Lynn v. Peabody Energy Corporation et al

Filing 105

MEMORANDUM AND ORDER... IT IS HEREBY ORDERED that Defendants' motion to dismiss is GRANTED. (Doc. No. 83 .) A separate Order of Dismissal shall accompany this Memorandum and Order. Signed by District Judge Audrey G. Fleissig on 3/30/2017. (NEB)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MISSOURI
EASTERN DIVISION

LORI J. LYNN and JAVIER GONZALEZ, )
individually and on behalf of all others
)
similarly situated,
)
)
Plaintiffs,
)
)
vs.
)
)
PEABODY ENERGY CORPORATION,
)
et al.,
)
Defendants.
)

Case No. 4:15CV00916 AGF

MEMORANDUM AND ORDER
This putative class action is brought under the Employee Retirement Income
Security Act of 1974, (“ERISA”), claiming breach of fiduciary duties by Defendants, the
fiduciaries of three ERISA-governed Employee Stock Option Plans (“ESOPs”) made
available to employees of Peabody Energy Corporation (“Peabody”) as retirement
investment options. The matter is before the Court on Defendants’ motion (ECF No. 83)
to dismiss Plaintiffs’ Second Amended Class Action Complaint for failure to state a
claim. Oral argument was held on the motion. For the reasons set forth below, the
motion to dismiss will be granted.
BACKGROUND
Plaintiffs initiated this action on June 11, 2015, on behalf of three Peabody ESOP
Plans1 and their participants and beneficiaries. Pursuant to Plan documents, participants

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The Peabody Investments Corporation (“PIC”) Employee Retirement Account; the
Peabody Western-UMWA 401(k) Plan; and the Big Ridge, Inc. 401(k) Profit Sharing

in each of the Plans directed how their investments were to be allocated among various
investment options, including the “Peabody Energy Stock Fund” which could consist
100% of Peabody stock. Named as Defendants in Plaintiffs’ original complaint were
three Peabody-related corporate entities, and various entities and individuals who
allegedly had responsibilities regarding the management and investment of the Plans’
assets. Plaintiffs asserted that all Defendants were ERISA fiduciaries who breached their
fiduciary duties by continuing to offer Peabody Stock as an investment option for the
Plans from December 14, 2012, onward (the Class Period) when it was imprudent to do
so; maintaining the Plans’ existing significant investment in Peabody Stock when it was
no longer a prudent investment for the Plans; failing to avoid conflicts of interest; and
failing adequately to monitor other persons to whom management of the Plans was
delegated. The imprudence alleged was based on the collapse of coal prices during the
Class Period and indications that Peabody was headed to bankruptcy.
On November 8, 2015, approximately five months after the initial complaint was
filed, the Office of the Attorney General of New York (“NYAG”) issued an “Assurance
of Discontinuance” based on an investigation concerning disclosures made by Peabody
about climate change and the potential effects of climate change on Peabody’s future
business. The NYAG found that Peabody had misstated in its SEC Form 10-K filings
from 2011 through 2014, that it could not reasonably predict the impact regulatory action
regarding emissions from coal combustion would have on Peabody’s future business,

Plan and Trust. Effective December 31, 2014, the Big Ridge Plan was merged into the
PIC Plan.
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when in fact, Peabody had made market projections in the ordinary course of business
that found that certain potential regulatory scenarios could “materially and adversely”
impact Peabody’s future financial condition. In addition in numerous SEC filings,
Peabody omitted less favorable projections of the International Energy Agency for future
coal demand. The Assurance of Discontinuance further stated that Peabody neither
admitted nor denied the NYAG’s findings, but agreed that in future SEC filings and
public communications it would not engage in the above-described behavior. ECF No.
72-1.
In December 2015, Peabody appointed Gallagher Fiduciary Advisors, LLC,
(“Gallagher”) to serve as an independent fiduciary and investment manager for the Plans
with respect to the Peabody Stock Fund. By letter dated February 26, 2016, Gallagher
informed the ESOP participants that it had decided (1) to “restrict the [Peabody] Stock
Fund to all participant activity effective as of March 9, 2016, and (2) to eliminate the
[Peabody] Stock Fund as an investment option in each Plan, on or around March 16,
2016.” ECF No. 88-1. Gallagher stated that it had concluded that “maintaining the
[Peabody] Stock Fund as an investment option is no longer consistent with the fiduciary
responsibility provisions of ERISA, and that Gallagher’s decision “simply reflects [its]
judgment, as a fiduciary, that it is in the interest of the Plans’ participants to eliminate
[their] exposure within the Plans through the [Peabody] Stock Fund to the risks facing the
Company and Peabody Stock.” Id.

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The second amended – and operative – complaint was filed on March 11, 2016.
ECF. No. 72. Defendants are the Retirement Committees of the three Plans that were
charged with selecting and monitoring the Plans’ investment options; individual members
of the Retirement Committees; the Board of Directors of PIC that appointed the PIC Plan
Retirement Committee members; and individual members of the PIC Board of Directors.
The gravamen of Plaintiffs’ claims continues to be that Defendants breached their duties
as ERISA fiduciaries by retaining Peabody stock as a retirement investment option in the
Plans from December 14, 2012, onward. To their original claim that purchasing/retaining
Peabody stock was imprudent due to public information about the global decline in coal
prices and clear indicia during the Class Period that Peabody was headed toward
bankruptcy (“public information claim”), Plaintiffs add a claim that purchasing/retaining
the stock was imprudent due to the stock price being “artificially inflated.” Plaintiffs
allege that Defendants should have known this because of nonpublic information of
which they were aware but withheld, namely that laws and regulations to cut carbon
emissions from the combustion of coal would have a detrimental effect on Peabody stock
(“inside information claim”). As a remedy, Plaintiffs seek monetary damages that would
restore the values of the Plans’ assets to what they would have been if the Plans had been
properly administered.
In their second amended complaint, Plaintiffs plead that facts such as the
following rendered continued investment of Plans’ assets in Peabody common stock
imprudent: (a) the collapse of coal prices which drastically and for the foreseeable future
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compromised Peabody’s financial health; (b) Peabody’s deteriorating “Z-score” – a
formula used by financial professionals to predict whether a company is likely to go into
bankruptcy – which indicated that Peabody was is in danger of bankruptcy; (c) an
excessive increase in the Company’s debt to equity ratio; and (d) increased costs due to
the acquisition of an Australian coal company. Plaintiffs fault Defendants for continuing
to allow Plaintiffs “to gamble their retirement savings on a ‘pure coal play,’” despite the
“predictions that the domestic coal market was facing a long-term, if not permanent, seachange.” Id. at 9-10.
Plaintiffs also claim that Peabody stock was “artificially inflated” during the Class
Period because certain information about risks to Peabody’s business was not disclosed to
the market, as found by the NYAG – namely, the extent of the adverse effect that
regulations on emissions from coal combustion would have on Peabody. To support this
nonpublic information claim, Plaintiffs posit two alternative actions that Defendants
should have taken: (1) “directed that all Company and Plan Participant contributions to
the Company Stock fund be held in cash rather than be used to purchase Peabody stock”;
and (2) “closed the Company Stock itself to further contributions and directed that
contributions be diverted from Company Stock.” Id. at 99-100.
The second amended complaint represents that as of the start of the Class Period
on December 14, 2012, the Plans held an estimated total of approximately $48 million in
Peabody stock, and that “using the current pricing scale, Peabody Stock was trading at
$398 at the beginning of the Class Period compared to its price of $6.39 as of March 10,
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2016,” the most recent trading day preceding the filing of the second amended complaint.
(Doc. No. 72 at 14.)
In Counts III and IV, Plaintiffs assert claims against the Director Defendants for
failing adequately to monitor the fiduciary Defendants and provide them with complete
information, and rather, “standing idly by as the Plans suffered enormous losses as a
result of the appointees’ imprudent actions and inaction with respect to Company Stock;
and failing to remove appointees whose performance was inadequate in that they
continued to permit the Plans to make and maintain investments in the Company Stock
despite the practices that rendered it an imprudent investment during the Class Period.”
Id. at 112.
Plaintiffs assert in the second amended complaint itself that their claims are not
foreclosed by Fifth Third Bancorp v. Dudenhoeffer, 134 S. Ct. 2459 (2014). As will be
discusssed below, Dudenhoeffer held with respect to public information claims against
ESOP fiduciaries, that “allegations that a fiduciary should have recognized from publicly
available information alone that the market was over- or undervaluing the stock are
implausible as a general rule, at least in the absence of special circumstances . . . affecting
the reliability of the market price as an unbiased assessment of the security’s value in
light of all public information.” Dudenhoeffer, 134 S. Ct. at 2471-72 (citations omitted).
And with respect to nonpublic information claims against ESOP fiduciaries,
Dudenhoeffer held that to survive a motion to dismiss, such claims must allege alternative
action that the fiduciary could have taken consistent with securities laws, actions that a
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prudent fiduciary would not have viewed as more likely to harm the plan than to help it.
Id. at 2472.
Plaintiffs stated in the second amended complaint that (a) withholding of the
market projections from the public, (b) objective criteria, such Peabody’s Z-Score
predicting Peabody’s demise, (c) Peabody’s “overwhelming unserviceable” debt, and (d)
Defendants’ failure to properly investigate the continued prudence of Peabody Stock,
individually and collectively, represent the kind of “special circumstances” contemplated
by the Supreme Court in Duddenhoeffer. ECF No. 72-7-8. And in support of their
breach of fiduciary duty claims, Plaintiffs cited to Tribble v. v. Edison, Int’l, 135 S. Ct.
1823 (2015), a post-Duddenhoeffer case that held that reaffirmed that “an ERISA
fiduciary’s duty is derived from the common law of trusts,” and held that “[u]nder trust
law, a trustee has a continuing duty to monitor trust investments and remove imprudent
ones.” Tribble, 135 S. Ct. at 1828.
On April 13, 2016, Peabody filed a Notice of Bankruptcy informing the Court that,
on that day, Peabody and certain related entities filed voluntary petitions for relief under
Chapter 11 of the United States Bankruptcy Code.2
Arguments of the Parties
Defendants argue that an impending bankruptcy is not the type of “special
circumstance” the Supreme Court had in mind in Dudenhoeffer. Public information that
a company was headed to bankruptcy, Defendants argue, is the kind of information to

2

On March 17, 2017, the Bankruptcy Court confirmed Peabody’s Chapter 11
Reorganization Plan.
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which the market price would adjust. Similarly, Peabody’s Z-Score and debt load are just
other pieces of public information that were incorporated into the stock price. And, argue
Defendants, a failure to investigate the continued prudence of investing in Peabody stock
would not constitute a “special circumstance” under Dudenhoeffer because the extent to
which Defendants monitored Peabody stock had no impact on its market price or the
price’s reliability. When asked at oral argument what he thought “special circumstances”
in this context meant, counsel for Defendants responded that a special circumstance
would be if, for example, the fiduciary was aware that the books of the company were not
accurate.
Defendants contend that Plaintiffs are improperly “short circuiting”
Duddenhoeffer’s careful delineation of distinct tests for public information and nonpublic
information claims by arguing that the Peabody projections that were undisclosed until
November 8, 2015, constitute a “special circumstance” for Plaintiffs’ public information
claim. Defendants further argue that Plaintiffs’ nonpublic information claim fails
because Plaintiffs have not plausibly alleged an alternative action that Defendants could
have taken that a prudent fiduciary in the same circumstances could not have viewed as
more likely to harm the Peabody stock fund than to help it, as Dudenhoeffer requires.
Defendants argue that the failure to monitor claims in Counts III and IV are derivative of
the breach of prudence claims, and so fail too, as a matter of law.
In response, Plaintiff reassert that the following allegations, individually and
collectively, represent “special circumstances” under Dudenhoeffer that rendered reliance
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on Peabody’s stock price imprudent: (1) Defendants’ withholding, until November 8,
2015, its market projections about the impact of potential climate change regulatory
actions; (2) Peabody’s Z-Score and unserviceable debt; and (3) Defendants’ failure to
investigate the continued prudence of investing in Peobody stock. ECF No. 88 at 9-10.
Plaintiffs argue that Peabody’s actions in hiring Gallagher were simply too little too late.
Plaintiffs maintain that their nonpublic information claim can proceed, as the
complaint plausibly alleges that an earlier disclosure of Peabody’s actual projections of
its financial future “would have resulted in fewer misrepresentations, which would
inevitably led to a smaller loss by the Plans, or at the very least would have let
Participants understand the true risks of Peabody Stock.” Id. at 14 n. 41. Lastly,
Plaintiffs argue that their failure-to-monitor claims can stand alone.
DISCUSSION
To survive a motion to dismiss for failure to state a claim, a complaint must
contain “sufficient factual matter, accepted as true, to state a claim to relief that is
plausible on its face.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citation omitted).
The court must accept the complaint’s factual allegations as true and construe them in the
plaintiff’s favor, but it is not required to accept the legal conclusions the complaint draws
from the facts alleged. Id. at 678. “A claim has facial plausibility when the plaintiff
pleads factual content that allows the court to draw the reasonable inference that the
defendant is liable for the misconduct alleged.” Id.; see also McDonough v. Anoka Cty.,
799 F.3d 931, 945 (8th Cir. 2015).
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Public Information Claim
ERISA imposes duties of loyalty and prudence on a plan fiduciary. 29 U.S.C.
§ 1104(a)(1)(A)-(B). Prudence requires the fiduciary to act “with the care, skill,
prudence, and diligence under the circumstances then prevailing that a prudent [person]
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.” Id. This includes choosing wise
investments and monitoring investments to remove imprudent ones. Tibble, 135 S. Ct. at
1828-29.
A close reading of the Dudenhoeffer opinion cited above is called for. The
Supreme Court decision consists of two interrelated parts. In the first part, the Supreme
Court considered whether ESOP fiduciaries were entitled to a special “presumption of
prudence,” or whether they were subject to the same duty of prudence that applies to
ERISA fiduciaries in general (except that they need not diversify the plan’s assets). In
the second section, the Court considered whether, when the correct standard of prudence
was applied, the plaintiffs in that case stated a claim.
In that case, participants in Fifth Third Bancorp’s ESOP brought a putative class
action against Fifth Third Bancorp (their employer) and various of its officers under
ERISA, alleging that the defendants were plan fiduciaries who breached their duty of
prudence by continuing to buy and hold Fifth Third Bancorp stock when they knew or
should have known that stock was overvalued and excessively risky. The Supreme Court
described the complaint as follows:
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The complaint alleges that by July 2007, the fiduciaries knew or should
have known that Fifth Third’s stock was overvalued and excessively risky
for two separate reasons. First, publicly available information such as
newspaper articles provided early warning signs that subprime lending,
which formed a large part of Fifth Third’s business, would soon leave
creditors high and dry as the housing market collapsed and subprime
borrowers became unable to pay off their mortgages. Second, nonpublic
information (which petitioners knew because they were Fifth Third
insiders) indicated that Fifth Third officers had deceived the market by
making material misstatements about the company’s financial prospects.
Those misstatements led the market to overvalue Fifth Third stock—the
ESOP’s primary investment—and so petitioners, using the participants’
money, were consequently paying more for that stock than it was worth.
The complaint further alleges that a prudent fiduciary in petitioners’
position would have responded to this information in one or more of the
following ways: (1) by selling the ESOP's holdings of Fifth Third stock
before the value of those holdings declined, (2) by refraining from
purchasing any more Fifth Third stock, (3) by canceling the Plan’s ESOP
option, and (4) by disclosing the inside information so that the market
would adjust its valuation of Fifth Third stock downward and the ESOP
would no longer be overpaying for it.
Rather than follow any of these courses of action, petitioners continued to
hold and buy Fifth Third stock. Then the market crashed, and Fifth Third’s
stock price fell by 74% between July 2007 and September 2009, when the
complaint was filed. Since the ESOP’s funds were invested primarily in
Fifth Third stock, this fall in price eliminated a large part of the retirement
savings that the participants had invested in the ESOP. (The stock has since
made a partial recovery to around half of its July 2007 price.)
Duddenhoeffer, 134 S. Ct. at 2464.
The district court dismissed the complaint for failure to state a claim, but the Sixth
Circuit reversed, concluding that ESOP fiduciaries are entitled to a “presumption of
prudence” but that the presumption was an evidentiary one and therefore did not apply at
the pleading stage. The court went on to hold that the complaint stated a claim for breach
of fiduciary duty.
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As noted above, the Supreme Court, in the first part of its opinion, considered
whether ESOP fiduciaries were entitled to any special presumption of prudence, and held
they were not. In reaching this conclusion, the Court canvassed the varying approaches
taken by circuit courts on the matter. The Court cited cases from the Ninth and Seventh
Circuits that recognized the presumption of prudence, but that held the presumption could
be overcome at the pleading stage by allegations that “clearly implicate the company’s
viability as an ongoing concern,” Dudenhoeffer, 134 S. Ct. at 2466 (quoting Quan v.
Computer Scis. Corp., 623 F.3d 870, 882 (9th Cir. 2010)0, or “that the company faced
‘impending collapse’ or ‘dire circumstances,’” id. (quoting White v. Marshall & Ilsley
Corp., 714 F.3d 980, 989 (7th Cir. 2013)).
The Supreme Court then rejected the presumption of prudence standard,
based on the statutory language of ERISA itself. The Court recognized
Congressional intent to encourage ESOPs, and that allowing meritless claims
against ESOP fiduciaries would frustrate that intent. But the Court stated as
follows:
[W]e do not believe that the presumption at issue here is an
appropriate way to weed out meritless lawsuits or to provide the
requisite “balancing.” The proposed presumption makes it
impossible for a plaintiff to state a duty-of-prudence claim, no matter
how meritorious, unless the employer is in very bad economic
circumstances. Such a rule does not readily divide the plausible
sheep from the meritless goats. That important task can be better
accomplished through careful, context-sensitive scrutiny of a
complaint’s allegations. We consequently stand by our conclusion
that the law does not create a special presumption of prudence for
ESOP fiduciaries.
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Id. at 2470-71.
The Supreme Court explained that other mechanisms existed for weeding
out meritless claims, noting, specifically, a motion to dismiss for failure to state a
claim. And in the second part of its decision, the Court set a high bar for stating a
claim against an ESOP fiduciary, as follows:
In our view, where a stock is publicly traded, allegations that a fiduciary
should have recognized from publicly available information alone that the
market was over- or undervaluing the stock are implausible as a general
rule, at least in the absence of special circumstances . . . affecting the
reliability of the market price as an unbiased assessment of the security’s
value in light of all public information.
Id. at 2471-72 (citations omitted).
The Supreme Court stated that it was not considering what special
circumstance a plaintiff could point to in order to survive a motion to dismiss, but
determined that in the case before it such a circumstance was not pleaded:
In this case, the Court of Appeals held that the complaint stated a
claim because respondents allege that Fifth Third engaged in lending
practices that were equivalent to participation in the subprime
lending market, that Defendants were aware of the risks of such
investments by the start of the class period, and that such risks made
Fifth Third stock an imprudent investment. The Court of Appeals
did not point to any special circumstance rendering reliance on the
market price imprudent. The court’s decision to deny dismissal
therefore appears to have been based on an erroneous understanding
of the prudence of relying on market prices.
Id. at 2472.
The Eighth Circuit has not yet addressed the question of what “special
circumstances” a plaintiff could allege that would render reliance on the market price
imprudent. The Seventh Circuit has reflected that “[Dudenhoeffer] suggested that the
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special circumstances might include something like available public information tending
to suggest that the public market price did not reflect the true value of the shares.” Allen
v. GreatBanc Trust Co., 835 F.3d 670, 679 (7th Cir. 2016). This Court believes a close
question is presented with respect to whether a company’s impending bankruptcy is a
special circumstance contemplated by the Supreme Court, at the pleading stage. As
described above, while striking down the presumption of prudence, the Supreme Court
offered ESOP fiduciaries a different protection from meritless claims, namely a high
standard for stating a claim. But did the Supreme Court intend to set the standard so high
as to preclude the kinds of “careening to bankruptcy” cases courts had found overcame
the presumption?
This Court concludes that the answer is yes. As quoted above, the Supreme Court
specifically stated that the presumption, along with the exception for “careening to
bankruptcy” cases, was not a good rule for weeding out meritless cases. While there is
credible contrary authority, the weight of authority appears to agree with this conclusion.
See In re 2014 RadioShack ERISA Litig., 165 F. Supp. 3d 492, 504-05 (N.D. Tex. 2016)
(holding that the a company’s “slide into bankruptcy” rendering its stock excessively
risky was not a “special circumstance” under Dudenhoeffer); Pfeil v. State St. Bank &
Trust Co., 806 F.3d 377, 380 (6th Cir. 2015) (holding that a company’s “severe business
problems that resulted, ultimately, in its bankruptcy” did not constitute a Dudenhoeffer
special circumstance; explaining that “organized securities markets are so efficient at
discounting securities prices that the current market price of a security is highly likely
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already to impound the information that is known or knowable about the future prospects
of that security”), cert. denied, 136 S. Ct. 2511 (2016); In re Citigroup ERISA Litig., 104
F. Supp. 3d 599, 615 (S.D.N.Y 2015) (same); but see Gedek v. Perez, 66 F. Supp. 3d 368,
375, 379 (W.D.N.Y. 2014) (“Nor did the [Supreme] Court [in Dudenhoeffer] address the
situation presented by the plaintiffs’ factual allegations here, i.e., allegations that a
company’s downward path was so obvious and unstoppable that, regardless of whether
the market was ‘correctly’ valuing the stock, the fiduciaries should have halted or
disallowed further investment in it”; “[the plaintiffs] allege that Kodak stock was on a
long, steady, virtually unstoppable downhill slide, and that no prescience or inside
knowledge was needed to realize that it would continue to do so. That, in my view, states
a claim under ERISA as to the ESOP.”).
This does not quite end the inquiry here, because another fact was pleaded
as a “special circumstance . . . affecting the reliability of the market price as an
unbiased assessment of the security’s value in light of all public information.”
That alleged fact is that Peabody misstated in its SEC Form 10-K filings from
2011 through 2014, that it could not predict the impact regulatory action regarding
emissions from coal combustion would have on Peabody’s future business, when
in fact, Peabody had made market projections that found that such regulatory
action would have a “severe negative impact” on its future financial condition.
But this is just the kind of allegation that the plaintiffs in Dudenhoeffer itself
asserted, and that the Supreme Court did not consider a special circumstance
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allowing a public information claim to go forward. Rather, as quoted above, the
Court considered such an allegation as potentially supporting a nonpublic
information claim. This Court will do the same.
Lastly, reliance on Tibble does not avail Plaintiffs, given their failure to
allege facts to support a claim that Defendants here breached their fiduciary duties
by not monitoring the ESOP investments. The essence of Plaintiffs’ claims is that
Defendants made imprudent decisions, not that Defendants abandoned their
decision-making duties. See In re Lehman Bros. Sec. & ERISA Litig., 113 F.
Supp. 3d 745, 758 (S.D.N.Y. 2015) (“Neither Dudenhoeffer nor Tibble permits
ERISA claims to withstand challenge based on such threadbare allegations” that
the defendants did not monitor ESOP investments), aff’d sub nom. Rinehart, 817
F.3d 56.
In sum, the Court will grant Defendants’ motion to dismiss Plaintiffs’ claim
that Defendants breached their duty of prudence under ERISA by retaining and
continuing to purchase Peabody stock from December 14, 2012, onwards, in light
of public information that established that such conduct was not reasonable.
Nonpublic Information Claim
In considering Plaintiff’s claim based on Defendants’ knowledge of
Peabody’s alleged failure to disclose, from 2011 up to November 8, 2015 (the date
of the Assurance of Discontinuance), that it had made adverse market projections,
and Peabody’s other alleged deceptive representations regarding the future of coal,
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the Court again turns to Dudenhoeffer. As noted above, the Supreme Court held in
that case that to state a viable nonpublic information claim, an ESOP/ERISA
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.” Dudenhoeffer, 134 S. Ct. at 2472. The Supreme Court
elaborated that
lower courts faced with such claims should also 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 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), the Supreme Court clarified
that the complaint itself must plausibly allege “that a prudent fiduciary in the same
position ‘could not have concluded’ that the alternative action ‘would do more
harm than good.’” Id. at 760 (quoting Dudenhoeffer, 134 S. Ct. at 2463). The
Court explained that a lower court cannot simply presume that the plaintiff’s
proposed alternatives would satisfy the Dudenhoeffer standards; rather, “the facts
and allegations supporting that proposition should appear in the . . . complaint.”
Id.

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Here, the Court concludes that the complaint does not meet this requirement.
Plaintiffs do not allege, for each proposed alternative, that a prudent fiduciary could not
have concluded that the alternative would do more harm than good, nor do they offer
facts that would support such an allegation. Thus, Plaintiffs’ nonpublic information
claim fails. See Whitley v. BP, P.L.C., 838 F.3d 523, 529 (5th Cir. 2016) (reversing the
district court’s grant of ESOP participants’ motion to amend where the proposed
amended complaint alleged that plan fiduciaries had inside information that “BP stock
was overpriced because BP had a greater risk exposure to potential accidents than was
known to the market” prior to the Deepwater Horizon explosion, but did not allege that a
prudent fiduciary could not have concluded that the alternative would do more harm than
good, and did not offer facts that would support such an allegation); Rinehart v. Lehman
Bros. Holdings Inc., 817 F.3d 56, 68 (2d Cir. 2016) (affirming a dismissal under Rule
12(b)(6) because the plaintiffs’ complaint did not “plausibly plead facts and allegations
showing that a prudent fiduciary during the class period ‘would not have viewed
[disclosure of material nonpublic information regarding Lehman or ceasing to buy
Lehman stock] as more likely to harm the fund than to help it’”) (quoting Amgen, 136 S.
Ct. at 759)), cert. denied, No. 16-562, 2017 WL 670226 (Feb. 21, 2017); In re Jpmorgan
Chase & Co. Erisa Litig., No. 12 CIV. 04027 (GBD), 2016 WL 110521, at *3 (S.D.N.Y.
Jan. 8, 2016), aff’d sub nom. Loeza v. John Does 1-10, 659 F. App’x 44 (2d Cir. 2016); In
re: Idearc Erisa Litig., No. 3:09-CV-2354-N, 2016 WL 7189981, at *6 (N.D. Tex. Oct. 4,

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2016); Martone v. Whole Foods Mkt., Inc., No. 1:15-CV-877 RP, 2016 WL 5416543, at
*8 (W.D. Tex. Sept. 28, 2016).
Breach of Duty-to-Monitor-Others Claim
The Court agrees with Defendants that Plaintiffs’ claims that Defendants breached
their duty to monitor others are derivative of the breach of loyalty/prudence claims, and
therefore, in light of the above rulings, fail as a matter of law. See Brown v. Medtronic,
Inc., 628 F.3d 451, 461 (8th Cir. 2010) (holding that derivative monitoring claims cannot
“survive without a sufficiently pled theory of an underlying breach”) (citing Ward v.
Avaya, Inc., 487 F. Supp. 2d 467, 481 (D.N.J. 2007) (“Plaintiff’s complaint has failed to
state a claim for breach of fiduciary duty . . . as to any of the Plans’ fiduciaries.
Consequently, Plaintiff's claims for failing to adequately monitor these fiduciaries must
also fail.”)).
CONCLUSION
Accordingly,
IT IS HEREBY ORDERED that Defendants’ motion to dismiss is GRANTED.
(Doc. No. 83.)
A separate Order of Dismissal shall accompany this Memorandum and Order.

_______________________________
AUDREY G. FLEISSIG
UNITED STATES DISTRICT JUDGE
Dated this 30th day of March, 2017.

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