Jander v. Ret. Plans Comm. of IBM

Decision Date29 September 2017
Docket Number15cv3781
Citation272 F.Supp.3d 444
Parties Larry W. JANDER, Richard J. Waksman, and all other individuals similarly situated, Plaintiffs, v. RETIREMENT PLANS COMMITTEE OF IBM, et al., Defendants.
CourtU.S. District Court — Southern District of New York

Edward H. Glenn, Jr., Jacob H. Zamansky, Samuel Ethan Bonderoff, Zamansky L.L.C., New York, NY, for Plaintiffs.

Lawrence Jay Portnoy, John Stanley Barrett, III, Michael S. Flynn, William Trent Thompson, Davis Polk & Wardwell, New York, NY, for Defendants.

OPINION & ORDER

WILLIAM H. PAULEY III, United States District Judge:

The Retirement Plans Committee of IBM, Richard Carroll, Martin Schroeter, and Robert Weber (together, the "Defendants") move to dismiss the Second Amended Class Complaint (the "Complaint"). For the following reasons, the Defendants' motion is granted.

BACKGROUND

This stock-drop action arises from IBM's October 2014 announcement regarding the sale of its Microelectronic business and a concomitant $2.4 billion write-down of its assets.1 Plaintiffs, as members of IBM's 401(k) Plus Plan (the "Plan") who invested in the IBM Stock Fund (the "Fund"), allege that Defendants violated their fiduciary duties when they failed to mitigate the foreseeable drop in IBM's stock and protect Plan members from losing millions of dollars in retirement savings.

I. Relevant Allegations

For purposes of this motion, the factual allegations in the Complaint are accepted as true. The Plan is a defined contribution benefit plan sponsored by IBM toward which eligible employees may defer up to 10% of their compensation. (Complaint ("Compl."), ECF No. 38, ¶ 44.) Under the Plan's governing documents, the Retirement Plans Committee ("Committee") is a named fiduciary under the Employee Retirement Income Security Act ("ERISA"). (Compl. ¶ 40.) Defendants Schroeter and Weber, as members of the Committee, along with Carroll, the Plan Administrator, are also named fiduciaries. The Plan offered a suite of investment options that Plan participants could choose from, including the Fund, an employee stock option plan ("ESOP") that primarily invested in IBM stock.

In 2013, IBM began searching for a buyer to purchase its Microelectronics business, a division of its Systems and Technology Segment responsible for designing and producing microchips. (Compl. ¶¶ 55, 59.) IBM hired an investment bank to solicit offers from potential suitors but had difficulty finding a buyer. (Compl. ¶¶ 59–60.) While IBM was engaged in the search for a buyer, it continued to operate the Microelectronics business, making periodic disclosures to the market about its financial condition.

From January 21, 2014 to October 20, 2014 (the "Class Period"), IBM reported positive news and figures regarding the value of its Microelectronics business. (Compl. ¶¶ 64–76). In reality, however, IBM and Defendants concealed the truth—that the Microelectronics business was "a massive money-loser" whose continued operation had a "substantial negative impact" on the Systems and Technology Segment's overall business. (Compl. ¶ 69.) For nearly a year as IBM searched for a buyer, the Microelectronics business hemorrhaged money. (Compl. ¶ 17.)

The effect of these misrepresentations—and IBM's failure to disclose the truth—had a dramatic, artificial impact on the value of IBM stock. During the Class Period, the stock price reached as high as $196 per share. (Compl. ¶ 18.) On October 20, 2014, IBM announced the sale of its Microelectronics business, startling the markets with news that it would pay the buyer $1.5 billion to take the asset off its hands. (Compl. ¶ 80.) The announcement also revealed that IBM had assigned a carrying value of approximately $2.4 billion to the Microelectronic business even though it knew the assets were worth significantly less. (Compl. ¶ 95.) On the heels of this news, IBM's stock price fell by 7.11% from $182.05 per share on Friday, October 17, 2014 to $169.10 on Monday, October 20, 2014. (Compl. ¶ 18.)

II. Procedural History

In September 2016, this Court dismissed Plaintiffs' claims on grounds that their complaint failed to state a claim for breach of the duty of prudence. More specifically, Plaintiffs "fail[ed] to plead facts giving rise to an inference that Defendants could not have concluded that public disclosures, or halting the Plan from further investing in IBM stock, were more likely to harm than help the fund." Jander, 205 F.Supp.3d at 545 (internal citations and quotations omitted).

This Court further held that in order to prevail on an ERISA claim, Plaintiffs must satisfy a "highly demanding pleading standard"—one under which a "rote recitation of proposed remedies without the necessary facts and allegations supporting Plaintiffs' proposition" would not suffice. Jander, 205 F.Supp.3d at 546 (internal citation and quotation marks omitted). Plaintiffs argued that the Supreme Court's holding in Fifth Third Bancorp v. Dudenhoeffer, ––– U.S. ––––, 134 S.Ct. 2459, 189 L.Ed.2d 457 (2014), set "an impossibly high barrier for ERISA breach-of-fiduciary duty cases concerning ESOPs," but this Court recognized that Dudenhoeffer merely sought to "clarif[y] the standard by which courts need to evaluate such cases, [and] did not necessarily ease the standard." Jander, 2015 F.Supp.3d at 546.

Notwithstanding dismissal of the first complaint, this Court afforded Plaintiffs another opportunity to re-plead their claims after "undertak[ing] the necessary due diligence to provide facts [with] greater specificity." Jander, 205 F.Supp.3d at 546. Shortly after Plaintiffs filed their Complaint, Defendants again moved to dismiss.

DISCUSSION
I. Standard

On a motion to dismiss, a complaint "must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’ " Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) ). A pleading that offers "labels and conclusions" or a "formulaic recitation of the elements of a cause of action will not do." Iqbal, 556 U.S. at 677, 129 S.Ct. 1937. Nor does a complaint suffice if it offers "naked assertion[s]" devoid of "further factual enhancement." Iqbal, 556 U.S. at 678, 129 S.Ct. 1937 (internal quotation marks omitted). The "plausibility standard is not akin to a ‘probability requirement,’ but it asks for more than a sheer possibility that a defendant has acted unlawfully." Iqbal, 556 U.S. at 678, 129 S.Ct. 1937 (internal citations and quotations omitted).

Nevertheless, this Court must accept as true all well-pleaded allegations—including documents attached to the Complaint or incorporated by reference, and matters subject to judicial notice—and draw all reasonable inferences in Plaintiffs' favor. N.Y. Pet Welfare Assoc., Inc. v. City of N.Y., 850 F.3d 79, 86 (2d Cir. 2017) ; ATSI Commc'ns, Inc. v. Shaar Fund, Ltd., 493 F.3d 87, 98 (2d Cir. 2007) (courts may consider "legally required public disclosure documents filed with the SEC" and documents relied on by plaintiff "in bringing suit").

II. Analysis

Plaintiffs offer three alternative actions that Defendants could have taken to mitigate the deleterious effects on IBM's stock price following the divestiture announcement. In their previous complaint, Plaintiffs alleged two alternative actions—that Defendants (i) could have made an earlier corrective disclosure to the market and (ii) could have halted all purchases and sales of IBM stock. They reiterate those alternatives and add a third in this Complaint, namely that Defendants could have purchased a hedging product to offset any losses to the Plan.

Under ERISA, an ESOP fiduciary owes the duty to act prudently "under the circumstances then prevailing." 29 U.S.C. § 1104(a)(1)(B). In other words, the duty of prudence is not evaluated from the "vantage point of hindsight." Roth v. Sawyer–Cleator Lumber Co., 16 F.3d 915, 918 (8th Cir. 1994). Therefore, to determine whether a fiduciary has acted prudently, courts must focus on the "fiduciary's conduct in arriving at an investment decision, not on its results, and ask whether a fiduciary employed the appropriate methods to investigate and determine the merits of a particular investment." Pension Benefit Guar. Corp. ex rel. St. Vincent v. Morgan Stanley Inv. Mgmt., 712 F.3d 705, 716 (2d Cir. 2013) (internal citations and quotation marks omitted). In doing so, "the duty of prudence turns on the circumstances prevailing at the time the fiduciary acts, [and] the appropriate inquiry will necessarily be context specific." Dudenhoeffer, 134 S.Ct. at 2471 (citing 29 U.S.C. § 1104(a)(1)(B) ).

When a duty of prudence claim is alleged on the basis of nonpublic information, Dudenhoeffer dictates that "a plaintiff must plausibly allege an alternative action that the defendant could have taken that would have been consistent with the securities laws and that a prudent fiduciary in the same circumstances would not have viewed as more likely to harm the fund than to help it." 134 S.Ct. at 2472. Dudenhoeffer signaled a sea change in ERISA law, namely because it eliminated the presumption of prudence previously afforded ESOP fiduciaries. 134 S.Ct. at 2467. Recognizing that removing this special presumption could open the doors to "meritless, economically burdensome lawsuits," the Supreme Court fashioned a pleading standard designed to "divide the plausible sheep from the meritless goats," which requires courts to undertake a "careful, context-sensitive scrutiny of a complaint's allegations." Dudenhoeffer, 134 S.Ct. at 2470.

A mere two years after Dudenhoeffer, the Supreme Court validated this exacting standard, directing lower courts to scrutinize the "facts and allegations supporting" a duty of prudence claim. Amgen Inc. v. Harris, ––– U.S. ––––, 136 S.Ct. 758, 760, 193 L.Ed.2d 696 (2016). Dudenhoeffer did not impose a pleading standard different than that set forth in Twombly and Iqbal, but plaintiffs in ESOP...

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6 cases
  • Jander v. Ret. Plans Comm. Ibm
    • United States
    • United States Courts of Appeals. United States Court of Appeals (2nd Circuit)
    • December 10, 2018
    ...available to the Plan defendants, determining that each might have caused more harm than good. Jander v. Ret. Plans Comm. of IBM , 272 F.Supp.3d 444, 451-54 (S.D.N.Y. 2017) (" Jander II "). This appeal followed. DISCUSSION I. Standard of Review"To survive a motion to dismiss under Fed. R. C......
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    • United States District Courts. 5th Circuit. United States District Courts. 5th Circuit. Southern District of Texas
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    ...Martone v. Robb , No. 1:15-cv-877 RP, 2017 WL 3326966, at *3 (W.D. Tex. Aug. 2, 2017) ; see also Jander v. Retirement Plans Comm. of IBM , 272 F.Supp.3d 444, 449 (S.D.N.Y. 2017) ("Plaintiffs' attempt to buttress that proposition with various academic articles and studies theorizing that the......
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    • September 4, 2018
    ...very easily conclude that such actions would do more harm than good." Id. (emphasis in original).25 See, e.g. , Jander v. IBM , 272 F.Supp.3d 444, 449–51 (S.D.N.Y. 2017) ; Price v. Strianese , No. 17-cv-652, 2017 WL 4466614 at *7–8 (S.D.N.Y. Oct. 4, 2017) ; and Graham v. Fearon , No. 16-cv-......
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    • May 29, 2018
    ...into how far the stock price would have dropped if disclosure was made earlier," Jander v. Ret. Plans Comm. of IBM ("Jander II "), 272 F.Supp.3d 444, 450 (S.D.N.Y. 2017), by alleging that "[w]hereas on March 31, 2014, corrective disclosure would have resulted in, at worst, a $3 price correc......
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