Stegemann v. Gannett Co.

• Decision Date: 11 August 2020
• Docket Number: No. 19-1212,19-1212
• Citation: 970 F.3d 465
• Parties: Christina STEGEMANN, Appellant, and Jeffrey Quatrone, on Behalf of Gannett Co., Inc. 401(k) Savings Plan and all others similarly situated, Plaintiff - Appellant, v. GANNETT COMPANY, INC.; The Gannett Benefit Plans Committee, Defendants - Appellees, and John and Jane Does 1-10, Defendants.
• Court: U.S. Court of Appeals — Fourth Circuit

970 F.3d 465

Christina STEGEMANN, Appellant,

and

Jeffrey Quatrone, on Behalf of Gannett Co., Inc. 401(k) Savings Plan and all others similarly situated, Plaintiff - Appellant,

v.GANNETT COMPANY, INC.; The Gannett Benefit Plans Committee, Defendants - Appellees,andJohn and Jane Does 1-10, Defendants.

No. 19-1212

United States Court of Appeals, Fourth Circuit.

Argued: May 26, 2020

Decided: August 11, 2020

ARGUED: Gregory Y. Porter, BAILEY & GLASSER LLP, Washington, D.C., for Appellants. Eric S. Mattson, SIDLEY AUSTIN LLP, Chicago, Illinois, for Appellees. ON BRIEF: Robert A. Izard, Mark P. Kindall, Douglas P. Needham, IZARD KINDALL & RAABE LLP, West Hartford, Connecticut; Mark G. Boyko, BAILEY & GLASSER LLP, Washington, D.C., for Appellants. Laurin H. Mills, SAMEK | WERTHER | MILLS, Alexandria, Virginia, for Appellees.

Before NIEMEYER, WYNN, and FLOYD, Circuit Judges.

Vacated and remanded by published opinion. Judge Wynn wrote the majority opinion, in which Judge Floyd joined. Judge Niemeyer wrote a dissenting opinion.

WYNN, Circuit Judge:

Plaintiffs-Appellants Christina Stegemann and Jeffrey Quatrone, participants in the Gannett Co., Inc. 401(k) Savings Plan (the "Plan"), brought this suit on behalf of themselves and other participants in the Plan against the Plan's sponsor, Defendant Gannett Company, Inc., and the Plan's management committee, Defendant Gannett Benefit Plans Committee (the "Committee"). Plaintiffs allege that Defendants breached their fiduciary duties of prudence and diversification under the Employee Retirement Income Security Act ("ERISA"), 29 U.S.C. § 1001 et seq. See 29 U.S.C. § 1104(a)(1). Specifically, Plaintiffs contend that Defendants ignored an imprudent single-stock fund in the Plan for several years, resulting in millions of dollars in losses.

The district court dismissed Plaintiffs' complaint for failure to state a claim. The court concluded that Defendants could not have known that the single-stock fund was imprudent, nor were they obligated to diversify it absent any notice it was imprudent.

But to state a claim, a plaintiff need only "plausibly allege that a fiduciary breached [a duty], causing a loss to the employee benefit plan." Schweitzer v. Inv. Comm. of the Phillips 66 Sav. Plan , 960 F.3d 190, 195 (5th Cir. 2020). Put simply, Plaintiffs did just that—they set out facts describing how Defendants failed to monitor a fund, which led to a failure to recognize and remedy a defect, which then led to a loss to the Plan. Accordingly, we vacate the judgment of the district court and remand for further proceedings.

I.

A.

"ERISA, a ‘comprehensive and reticulated statute,’ governs employee benefit plans, including retirement plans." DiFelice v. U.S. Airways, Inc. , 497 F.3d 410, 417 (4th Cir. 2007) (quoting Mertens v. Hewitt Assocs. , 508 U.S. 248, 251, 113 S.Ct. 2063, 124 L.Ed.2d 161 (1993) ). "It is intended to ‘promote the interests of employees and their beneficiaries in employee benefit plans.’ " Id. (quoting Shaw v. Delta Air Lines, Inc. , 463 U.S. 85, 90, 103 S.Ct. 2890, 77 L.Ed.2d 490 (1983) ).

Relevant to this appeal, ERISA draws on the common law of trusts and assigns plan fiduciaries "a number of detailed duties and responsibilities, which include the proper management, administration, and investment of plan assets." Mertens , 508 U.S. at 251, 113 S.Ct. 2063 (internal quotation marks and alterations omitted). Courts have often called these fiduciary duties the "highest known to the law." Schweitzer , 960 F.3d at 194 (quoting Tatum v. RJR Pension Inv. Comm. , 761 F.3d 346, 356 (4th Cir. 2014) ); see also, e.g. , Donovan v. Bierwirth , 680 F.2d 263, 272 n.8 (2d Cir. 1982) (same).

In broad terms, Plaintiffs here allege that Defendants are such fiduciaries¹ and that they breached their duties of prudence and diversification, both of which we describe in more detail later in this opinion. See 29 U.S.C. § 1104(a)(1).

B.

In June 2015, the publicly traded media company Gannett Co., Inc.—a different Gannett Co., Inc. than is the Defendant in this case—changed its name to TEGNA, Inc. (hereinafter either "Old Gannett" or "TEGNA"). Simultaneously, it spun off its publishing business into a newly created, independently traded company, which inherited the name Gannett Co., Inc.² This new, spun-off Gannett Co., Inc. is the selfsame Defendant in this case (hereinafter "New Gannett").

Before the spin-off, Old Gannett sponsored a 401(k) retirement plan for its employees. Under ERISA, this plan was a "defined contribution plan" or an "individual account plan"—these terms are synonymous. See 29 U.SC. § 1002(34). Such a plan is structured so that each employee-participant "has an individual account and benefits are based on the amounts contributed to that participant's account." Schweitzer , 960 F.3d at 193. "Plan participants decide how much to contribute to their accounts and how to allocate their assets among an array of investment options selected by [plan fiduciaries]." Id. This array of investment options is often called a plan's "menu." In addition to contributions from an employee-participant, individual accounts can also be funded via contributions from an employer, and exact arrangements vary. See Edward A. Zelinsky, The Defined Contribution Paradigm , 114 Yale L.J. 451, 455-57 (2004).³

During the Old Gannett period, although participants were generally able to direct which items on the menu they would invest in, Old Gannett's contributions to employees' accounts were in the form of employer stock. Oral Argument at 2:30-3:00. Thus, immediately prior to the spin-off, there were employees set to transfer over to the spun-off company who had individual accounts that included investments in Old Gannett stock.

When Old Gannett effectuated the spin-off and became TEGNA, Old Gannett's then-existing plan became the operative plan for the employees of the spun-off New Gannett, including those employees who transferred from Old Gannett to New Gannett. Employees staying with TEGNA, and their liabilities and account balances, transferred to a new TEGNA 401(k) plan.

It goes without saying that, post-spin-off, New Gannett employees were not employees of TEGNA. Furthermore, there was no reason going forward for New Gannett to make contributions to its employees' accounts in the form of TEGNA stock. Although historically connected, TEGNA and New Gannett were now two different publicly traded companies. However, because Old Gannett had made Old Gannett stock contributions for employees who now worked for New Gannett, the New Gannett Plan had a significant investment in Old Gannett's successor, TEGNA.

ERISA plans are governed in accordance with certain documents and instruments. See 29 U.S.C. § 1104(a)(1)(D). In this case, during the spin-off process, the governing document for the Old Gannett plan that New Gannett inherited was restated and amended to provide for the new TEGNA stock. See Dist. Ct. ECF 22-1, Exhibit A (hereinafter "New Gannett Plan Document").

The amendments created a "TEGNA Stock Fund" on the Plan's investment menu to hold, exclusively, TEGNA stock—such a fund is commonly called a "single-stock fund." See New Gannett Plan Document §§ 1.29, 6.7. However, the fund was "frozen," meaning that it started with the TEGNA stock in the Plan at the time of the spin-off, but participants would not be able to increase investment in the fund thereafter, and would only be able to shift investments out of the fund and into other options on the Plan's menu. Id. §§ 6.7, Appendix C(r). In fewer words, money could only travel one way: out of the fund. The New Gannett Plan Document explained this arrangement as being due to "the historical relationship between [New Gannett] and TEGNA." Id. § 6.7.

Roughly contemporaneous with the amendments that created and froze the TEGNA Stock Fund, New Gannett and TEGNA entered into an "Employee Matters Agreement." J.A. 77.⁴ While the New Gannett Plan Document set out that the TEGNA Stock Fund would be frozen, the Employee Matters Agreement allegedly stated that "all outstanding investments in [the TEGNA Stock Fund] shall be liquidated and reinvested in other investment funds offered [in the Plan] on such dates and in accordance with such procedures as are determined by the administrator of the [Plan]." J.A. 80.

Although the Employee Matters Agreement was not itself a governing plan document, the New Gannett Plan Document explicitly provided for the Employee Matters Agreement: "In connection with the Spin-off, [New Gannett] will enter into that certain Employee Matters Agreement with [TEGNA]." New Gannett Plan Document at 1. The New Gannett Plan Document further stated that that "[t]he Employee Matters Agreement may be used as an aid in interpreting the terms of the [spin-off] transitions described above." Id.

At the time of the spin-off in June 2015, the New Gannett Plan allegedly "held $269 million invested in TEGNA common stock, representing more than 21.7% of the Plan's total assets." J.A. 82. At the end of 2015, the Plan still held $178 million in TEGNA common stock (the price of which had fallen 19.3%, accounting for some of the decline). Then at the end of 2016, the Plan held over $115 million in TEGNA common stock. During that year, the share price had decreased a further 16%. Meanwhile, for two years after the spin-off, Defendants maintained the frozen holding pattern for the TEGNA Stock Fund before deciding in June 2017 to liquidate it over a twelve-month period beginning in July 2017. Nevertheless, as of August 2018 (the date of Plaintiff's proposed Amended Complaint), the TEGNA Stock Fund had still not been fully liquidated.

Plaintiffs allege that between the time of the spin-off and the decision to liquidate the TEGNA Stock Fund, Defendant Gannett Benefit Plans Committee repeatedly received risk warnings related to holding large quantities of TEGNA stock. As early as August 2015, one member of the Committee received a letter from an investment firm alerting him that "the...