331 F. Supp. 3d 101
S.D. Ill.2018Background
- Plaintiffs are former SunEdison employees and participants in the company's defined-contribution Plan, which included an ESOP option invested ~97% in SunEdison stock.
- Plaintiffs challenge defendants (board members and Investment Committee officers) for keeping SunEdison stock as a Plan option during July 20, 2015–April 21, 2016 while the company suffered a steep decline and ultimately filed bankruptcy.
- Complaints allege defendants knew or should have known of SunEdison’s worsening liquidity, risky expansion strategy, undisclosed high-interest loans, and public disclosures that depressed the stock.
- Plaintiffs say defendants should have frozen further purchases and/or sold existing Plan holdings, or otherwise investigated and disclosed material information; they assert breaches of prudence, loyalty, and monitoring duties under ERISA.
- Defendants moved to dismiss under Rule 12(b)(6); the court applied Fifth Third/Dudenhoeffer and Second Circuit precedent (Rinehart) and dismissed all counts for failure to meet the pleading standards.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Breach of prudence premised on public information | Fiduciaries imprudently kept SunEdison stock option despite public reports and price drops showing excessive risk | Market price reflected publicly available information; plaintiffs cannot plausibly plead imprudence based on public info under Fifth Third/Rinehart | Dismissed — plaintiffs failed to allege the "special circumstances" required to overcome the presumption of market efficiency |
| Breach of prudence premised on insider (nonpublic) information | Defendants had access to nonpublic negative info and could have frozen purchases or liquidated after disclosure, saving the Plan losses | Stopping purchases or disclosing could violate securities laws or signal insiders’ lack of confidence, causing worse harm; plaintiffs must plausibly allege an alternative action that a prudent fiduciary would view as more likely to help than harm | Dismissed — allegations that freeze/sale would not do more harm than good were conclusory/speculative and did not satisfy Fifth Third pleading burden |
| Failure to monitor (procedural prudence) | Fiduciaries had a continuing duty to monitor and remove imprudent investments and failed to do so | Any monitoring claim must still show that additional review would have averted the loss or led to a different, beneficial course; ESOP context invokes Fifth Third standards | Dismissed — plaintiffs did not plausibly allege that further monitoring would have averted the injury or that removing holdings would not likely do more harm than good |
| Breach of loyalty (29 U.S.C. § 1104(a)(1)) | Defendants acted with conflicts (e.g., compensated in company stock) and failed to act solely in participants’ interests | Mere ownership or financial stake is insufficient; plaintiffs must show fiduciaries acted against Plan interests or enriched themselves at Plan expense | Dismissed — allegations of conflict were conclusory/insufficient and largely derivative of prudence claims that failed |
Key Cases Cited
- Ashcroft v. Iqbal, 556 U.S. 662 (2009) (pleading standard: plausible claim required)
- Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007) (pleading must state a plausible claim)
- Fifth Third Bancorp v. Dudenhoeffer, 134 S. Ct. 2459 (2014) (ESOP fiduciary-claim pleading standards; market presumption; insider-info alternative-action requirement)
- Rinehart v. Lehman Bros. Holdings Inc., 817 F.3d 56 (2d Cir. 2016) (applies Fifth Third to ESOP claims based on public information)
- Tibble v. Edison Int'l, 135 S. Ct. 1823 (2015) (continuing duty to monitor trust investments; separate duty to remove imprudent ones)
- Amgen Inc. v. Harris, 136 S. Ct. 758 (2016) (requires courts to assess whether a complaint plausibly alleges that a prudent fiduciary could not conclude alternative action would do more harm than good)