722 F.3d 327
5th Cir.2013Background
- Plaintiff Randy Kopp, a participant in Ideare’s management EIAP, sued plan fiduciaries alleging breaches of ERISA fiduciary duties for allowing purchase/holding of Ideare stock and for misleading/non‑disclosure during Nov. 21, 2006–Mar. 31, 2009 (Class Period).
- The Plan was an Eligible Individual Account Plan (EIAP) that listed Ideare stock as a Plan investment option and stated participants control investment choices.
- Kopp alleged defendants knew nonpublic facts (rising uncollectible receivables, fictitious billing, reduced collections staff, constrained refinancing due to a post‑spinoff tax agreement) that threatened Ideare’s viability and that public disclosures were false or misleading; Ideare later filed for bankruptcy and the stock became worthless.
- District court dismissed the amended complaint with prejudice: Counts I, II, IV (investment imprudence and disclosure claims) for failure to state a claim; Counts III, V, VI, VII (conflict/co‑fiduciary/monitoring claims) as derivative because no underlying breach was pled.
- Fifth Circuit reviewed de novo and applied the Moench/Kirschbaum “presumption of prudence” to motions to dismiss, concluding Kopp failed to plead facts sufficient to rebut that presumption and failed to plead an ERISA duty to disclose nonpublic information; therefore affirmed dismissal.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the Moench/Kirschbaum presumption of prudence applies at motion to dismiss and whether Kopp sufficiently pled facts to overcome it (Counts I & IV) | Kopp: fiduciaries knew/should have known Ideare’s viability was threatened (insider facts, rising bad debt, fictitious revenue) so presumption is rebutted and dismissal improper | Defendants: presumption applies; allegations show serious difficulties but not that company was on brink of collapse or stock essentially worthless when fiduciaries acted | Court: presumption applies at 12(b)(6); Kopp’s facts do not plausibly show fiduciaries knew viability was threatened or stock was in danger of being worthless, so presumption not rebutted; Counts I & IV dismissed |
| Whether fiduciaries had an ERISA duty to disclose nonpublic adverse information to participants (Count II) | Kopp: ERISA fiduciary duty of loyalty and trust law impose affirmative disclosure obligations beyond statutory filings | Defendants: no general ERISA duty to disclose nonpublic corporate information; SPD did not incorporate SEC filings; no special circumstances or beneficiary inquiry alleged | Court: no broad affirmative duty to disclose nonpublic information under ERISA; disclosure claims fail; Count II dismissed |
| Whether conflict/co‑fiduciary/monitoring claims may proceed independent of underlying breach (Counts III, V, VI, VII) | Kopp: these claims are independently actionable (e.g., conflicts from executives’ incentives, failure to monitor/appoint independent fiduciaries) | Defendants: such claims are derivative and require an underlying fiduciary breach to succeed | Court: these counts are derivative; because underlying fiduciary claims fail, derivative claims fail and are dismissed |
| Whether Plan language mandating company stock or ERISA preemption affects duty to stop offering/hold stock | Kopp: even if Plan provides for company stock, fiduciaries must act prudently and may have duty to stop offering/divest | Defendants: Plan required stock and fiduciaries lacked discretion; alternatively, fiduciaries acted prudently under plan language | Court: did not decide whether Plan granted discretion or whether ERISA trumps plan language; resolved on presumption of prudence grounds and did not reach question of disobeying plan terms |
Key Cases Cited
- Moench v. Robertson, 62 F.3d 553 (3d Cir. 1995) (adopted a presumption of prudence for fiduciaries who, by plan terms, must invest in employer stock and explained how plaintiffs can rebut it)
- Kirschbaum v. Reliant Energy, Inc., 526 F.3d 243 (5th Cir. 2008) (Fifth Circuit adopted Moench presumption and defined a rebuttal standard requiring showing the employer’s viability was threatened)
- In re Citigroup ERISA Litig., 662 F.3d 128 (2d Cir. 2011) (applied Moench presumption at pleading stage; held plaintiffs must allege facts showing defendants knew or should have known company viability was threatened)
- Quan v. Computer Sciences Corp., 623 F.3d 870 (9th Cir. 2010) (applied presumption; held plaintiffs must allege company on brink of collapse or serious mismanagement to rebut)
- Pfeil v. State St. Bank & Trust Co., 671 F.3d 585 (6th Cir. 2012) (held presumption of prudence is evidentiary and inapplicable at motion to dismiss stage, contrasting with other circuits)
- Pegram v. Herdrich, 530 U.S. 211 (U.S. 2000) (explained fiduciaries may have dual roles but must wear fiduciary hat when making fiduciary decisions)