Usenko v. MEMC LLC

• Decision Date: 04 June 2019
• Docket Number: No. 18-1626,18-1626
• Citation: 926 F.3d 468
• Parties: Alexander Y. USENKO, Derivatively on Behalf of the SunEdison Semiconductor Ltd. Retirement Savings Plan, Plaintiff - Appellant v. MEMC LLC; The Investment Committee of the SunEdison Semiconductor Ltd. Retirement Savings Plan, Hemant Kapadia; Penny Cutrell; Steve Edens; Karen Steiner; Cheng Yang; Ben Llorico, Defendants - Appellees John Does 1-10, Defendants
• Court: U.S. Court of Appeals — Eighth Circuit

926 F.3d 468

Alexander Y. USENKO, Derivatively on Behalf of the SunEdison Semiconductor Ltd. Retirement Savings Plan, Plaintiff - Appellant

v.MEMC LLC; The Investment Committee of the SunEdison Semiconductor Ltd. Retirement Savings Plan, Hemant Kapadia; Penny Cutrell; Steve Edens; Karen Steiner; Cheng Yang; Ben Llorico, Defendants - Appellees

John Does 1-10, Defendants

No. 18-1626

United States Court of Appeals, Eighth Circuit.

Submitted: January 16, 2019

Filed: June 4, 2019

Counsel who presented argument on behalf of the appellant and appeared on the brief was Thomas James McKenna, of New York, NY. The following attorney(s) also appeared on the appellant brief; Don R. Lolli, of Kansas City, MO., Gregory Michael Egleston, of New York, NY., Robert I. Harwood, of New York, NY., Daniella Quitt, of New York, NY.

Counsel who presented argument on behalf of the appellee and appeared on the brief was Chris K. Meyer, of Chicago, IL. The following attorney(s) also appeared on the appellee brief; Glenn Eugene Davis, of Saint Louis, MO., Mark Bruce Blocker, of Chicago, IL., Charles Noah Insler, of Saint Louis, MO., Sarah A. Hemmendinger, of San Francisco, CA.

Before BENTON, MELLOY, and KELLY, Circuit Judges.

KELLY, Circuit Judge.

Alexander Usenko is a former employee of SunEdison Semiconductor, LLC (Semi). Semi was once a wholly owned subsidiary of SunEdison, Inc. Semi made a defined-contribution retirement savings plan available to its employees, including Usenko, that offered SunEdison stock as a retirement investment option. On April 21, 2016, SunEdison filed for bankruptcy. In August 2017, Usenko brought suit derivatively on behalf of the plan and, in the alternative, as a putative class action on behalf of plan participants. Usenko claims that Semi, the investment committee of Semi’s retirement savings plan, and the members of the investment committee breached their fiduciary duties under the Employee Retirement Income Security Act of 1974 (ERISA). Usenko alleges that between July 20, 2015, and April 21, 2016, the defendants knew or should have known that SunEdison was in poor financial condition and faced poor long-term prospects and therefore should have removed SunEdison stock from the plan’s assets. The district court¹ dismissed Usenko’s complaint as to all defendants for failure to state a claim—other than Penny Cutrell and Karen Steiner, who were dismissed for lack of timely service—and denied Usenko leave to amend his complaint. Usenko appeals the dismissal for failure to state a claim and the denial of leave to amend.² We affirm.

I

We draw the following background from the well-pleaded factual allegations in Usenko’s complaint, which we accept as true for purposes of the defendants’ motions to dismiss.³ Park Irmat Drug Corp. v. Express Scripts Holding Co., 911 F.3d 505, 512 (8th Cir. 2018).

The plan was created in May 2014, after Semi spun off from SunEdison. The plan made several investment options available to its participants, including a fund that invested solely in the common stock of Semi’s former corporate parent. Usenko, among others, elected to exercise this option and held shares of SunEdison common stock through his individual plan account. The plan was later amended to freeze contributions to the SunEdison stock fund. Pursuant to the amendment, effective February 1, 2015, participants could retain their existing investments but could no longer direct additional investments into the SunEdison stock fund.

By mid-2015, it was widely reported that SunEdison was facing liquidity problems and was in financial distress due to an ambitious series of acquisitions. On July 20, SunEdison issued a press release announcing that it would acquire yet another company, Vivint Solar, Inc., for $ 2.2 billion. Markets reacted poorly, and SunEdison’s stock price fell from $ 31.56 per share to $ 26.01 per share in a week. On August 6, SunEdison issued another press release, reporting a $ 263 million loss in its second quarter. That same day, the financial press warned that SunEdison had a $ 10.7 billion corporate debt load and negative cash flow from operations. By the end of the day, SunEdison’s stock closed at $ 17.08 per share. At the time, investor demand for energy stocks was generally weak.

On November 10, SunEdison issued a press release reporting its third quarter results. These results spurred more negative commentary from the financial press, who questioned whether SunEdison would even be able to meet its existing financial obligations. On November 18, SunEdison’s stock closed at $ 3.25 per share. On January 7, 2016, SunEdison announced that it was restructuring $ 738 million of its debt. That same day, the financial press reported that this decision had triggered a massive sell-off because of its dilutive effect on investors, even though SunEdison’s strategy would add an estimated $ 555 million to its liquidity. That week, shares of SunEdison dropped roughly 30 percent, closing at $ 3.41.

By January 12, the financial press was reporting that SunEdison might not survive the year, and SunEdison’s stock closed at $ 3.02 per share, hitting a low of $ 2.36 during the day. Commentary suggested that SunEdison stock was risky due to its generally disappointing historical performance and feeble growth in earnings per share as well as the company’s high debt-management risk. SunEdison then twice publicly delayed filing its annual report, stating that it needed additional time for its audit committee to complete an internal investigation and otherwise confirm the accuracy of its financial position.

In April, SunEdison and certain of its subsidiaries filed for bankruptcy. SunEdison’s common stock was suspended immediately from trading at the market opening on the New York Stock Exchange on April 21, 2016. All told, between July 20, 2015, and April 21, 2016, the market price of SunEdison stock fell from $ 31.66 to $ 0.34. As a result, those who had invested in SunEdison stock through Semi’s retirement plan effectively lost the entire value of their investment.

In his single-count complaint, Usenko alleges that the defendants breached their fiduciary duties. He claims that they knew or should have known that continuing to hold SunEdison stock between July 20, 2015, and April 21, 2016, was imprudent because SunEdison’s failing business prospects dramatically altered its suitability as a retirement investment.

II

We review the district court’s decision granting a motion to dismiss for failure to state a claim de novo, assuming all factual allegations as true and construing all reasonable inferences in favor of the nonmoving party. Retro Television, Inc. v. Luken Commc’ns, LLC, 696 F.3d 766, 768 (8th Cir. 2012). "To survive 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) ). "Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice." Id. Rather, well-pleaded factual allegations must "plausibly give rise to an entitlement to relief." Id. at 679, 129 S.Ct. 1937. That is, they must "raise a right to relief above the speculative level." Twombly, 550 U.S. at 555, 127 S.Ct. 1955.

To prevail on a claim of breach of fiduciary duty under ERISA, the plaintiff "must make a prima facie showing that [a] defendant acted as a fiduciary, breached [his] fiduciary duties, and thereby caused a loss to the Plan." Braden v. Wal-Mart Stores, Inc., 588 F.3d 585, 594 (8th Cir. 2009).

ERISA imposes upon fiduciaries twin duties of loyalty and prudence, requiring them to act solely in the interest of plan participants and beneficiaries and to carry out their duties with the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent man acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims.

Id. at 595 (cleaned up). The "prudent person standard is an objective standard that focuses on the fiduciary’s conduct preceding the challenged decision." Roth v. Sawyer-Cleator Lumber Co., 16 F.3d 915, 917–18 (8th Cir. 1994) (citation omitted). ERISA requires fiduciaries to act with prudence, not prescience, and therefore the relevant inquiry focuses on the information available to the fiduciary at the time of the relevant investment decision. Pension Benefit Guar. Corp. ex rel. St. Vincent Catholic Med. Ctrs. Ret. Plan v. Morgan Stanley Inv. Mgmt., Inc., 712 F.3d 705, 716 (2d Cir. 2013).

In Fifth Third Bancorp v. Dudenhoeffer, 573 U.S. 409, 134 S.Ct. 2459, 189 L.Ed.2d 457 (2014), the Supreme Court considered how the pleading standard articulated in Iqbal and Twombly guides the analysis of allegations that ERISA fiduciaries "knew or should have known in light of publicly available information, such as newspaper articles, that continuing to hold and purchase [the employer’s] stock was imprudent." Id. at 426, 134 S.Ct. 2459. In relevant part, the complaint in Dudenhoeffer alleged that publicly available information warned that the stock at issue was "overvalued and excessively risky" and claimed that, under the circumstances, a prudent fiduciary would have known by July 2007 that continuing to hold the stock was imprudent. Id. at 413, 134 S.Ct. 2459. Between July 2007 and September 2009, when the complaint was filed, the stock’s price dropped by 74%, which "eliminated a large part of the retirement savings that the participants had invested in" the plan. Id.

The Court opined that "where a stock is publicly traded, allegations that a fiduciary should have recognized from publicly available information alone that the market was over- or undervaluing the stock are implausible as a general rule, at least in the absence of special...