Rinehart v. Akers
722 F.3d 137
| 2d Cir. | 2013Background
- Plaintiffs are former Lehman employees who participated in the Lehman Brothers Savings Plan’s LSF ESOP funded exclusively by Lehman stock.
- Plan requires LSF to be the sole Lehman stock investment except for minor cash reserves for liquidity.
- Benefit Committee administers the Plan; directors appoint/oversee the Committee.
- During class period (2006–2008) the LSF remained available despite Lehman stock volatility.
- Lehman declared bankruptcy on Sept. 15, 2008, after which LSF investments became essentially worthless.
- District court dismissed the CAC and SCAC for failure to plead plausible ERISA fiduciary breaches; on appeal, the court affirms the dismissal.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Moench presumption applies to ESOP fiduciary review. | Moench governs; presumption should be overcome by alleged imprudence. | Presumption should be applicable only if plan grants discretion to divest; here plan language limits discretion. | Moench presumption applicable; not overcome by alleged facts. |
| Whether insiders’ nonpublic information bars prudence claims. | Insiders’ knowledge would show dire situation. | Fiduciaries need not seek or act on inside information. | No obligation to seek/act on inside information; cannot overcome presumption. |
| Timing of when Lehman’s condition was dire. | Plaintiffs identified March 16, 2008 as turning point. | No adequate facts showing contemporaneous dire condition. | Plaintiffs failed to plead a specific time showing dire situation to overcome Moench. |
| Whether inclusion of Lehman SEC filings in SPDs violated ERISA duties. | Incorporation was faulty because filings misleading; fiduciaries should investigate. | Incorporation is fiduciary act; no independent duty to investigate absent warning signs. | No viable ERISA disclosure breach established; no independent duty shown. |
| Whether Director Defendants breached appointment/monitoring/information duties. | Directors failed to appoint/monitor/inform; derivative claims. | Claims are derivative or inadequately pled; directors not shown to breach ERISA duties. | District court properly dismissed; no independent breach shown. |
Key Cases Cited
- Moench v. Robertson, 62 F.3d 553 (3d Cir.1995) (ESOP fiduciary review framework; Moench presumption applies)
- Citigroup ERISA Litig., 662 F.3d 128 (2d Cir.2011) (endorsed Moench presumption and set pleading standard)
- Quan v. Computer Sciences Corp., 623 F.3d 870 (9th Cir.2010) (high discretion increases scrutiny; Moench presumption endorsed)
- White v. Marshall & Ilsley Corp., 714 F.3d 980 (7th Cir.2013) (insider information context; market dynamics under Moench)