714 F.3d 980 (7th Cir. 2013), 11-2660, White v. Marshall & Ilsley Corp.
|Citation:||714 F.3d 980|
|Opinion Judge:||HAMILTON, Circuit Judge.|
|Party Name:||Linda WHITE, on behalf of herself and a class of persons similarly situated, and Charlene L. Roundtree, Plaintiffs-Appellants, v. MARSHALL & ILSLEY CORPORATION, et al., Defendants-Appellees.|
|Attorney:||Edwin J. Mills, Michael J. Klein (argued), Attorneys, Stull, Stull & Brody, New York, NY, for Plaintiffs-Appellants. Mark B. Blocker (argued), David F. Graham, Attorneys, Sidley Austin LLP, Chicago, IL, for Defendants-Appellees. Jamila Minnicks (argued), Attorney, Washington, DC, for Amicus Curiae.|
|Judge Panel:||Before MANION, SYKES, and HAMILTON, Circuit Judges.|
|Case Date:||April 19, 2013|
|Court:||United States Courts of Appeals, Court of Appeals for the Seventh Circuit|
Argued Sept. 13, 2012.
When financier J. Pierpont Morgan was asked what the stock market would do, he answered, according to Wall Street legend, " It will fluctuate." Sometimes it fluctuates a lot, as the sponsor of the retirement savings plan in this case understood well. This case is about how federal law applies to such fluctuations in the value of an employee stock ownership plan.
This case is one in a series alleging that fiduciaries of employee retirement savings plans acted imprudently by allowing employees to choose to buy and hold an employer's stock while it declined significantly in price. See, e.g., Dudenhoefer v. Fifth Third Bancorp, 692 F.3d 410 (6th Cir.2012), petition for cert. filed, No. 12-751 (Dec. 14, 2012); Lanfear v. Home Depot, Inc., 679 F.3d 1267 (11th Cir.2012); Pfeil v. State Street Bank & Trust Co., 671 F.3d 585 (6th Cir.2012); Gearren v. The McGraw-Hill Cos., 660 F.3d 605 (2d Cir.2011); In re Citigroup ERISA Litigation, 662 F.3d 128 (2d Cir.2011); Howell v. Motorola, Inc., 633 F.3d 552 (7th Cir.2011).
Such cases are governed by the federal Employee Retirement Income Security Act of 1974, better known as ERISA. 29 U.S.C. § 1001 et seq. As in most of these cases, the plaintiffs here alleged that the plan fiduciaries violated ERISA by continuing to offer employer stock as an investment option while the stock price dropped, in this case during the financial crisis of 2008-2009. In the absence of allegations of misrepresentations or other wrongful conduct not alleged here, plaintiffs in such cases under ERISA must try to hit a very small and perhaps non-existent target. The theory— that the employer and plan fiduciaries violated their duty of prudence under ERISA by continuing to offer employer stock as an investment option— would require the employer and plan fiduciaries, in this case and many similar cases, to violate the retirement plan's governing documents, which employers and plan fiduciaries are also required to follow under ERISA. The theory also seems to be based often on the untenable premise that employers and plan fiduciaries have a fiduciary duty either to outsmart the stock market, which is groundless, or to use insider information for the benefit of employees, which would violate federal securities laws.
Defendant Marshall & Ilsley Corporation (M & I Bank) offered its employees an individual account retirement savings plan, which we call " the Plan." The Plan allowed employees to choose how to distribute their savings among more than twenty investment funds with different risk and reward profiles. The investment funds offered by the Plan were selected by the Plan's fiduciaries. ERISA imposes on a plan's fiduciaries a duty of prudence, meaning that they must select only prudent investment options to include in the plan. 29 U.S.C. § 1104.
One of the investment options in the Plan was the M & I Stock Fund which consisted of M & I stock. This type of fund is called an Employee Stock Ownership Plan or ESOP. See 29 U.S.C. § 1107(d)(6). During the housing market collapse and subsequent market crash in 2008 and 2009, M & I's stock price dropped by approximately 54 percent, as did the value of employees' investments in the M & I Stock Fund.
The employees filed this putative class action under ERISA, 29 U.S.C. § 1132(a), alleging that the Plan's fiduciaries violated their duty of prudence under section 1104 by continuing to offer the M & I Stock Fund as one of the options in the Plan despite the stock's poor performance. In claims of imprudence against fiduciaries of ESOPs, many federal courts have applied a presumption that the fiduciaries acted prudently. The district court applied this presumption of prudence, found that plaintiffs' allegations could not overcome it, and granted the defendants' motion to dismiss the case under Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim for relief. White v. Marshall & Ilsley Corp., Nos. 10-CV-311, 10-CV-377, 2011 WL 2471736 (E.D.Wis. June 21, 2011). The district court did not reach the issue of class certification.
Plaintiffs have appealed. The Secretary of Labor has filed an amicus brief regarding the proper legal standard in such cases, focusing in particular on the presumption of prudence that we and other courts have used in such cases. Even when we accept as true plaintiffs' allegations, as we must when we review a dismissal under Rule 12(b)(6), we agree with the district court that the Plan fiduciaries here benefit from a presumption of prudence and that the plaintiffs' allegations do not overcome that presumption. We
therefore affirm the judgment of the district court.
I. Factual Allegations
A. The M & I Retirement Plan
M & I Bank sponsored a retirement savings fund for its employees called the M & I Retirement Program. The Plan was subject to ERISA's rules governing employee retirement savings plans, under which the Plan was considered an Employee Individual Account Plan or EIAP because employees selected the funds for investing their savings from among options chosen by the Plan fiduciaries. 29 U.S.C. § 1107(d)(3).1 Under the Plan, employees could choose how to allocate their investments among the twenty-two funds in one-percent increments. Employees could shift their new contributions and existing investments to different investment options at any time.
This arrangement was laid out in the Plan's governing document. The Plan was implemented and managed in accordance with the governing document by the Plan's fiduciaries. The named fiduciary of the plan was M & I Bank itself, and the Plan was overseen by an Investment Committee that consisted of several M & I directors, all of whom are defendants here.
The Plan's governing document permitted the Investment Committee to select the funds that would be available in the plan, but it specifically required that one particular investment be one of the Plan's investment funds— the M & I Stock Fund. Plan § 16.02(b). The M & I Stock Fund consisted entirely of M & I's common stock, apart from a small amount of cash or money market funds to meet immediate cash needs. This type of investment fund— one investing primarily in the employer's stock— is considered an Employee Stock Ownership Plan or ESOP under ERISA. 29 U.S.C. § 1107(d)(6). The Plan's governing document required that the M & I Stock Fund be offered in the Plan and that it invest in M & I stock at all times, regardless of any " reversals of fortune."
Regarding the prospect of " reversals of fortune," the Plan used strong language. It recognized the likelihood of significant declines in stock price from time to time, but took a long-term view and directed the Plan fiduciaries to allow for alignment of the interests of employees and the corporation:
Marshall & Ilsley Corporation, as the settlor of the Plan and the Trust, hereby declares that its intent and purpose in creating the M & I Fund is to align the interests of Plan Participants with Marshall & Ilsley Corporation. Marshall & Ilsley Corporation believes that its success as an entity and the performance of the M & I Fund will both be enhanced and facilitated in the long run by such alignment. At the same time, Marshall & Ilsley Corporation recognizes that the performance of a business fluctuates and the valuation of stock fluctuates. As a result, it is possible that M & I's business and the value of the M & I Fund could decline significantly (even to the point where Marshall & Ilsley Corporation's ongoing viability comes into question ). Nevertheless, Marshall & Ilsley Corporation, as the settlor of the Plan and Trust, intends and declares that neither the Committee nor any other Plan fiduciary shall have any authority or ability to cause the M & I Fund to be invested in anything but M & I stock, except for liquidity needs as discussed in paragraph (b) above. Marshall & Ilsley
Corporation believes that, should it suffer reversals of fortune, the alignment of the interests of Plan Participants and Marshall & Ilsley Corporation may be the very thing which will enable Marshall & Ilsley Corporation to again prosper. In sum, Marshall & Ilsley Corporation, as settlor of the Plan and Trust, hereby declares that it is its intent and command that there can be no change in circumstances or event ( no matter how dire ) which would allow the Committee or any other Plan fiduciary to shift investment of the M & I Fund into investments other than M & I stock (except for liquidity needs as discussed in paragraph (b) above).
Plan § 16.02(f) (emphases added); see also § 16.02(b). Thus, the Plan's governing document required the fiduciaries to maintain the M & I Stock Fund under all circumstances, " no matter how dire."
B. Allegations of Imprudence
Plaintiffs allege that M & I and the Plan fiduciaries breached their duty of prudence under ERISA by continuing to offer the M & I Stock Fund as an investment option in the Plan during a period of significant decline in the market value of M & I stock. Like many...
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