936 F. Supp. 2d 306
S.D.N.Y.2013Background
- This class action involves ERISA fiduciary claims by participants in Morgan Stanley’s 401(k) Plan and ESOP against Morgan Stanley, MS & Co., and named fiduciaries (Jamesley, Mack, MS & Co. Board, Investment Committee) for the Class Period (Sept 15, 2008–Dec 31, 2008).
- Plaintiffs allege fiduciary breaches including imprudent management of assets, disclosure failures, conflicts of interest, inadequate monitoring, and co-fiduciary liability.
- Morgan Stanley and MS & Co. were plan sponsors; Jamesley was Plan Administrator; the Investment Committee served as fiduciary for the 401(k) Plan.
- Assets were commingled in a Master Trust; the ESOP’s assets merged into the 401(k) Plan on Aug 31–Oct 20, 2008, with substantial Morgan Stanley stock in the plans.
- During 2007–2008, Morgan Stanley faced substantial subprime-related losses and received Fed Reserve funding in Sep 2008, while the stock declined significantly.
- The court granted Defendants’ Rule 12(b)(6) motion to dismiss, allowing amendment solely on disclosure claims against Jamesley and secondary liability theories.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether defendants were fiduciaries when actions affected plan investments | Morgan Stanley, MS & Co., the MS & Co. Board, and Mack had discretion over contributions and stock-based funding. | They lacked authority to add/eliminate investments and thus were not fiduciaries for imprudence claim. | They were de facto fiduciaries for company contributions; Moench presumption applies. |
| Whether the Moench presumption applies to the Plans | Plan terms strongly favored investment in company stock; Moench should not shield imprudence. | Plan terms and default investment option show limited fiduciary discretion; presumption applies. | Moench presumption applies; rebuttal requires dire, unforeseeable circumstances. |
| Whether continued investment in company stock violated prudence | Defendants knew or should have known Morgan Stanley was in jeopardy and breached by continuing stock investments. | No dire circumstances shown; stock declines alone do not overcome presumption. | No prudence breach; stock declines and non-dire circumstances do not overcome presumption. |
| Whether the plans properly disclosed information to participants | Morgan Stanley and Jamesley failed to provide complete/accurate information and misstatements to participants. | ERISA does not require future performance disclosure or nonpublic information; statements were corporate, not fiduciary. | Disclosures failed to state a claim against Morgan Stanley; Jamesley could be liable only if allegations show intent in plan communications. |
| Whether plaintiffs pled secondary liability and duty to avoid conflicts | Defendants failed to monitor fiduciaries and had conflicts of interest due to stock holdings and compensation. | Courts reject conflict claims based solely on stock-based compensation; no specific facts of adverse actions. | Secondary liability claims fail; no viable primary claims survive. |
Key Cases Cited
- In re Citigroup ERISA Litig., 662 F.3d 128 (2d Cir. 2011) (Moench presumption; plan terms and fiduciary discretion analyzed)
- Gearren v. McGraw-Hill Cos., 660 F.3d 605 (2d Cir. 2011) (Moench framework; abuse-of-discretion standard when plan terms strongly favor stock)
- In re GlaxoSmithKline ERISA Litig., 494 Fed.Appx. 172 (2d Cir. 2012) (presumption and plan terms analysis for ESOP/stock plans)
- Slaymon v. SLM Corp., 506 Fed.Appx. 61 (2d Cir. 2012) (Moench presumption applied where plan allowed stock predominance)
- In re Bear Stearns ERISA Litig., 763 F. Supp. 2d 423 (S.D.N.Y. 2011) (prudence challenges to stock investments under Moench framework)