Paul Saumer v. Cliffs Natural Resources
853 F.3d 855
| 6th Cir. | 2017Background
- Cliffs Natural Resources, a public mining company, bought the Bloom Lake Mine; iron-ore prices collapsed after 2011, and Cliffs lost ~95% of market value from 2011–2015.
- Plaintiffs are Cliffs employees participating in a defined-contribution plan that included an ESOP investing solely in Cliffs stock; participation was voluntary and default contributions went to a money-market fund.
- After the stock collapse, plaintiffs sued plan fiduciaries (investment-committee members and corporate officers) alleging imprudence for continuing to offer/retain Cliffs stock because the company’s risk profile deteriorated and fiduciaries possessed inside negative information.
- Defendants moved to dismiss; the district court granted dismissal and this appeal followed.
- The Sixth Circuit affirmed, applying Supreme Court precedent that generally allows fiduciaries to rely on market price for publicly traded stock absent special circumstances or plausible alternative actions that would likely help the plan.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether fiduciaries acted imprudently by maintaining Cliffs stock given publicly available signs of deterioration | Cliffs’ revenue/costs/debt showed the company became excessively risky; fiduciaries should have diversified or removed the ESOP option | Dudenhoeffer permits fiduciaries to rely on market price for publicly traded stock; market accounts for public information | Dismissed — market-price reliance bars public-information based imprudence claims absent special circumstances |
| Whether failure to investigate or to follow a reasoned process creates a "special circumstance" | Plaintiffs: failure to investigate made reliance on market price unreasonable | Defendants: Dudenhoeffer allows assuming market price is best estimate; failure to investigate alone is insufficient | Dismissed — failure to independently verify market pricing is not a special circumstance |
| Whether fiduciaries breached duty by withholding nonpublic (inside) information about Bloom Lake and therefore should have disclosed, frozen purchases, or closed the ESOP | Plaintiffs: insiders knew the mine would underperform and should have disclosed or halted purchases/diverted contributions | Defendants: disclosure or halting purchases could further harm participants by collapsing price; alternative actions might do more harm than good | Dismissed — complaint fails to plausibly allege that proposed alternatives would more likely help than harm (Dudenhoeffer/Amgen standard) |
| Claims of disloyalty or failure to monitor by officer-fiduciaries and requests for discovery/relief from judgment | Plaintiffs: officers breached loyalty and monitoring duties; sought discovery to support claims | Defendants: dismissal proper; plaintiffs offered no justification for late discovery or post-judgment relief | Dismissed — court found no error in dismissal or denial of post-judgment discovery relief |
Key Cases Cited
- Fifth Third Bancorp v. Dudenhoeffer, 134 S. Ct. 2459 (2014) (ESOP fiduciaries may generally rely on public market prices; plaintiffs must plead "special circumstances" or an alternative action a prudent fiduciary would take)
- Ashcroft v. Iqbal, 556 U.S. 662 (2009) (pleading standard: plausible claims required; courts need not accept legal conclusions)
- Summers v. State St. Bank & Trust Co., 453 F.3d 404 (7th Cir. 2006) (discusses difficulty courts face in policing when ESOP fiduciaries must diversify)
- Pfeil v. State St. Bank & Trust Co., 806 F.3d 377 (6th Cir. 2015) (applies Dudenhoeffer to reject public-information imprudence claims; ESOP risks are endemic)
- Rinehart v. Lehman Bros. Holdings Inc., 817 F.3d 56 (2d Cir. 2016) (market-price reliance shields fiduciaries from public-information-based imprudence claims)
- Amgen, Inc. v. Harris, 136 S. Ct. 758 (2016) (per curiam) (reversed Ninth Circuit: plaintiffs failed to plausibly allege that disclosure or removal of stock would have been clearly beneficial)
- Moench v. Robertson, 62 F.3d 553 (3d Cir. 1995) (established a now-abrogated presumption of prudence for ESOP fiduciaries)