Geroulo v. Citigroup, Inc. et al

Filing 106

OPINION AND ORDER. The Court has considered all of the remaining arguments of the parties. To the extent not specifically addressed above, they are either moot or without merit. For the foregoing reasons, the defendants' motion to dismiss is gra nted. The Clerk is directed to enter Judgment dismissing the Complaint and closing this case. The Clerk is also directed to close all pending motions. re: 90 MOTION to Dismiss the Third Consolidated Amended Complaint filed by Glenn Rega n, Citibank, N.A., Larry Jones, Jorge Bermudez, Kenneth Derr, C. Michael Armstrong, Thomas Santagelo, Marcia Young, Leo Viola, Christine Simpson, Judith Rodin, Robert Grogan, Vikram S. Pandit, Timothy Tucker, Robin Leopold, Lawrence R. R icciardi, Richard D. Parsons, Donald Young, Alain J.P. Belda, Robert L. Ryan, Michael Burke, Winfried F.W. Bischoff, Franklin Thomas, Roberto Hernandez, Administration Committee Of Citigroup, Inc., Robert Rubin, Anne M. Mulcahy, The Citigroup 401(K) Plan Investment Committee, Andrew N. Liveris, Richard Tazik, Citigroup, Inc., John M. Deutch. (Signed by Judge John G. Koeltl on 5/13/2015) (rjm)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
────────────────────────────────────
11 Cv. 7672 (JGK)
IN RE CITIGROUP ERISA LITIGATION
OPINION AND ORDER
────────────────────────────────────
JOHN G. KOELTL, District Judge:
During the subprime mortgage crisis of 2008, the price of
Citigroup Inc. (“Citigroup”) stock dropped precipitously.

The

Citigroup 401(k) Plan (the “Citigroup Plan”) and the Citibuilder
401(k) Plan for Puerto Rico (the “Citibuilder Plan”) required
that the Plans include an option to allow employees to invest in
the Citigroup Common Stock Fund, which is invested in Citigroup
common stock.

The plaintiffs, participants and beneficiaries of

the Plans, claim that the various defendants were responsible
for the Plans’ investments and breached their fiduciary duties
by failing to limit the Plans’ investments in Citigroup common
stock, and otherwise violated their fiduciary duties under the
Employee Retirement Income Security Act of 1974 (“ERISA”), 29
U.S.C. § 1001, et seq.
The defendants now move to dismiss the Complaint.

They

argue, among other things, that this action is time-barred by
ERISA’s statute of limitations, 29 U.S.C. § 1113, and that there
is no plausible claim that they breached any duties in following
1

the Plans’ requirements to make Citigroup stock available as an
investment option for employees.
More specifically, the plaintiffs, Steven Muehlgay, Sherri
M. Harris, Chad D. Meisner, Frederick L. Winfield, Thomas
Ehrbar, and Mark Geroulo (collectively, “the plaintiffs”) are
employee participants or beneficiaries of the Citigroup Plan.
They sue on behalf of themselves and others similarly situated
to recover losses suffered by the Plans from January 16, 2008,
to March 5, 2009.

The plaintiffs allege that the defendants

Citigroup, Citibank, N.A., the Plan Administration Committee of
Citigroup Inc. (“the Administration Committee”), the 401(k) Plan
Investment Committee of Citigroup Inc. (“the Investment
Committee”), and individual corporate directors and officers of
Citigroup 1 (collectively, “the defendants”), violated their
fiduciary duties to the plaintiffs under ERISA.
The Plans are defined contribution plans or individual
account plans consisting of contributions made by employees and
the employer, Citigroup.

The Plans offer participants a variety

of investment options, and participants are solely responsible

1 The individual defendants are as follows: (1) the Director Defendants—Sir
Winfried F.W. Bischoff, Vikram S. Pandit, and Robert E. Rubin; (2) the
Administration Committee Defendants—Jorge Bermudez, Michael Burke, Steve
Calabro, Larry Jones, Jill Rorschach, Thomas Santangelo, Alisa Seminara, and
Richard Tazik; (3) the Investment Committee Defendants—Bruce Cohen, Robert
Grogan, Robin Leopold, Glenn Regan, Christine Simpson, Timothy Tucker, Leo
Viola, Beth Webster, Donald Young, Marcia Young, and Richard Tazik, who is
also an Administrative Committee Defendant; and (4) various John Doe
Defendants.

2

for determining how contributions are invested among the
available options.

The Plans require that they include as an

investment option the Citigroup Common Stock Fund, invested
exclusively in Citigroup common stock plus limited liquid
investments necessary to meet liquidity needs.

Participants in

the Citigroup Plan and the Citibuilder Plan are allowed to
contribute up to 50% of their eligible pay, up to annual
statutory limitations. 2

In certain circumstances, Citigroup

makes matching contributions into the Plans in the form of Citi
stock, although participants are able to convert that stock into
any other investment.

Third Am. Consol. Compl. (“Compl.”) ¶ 67;

Paterson Decl. Ex. 5 (Citigroup 401(k) Plan As Amended and
Restated Effective January 1, 2009 (“Citigroup Plan”)) § 7.02;
Citigroup Plan § 5.04; Paterson Decl. Ex. 4 (Citibuilder 401(k)
Plan for Puerto Rico As Amended and Restated Effective January
1, 2009 (“Citibuilder Plan”)) § 7.02.
This is the second consolidated action against the
defendants asserting ERISA claims based on the decline in
Citigroup’s stock price during the subprime mortgage crisis.
The first consolidated action was based on a drop in the price
of Citigroup stock from $55.70 per share on January 1, 2007, to
$26.94 per share on January 15, 2008.

On August 31, 2009, Judge

2 Prior to January 1, 2009, participants in the Citibuilder Plan were only
allowed to contribute up to 10% of their eligible pay. Third Am. Consol.
Compl. ¶ 65.

3

Stein granted the defendants’ motion to dismiss that action, and
on October 19, 2011, the Second Circuit Court of Appeals
affirmed.

Following the decision by the Court of Appeals,

numerous class actions were filed and consolidated.

In the

current Third Consolidated Amended Complaint, the plaintiffs
seek recovery based on a drop in the price of Citigroup stock
from $27.23 per share on January 16, 2008, to $0.97 per share on
March 5, 2009.
The plaintiffs allege five separate claims for violations
of ERISA. The plaintiffs allege that the defendants violated
their fiduciary duties of prudence and loyalty under ERISA by
allowing the Plans to continue to hold and purchase Citigroup
stock despite abundant public information regarding Citigroup’s
precarious condition and the riskiness of Citigroup stock.

The

plaintiffs also allege a duty of prudence claim based on the
defendants’ failure to respond prudently to nonpublic
information.

The plaintiffs bring further claims for the

failure of Citigroup, Citibank, and the Director Defendants to
monitor and adequately inform other fiduciaries, and a claim for
co-fiduciary liability against all defendants.

The defendants

now move to dismiss the Third Consolidated Amended Complaint for
failure to state a claim upon which relief can be granted
pursuant to Federal Rule of Civil Procedure 12(b)(6).

4

I.
In deciding a motion to dismiss pursuant to Rule 12(b)(6),
the allegations in the complaint are accepted as true, and all
reasonable inferences must be drawn in the plaintiffs’ favor.
McCarthy v. Dun & Bradstreet Corp., 482 F.3d 184, 191 (2d Cir.
2007); Arista Records LLC v. Lime Group LLC, 532 F. Supp. 2d
556, 566 (S.D.N.Y. 2007).

The Court's function on a motion to

dismiss is “not to weigh the evidence that might be presented at
a trial but merely to determine whether the complaint itself is
legally sufficient.”
Cir. 1985).

Goldman v. Belden, 754 F.2d 1059, 1067 (2d

The Court should not dismiss the complaint if the

plaintiffs have stated “enough facts to state a claim to relief
that is plausible on its face.”
U.S. 544, 570 (2007).

Bell Atl. Corp. v. Twombly, 550

“A claim has facial plausibility when the

plaintiff[s] plead[] factual content that allows the court to
draw the reasonable inference that the defendant is liable for
the misconduct alleged.”
(2009).

Ashcroft v. Iqbal, 556 U.S. 662, 678

While the Court should construe the factual allegations

in the light most favorable to the plaintiffs, “the tenet that a
court must accept as true all of the allegations contained in
the complaint is inapplicable to legal conclusions.” Id.
When presented with a motion to dismiss pursuant to Rule
12(b)(6), the Court may consider documents that are referenced
in the complaint, documents that the plaintiffs relied on in
5

bringing suit and that are either in the plaintiffs’ possession
or that the plaintiffs knew of when bringing suit, or matters of
which judicial notice may be taken. See Chambers v. Time Warner,
Inc., 282 F.3d 147, 152–53 (2d Cir. 2002); see also In re Am.
Exp. Co. ERISA Litig., 762 F. Supp. 2d 614, 618 (S.D.N.Y. 2010).
II.
The Court accepts the following factual allegations for the
purposes of the motion to dismiss.
A.
The plaintiffs are individual participants in the Citigroup
Plan who held Citigroup stock in their individual Plan accounts
during the class period.

Compl. ¶¶ 35-38.

Citigroup and

Citibank are named sponsors of the Citigroup Plan and
Citibuilder Plan, respectively.

Compl. ¶¶ 41-42.

The

plaintiffs allege that under the terms of the Plans and various
trust agreements, Citigroup had the authority to appoint
trustees for the Plans and to appoint members of the
Administration and Investment Committees.

Compl. ¶¶ 89-93.

During a portion of the class period, Citigroup appointed
Citibank as a trustee of the Citigroup Plan.

Compl. ¶ 99.

Although Citigroup and Citibank delegated management and
administrative duties to the Administrative and Investment
Committees, the plaintiffs allege that Citigroup and Citibank
retained some of these duties.

Compl. ¶¶ 94, 100.
6

Accordingly,

the plaintiffs allege that Citigroup and Citibank are both named
and de facto fiduciaries of the Plans within the meaning of
ERISA § 3(21)(A), 29 U.S.C. § 1102(21)(A), because they exercise
“authority or control respecting management or disposition of
[Plan] assets,” and exercise “discretionary authority or
discretionary control respecting management” of the plan.
Compl. ¶¶ 98, 102 (alteration in original) (quoting ERISA §
3(21)(A)).
The Director Defendants—Bischoff, Pandit, and Rubin—were
members of the Citigroup Board of Directors during the class
period.

Compl. ¶¶ 45-47.

The plaintiffs allege that the

Director Defendants appointed the Administration and Investment
Committee Members, had a duty to monitor and provide necessary
information to their appointees, and consequently are de facto
fiduciaries of the Plans within the meaning of ERISA § 3(21)(A).
The named fiduciaries of the Plans subject to ERISA are the
Administration Committee and the Investment Committee.
¶¶ 107, 112.

Compl.

The Administration Committee was the administrator

of the Plans and was “charged with managing the operation and
administration of the Plans.”

Compl. ¶ 106.

The Plans confer

upon the Administration Committee “the power and the duty to
take all actions and to make all decisions that shall be
necessary or proper to carry out the provisions of the Plan.”
Compl. ¶ 108.

These powers include, among others, the authority
7

to “make and enforce . . . rules and regulations,” to modify,
change, establish, or terminate such rules and regulations, and
to “construe the Plan[s] and to determine all questions of fact
and law that may arise hereunder.”

Compl. ¶ 109.

The

Administration Committee also has the power and duty to
establish any “timing or frequency limitations” on investments
after those limitations have been approved by the Investment
Committee.

Compl. ¶ 110.

The Investment Committee is authorized by the Plans to
“manage and control the appointment and removal of investment
managers and retain advisors for the Plans as well as establish
or remove investment funds for the Plans.”

Compl. ¶ 112.

The

Investment Committee has the power to approve “any timing or
frequency limitations” on accounts within the Plans, including
the Citigroup Stock Fund.

Compl. ¶ 113.

Section 7.09(e) of the

Citigroup Plan provides that in the event that a duty exists to
determine whether the provisions that require investment in the
Citigroup Stock Fund should be modified, “such duty shall be
that of the Investment Committee.”
Citigroup Plan § 7.09(e).

Compl. ¶ 114; see also

Pursuant to a sub-trust agreement

appointing the Investment Committee to manage the Plans, the
Investment Committee “shall not issue any directions that are in
violation of the terms of the Plan . . . or prohibited by
ERISA.”

Compl. ¶ 115.
8

The two Plans are both employee pension benefit plans under
ERISA § 3(2)(A), 29 U.S.C. § 1002(2)(A), and include a separate
individual account for each participant based on that
participant’s contributions, and therefore are also defined
contribution plans under ERISA § 3(34), 29 U.S.C. § 1002(34).
Compl. ¶ 57.

The Citigroup Plan was initially established

effective January 1, 1987, and the Citibuilder Plan was
initially established effective January 1, 2001.

Compl. ¶ 60.

The Plans’ assets were held in trust in accordance with ERISA
§ 403(a), 29 U.S.C. § 1103(a) by various entities during the
class period.

Compl. ¶ 61.

The Citigroup Plan is designated as

a stock bonus plan, a portion of which is designated as an
employee stock ownership plan (“ESOP”).

Compl. ¶ 58.

The

Citibuilder Plan is a profit sharing plan, and it is only
available to employees who are “bona fide resident[s] of Puerto
Rico or who perform[] services primarily in Puerto Rico.”

Id.

Under the Citigroup Plan, eligible employees are permitted
to make elective contributions and receive Citigroup matching
contributions to put towards various investments.

Participants

in the Citigroup Plan are allowed to contribute up to 50% of
their eligible pay, up to annual statutory limitations.
¶ 65.

Compl.

Citibuilder Plan participants were allowed to contribute

up to 10% of their eligible pay, until the Citibuilder Plan was
amended effective January 1, 2009, so that Citibuilder Plan
9

participants could contribute up to 50%, subject to annual
statutory limitations.

Id.

Pursuant to the Plans, Citigroup

made matching contributions to the Plans in Citigroup stock.
Compl. ¶ 67; see also Citigroup Plan § 5.04; Citibuilder Plan §
5.04.
The Investment Committee makes available several different
Investment Funds for participants in each Plan, and may add or
remove Investment Funds without their consent.
§ 7.01; Citibuilder Plan § 7.01.

Citigroup Plan

However, each Plan requires

that “the Citigroup Common Stock Fund . . . be permanently
maintained as an Investment Fund under the Plan.”

Compl. ¶ 62.

Both Plans allow participants to determine the allocation of
their accounts among the different Investment Funds by filing
their investment selections with the Investment Committee.
Citigroup Plan § 7.03; Citibuilder Plan § 7.03.

Finally, each

Plan contains the following provision:
Notwithstanding any other provisions of the Plan or
instrument evidencing the Trust, neither the Trustee, the
Committee, nor the Investment Committee shall have any
authority, discretion, responsibility or liability with
respect to the Participant’s selection of an Investment Fund
in which their Accounts will be invested.
Except for
contributions expressly required to be invested in the
Citigroup Common Stock Fund under the terms of the Plan, the
entire authority, discretion, responsibility and any results
attributable
with
respect
to
the
investment
of
a
Participant’s Accounts shall be the responsibility of the
individual Participant.

10

Citigroup Plan § 7.06; Citibuilder Plan § 7.06.

Citigroup stock

was the single largest plan asset in the time leading up to the
class period, comprising approximately 32% of the total assets
of each plan as of January 2007.

Compl. ¶ 69.

B.
The plaintiffs allege that in the time leading up to the
class period and during the class period, Citigroup “set itself
up for collapse” through a heavy volume of risky bets on the
subprime mortgage market, including acquiring subprime loan
originators, originating and purchasing dubious mortgage loans,
creating and investing in Collateralized Debt Obligations
(“CDOs”) with underlying mortgage-backed securities at high risk
of default, investing in CDOs through off-balance-sheet
structured investment vehicles (“SIVs”), and essentially
guaranteeing the CDOs it sold through liquidity puts, which
required Citigroup to repurchase the CDOs if they became
illiquid.

Compl. ¶ 117.

The plaintiffs also allege that

Citigroup increasingly leveraged itself while pursuing these
subprime mortgage bets, leaving the Company with significant
losses and insufficient capital and liquidity to absorb those
losses.

Id.

According to the plaintiffs, by the start of the

class period on January 16, 2008, the defendant fiduciaries
should have been aware through public and internal “warning

11

flags” that it was imprudent to maintain Citigroup stock as an
investment for participants in the Plans.

Compl. ¶ 118-19.

The Complaint recounts Citigroup’s role in the subprime
mortgage crisis in extensive detail, alleging the series of
events from 2006 to 2009 through which Citigroup reached its
precarious position, and the public reports that allegedly put
the fiduciaries on notice of Citigroup’s poor health.

Relying

on newspaper articles from January, April, and November 2008,
the Complaint describes how Citigroup began to increase its risk
taking in 2004 under the guidance of defendant Rubin and other
Citigroup executives, eventually becoming the “second-leading
underwriter of CDOs” by 2006.

Compl. ¶¶ 125-36.

The plaintiffs

allege that as early as 2006 and throughout 2007, some Citigroup
employees warned Citigroup’s top managers that Citigroup was
purchasing defective loans and could face substantial losses as
a result.

Compl. ¶¶ 149-154.

In March 2007, Citigroup held a

conference and issued a report regarding Citigroup’s high
exposure to subprime mortgages and the accompanying risks to
Citigroup.

Compl. ¶¶ 173-79.

On April 11, 2007, Citigroup

announced that it would eliminate about 17,000 jobs in order to
reduce costs and improve profit.

Compl. ¶ 184.

By the summer of 2007, the deepening subprime mortgage
crisis flooded the national news.

In June 2007, the “national

media widely reported” the impending failure of two Bear Sterns
12

hedge funds that were “heavily invested in Citigroup CDOs,”
causing Citigroup’s stock price to begin to decline in late
June.

Compl. ¶ 187.

On October 11, 2007, the ratings agencies

announced the first in a series of ratings downgrades of
thousands of securities held by Citigroup.

Compl. ¶ 203.

Shortly thereafter, Citigroup announced its financial results
for the third quarter of 2007, including write-offs and losses
of billions of dollars due to subprime loans and mortgages.
Compl. ¶ 207.

In late November 2007, Bloomberg News reported

that Goldman Sachs advised clients to sell Citigroup stock, the
sixth analyst firm to do so.

Compl. ¶ 225.

On January 15,

2008, Citigroup reported a net loss of $9.83 billion for the
fourth quarter of 2007, and announced that it would cut its
dividend by 41%.

Compl. ¶ 230.

The same day, Citigroup’s stock

closed at $26.94, having fallen from $54.26 in June 2007.
Compl. ¶¶ 187, 231.

In light of the foregoing, the plaintiffs

contend that by the beginning of the class period on January 16,
2008, the defendant fiduciaries “knew or should have known that
Citigroup was in a perilous situation, and that Citigroup stock
was a manifestly imprudent retirement investment.”

Compl.

¶ 232.
Citigroup’s condition continued its downward trajectory
throughout the duration of the class period.

In public reports

throughout 2008, Meredith Whitney, a Canadian Imperial Bank of
13

Commerce (“CIBC”) analyst, continually denounced Citigroup’s
position, noting among other things that Citigroup had the
largest net exposure to U.S. sub-prime related positions at
$37.3 billion, and that it needed to raise billions of dollars
in capital.

Compl. ¶¶ 235, 239-42, 252, 254.

In its quarterly

Form 10-Q filings throughout the year, Citigroup reported losses
of $5.1 billion, $2.5 billion, and $2.8 billion for the first,
second, and third quarters, respectively.
273.

Compl. ¶¶ 250, 259,

On November 17, 2008, Citigroup announced that it would

cut 52,000 jobs by 2009.

Compl. ¶ 279. The same day, Citigroup

held a meeting for its employees and announced that it would not
mark-to-market $80 billion of its mortgage-related assets, which
allowed Citigroup to avoid revealing the low value of those
assets.

Compl. ¶ 280.

Citigroup received substantial government assistance prior
to and during the class period.

Unbeknownst to the “investing

public” at the time, Citigroup and its subsidiaries borrowed
over $740 billion from the Federal Reserve during 2008, as
documents released in 2010 showed.

Compl. ¶¶ 245-47.

As

Citigroup still struggled to raise capital throughout the year,
the Company received multiple rounds of assistance from the
United States Government pursuant to the Troubled Assets Relief
Program (“TARP”).

On October 14, 2008, Citigroup received $25

14

billion under TARP, along with several other large banks. 3
Compl. ¶ 269.

When Citigroup continued to announce losses and

lay off employees, both the United States Treasury and the
Federal Reserve again stepped in to assist Citigroup.

On

November 23, 2008, the Federal Reserve announced that Citigroup
would receive $20 billion in TARP funding and that the Treasury,
Federal Deposit Insurance Corporation, and Federal Reserve would
be guaranteeing $306 billion of Citigroup’s loans and
securities.

Compl. ¶ 287. Finally, at the end of February 2009,

the federal government announced it would take a 36% stake in
Citigroup, a deal that the Wall Street Journal termed a “Third
Bailout.”

Compl. ¶ 297.

While Citigroup received governmental assistance and
reported losses, including a January 2009 announcement of an
$8.29 billion loss in the fourth quarter of 2008 and a February
2009 announcement of a net loss of $27.7 billion for 2008,
Compl. ¶ 290, Citigroup stock continued to fall.

On March 5,

2009, the end of the class period, Citigroup’s stock fell to
$0.97 per share, closing the day at $1.02.

Compl. ¶ 300.

The

plaintiffs allege that in light of the foregoing, the defendant

3 Although Wells Fargo and JP Morgan also received $25 billion in TARP money,
along with six other banks receiving smaller amounts, the plaintiffs allege
that Wells Fargo and JP Morgan only took the funding to give the public
“confidence in the system,” and that Citigroup was the only large bank that
would have failed without the bailout. Compl. ¶ 270 (citing Sheila Bair,
Bull by the Horns 5-6, 106 (2012)).

15

fiduciaries should have known that Citigroup stock was
“excessively risky and an imprudent investment option for the
Plans.”

Compl. ¶ 311.

According to the plaintiffs, based on

the “widely publicized” and “internally available” information,
the fiduciaries should have acted to satisfy their fiduciary
duties to the plaintiffs, such as by halting the purchase of
additional Citigroup stock or divesting the Plans of Citigroup
stock.

Compl. ¶¶ 322, 331.

Instead, the plaintiffs allege that

the fiduciaries took no action, resulting in a “devastating
impact” on the Plans.

Compl. ¶ 72.

According to the 11-K

documents filed for each Plan, the Citigroup Plan held
72,949,002 shares of Citigroup stock as of January 1, 2008, near
the beginning of the class period, at a total value of
approximately $2.147 billion.

Compl. ¶ 70.

By the beginning of

2009, near the end of the class period, the Citigroup Plan held
91,341,613 shares of Citigroup stock, at an approximate value of
$613 million.

Id.

The Citibuilder Plan increased its Citigroup

stock holdings from 144,800 shares on January 1, 2008, to
214,015 shares on January 1, 2009, but the value of the shares
decreased from $4.262 million to $1.4 million.

Compl. ¶ 71.

C.
On November 5, 2007, the first Complaint was filed by
participants in the Plans in a separate action against Citigroup
in the Southern District of New York, asserting claims for
16

breach of fiduciary duties under ERISA.

On September 15, 2008,

the plaintiffs in that action filed a Consolidated Class Action
Complaint against Citigroup, Citibank, various Director
Defendants, the Administration Committee, and the Investment
Committee.

See Consol. Class Action Compl., In re Citigroup

ERISA Litig. (“Citi I”), No. 07cv9790 (ECF No. 75).

Based on

the drop in Citigroup stock from January 1, 2007, to January 15,
2008, the plaintiffs brought six Counts alleging ERISA
violations, including the defendants’ alleged failure to manage
the Plans’ assets prudently and to inform the Plans’
participants adequately, as well as alleged failures to monitor
and inform other fiduciaries and avoid conflicts of interest.
On August 31, 2009, the court granted the defendants’
motion to dismiss the Complaint in its entirety.

See Citi I,

No. 07cv9790, 2009 WL 2762708, at *1 (S.D.N.Y. Aug. 31, 2009).
Judge Stein held, among other things, that the defendants did
not have either the discretion or the duty to override the terms
of the Plans that required investment in Citigroup stock, and
consequently that the plaintiffs’ claims were without merit.
Id. at *7-8, 10, 13.

Judge Stein did not rule on the

plaintiffs’ request to amend the Complaint in the event it was
dismissed.

The request was made in a footnote in the

plaintiffs’ opposition brief.

17

On October 19, 2011, the Second Circuit Court of Appeals
affirmed the dismissal of the Complaint.

See In re Citigroup

ERISA Litig. (“Citi I”), 662 F.3d 128, 133 (2d Cir. 2011).

The

Court first held that only the Administration Committee and the
Investment Committee were fiduciaries, and that the plaintiffs
had not shown how Citigroup and Citibank were “de facto
fiduciaries” with respect to the plaintiffs’ ability to invest
in the Plans.

Id. at 136.

Although the Court disagreed with

the district court’s holding that the fiduciaries had "no
discretion to divest the Plans of employer stock,” id. at 139
(emphasis added), the Court adopted the Moench presumption, a
presumption that an “ESOP fiduciary who invests the assets in
employer stock . . . acted consistently with ERISA by virtue of
that decision.”

Id. at 137 (quoting Moench v. Robertson, 62

F.3d 553, 571 (3d Cir. 1995)).

The Court held that under this

standard, the plaintiffs had not shown that Citigroup was in a
sufficiently “dire” situation to compel the Administration
Committee or the Investment Committee to override the terms of
the Plans.

Id. at 141. 4

4

In Fifth Third Bancorp v. Dudenhoeffer, 134 S. Ct. 2459, 2467 (2014), the
Supreme Court subsequently held that there is no presumption of prudence for
ERISA fiduciaries managing ESOPs, abrogating this portion of the Court of
Appeals’ decision in Citi I.

18

On December 8, 2011, the first Complaint alleging a class
period beginning on January 16, 2008, was filed in this action. 5
On July 30, 2014, the present Third Consolidated Amended
Complaint was filed, alleging five counts of breach of fiduciary
duties in violation of ERISA against the defendants.

Count I

alleges a failure by Citigroup, Citibank, the Investment
Committee, and the Administration Committee to manage Plan
assets prudently based on public information, in violation of
the defendants’ fiduciary duties under ERISA § 404(a)(1).

Count

II alleges a failure by Citigroup, Citibank, the Director
Defendants, and defendants Bermudez and Regan to manage Plan
assets prudently based on nonpublic information.

Count III

alleges a failure by Citigroup, Citibank, and the Director
Defendants to monitor other fiduciaries adequately in violation
of their fiduciary duties under ERISA §§ 404 and 405.

Count IV

alleges a failure by Citigroup, Citibank, the Director
Defendants, and defendants Bermudez and Regan to disclose
necessary information to co-fiduciaries.

Count V alleges co-

fiduciary liability under ERISA § 405(a) against all defendants.
The defendants seek to dismiss all claims pursuant to
Federal Rule of Civil Procedure 12(b)(6).

The plaintiffs oppose

this motion.

5 Plaintiff Mark Geroulo filed the first Complaint in this action on October
28, 2011, but that Complaint sought a class period beginning on November 3,
2008.

19

III.
The defendants contend that the claims are barred by the
ERISA statute of limitations.

ERISA’s statute of limitations

provides as follows:
No action may be commenced under this 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 an omission the latest date on
which the fiduciary could have cured the breach or
violation, 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. § 1113.

In other words, “all plaintiffs must file

suit no later than six years after the breach, but a plaintiff
who acquires ‘actual knowledge of the breach’ cannot sleep on
his rights; he must bring his claim within three years of
acquiring ‘actual knowledge.’”

Leber v. Citigroup 401(k) Plan

Inv. Comm., No. 07cv9329, 2014 WL 4851816, at *3 (S.D.N.Y. Sept.
30, 2014).

Plaintiffs have “actual knowledge” of the breach or

violation within the meaning of ERISA § 413(2), 29 U.S.C. §
1113(2), when they have “knowledge of all material facts
necessary to understand that an ERISA fiduciary has breached his

20

or her duty or otherwise violated the Act.”
Inc., 267 F.3d 181, 193 (2d Cir. 2001).

Caputo v. Pfizer,

“While a plaintiff need

not have knowledge of the relevant law, he must have knowledge
of all facts necessary to constitute a claim.”

Id. (internal

citation omitted).

The plaintiffs filed the present action on

December 8, 2011.

Accordingly, if the plaintiffs had knowledge

of all the facts necessary to constitute their ERISA claims
prior to December 8, 2008, this action is time-barred. 6
The vast majority of events that the plaintiffs describe in
their voluminous Complaint occurred well before December 8,
2008.

Indeed, the plaintiffs allege that Citigroup’s perilous

condition was “abundantly clear” at the beginning of the class
period in January 2008, based on, among other things, Citigroup
stock’s continuous decline in price per share, ratings agency
downgrades, reports from numerous analysts recommending the sale
of Citigroup stock, and the public failures of subprime
mortgages in 2007.

Compl. ¶ 223.

The plaintiffs argue that

only the fiduciaries could have been on notice at that time, and
not the plaintiffs themselves.

But this argument is refuted by

6 Although the plaintiffs refer to the bar date as December 8, 2008, in their
present Complaint, Compl. ¶ 303 n.19, the plaintiffs now contend that the bar
date is October 28, 2008, because plaintiff Geroulo filed his Complaint on
October 28, 2011. However, the October 28 Complaint asserted a significantly
later class period, beginning on November 3, 2008. The December 8 Complaint
was the first to assert the present class period. Therefore, the proper bar
date is December 8, 2008.
In any event, both parties agree that the difference between dates does not
affect the outcome of this case.

21

the plaintiffs’ own pleading.

The events leading to Citigroup’s

position in January 2008 were “very public red flags” and
“widely publicized,” Compl. ¶¶ 223, 322, as were the events that
caused Citigroup’s stock to decline further in 2008.

Indeed,

the plaintiffs use about seven single-spaced pages of their
Complaint to allege the very public “red flags” that were
specific to Citigroup and that demonstrated its dire financial
situation prior to December 2008.

Compl. ¶¶ 323-26.

Throughout

2007 and 2008, the plaintiffs knew that Citigroup stock remained
one of the available investment options in the Plans despite the
flood of public information depicting Citigroup’s steady
downfall.

See Brieger v. Tellabs, Inc., 629 F. Supp. 2d 848,

868-69 (N.D. Ill. 2009) (dismissing plaintiffs’ ERISA claims as
time-barred where, prior to the bar date, the plaintiffs
received a “steady stream of negative news” about company stock
and knew that it remained an option under their investment
plans). 7

To the extent the plaintiffs claim that they were not

aware of all of the publicized information alleged in the
Complaint regarding Citigroup’s decline prior to December 2008,

7

The plaintiffs rely on United States v. Mason Tenders Dist. Council of
Greater New York, 909 F. Supp. 882 (S.D.N.Y. 1995) to argue that they did not
have actual knowledge of all of the material facts of their claims. In that
case, the defendants only pointed to one newspaper article published more
than three years prior to when the plaintiff filed suit that purportedly
showed the plaintiffs had actual knowledge. Id. at 891. By contrast, here
the bulk of the plaintiffs’ evidence was publicized more than three years
prior to the relevant filing date. Rather than one newspaper article, the
plaintiff’s complaint points to an avalanche of adverse publicity about
Citigroup’s financial condition prior to December 8, 2008.

22

Congress did not intend the “actual knowledge requirement to
excuse willful blindness by a plaintiff.” Young v. Gen. Motors
Inv. Mgmt. Corp., 550 F. Supp. 2d 416, 419 n.3 (S.D.N.Y. 2008)
(quoting Edes v. Verizon Commc'ns, Inc., 417 F.3d 133, 142 (1st
Cir. 2005)), aff'd, 325 F. App'x 31 (2d Cir. 2009).
Accordingly, the plaintiffs’ claims are untimely.
The plaintiffs argue that the publically available
information prior to December 2008 did not reveal the process by
which the defendants were evaluating the Plans’ investments, and
therefore the plaintiffs did not have actual knowledge of all of
the material facts necessary to state their ERISA claims.

The

plaintiffs argue that reports that came out after the bar date,
such as a Financial Crisis Inquiry Commission (“FCIC”) Report, a
TARP Report, and a SEC Cease-and-Desist Order, revealed the
necessary information to them.

However, in their Complaint, the

plaintiffs do not describe the allegedly imprudent process
employed by the defendants, and therefore cannot show how any
facts about such a process are material to the plaintiffs’
claims.
Moreover, the more recent reports that the plaintiffs
suggest are necessary for their claims only supplement the
information that was already publicly available before December
2008.

They do not elucidate the decision making process with

respect to investments in Citigroup stock.
23

See, e.g., Compl. ¶¶

133-37 (describing FCIC Report’s finding regarding Citigroup’s
production of mortgage-backed securities); Compl. ¶ 188 (stating
that, according to SEC Cease-and-Desist Order, “by July 2007, it
was well known within Citigroup senior management that the
Company’s subprime exposure topped $50 billion”); Compl. ¶ 276
(noting TARP Report’s finding that Citigroup remained unstable
after its initial infusion of TARP funds).

The actual knowledge

standard does not allow the plaintiffs to extend the statute of
limitations under ERISA by alleging additional facts that echo
what they already knew before the bar date.
The plaintiffs’ remaining contentions are also without
merit.

They argue that they did not file their complaint until

late 2011 because they were awaiting the result of the appeal in
Citi I, including the Citi I plaintiffs’ motion to amend their
Complaint. 8

However, the plaintiffs do not cite any doctrine or

offer much of an explanation for how the Citi I case would toll
their claim.

Indeed, the Citi I case involved a class period

that ended the day before the class period in this case.

No

member of the class in this case could reasonably rely on the
pendency of Citi I, which involved a different class.

8

The Citi I plaintiffs’ motion to amend consisted of a footnote at the end of
their opposition brief in which they “respectfully request[ed] leave to
amend” without specifying any new facts that they would allege. See Citi I
Pl.’s Mem. in Opp. to Def.’s Mot. to Dismiss, at 59 n.77 (ECF No. 87).
Neither Judge Stein nor the Court of Appeals took note of that request.

24

The plaintiffs also argue that Citigroup obfuscated its
condition by downplaying its poor financial health to the
public.

For example, the plaintiffs cite a November 2008 public

statement by defendant Pandit that Citigroup was “entering 2009
in an even stronger position than [it] entered 2008.”
¶ 283.

Compl.

However, the Complaint makes clear that this statement

was contrary to the entirety of public information about
Citigroup’s poor financial health at the time.

On that same

date, Citigroup’s stock had fallen by 23%, and the same November
2008 Wall Street Journal article cited by the plaintiffs for
Pandit’s statement noted that there were “longstanding
frustrations” that Citigroup was not being “sufficiently
transparent.”

Id.

Accordingly, Pandit’s statement cannot be

termed “concealment” for purposes of the ERISA statute of
limitations because it did not wipe away the actual knowledge
that the plaintiffs had of the perilous condition of Citigroup,
the precipitous drop in the stock price, and the continued
availability of the Citigroup Common Stock Fund as an investment
option in the Plans.

See Caputo, 267 F.3d at 190. 9

9 The plaintiffs also argue that their prudence claim is timely because the
defendants had a “continuing obligation” to review the Plans’ assets
throughout the course of the class period, which extended past December 2008.
See Bona v. Barasch, No. 01cv2289, 2003 WL 1395932, at *19 (S.D.N.Y. Mar. 20,
2003) (holding that the defendants had a “continuing duty” to review
investments and that the action was not barred to the extent breaches
occurred within six years of filing the Complaint). However, the plaintiffs
cannot rely on the six-year window provided by ERISA § 1113 if they had
actual knowledge of the alleged breaches more than three years prior to
filing the complaint. See 29 U.S.C. § 1113 (stating that action must be

25

In light of the foregoing, the plaintiffs’ claims under
ERISA are untimely and must be dismissed.
IV.
Moreover, the plaintiffs have failed to state a meritorious
claim for breach of fiduciary duty under ERISA.
A.
The plaintiffs seek to bring claims under both the
Citigroup Plan and the Citibuilder Plan, but no named plaintiff
in this action has standing under the Citibuilder Plan because
no named plaintiff is a participant in the Citibuilder Plan.
Section 502(a)(3) of ERISA provides that a civil action may be
brought “by a participant, beneficiary, or fiduciary (A) to
enjoin any act or practice which violates any provision of this
subchapter or the terms of the plan, or (B) to obtain any other
appropriate equitable relief (i) to redress such violations or
(ii) to enforce any provisions of this subchapter or the terms
of the plan.”

29 U.S.C. § 1132(a)(3).

“The Supreme Court has

construed § 502 narrowly to allow only the stated categories of
parties to sue for relief directly under ERISA.”

Nechis v.

Oxford Health Plans, Inc., 421 F.3d 96, 100-01 (2d Cir. 2005);

commenced “after the earlier of” the two time periods). Moreover, the threeyear statute of limitations based on actual knowledge runs from “the earliest
date on which the plaintiff had actual knowledge of the breach or violation.”
29 U.S.C. § 1113(2); see Phillips v. Alaska Hotel & Rest. Emps. Pension Fund,
944 F.2d 509, 520 (9th Cir. 1991) (“Once a plaintiff knew of one breach, an
awareness of later breaches would impart nothing materially new.”).

26

see Franchise Tax Board v. Construction Laborers Vacation Trust
for S. Cal., 463 U.S. 1, 27 (1983) (“ERISA carefully enumerates
the parties entitled to seek relief under [§ 502(a)(3)]; it does
not provide anyone other than participants, beneficiaries, or
fiduciaries with an express cause of action . . . .”).
The Citibuilder Plan is only available to employees who are
“bona fide resident[s] of Puerto Rico or who perform[] services
primarily in Puerto Rico.”

Compl. ¶ 58.

There are no named

plaintiffs that qualify as participants or beneficiaries for the
Citibuilder Plan.

See Compl. ¶¶ 35-38.

Accordingly, the

plaintiffs do not have standing to seek relief under the
Citibuilder Plan.

See In re SLM Corp. ERISA Litig.,

No. 08cv4334, 2010 WL 3910566, at *12 (S.D.N.Y. Sept. 24, 2010)
(“Because Plaintiffs do not claim to be participants,
beneficiaries or fiduciaries of the Retirement Plan, they lack
statutory standing.”), aff'd sub nom. Slaymon v. SLM Corp., 506
F. App'x 61 (2d Cir. 2012). 10

The plaintiffs thus cannot assert

claims for breach of fiduciary duties related to the Citibuilder
Plan.

Therefore, the Court will only consider the plaintiffs’

claims under the Citigroup Plan.

10

The plaintiffs’ arguments that they have standing focus entirely on
principles of class standing. However, the principle that only participants,
beneficiaries, or the Secretary of Labor may bring suit under ERISA is a
distinct principle of statutory standing. See In re SLM Corp., 2010 WL
3910566, at *12.

27

B.
“In every case charging breach of ERISA fiduciary duty, the
threshold question is whether that person was acting as a
fiduciary (that is, was performing a fiduciary function) when
taking the action subject to complaint.”

Coulter v. Morgan

Stanley & Co. Inc., 753 F.3d 361, 366 (2d Cir. 2014) (quoting
Pegram v. Herdrich, 530 U.S. 211, 226 (2000)) (alterations
omitted).

Fiduciaries under ERISA are those so named in the

plan, or those who exercise fiduciary functions.

In re Lehman

Bros. Secs. & ERISA Litig., 683 F. Supp. 2d 294, 298–99
(S.D.N.Y. 2010); see 29 U.S.C. § 1002(21)(A).

ERISA provides

that a person is acting as a fiduciary to the extent that the
person (1) “exercises any discretionary authority or
discretionary control respecting management of such plan or
exercises any authority or control respecting management or
disposition of its assets,” (2) the person “renders investment
advice for a fee or other compensation, direct or indirect, with
respect to any moneys or other property of such plan, or has any
authority or responsibility to do so,” or (3) the person “has
any discretionary authority or discretionary responsibility in
the administration of such plan.”

29 U.S.C. § 1002(21)(A).

Moreover, an ERISA fiduciary “may wear different hats” and is
not necessarily a fiduciary whenever the person takes an action
that affects plan beneficiaries.
28

Pegram, 530 U.S. at 225.

Under the settlor doctrine, actions taken pursuant to a person's
settlor function are not subject to challenge on the grounds of
breach of fiduciary duties.

See Hughes Aircraft Co. v.

Jacobson, 525 U.S. 432, 444 (1999) (finding that an employer's
fiduciary duties include administering plan assets but do not
extend to decisions concerning “the composition or design of the
plan itself”); Coulter, 753 F.3d at 367-68 (“The employer acts
as a fiduciary when administering a plan but not when designing
or making business decisions allowed for by a plan, even though
in all three situations its determinations may impact on its
employees.” (internal quotation marks and alteration omitted));
see also In re Am. Exp. Co., 762 F. Supp. 2d at 624-25.
In Citi I, the Second Circuit Court of Appeals concluded,
in a case with the same Plans and the same defendants, that the
only fiduciaries under these Plans are the Administration
Committee and the Investment Committee.

662 F.3d at 136.

The

Court held that the two Committees were fiduciaries because
“[t]he Plans delegated to the Investment Committee the authority
to add or eliminate investment funds, and the Plans delegated to
the Administration Committee the authority to impose timing and
frequency restrictions on participants’ investment selections.”
Id.

By contrast, Citigroup and Citibank “lacked the authority

to veto the Investment Committee’s investment selections,” and
the plaintiffs in that case had not shown any actions that
29

either Citigroup or Citibank took as a “de facto fiduciary.”
Id.
The plaintiffs argue that in this case they have made a
specific allegation to show Citigroup has discretion to manage
the Plans, namely that Citigroup may “direct the trustee
(Citibank) to receive company stock in lieu of cash dividends
and to ‘sell the shares so acquired, or an equivalent number of
shares already held in the Trust, at such market price.”

Compl.

¶ 94 (quoting 2006 Trust Agreement, § 4.1(n) (Paterson Decl. Ex.
3)).

However, this allegation was also present in Citi I.

See

Consol. Class Action Compl. ¶ 48, Citi I, No. 07cv9790 (ECF No.
75).

Moreover, the Court of Appeals has recently held that

similar allegations do not constitute fiduciary conduct.

See

Coulter, 753 F.3d at 367 (“Even assuming that Defendants had
full authority and discretion to satisfy Company contributions
in stock or cash, the exercise of this discretion does not
constitute fiduciary conduct under ERISA; the discretionary act
must be undertaken with respect to plan management or
administration.”).

Accordingly, there is no basis to deviate

from the holding of the Court of Appeals in Citi I that neither
Citigroup nor Citibank are fiduciaries with respect to these
plans.

The plaintiffs also have not alleged any facts to show

that any of the Director Defendants are fiduciaries, but instead

30

have rested this claim on the claim that Citigroup and Citibank
are fiduciaries.

Therefore, the only fiduciaries with respect

to the Plans in this case are the Investment Committee and the
Administration Committee.

All claims against defendants other

than the Investment Committee and Administration Committee
members must be dismissed because they depend on allegations
that those defendants breached fiduciary duties that they did
not have.
C.
ERISA subjects pension and benefit plan fiduciaries to a
duty of prudence.

In a section titled “Fiduciary duties,” ERISA

provides:
(a)

Prudent man standard of care

(1) Subject to sections 1103(c) and (d), 1342, and 1344 of
this title, a fiduciary shall discharge his duties with
respect to a plan solely in the interest of the
participants and beneficiaries and-(A) for the exclusive purpose of:
(i) providing benefits to participants and their
beneficiaries; and
(ii) defraying reasonable expenses of administering the
plan;
(B) with the care, 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;

31

(C) by diversifying the investments of the plan so as to
minimize the risk of large losses, unless under the
circumstances it is clearly prudent not to do so; and
(D) in accordance with the documents and instruments
governing the plan insofar as such documents and
instruments are consistent with the provisions of this
subchapter and subchapter III of this chapter.
29 U.S.C. § 1104.

In a recent decision, the Supreme Court

rejected the “presumption of prudence” followed within this
Circuit and others for ESOP fiduciaries, holding that “the same
standard of prudence applies to all ERISA fiduciaries, including
ESOP fiduciaries, except that an ESOP fiduciary is under no duty
to diversify the ESOP’s holdings.”

Fifth Third Bancorp v.

Dudenhoeffer, 134 S. Ct. 2459, 2467 (2014).
However, the Supreme Court in Dudenhoeffer recognized that
“Congress sought to encourage the creation of ESOPs,” and that
conflicts could arise in subjecting ESOP fiduciaries, who are
frequently “company insiders,” to a duty of prudence in failing
to act on inside information.

Id. at 2469-70.

Accordingly, the

Court placed limits on certain types of duty-of-prudence ERISA
claims.

The Court held that “where a stock is publicly traded,

allegations that a fiduciary should have recognized from
publicly available information alone that the market was overor undervaluing the stock are implausible as a general rule, at
least in the absence of special circumstances.”

Id. at 2471.

Thus, the fiduciaries may “‘rely on the security’s market price

32

as an unbiased assessment of the security’s value in light of
all public information.’”

Id. (quoting Halliburton Co. v. Erica

P. John Fund, Inc., 134 S. Ct. 2398, 2411 (2014)).

“In other

words, a fiduciary usually ‘is not imprudent to assume that a
major stock market . . . provides the best estimate of the value
of the stock traded on it that is available to him.’”

Id.

(quoting Summers v. State Street Bank & Trust Co., 453 F.3d 404,
408 (7th Cir. 2006)).

The Court also held that “[t]o state a

claim for breach of the duty 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.

In light of these holdings, the Supreme Court vacated the
lower court’s holding that the plaintiffs had sufficiently
alleged violations of the duty of prudence based on publicly
available information.

Id. at 2473.

The Sixth Circuit Court of

Appeals had held that the complaint stated a claim because the
plaintiffs “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.”
33

Id. at

2472.

Because the Court of Appeals “did not point to any

special circumstance rendering reliance on the market price
imprudent,” the Supreme Court held that the lower court’s
dismissal was “based on an erroneous understanding of the
prudence of relying on market prices.”

Id.

In this case, Count I of the Complaint alleges that the
defendant fiduciaries knew or should have known that Citigroup
was heavily invested in subprime mortgages and that Citigroup
stock was an imprudent investment based on a wide assortment of
public information.

The plaintiffs do not point to any “special

circumstance” that would render reliance on the market price
imprudent.

Rather, the plaintiffs argue that Citigroup stock

was excessively risky, and therefore was imprudent as a
retirement investment.

However, such risk 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.

Indeed, the

plaintiffs in Dudenhoeffer claimed that the defendants should
have known their company stock was “excessively risky,” and the
Supreme Court held that such an allegation was not sufficient to
state a claim for a breach of the duty of prudence.
2464, 2473.

Id. at

The Supreme Court noted that a fiduciary could

reasonably see little hope of outperforming the market based
solely on public information.

Id. at 2472.
34

The defendant fiduciaries in this case were between the
“rock and a hard place” discussed in Dudenhoeffer: “If
[fiduciaries] keep[] investing and the stock goes down,” the
fiduciaries “may be sued for acting imprudently in violation of
§ 1104(a)(1)(B),” as was the case here.

Id. at 2470.

“[B]ut if

[the fiduciaries] stop investing and the stock goes up,” as was
eventually the case with Citigroup stock, 11 the fiduciaries “may
be sued for disobeying the plan documents in violation of
§ 1104(a)(1)(D).”

Id.

Although the Supreme Court deemed a

presumption of prudence too broad a response to these concerns,
these concerns underlie the reasoning behind the general rule
rendering suits implausible when they allege that the
fiduciaries should have been able to beat the market.
Dudenhoeffer, 134 S. Ct. at 2472.

Because the plaintiffs have

not identified any special circumstances rendering reliance on
the market price of the stock imprudent, Dudenhoeffer requires
that their duty-of-prudence claim based on publicly available
information be dismissed. 12

11

Citigroup stock’s price is currently around $52 per share. See Ganino v.
Citizens Utils. Co., 228 F.3d 154, 170 n.8 (2d Cir. 2000) (“[T]he district
court may take judicial notice of well-publicized stock prices without
converting the motion to dismiss into a motion for summary judgment.”).
However, the parties appear to agree that the comparable adjusted value of
Citigroup stock is around $5 per share, due to a one-for-ten reverse stock
split. See Apr. 6, 2015, Hr’g Tr. 27, 38. While Citigroup stock thus
remains down from the beginning of the proposed class period, it has
increased substantially since the end of the class period.
12 Although the plaintiffs rely on cases decided after Dudenhoeffer in which
courts have held that plaintiffs have stated duty-of-prudence claims, none of
those cases address the present situation. For example, in Harris v. Amgen,

35

The plaintiffs also have failed to state a claim in Count
II, which alleges that the defendant fiduciaries failed to act
prudently in response to nonpublic information, because the
plaintiffs have not sufficiently alleged that there was any
material, nonpublic information to be disclosed.

The plaintiffs

contend that the nonpublic information pertained to Citigroup’s
financial condition, subprime exposure, and insufficient
liquidity levels, but the plaintiffs also allege that
information regarding all of these subjects was “widely
publicized” by the beginning of the class period.

Compl. ¶ 322.

Moreover, in arguing that the defendants could have disclosed
the nonpublic information without harming the Plan participants,
the plaintiffs allege that “it is hard to fathom that . . .
disclosure of the adverse non-public information alleged . . .
[would] have caused Citigroup stock to move palpably,” in light
of all of the negative public information about Citigroup.
Compl. ¶ 363.

This allegation highlights the immateriality of

Inc., 770 F.3d 865 (9th Cir. 2014), the Ninth Circuit Court of Appeals dealt
with a clear example of a special circumstance rendering reliance on the
market price of stock improper where the defendant fiduciaries “knew or
should have known that the Amgen Common Stock Fund was purchasing stock at an
artificially inflated price due to material misrepresentations and omissions
by company officers, as well as by illegal off-label marketing.” Id. at 877.
See also Gedek v. Perez, No. 12cv6051L, 2014 WL 7174249, at *5, 9 (W.D.N.Y.
Dec. 17, 2014) (distinguishing Dudenhoeffer and Citi I as involving
“allegations that [the defendant] appeared on the surface to be a healthy
company, and that its relatively high stock price masked some deep-seated
problems that were about to be exposed,” compared to continuing investments
in Kodak, which appeared correctly to be headed for bankruptcy).

36

any purported nonpublic information that the defendants could
have disclosed.

See U.S. v. Martoma, 993 F. Supp. 2d 452, 457

(S.D.N.Y. 2014) (“[I]f a company’s disclosure of information has
no effect on stock prices, it follows that the information
disclosed . . . was immaterial.” (internal quotation marks and
citation omitted)). Because the plaintiffs have not shown that
there was any nonpublic information that would have altered the
“total mix” of available knowledge, the plaintiffs have not
shown that such information was material.

Cf. Matrixx

Initiatives, Inc. v. Siracusano, 131 S. Ct. 1309, 1318 (2011)
(stating, in the context of § 10(b) claims, that the
“materiality requirement is satisfied when there is ‘a
substantial likelihood that the disclosure of the omitted fact
would have been viewed by the reasonable investor as having
significantly altered the ‘total mix’ of information made
available’” (quoting Basic Inc. v. Levinson, 485 U.S. 224, 232
(1988)). 13
In light of the foregoing, the defendants’ motion to
dismiss Counts I and II of the Complaint is granted.

13

The parties also dispute whether the plaintiffs have alleged a plausible
“alternative action that the defendant[s] could have taken [based on the
nonpublic information] 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. It is unnecessary for the Court to reach this issue in light
of the plaintiffs’ failure to allege any material, nonpublic information.

37

D.
The plaintiffs also assert claims that (1) Citigroup,
Citibank, and the Director Defendants failed to adequately
monitor the Administration Committee and Investment Committee
(Count III); (2) Citigroup, Citibank, the Director Defendants,
and defendants Regan and Bermudez failed to share information
with their co-fiduciaries (Count IV); and (3) all defendants are
liable as co-fiduciaries (Count V).

In Citi I, the Court of

Appeals dismissed the same claims because the plaintiffs
acknowledged that these claims could not survive without an
underlying breach of fiduciary duty.
result applies here.

662 F.3d at 145.

The same

Claims for breach of the duty to monitor

and for co-fiduciary liability require antecedent breaches in
order to be viable.

See, e.g., In re Nokia ERISA Litig.,

No. 10cv3306, 2011 WL 7310321, at *5-6 (S.D.N.Y. Sept. 6, 2011).
In support of Count IV, the plaintiffs allege that the
defendants failed to share information with their cofiduciaries, but have not described the elements of this claim,
instead pointing to cases discussing allegations that defendants
did not share information with participants.

See In re Polaroid

ERISA Litig., 362 F. Supp. 2d 461, 477 (S.D.N.Y. 2005); In re
WorldCom, Inc., 263 F. Supp. 2d 745, 767 (S.D.N.Y. 2003).

In

any event, the plaintiffs cannot show that the defendants failed
to share information with their co-fiduciaries if there was no
38

antecedent breach which that information would serve to
ameliorate.

Similarly, there can be no claim against the

defendants under Count V for breaching duties as co-fiduciaries
where the plaintiffs have not pleaded any claims for breach of
fiduciary duties.
Accordingly, the defendants’ motion to dismiss Counts III,
IV, and V of the Complaint is granted.

CONCLUSION
The Court has considered all of the remaining arguments of
the parties. To the extent not specifically addressed above,
they are either moot or without merit. For the foregoing
reasons, the defendants' motion to dismiss is granted.

The

Clerk is directed to enter Judgment dismissing the Complaint and
closing this case.

The Clerk is also directed to close all

pending motions.

SO ORDERED.
Dated:

New York, New York
May 13, 2015
__________/s/_______________
John G. Koeltl
United States District Judge

39