Saumer v. Cliffs Natural Resources Inc. et al
Opinion and Order For the reasons stated in the Order, the Court DENIES Plaintiffs' Motion for Reconsideration of the Court's April 1, 2016 Order and Opinion and Request for Limited Discovery (Doc #: 46 ). Signed by Judge Dan Aaron Polster on 6/17/2016.(K,K)
UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF OHIO
PAUL SAUMER, et al., individually and on )
behalf of others similarly situated,
CLIFFS NATURAL RESOURCES INC.,
CASE NO. 1:15 CV 954
JUDGE DAN AARON POLSTER
OPINION AND ORDER
This case is before the Court pursuant to Plaintiffs’ Motion for Reconsideration of the
Court’s April 1, 2016 Order and Opinion and Request for Limited Discovery. (Doc #: 46,
(“Motion”)). Having reviewed the Motion, the Opposition brief (Doc #: 49), the Reply brief
(Doc #: 50), the cited cases and the record, the Court DENIES the Motion for the reasons to
A motion for reconsideration may be granted only if there is a clear error of law, newly
discovered evidence, an intervening change in controlling law, or to prevent a manifest injustice.
Gencorp, Inc. v. Am. Int’l Underwriters, 178 F.3d 804, 834 (6th Cir. 1999) (citations omitted);
Westerfield v. U.S., 366 Fed.Appx.614, 619 (6th Cir. 2010) (citing Fed. R. Civ. P. 59(e))
Public Information Claim
In the April 1, 2016 Order and Opinion, the Court explained, citing Fifth Third Bancorp
v. Dudenhoeffer, 134 S.Ct. 2459 (2014), that ERISA fiduciaries may prudently rely on the
market price of a stock as an unbiased assessment of a security’s value in light of all the public
information and that, absent special circumstances affecting the reliability of the market price, a
claim for breach of the duty to prudently manage the stock based solely on public information
cannot stand. (Doc #: 44 at 11.) The Court noted that, given the breadth of negative publicity
regarding Cliffs and the mining industry, and the volatility of Cliffs’ stock, Plaintiff had failed to
allege how the market was unable to sufficiently digest this information. (Id. at 11-12.)
Furthermore, the Court held that Dudenhoeffer undermined Plaintiff’s argument that excessive
risk constitutes special circumstances, and the Second Amended Complaint contained no
allegations regarding lack of reasoned decision making processes, failure to investigate, or
negligent behavior. (Id. at 12.)
Plaintiff argues, as it did in its opposition to the motion to dismiss, that its publicinformation claim falls outside the scope of Dudenhoeffer, and that the Court incorrectly relied
on Rinehart v. Lehman Bros. Holdings, Inc., in support. The Court disagrees with this argument
for reasons stated in the Order and Opinion at 11-12. Plaintiff also contends that Rinehart, a
case upon which the Court incorrectly relied, is factually distinguishable from the instant case
due to language in that opinion characterizing the public information surrounding Lehman
Brothers’ collapse as “mixed signals.” Certainly, the volatility of Cliffs stock over many more
years can be characterized as mixed signals. Finally, Plaintiff recommends that the Court follow
Pfeil v. State Street Bank and Trust Co., 806 F.3d 377 (6th Cir. 2015) because Pfeil “suggests
that factors other than “market inefficiency” – such as lack of a reasoned decision making
process – can meet Fifth Third’s special circumstances requirement.” Reply at 17 (citing Pfeil,
806 F.3d at 386) (emphasis added)). Pfeil does not purport to create a failure-to-investigate
exception to Dudenhoeffer. See Pfeil, 806 F.3d at 386 (“We do not now decide whether a
fiduciary’s complete failure to investigate a publicly traded investment might constitute a
circumstance sufficiently special for a claim of imprudence to survive a motion to dismiss; the
amount of investigation here takes this case out of that realm.”) Pfeil was decided after
discovery on a motion for summary judgment. It says nothing about the sufficiency of the
allegations in a complaint.
The Court appreciates that a literal construction of Dudenhoeffer nearly eviscerates any
gains made for employee-plaintiffs by removing the presumption of prudence in favor of
fiduciary-defendants. The standards articulated in Dudenhoeffer make it extremely difficult for a
plaintiff’s prudence claim to survive a motion to dismiss. But the conclusive assertions in the
Second Amended Complaint (“SAC”) are plainly insufficient in light of Twombly and Iqbal.
And the Court, under these circumstances, will not allow limited discovery of the fiduciaries’
meeting minutes to fish for evidence to bolster the allegations in the prudence claim.
Non-Public (Inside) Information
Plaintiff contends that the Court erred when it stated that the SAC failed to allege any
material inside information that would have turned an otherwise acceptable investment into an
imprudent one. According to Plaintiff, the Court should deny the motion to dismiss the insideinformation prudence claim because the undersigned denied a motion to dismiss in The Dep’t of
the Treasury of the State of New Jersey v. Cliffs Natural Resources, Inc., et al. , No. 1:14 cv 103,
slip. op. (N.D. Ohio Nov. 6, 2015) – a shareholders-derivative action (“the New Jersey case”).
However, the instant case involves a different statute, imposing different obligations, with
different standards than those in the New Jersey case.
While Plaintiff proposed numerous alternative actions the fiduciaries could have taken
(e.g., converting the Cliffs stock fund to cash, closing Cliffs stock to further contributions), it
failed to sufficiently allege, after filing a second amended complaint, how a prudent fiduciary in
the same position could not have concluded that the alternative action would do more harm than
good. Amgen, Inc. v. Harris, 136 S.Ct. 758, 760 (2016) (citing Dudenhoeffer, 134 S.Ct. at
2463). Moreover, Dudenhoeffer foreclosed as illegal the alternative action of trading the
company’s securities based on inside information. 134 S.Ct. at 2472-73 (citing United States v.
O’Hagan, 521 U.S. 642-651-52 (1997)).
Plaintiff also argues that the alternative actions Plaintiff proposed in the SAC are now
supported by “new authority”– i.e., amicus curie briefs filed by the Department of Labor and the
Securities and Exchange Commission in a case before the Fifth Circuit Court of Appeals,
Whitley v BP, PLC, No. 15-20282. Amicus briefs are not newly discovered evidence or an
intervening change in controlling law; they are not an exercise of the agencies’ rulemaking
authority; and courts do not defer to agency interpretations of judicial opinions.
More importantly, however, Plaintiff cannot show that a dismissal of this claim
constitutes manifest injustice. There is a proposed $84 million settlement in the New Jersey case
for shareholders who purchased Cliffs stock after April 2, 2012 through March 26, 2013 and sold
it following seven corrective disclosure dates: April 26, 2012, July 26, 2012, October 25, 2012,
November 19, 2012, November 20, 2012, February 13, 2013, and March 27, 2013. (See Case
No. 1:14 CV 1031, Doc #: 98 at 29 ¶ 55.) The fairness hearing is scheduled on June 30, 2016.
In the New Jersey case,
Lead Plaintiff developed a Plan of Allocation in consultation with New Jersey’s
damages expert with the objective of equitably distributing the Net Settlement
Fund to those Settlement Class Members who suffered economic losses as a result
of the alleged securities law violations asserted in [the New Jersey complaint].
New Jersey’s damages expert developed a Plan of Allocation based on an event
study, which determined how much artificial inflation was in the price of Cliffs
common stock on each day during the Settlement Class Period as a result of
Defendants’ alleged materially false and misleading statements and omission, and
how much the stock price declined as a result of the disclosures that corrected the
alleged misstatements and omissions. In calculating this estimated artificial
inflation, the damages expert considered price changes in Cliffs common stock in
reaction to the alleged corrective disclosures, adjusting for price changes
attributable to market or industry forces.
(Doc #: 102-1 at 17-18.) Although the class in the New Jersey case is comprised of persons who
purchased Cliffs common stock from March 14, 2012 through March 26, 2013 and were
damaged thereby, only those persons who purchased Cliffs stock after April 2, 2012 (the
beginning of the class period in the instant case) can recover damages. (Id. at 7 n. 2.) Expressly
excluded from the New Jersey class are Defendants in that case (many of whom are defendants
in this case); members of the Immediate Family of each of the Individual Defendants; the
Officers and/or directors of Cliffs during the class period, and any entity in which any Defendant
has or had a controlling interest. (Id.) Both the New Jersey case and the instant case are based
on virtually the same set of facts although they assert very different claims. Since the plaintiffs
in this case are (or were) shareholders of Cliffs stock during the class period in the New Jersey
case, they are entitled to damages to the extent set forth in the settlement of the New Jersey case.
They cannot obtain a double recovery by alleging breach of fiduciary duty claims arising from
the same set of facts and involving the same injuries. See, e.g., Midfield Concession Enter., Inc.
v. Areas USA, Inc., 130 F.Supp.3d 1122 (E.D. Mich. 2015) (a plaintiff cannot receive a double
recovery for the same injury, even where alternate legal theories will support the same finding of
liability”); Hughes v. Patrolmen’s Benevolent Assoc., 850 F.2d 876, 882 (2d Cir. 1988)
(describing the problem of double recovery where alternative causes of action arise out of the
same injuries caused by the same conduct). The ability to obtain damages in the New Jersey
case negates any manifest injustice.
The class period alleged in this case begins on April 2, 2012 but continues to the present
day. The Court notes, in passing, its opinion that employees of Cliffs who continued to invest
their retirement income in the Cliffs stock fund after March 26, 2013 (the last corrective
disclosure established in the New Jersey case) could no longer blame the plan fiduciaries for the
decision to continue investing their income in their employer’s stock.1
Based on the foregoing, the Court DENIES Plaintiffs’ Motion for Reconsideration of the
Court’s April 1, 2016 Order and Opinion and Request for Limited Discovery (Doc #: 46).
IT IS SO ORDERED.
s/Dan Aaron Polster
Dan Aaron Polster
United States District Judge
Plaintiff mentions, almost as an afterthought, that the limited discovery on the prudence claim
“would likely shed light on the SAC’s loyalty claim, which the Court dismissed without prejudice, and allow
Plaintiffs to file an amended complaint if they so choose to.” (Motion, at 4 ¶ 7.) That’s it. But, as stated in
the Order and Opinion, “Because Count I is not adequately pled, it cannot form a basis for Plaintiff’s Count II
loyalty claim.” (Doc #: 44, at 15.) Plaintiff simply has failed to adequately allege a loyalty claim.
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