that
See Graham v. Fearon, No. 17-3407,
2018 WL 315098, at *5 (6th Cir. Jan. 8, 2018) (“This court and all
other courts considering that alternative action post-Fifth Third
have rejected it.”); Saumer v. Cliffs Natural Res. Inc., 853 F.3d
855, 864 (6th Cir. 2017) (rejecting nonpublic information claim
premised on allegation that plan fiduciary should have publicly
disclosed negative information); Dormani v. Target Corp., Case No.
17-cv-4049, at *5 (D. Minn. June 15, 2018) (“There, as here, a
reasonable fiduciary could have believed that disclosing negative
information about Target stock would do more harm that good (e.g.,
via market overcorrection).); Fentress v. Exxon Mobil Corp., 304
F. Supp.3d 569, 583 (S.D. Tex. 2018) (noting that courts have
repeatedly ruled against plaintiffs who attempt to fit the theory
‘that in virtually every fraud case, the truth will eventually
come out and that the later the disclosure is made, the greater
the harm to stock holders will be’ into the prudent fiduciary
standard.”).
5
Plaintiff argues that early disclosure in this case would not
have caused significant harm compared to the losses that eventually
resulted because of the length of the Class Period — twelve years
— and the fact that General Cable ultimately was a net purchaser
due to large purchases made towards the end of the Class Period.
(Am. Compl. ¶ 124; Doc. 34 at 18-22).
Again, however, the Sixth Circuit and other courts have
rejected this argument because it effectively invokes hindsight to
task fiduciaries with acting on information not available until
years
later.
See
Graham,
2018
WL
315098,
at
*6
(“However,
recognizing ERISA imposes the duty to act in a prudent manner under
the circumstances then prevailing,’ courts have noted the duty .
. . requires prudence, not prescience.”) (internal quotations and
citation omitted); Dormani, 2018 WL 3014126, at *5.
The Court in Dormani explained:
Plaintiffs next assert that Defendants should have
publicly disclosed negative information about Target
stock in order to help correct its artificial inflation.
. .
The prior order also found that Plaintiffs’
disclosure theory rest[s] on hindsight: it presupposed
that a reasonable fiduciary would know that the Fund
would be a net purchaser of Target stock during the Class
Period (i.e., would have known that it would have spent
more than it made on the stock), such that a corrective
disclosure would not do more harm than good. . . But a
fiduciary could not know this based on contemporaneous
information, and as a result, it would have been
reasonable to conclude that disclosures would tip the
scales towards harm.
Dormani, 2018 WL 30134126, at *5.
6
Therefore, plaintiff fails to plead a plausible claim based
on the disclosure theory. 2
Plaintiff’s
participants’
allegation
contributions
that
in
defendants
cash
or
some
should
other
have
held
short-term
investment or should have simply frozen further purchases meets
with
the
same
(rejecting
fate.
See
assertion
that
Graham,
2018
fiduciaries
WL
315098,
should
at
have
*6-*7
halted
investments in company stock or directed contributions to a lowcost hedging product as insufficient under Dudenhoeffer pleading
standard); Saumer, 853 F.3d at 864-65 (reasonable fiduciary could
conclude that freezing purchases of company stock could cause more
harm than good because 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”); Dormani, 2018 WL
3014126,
at
*5
(rejecting
freeze
argument
because
“freezing
purchase could easily do more harm than good by sending a negative
signal to the market, causing a drop in Target’s stock value”);
Jander v. Retirement Plans Comm. of IBM, 272 F. Supp.3d 444, 45253 (S.D.N.Y 2017) (rejecting claims based on freeze and hedging
product theories).
2
The Court notes that the case cited by plaintiff in support of
this argument, Pfeil v. State St. Bank & Tr. Co., 671 F.3d 585,
596 n. 3 (6th Cir. 2012), was abrogated by Dudenhoeffer.
7
Indeed,
plaintiff
alleges
only
that
“it
is
extremely
unlikely” that a freeze would have had “an appreciable adverse
impact on the price of General Cable stock.”
(Am. Compl. ¶ 134).
Of course, that is not the test under Dudenhoeffer.
Rather,
plaintiff must “plausibly allege that no prudent fiduciary could
have concluded that the proposed alternative action would do more
harm than good.”
Whitley v. B.P., P.L.C., 838 F.3d 523, 529 (5th
Cir. 2106).
As to the “cash buffer” alternative, the Court in Dormani
noted that a reasonable fiduciary could easily conclude that such
action would cause more harm than good because it would create an
“investment drag,” i.e., “the prospect that cash stored in a buffer
will return less than if it were invested in stock.”
Dormani,
2018 WL 3014126, at *5.
Finally,
plaintiff
alleges
that
defendants
should
have
resigned, sought guidance from regulatory authorities, or retained
experts to advise them.
These allegations are wholly conclusory
and also do not satisfy Dudenhoeffer.
See In re: Target Corp.
Sec. Litig., 275 F.Supp.3d 1063, 1089 (D. Minn. 2017) (“Seeking
the DOL and SEC’s guidance is really no different from disclosure
because doing so would still require public disclosure;” and
“resigning would only shift responsibility to other fiduciaries”);
In re: IDEARC ERISA Litig., Civil Action No. 3:09-CV-2354-N, 2016
WL 7189981, at *6 (N.D. Tex. Oct. 4, 2016) (“The Third Amended
8
Complaint still does not show how the advice of a third party,
with access to the same public information, would have changed the
Defendants’ actions.”).
In sum, plaintiff has not plausibly alleged any alternative
action
the
defendants
could
have
taken
that
would
have
been
consistent with the securities laws and that a similarly situated
prudent fiduciary would not have viewed as more likely to harm
than help the Plan.
Plaintiff thus has failed to plead a claim
for breach of the duty of prudence.
B. Breach of the Duty of Loyalty
Count Two of the Amended Complaint alleges that defendants
breached their duty of loyalty to Plan participants by continuing
to allow investment in General Cable stock; failing to engage
independent fiduciaries to make judgments about investing Plan
assets;
placing
participants;
their
interests
misrepresenting
above
information;
the
interest
satisfying
of
General
Cable’s matching obligations with company stock; and breaching
their co-fiduciary obligations.
(Am. Compl. ¶¶ 164-176).
These allegations largely mirror those underlying plaintiff’s
breach of prudence claim, and to that extent they are derivative
and fail for the same reasons.
Supp.3d at 1090.
In re: Target Sec. Litig., 275 F.
See also Saumer v. Cliffs Natural Res., Case No.
1:15-cv-954, 2016 WL 8668509, at *6 (N.D. Ohio April 1, 2016)
(“However, as previously discussed, Plaintiffs fail to properly
9
allege that the investment of Plan assets in Cliff’s stock was
imprudent under ERISA.
Because Count I is not adequately pled, it
cannot form a basis for Plaintiffs’ Count II loyalty claim.”),
aff’d, Saumer v. Cliffs Natural Res., 853 F.3d 855 (6th Cir.
2017)).
The
wholly
conclusory
allegations
that
defendants
placed
their interest ahead of participants also do not pass muster under
Rule 12(b)(6).
See In re: Target Sec. Litig., 275 F. Supp.3d at
1091.
Next,
the
single
paragraph
devoted
to
alleged
misrepresentations is also conclusory and “does not plead one
single misleading or inaccurate statement made by Defendants.”
Id. at 1092.
See also Saumer, 2016 WL 8668509, at *7 (“cursory
allegations of misrepresentations” in calls with analysts, SEC
filings, and other documents do not plead plausible breach of
loyalty claim).
The Court notes that plaintiff’s memorandum in opposition
does not address any of these propositions, but instead is limited
to a single paragraph concerning alleged matching obligations.
(Doc. 34 at 34).
As to that point, plaintiff cites no authority
for the proposition that use of stock that is not an imprudent
investment as matching contributions would form the basis for a
breach of loyalty claim.
And the single paragraph in the Amended
Complaint on this issue contains no alleged facts to support the
10
allegation that General Cable, in fact, ever used company stock to
satisfy its matching obligations.
(Am. Compl. ¶ 173).
C. Breach of the Duty to Monitor
Finally, plaintiff concedes that its duty to monitor claim is
derivative of its first two claims.
See In re: Target Sec. Litig.,
275 F. Supp.3d at 1093 (noting that plaintiffs cannot maintain a
claim for breach of the duty of monitoring absent an underlying
breach of other ERISA duties).
This claim thus also fails as the
pleading stage.
Therefore, having reviewed this matter, and the Court being
sufficiently advised,
IT IS ORDERED that defendants’ motion to dismiss (Doc. 29)
be, and is hereby, GRANTED.
Plaintiff’s Amended Complaint is
hereby DISMISSED, and this matter is STRICKEN FROM THE DOCKET OF
THIS COURT.
This 23rd day of July, 2018.
11
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?