Gearren v. the McGraw-Hill Companies, Inc.
660 F.3d 605
| 2d Cir. | 2011Background
- Plaintiffs are participants in McGraw-Hill's two defined-contribution plans, EIAPs under ERISA.
- Plans allowed pre-tax contributions and investment allocation among options, including Stock Fund invested mainly in McGraw-Hill stock.
- Pension Investment Committee and Marty Martin managed investment options; Stock Fund remained available throughout the Class Period (Dec 3, 2006–Dec 5, 2008).
- Plaintiffs allege imprudence from continuing to offer McGraw-Hill stock due to S&P’s inflated ratings practices.
- A stock price drop from $68.02 to $24.23 occurred after public awareness of S&P ratings issues.
- District court dismissed Counts I–IV; on appeal, court reviews de novo for Rule 12(b)(6) dismissal.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Imprudence standard under Moench presumption | Gearren argues continued Stock Fund was imprudent. | Defendants rely on Moench presumption for employer stock investments. | Imprudence not established; presumption not overcome by alleged facts. |
| Duty to disclose nonpublic information | Plaintiffs claim fiduciaries failed to disclose McGraw-Hill's condition and S&P ratings issues. | No fiduciary duty to disclose nonpublic information about anticipated stock performance. | Duty to disclose nonpublic information not established. |
| Statements in SPDs incorporating SEC filings | SPDs containing SEC filings could render misstatements actionable. | Filings signed in corporate capacity; ERISA fiduciaries not liable for those misstatements. | No ERISA liability for statements in SEC filings incorporated into SPDs. |
| Personal knowledge of misstatements by Martin | Martin knew or should have known SEC statements were false or lacking basis. | No specific allegations showing Martin's knowledge of misstatements. | Insufficient factual basis to hold Martin liable for misstatements. |
| Secondary liability under ERISA | Board/Committee failures stem from primary misfeasance identified in Counts I–II. | Secondary claims fail absent viable primary claims. | Secondary liability claims fail. |
Key Cases Cited
- Moench v. Robertson, 62 F.3d 553 (3d Cir. 1995) (presumption that ESOP fiduciaries act consistently with ERISA when investing in employer stock)
- Edgar v. Avaya, Inc., 503 F.3d 340 (3d Cir. 2007) (dire situation standard for divesting employer stock)
- Wright v. Oregon Metallurgical Corp., 360 F.3d 1090 (9th Cir. 2004) (mere stock declines don't rebut presumption of prudence)
- Pegram v. Herdrich, 530 U.S. 211 (US Supreme Court 2000) (fiduciary duties tied to actions taken while acting as fiduciary)
- Kirschbaum v. Reliant Energy, Inc., 526 F.3d 243 (5th Cir. 2008) (defendants not acting in fiduciary capacity when preparing SEC filings)
- Flanigan v. Gen. Elec. Co., 242 F.3d 78 (2d Cir. 2001) (fiduciaries liable for false statements if they knew or lacked basis)