Coulter v. Morgan Stanley & Co., 753 F.3d 361

Plaintiffs are participants in Morgan Stanley’s 401(k) and ESOP plans; Morgan Stanley elected to make employer contributions in Morgan Stanley stock (Company Stock) for the 2006–2007 plan years.
Stock value plunged during the 2007–2008 financial downturn; plaintiffs sued alleging ERISA fiduciary breaches based on the decision to fund contributions with Company Stock.
Consolidated actions (MS I and MS II) proceeded; district court applied the Moench presumption of prudence and dismissed both cases for failing to plead "dire circumstances."
On appeal plaintiffs challenged dismissal, arguing defendants (including CEO John Mack and Morgan Stanley entities) were de facto fiduciaries when choosing stock contributions and thus breached duties (prudence, no conflicts, monitoring, co-fiduciary duties).
The Second Circuit affirmed, but on alternative grounds: the decision to fund plan contributions in company stock was a settlor/business decision, not a fiduciary act under ERISA, so no fiduciary liability could attach; derivative claims likewise failed.

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether defendants acted as ERISA fiduciaries when electing to fund employer contributions in Company Stock	Defendants (Morgan Stanley, Mack) exercised discretion over contribution form and thus were de facto fiduciaries	The choice to fund contributions in stock is a settlor/business decision, not plan management or asset control	Held: Not fiduciary conduct; no ERISA fiduciary liability
Whether Moench presumption of prudence governs and was rebutted	Moench presumption applies and plaintiffs adequately alleged dire circumstances due to stock collapse	Even if presumption applies, plaintiffs failed to plead dire circumstances	Court did not decide presumption question here; concluded conduct non-fiduciary so no liability
Conflict-of-interest claim against Mack	Mack’s personal stock holdings biased his decision to fund plans in Company Stock	Funding decision was not a fiduciary act; conflict claim fail even if fiduciary because mere linking of compensation/stock is insufficient	Held: Claim dismissed—no fiduciary duty and insufficient pleading of conflict
Monitoring and co-fiduciary claims (derivative)	Defendants failed to monitor and are liable as co-fiduciaries for the funding decision	Those claims are derivative of the duty-of-prudence claim and fail if primary claim fails	Held: Dismissed as derivative and dependent on primary fiduciary breach claim

Pegram v. Herdrich, 530 U.S. 211 (framing threshold: action must be a fiduciary function to trigger ERISA duty)
Mertens v. Hewitt Assocs., 508 U.S. 248 (defining ERISA fiduciary duties and limits)
Lockheed Corp. v. Spink, 517 U.S. 882 (distinguishing fiduciary functions from settlor acts)
Moench v. Robertson, 62 F.3d 553 (3d Cir. 1995) (presumption of prudence for employer stock investments)
In re Citigroup ERISA Litig., 662 F.3d 128 (2d Cir. 2011) (adopting Moench presumption in this circuit)
Gearren v. McGraw-Hill Cos., 660 F.3d 605 (2d Cir. 2011) (per curiam) (same)
Harris Trust & Sav. Bank v. John Hancock Mut. Life Ins. Co., 302 F.3d 18 (2d Cir. 2002) (fiduciary functions include selecting and exchanging plan investments)
Flanigan v. Gen. Elec. Co., 242 F.3d 78 (2d Cir. 2001) (distinguishing settlor acts from fiduciary duties)
Akers v. Palmer, 71 F.3d 226 (6th Cir. 1995) (board’s decision to fund a plan with company stock was settlor conduct)
Noorily v. Thomas & Betts Corp., 188 F.3d 153 (3d Cir. 1999) (employer business decisions that impact plans are not fiduciary acts)
Rinehart v. Akers, 722 F.3d 137 (2d Cir. 2013) (derivative monitoring/co-fiduciary claims fail if primary fiduciary claim fails)
Lucente v. Int’l Bus. Machs. Corp., 310 F.3d 243 (2d Cir. 2002) (district court properly denies leave to amend when amendment would be futile)