Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca7-15-03569/USCOURTS-ca7-15-03569-0/pdf.json

Nature of Suit Code: 791
Nature of Suit: Employee Retirement Income Security Act (ERISA)
Cause of Action: 

---

In the 

United States Court of Appeals 

For the Seventh Circuit ____________________

No. 15‐3569

LISA ALLEN and MISTY DALTON,

Plaintiffs‐Appellants,

v.

GREATBANC TRUST CO.,

Defendant‐Appellee.

____________________

Appeal from the United States District Court for the

Northern District of Illinois, Eastern Division.

No. 15 C 3053 — James B. Zagel, Judge.

____________________

ARGUED APRIL 12, 2016 — DECIDED AUGUST 25, 2016

____________________

Before WOOD, Chief Judge, and FLAUM and WILLIAMS, Cir‐

cuit Judges.

WOOD, Chief Judge. GreatBanc is the fiduciary for an em‐

ployee stock ownership plan (“the Plan”) for employees of

Personal‐Touch, a home‐health‐care company. In that role, it

facilitated a transaction in which the Plan purchased a num‐

ber of shares in the company with a loan from the company

itself. Unfortunately, the shares turned out to be worth much

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less than the Plan paid, leaving the Plan with no valuable as‐

sets and heavily indebted to the company’s principal share‐

holders. The Plan’s participants, all employees of Personal

Touch, wound up being on the hook for interest payments on

the loan. Employees Lisa Allen and Misty Dalton brought this

action under section 502 of the Employee Retirement Income

Security Act (ERISA), 29 U.S.C. § 1132, raising two theories of

recovery: first, that GreatBanc engaged in transactions that

section 406 of ERISA prohibits, see 29 U.S.C. § 1106; and sec‐

ond, that GreatBanc breached its fiduciary duty under ERISA

section 404, 29 U.S.C. § 1104, by failing to secure an appropri‐

ate valuation of the Personal‐Touch stock. The district court

initially dismissed the complaint without prejudice, but it

later converted the judgment to one with prejudice after

plaintiffs opted not to amend their complaint. Because the

plaintiffs plausibly alleged both a prohibited transaction and

a breach of fiduciary duty, we reverse the judgment of the dis‐

trict court and remand for further proceedings.  

I

At this stage, we present the facts as alleged in the com‐

plaint in the light most favorable to plaintiffs. Employee stock

ownership plans (ESOPs) are meant to be a way for compa‐

nies to provide employees with a stake in the enterprise. See

29 U.S.C. § 1002. Personal‐Touch, a privately held entity, is the

sponsor of the Plan at issue here. See 29 U.S.C. § 1002(16)(B).

Sponsors are responsible for administering ESOPs and often

appoint independent trustees to carry out that job. Personal‐

Touch appointed GreatBanc as Trustee of the Plan in 2010 for

the purpose of representing the Plan in the proposed stock‐

purchase transaction.  

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No. 15‐3569 3

On December 9, 2010, GreatBanc instructed the Plan to ac‐

quire an unknown amount of stock from Personal‐Touch’s

shareholders for $60 million. Before this acquisition, Personal‐

Touch’s principal shareholders owned 100 percent of its

shares. The plaintiffs do not know whether GreatBanc hired

any financial advisors to review the transaction. The principal

shareholders arranged for the Plan to finance this transaction

through a loan they gave to the Plan at a 6.25% interest rate;

the record does not reveal why the Plan did not use outside

funding.  

The ink was hardly dry on the acquisition papers when

the value of Personal‐Touch’s stock began to tank. Twenty‐

two days later, the complaint asserts and GreatBanc accepts

for present purposes, the Plan’s stock was estimated to be

worth some $13 million (almost 22%) less than what the Plan

paid for it. By late 2011, the estimated value of the stock had

declined by almost 50%, and by December 31, 2013, the Plan’s

shares were worth only around $26.6 million. The selling

shareholders, however, were relatively untouched by these

developments. Rather than holding a rapidly depreciating as‐

set in the form of the stock, they had become creditors of the

Plan (and thus indirectly the employees) and the recipients of

a secure flow of principal and interest payments on the origi‐

nal $60 million loan. The plaintiffs felt that they had drawn

the short straw: they sued GreatBanc, alleging that it violated

its fiduciary responsibilities under ERISA by approving a

purchase of stock at too high a price and by facilitating two

prohibited transactions: (1) the Plan’s purchase of stock from

the company, and (2) the loan to the Plan that funded the pur‐

chase. See 29 U.S.C. § 1106(a) and (b).

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The complaint alleges that GreatBanc did not conduct any

inquiry into whether whoever was responsible for Personal‐

Touch’s financial projections had a conflict of interest, did not

undertake an independent investigation of Personal‐Touch’s

revenues, and failed to seek any remedy for the overpayment

for the stock. The complaint originally alleged that 4.25% was

the customary interest rate for an ESOP transaction such as

the one that took place, but it retracted that detail in sur‐reply.

Last, the complaint notes that GreatBanc entered into a settle‐

ment with the Department of Labor in 2014 (after the transac‐

tion), binding it to specific policies and procedures for analyz‐

ing stock valuation in ESOP transactions; the settlement,

plaintiffs imply, was designed to address its record of short‐

comings as a fiduciary.  

The district court dismissed the complaint, finding that

the plaintiffs had not sufficiently pleaded breach of fiduciary

duty according to the standard outlined in Fifth Third Bancorp

v. Dudenhoeffer, 134 S. Ct. 2459 (2014). Dudenhoeffer held 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

circumstances.” Id. at 2471 (emphasis added). A plaintiff in

this type of case must therefore point to those “special circum‐

stances” in her complaint, in order to survive a motion to dis‐

miss. Believing that this rule applied and that no special cir‐

cumstances existed, the district court dismissed the breach‐of‐

fiduciary‐duty claim. It rejected the prohibited‐transaction

claim for much the same reason, finding that the question

whether the Plan paid a fair price for the stock was not

properly alleged.  

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No. 15‐3569 5

II

We apply the usual de novo standard of review to the dis‐

trict court’s rulings and accept the facts as alleged for present

purposes. Wilczynski v. Lumbermens Mut. Casualty Co., 93 F.3d

397, 401 (7th Cir. 1996); Alexander v. United States, 721 F.3d 418,

423 (7th Cir. 2013). No heightened pleading standard applies

here; it is enough to provide the context necessary to show a

plausible claim for relief. See Dudenhoeffer, 134 S. Ct. at 2471

(citing Ashcroft v. Iqbal, 556 U.S. 662, 677–80 (2009), and Bell

Atlantic Corp. v. Twombly, 550 U.S. 544, 554–63 (2007)). We con‐

sider first the plaintiffs’ prohibited‐transaction argument, and

then their broader claim for breach of fiduciary duty.  

A

ERISA identifies a number of transactions that are flatly

prohibited between a plan and a party in interest, or a plan

and a fiduciary. See ERISA § 406, 29 U.S.C. § 1106. The provi‐

sion at issue here are the prohibitions in section 406(a), which

provides as follows:

Except as provided in section 1108 of this title:

(1) A fiduciary with respect to a plan shall not

cause the plan to engage in a transaction, if he

knows or should know that such transaction

constitutes a direct or indirect–

(A) sale or exchange, or leasing, of any

property between the plan and a party in

interest;

(B) lending of money or other extension

of credit between the plan and a party in

interest;

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(C) furnishing of goods, services, or facil‐

ities between the plan and a party in in‐

terest;

(D) transfer to, or use by orforthe benefit

of a party in interest, of any assets of the

plan; or

(E) acquisition, on behalf of the plan, of

any employer security or employer real

property in violation of section 1107(a) of

this title.

(2) No fiduciary who has authority or discretion

to control or manage the assets of a plan shall

permit the plan to hold any employer security

or employer real property if he knows or should

know that holding such security or real prop‐

erty violates section 1107(a) of this title.

29 U.S.C. § 1106(a). The exceptions found in section 408, 29

U.S.C. § 1108, include the acquisition of employer stock if it is

for “adequate consideration.” 29 U.S.C. § 1108(e)(1). Section

408(b)(3) exempts a loan to an ESOP if the loan is primarily

for the benefit of plan participants and beneficiaries and at an

interest rate “not in excess of a reasonable rate.” 29 U.S.C.

§ 1108(b)(3).

The complaint alleges a purchase of employer stock by the

Plan and a loan by the employer to the Plan, both of which are

indisputably prohibited transactions within the meaning of

section 406. GreatBanc can prevail only if it can take ad‐

vantage of one of section 408’s exemptions. It neverraised any

such affirmative defense, however; it took the position in‐

stead that the plaintiffs have the burden of pleading facts that

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No. 15‐3569 7

would negate the applicability of section 408’s exemptions and

that they failed to do so. Plaintiffs counter that GreatBanc had

the burden of both pleading and proving the applicability of

a section 408 exemption.    

The district court noted, correctly, that GreatBanc would

carry the burden at trial of proving that the Plan had paid ad‐

equate consideration for the Personal‐Touch stock. But at that

point, it jumped ahead and found that both the prohibited‐

transaction and the fiduciary‐breach claim would turn on the

same question: whether the Plan paid a fair price for the stock.

It found the complaint deficient on that point, criticizing it for

failing adequately to allege that the interest rate provided by

Personal‐Touch was unreasonable. This, it concluded, was fa‐

tal to both theories plaintiffs were presenting.

There are a number of problems with this approach, but

we will focus primarily on the procedural ones. A plaintiff al‐

leging a claim arising out of a prohibited transaction involv‐

ing an exchange of stock between a plan and a party in inter‐

est need not plead the absence of adequate consideration, and

so here plaintiffs were under no obligation to say anything

about the interest rate on the inside loan GreatBanc received

from the stockholders. It was enough that the transaction was

a prohibited one; fair consideration enters the picture only

through section 408(b)(3) and (e)(1).

GreatBanc defends the district court’s reasoning by blend‐

ing plaintiffs’ two theories together. It argues (on the assump‐

tion that the fiduciary‐duty claim is inadequate) that allowing

a prohibited‐transaction claim to proceed based on the same

facts as a dismissed fiduciary‐breach claim would cause the

“perverse result ... [that] a complaint may fail to state suffi‐

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cient facts to support a breach of fiduciary duty claim, yet sur‐

vive a motion to dismiss as to a companion prohibited trans‐

action claim notwithstanding those same deficient facts.” But

there is nothing perverse about this at all. Congress saw fit in

ERISA to create some bright‐line rules, on which plaintiffs are

entitled to rely. Nothing compelled Congress to mimic the

common law of breach of fiduciary duty in the statute.  

More fundamentally, an ERISA plaintiff need not plead

the absence of exemptions to prohibited transactions. It is the

defendant who bears the burden of proving a section 408 ex‐

emption, Fish v. GreatBanc Trust Co., 749 F.3d 671, 685 (7th Cir.

2014); Keach v. U.S. Trust Co., 419 F.3d 626, 633 (7th Cir. 2005),

and the burden of pleading commonly precedes the burden

of persuasion. See Gomez v. Toledo, 446 U.S. 635, 640 (1980)

(burden of pleading defense rests with the defendant). The

fact that this court may not have had the occasion to label the

section 408 exemptions as affirmative defenses is of no mo‐

ment. GreatBanc itself argued in Fish that section 408 exemp‐

tions are affirmative defenses, and therefore a plaintiff need

not have actual knowledge of facts constituting a section 408

exemption in order for the statute of limitations to begin run‐

ning. Evidently it has had a change of heart in this case, but it

was right the first time. We now hold squarely that the section

408 exemptions are affirmative defenses for pleading pur‐

poses, and so the plaintiff has no duty to negate any or all of

them. See Stuart v. Local 727, Int’l Bhd. of Teamsters, 771 F.3d

1014, 1018 (7th Cir. 2014) (“A plaintiff is notrequired to negate

an affirmative defense in his or her complaint[.]”).  

Five of our sister circuits agree with the position that sec‐

tion 408 exemptions are affirmative defenses, or that the de‐

fendant bears the burden of proof, or both. See Braden v. Wal‐

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No. 15‐3569 9

Mart Stores, Inc., 588 F.3d 585, 601 n.10 (8th Cir. 2009) (“[A]

plaintiff need not plead facts responsive to an affirmative de‐

fense before it is raised[.]”); Harris v. Amgen, Inc., 788 F.3d 916,

943 (9th Cir. 2015), revʹd on other grounds, 136 S. Ct. 758 (2016)

(“[T]he existence of an exemption under § 1108(e) is an affirm‐

ative defense[.]”); Elmore v. Cone Mills Corp., 23 F.3d 855, 864

(4th Cir. 1994) (proper allocation of § 408 burden waived by

plaintiffs by not raising at trial); Lowen v. Tower Asset Mgmt.,

Inc., 829 F.2d 1209, 1215 (2d Cir. 1987) (burden on fiduciary to

prove exemption); Donovan v. Cunningham, 716 F.2d 1455,

1467–68 (5th Cir. 1983) (“[W]e hold that the ESOP fiduciaries

will carry their burden to prove that adequate consideration

was paid[.]”). Although some of these decisions from other

circuits predate Twombly and Iqbal, Dudenhoeffer post‐dates

those cases and makes it clear that there is no special pleading

regime for this part of ERISA.  

GreatBanc attempts to differentiate the section 408 exemp‐

tions from affirmative defenses by reference to Twombly’s dis‐

tinction between an affirmative defense and an “obvious al‐

ternative explanation.” Twombly, 550 U.S. at 567. In the latter

case, the plaintiff needs to include enough to dispel the alter‐

native story (or more accurately, to indicate that a rational

trier of fact could so find). But the exemptions from prohibited

transactions do not provide alternative explanations; they as‐

sume that a transaction in the prohibited group occurred, and

they add additional facts showing why that particular one is

acceptable. That is how affirmative defenses work. In our

case, it would make little sense to characterize payment of a

fair price for employer stock or lending money to the Plan at

a reasonable interest rate as an “obvious alternative explana‐

tion,” ratherthan as an additional fact justifying the otherwise

troublesome deal.

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GreatBanc’s last argument here is an appeal to policy: it

argues that there will be a flood of prohibited‐transaction lit‐

igation if all that must be alleged is the occurrence of a section

406 transaction. This strikes us as overwrought. Rational

plans will sue only when (taking Rule 11 constraints into ac‐

count, among others) there is a reason to do so. If an ESOP

transaction is successful, employees who have invested in the

ESOP will not have any motive to bring an ERISA lawsuit

over the exchange of stock between the company and the

Plan. If it fails, they are likely to give it closer scrutiny, but not

all failures stem from ERISA violations. A district court has

ample tools to screen frivolous claims, and the Twombly‐Iqbal

pleading standards require the plaintiffs to cross the line from

the “possible” violation to the “plausible.”  

GreatBanc fears that our holding will allow a suit any time

a trustee so much as purchases something as trivial as a chair

for a person to sit in, or pays a financial adviserforinvestment

advice. But why would a beneficiary sue the trustee over a

chair? And a beneficiary would have reason to sue over in‐

vestment advice only if she had no reason to believe the trans‐

action was exempt under section 408; otherwise, it would be

a waste of time and resources. As the attorney for amicus cu‐

riae Department of Labor pointed out at oral argument, po‐

tential plaintiffs’ cost‐benefit analyses will also weigh against

bringing suits where the plaintiff cannot point to any actual

harm that was caused by the prohibited transaction. Sanctions

under Federal Rule of Civil Procedure 11 serve as an addi‐

tional deterrent against obviously exempt prohibited‐transac‐

tion claims.

If there is an administrative problem to be worried about,

it is the chance that courts would start requiring plaintiffs to

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No. 15‐3569 11

negate all section 408 exemptions in their complaints. Plead‐

ing the absence of the exemption in subsection (b)(19), for ex‐

ample, would be particularly burdensome: it exempts “cross

trading” between a plan and an account managed by the same

investment manager where nine specific conditions are met,

some of which have further exceptions contained within

them. 29 U.S.C. § 1108(b)(19). Requiring a plaintiff to demon‐

strate that subsection (b)(19) is not met in order to bring a pro‐

hibited‐transaction claim would prematurely defeat many

claims where the plaintiffs lack access to detailed information

about the plan manager’s dealings with other entities. Alt‐

hough GreatBanc contended at oral argument that it is a Rule

11 violation “not to even ask” a defendant for information

about, for instance, how stock was valued, we find it implau‐

sible that any would‐be defendant would voluntarily turn

over confidential financial information of that kind without

the protections of the discovery process. We decline to add a

pre‐pleading requirement that plaintiffs ask nicely for infor‐

mation they need—but cannot compel access to—before filing

their complaint.

ERISA is a “remedial statute to be liberally construed in

favor of employee benefit fund participants.” Kross v. W. Elec.

Co., Inc., 701 F.2d 1238, 1242 (7th Cir. 1983). Section 408 ex‐

emptions are affirmative defenses forthe defendant, not items

that a prohibited‐transaction plaintiff must address in her

complaint.  

B

In order to state a claim for breach of fiduciary duty under

ERISA, the plaintiff must plead “(1) that the defendant is a

plan fiduciary; (2) that the defendant breached its fiduciary

duty; and (3) that the breach resulted in harm to the plaintiff.”

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12 No. 15‐3569

Kenseth v. Dean Health Plan, Inc., 610 F.3d 452, 464 (7th Cir.

2010) (citing Kannapien v. Quaker Oats Co., 507 F.3d 629, 639

(7th Cir. 2007)). The first and third elements are not at issue

here; we need address only whether the plaintiffs sufficiently

pleaded breach. The facts alleged must “provide sufficient de‐

tail to present a story that holds together.” Alexander, 721 F.3d

at 422 (internal quotation marks omitted).  

ERISA imposes duties of loyalty and prudence on a plan

fiduciary. 29 U.S.C. § 1104(a)(1)(A)–(B). Loyalty requires a fi‐

duciary to act “for the exclusive purpose” of providing bene‐

fits to participants. Id. (“[A] fiduciary shall discharge his du‐

ties with respect to a plan solely in the interest of the partici‐

pants and beneficiaries[.]”). Prudence requires the fiduciary

to act “with the care, skill, prudence, and diligence under the

circumstances then prevailing that a prudent [person] 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. This includes choosing wise investments and mon‐

itoring investments to remove imprudent ones. Tibble v. Edi‐

son Int’l, 135 S. Ct. 1823, 1828–29 (2015). In order to assess the

prudence of the fiduciary’s actions, they must be evaluated in

terms of both procedural regularity and substantive reasona‐

bleness. Fish, 749 F.3d at 680.

1

The central allegation in the present complaint is that

GreatBanc failed to conduct an adequate inquiry into the

value of Personal‐Touch’s stock. See Armstrong v. LaSalle Bank

Nat. Assʹn, 446 F.3d 728 (7th Cir. 2006) (reversing district court

summary judgment order on triable issue of fact of whether

ESOP trustee exercised prudence in stock valuation for pur‐

poses of setting a redemption price). Although the plaintiffs

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No. 15‐3569 13

could not describe in detail the process GreatBanc used, no

such precision was essential. It was enough to allege facts

from which a factfinder could infer that the process was inad‐

equate. As the Eighth Circuit explained in Braden, a district

court errs in making the “assumption that [the plaintiff] was

required to describe directly the ways in which appellees

breached their fiduciary duties”; rather, it is “sufficient for a

plaintiff to plead facts indirectly showing unlawful behav‐

ior.” 588 F.3d at 595. This is particularly true in ERISA cases

because “ERISA plaintiffs generally lack the inside infor‐

mation necessary to make out their claims in detail unless and

until discovery commences.” Id. at 598. We agree with the

Eighth Circuit: an ERISA plaintiff alleging breach of fiduciary

duty does not need to plead details to which she has no access,

as long as the facts alleged tell a plausible story.  

The plaintiffs met this burden: they alleged that the stock

value dropped dramatically after the sale (implying that the

sale price was inflated), that the loan came from the employer‐

seller rather than from an outside entity (indicating that out‐

side funding was not available), and that the interest rate was

uncommonly high (implying that the sale was risky, or that

the shareholders executed the deal in order to siphon money

from the Plan to themselves). These facts support an inference

that GreatBanc breached its fiduciary duty, either by failing

to conduct an adequate inquiry into the proper valuation of

the shares or by intentionally facilitating an improper trans‐

action.   

This was enough to permit the plaintiffs to move ahead

with their case. GreatBanc remains free to move for summary

judgment after discovery on the grounds that its process for

conducting a valuation of the stock was adequate. It can also

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argue that a fiduciary need not be prescient about future

stock‐value movements. See DeBruyne v. Equitable Life Assur‐

ance Soc’y of the United States, 920 F.2d 457, 465 (7th Cir. 1990).

But plaintiffs will be free to compare whatever steps Great‐

Banc actually took with the procedures that a prudent fiduci‐

ary would use.

GreatBanc’s (and the district court’s) reliance on Duden‐

hoeffer is unwarranted. In Dudenhoeffer, the Supreme Court

held that ERISA fiduciaries conducting ESOP transactions can

generally prudently rely on the market value of publicly traded

stock, absent special circumstances. Dudenhoeffer, 134 S. Ct. at

2471. The Court suggested that the special circumstances

might include something like available public information

tending to suggest that the public market price did not reflect

the true value of the shares. Id. at 2472. As we have just em‐

phasized, however, the Court’s holding was limited to pub‐

licly traded stock and relies on the integrity of the prices pro‐

duced by liquid markets. Private stock has no “market price,”

for the obvious reason that it is not traded on any public mar‐

ket. The transaction between Personal‐Touch and the Per‐

sonal‐Touch ESOP was an exchange involving only private

stock. There is no market price to explain away, and so no rea‐

son to apply any “special circumstances” rule. Additionally,

another part of Dudenhoeffer’s rationale—the need to protect

fiduciaries from running up against insider trading law by re‐

lying on non‐public information for stock valuation—has no

application to the private stock context.  

GreatBanc responds that Dudenhoeffer’s rationale should

be extended to the private‐stock situation because “an unbi‐

ased, independent trustee[’s]” assessment of the value of

stock is at least as reliable as the stock market’s, and therefore

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No. 15‐3569 15

the special circumstances pleading requirement should apply

to private stock as well. But saying so does not make it so, and

GreatBanc has assumed things that may or may not be true in

a particular case. Was the trustee unbiased? Was it independ‐

ent? Did it have solid data behind its assessment? None of

those questions is important in the case of public markets; all

of them and more are for private holdings. The inference from

the plaintiffs’ complaint is that GreatBanc did not rely on an

unbiased, independent assessment, nor did it use an assess‐

ment that started with a trustworthy benchmark. We note as

well that the Secretary of Labor, although he takes no position

on the question whether the facts pleaded here are sufficient

to allege a breach of fiduciary duty, urges that Dudenhoeffer

does not apply to sales of non‐public shares.  

The district court said that in order for the complaint to

survive, the plaintiffs needed to allege “special circumstances

regarding, for example, a specific risk a fiduciary failed to

properly assess.” Allen v. GreatBanc Trust Co., No. 15 C 3053,

2015 WL 5821772, at *3 (N.D. Ill. Oct. 1, 2015). There is no sup‐

port, however, for such a stringent pleading requirement. All

the plaintiff must do is to plead the breach of a fiduciary duty,

such as prudence, and to explain how this was accomplished.

Plaintiffs here accused GreatBanc of failing to conduct an in‐

dependent assessment of the value of stock and relying in‐

stead on an interested party’s number. This is enough to give

notice of the claim and to allow the suit to proceed.   

2

GreatBanc maintains that the facts on which plaintiffs

rely—the post‐transaction decline in stock value and the

6.25% interest rate—are equally consistent with acceptable

performance and breach of fiduciary duty and so not enough

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16 No. 15‐3569

under Twombly and Iqbal. If drop in price were enough, Great‐

Banc argues, every ESOP transaction where there was any de‐

cline in value after the transaction would be subject to suit.

But the complaint says more than this. It alleges that Great‐

Banc did not engage in a reasonable and prudent process, and

notes in particular the absence of outsider financing (or any

other objective benchmark of pricing) for the deal.  

While the plaintiffs originally claimed that GreatBanc was

aware that 4.25% was the customary interest rate for a trans‐

action of the kind it was facilitating, they retracted that spe‐

cific numberin their sur‐reply, which said more generally that

the 6.25% interest rate was exorbitant. This was not such an

outlandish allegation that it could be dismissed out of hand.

We note that on December 15, 2010, the Federal Reserve prime

interest rate was 3.25%. See https://www.comptrol‐

ler.tn.gov/shared/pdf/interesttable.pdf. That aside, the retrac‐

tion of the specific number is unimportant. At this stage, we

are obliged to take as true the plaintiffs’ alleged facts in deter‐

mining the sufficiency of the complaint, and one of the alleged

facts is that the interest rate on the loan from the principal

shareholders was unreasonably high. The district court

should not have dismissed this claim as “conclusory,” be‐

cause this was a factual claim, not a legal one. If the plaintiffs

are unable after discovery to show that the rate was indeed

high, GreatBanc may be entitled to summary judgment

(though that will depend on the entire record at that time).  

GreatBanc argues that the post‐transaction decline in stock

value is precisely what economists predict should happen af‐

ter an ESOP transaction, and therefore it is not evidence of fi‐

duciary breach. But whether the 22% decline in value—a de‐

cline that lasted not months but years and ballooned to nearly

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No. 15‐3569 17

50%—was the result of normal economic forces or something

more sinister is a matter for a later stage of litigation. We need

not answer whether any post‐ESOP transaction decline in

stock value is enough for a complaint; the decline here was

significant and accompanied by other indications of a breach

of fiduciary duty.  

C

We note, finally, that the 2014 settlement agreement be‐

tween GreatBanc and the Department of Labor, in which

GreatBanc agreed to a specific set of policies and procedures

for analyzing stock valuation in ESOP transactions because of

its history of failing properly to execute its fiduciary duties,

has no effect on the motion to dismiss. GreatBanc points out

that a settlement agreement is sometimes just a rational busi‐

ness decision and not an admission of any wrongdoing, that

the complaint does not identify what the agreed‐upon poli‐

cies and procedures were, and that the complaint does not al‐

lege that GreatBanc was not previously following those poli‐

cies and procedures.  

Even though it may seem odd for a party to enter into a

settlement agreement in which it undertakes to do exactly

what it has been doing, that is neither here nor there at this

stage. The plaintiffs would like to use the agreement as evi‐

dence from which an absence of prudence could be inferred,

but the plaintiffs do not need such particular evidence yet. We

leave it to the district court to determine, if and when neces‐

sary, whether the settlement is admissible for evidentiary

purposes.  

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III

Because the district court erred in dismissing the plaintiffs’

claims of breach of fiduciary duty and prohibited transactions

in violation of ERISA, we REVERSE its judgment and REMAND

for additional proceedings consistent with this opinion.  

Case: 15-3569 Document: 37 Filed: 08/25/2016 Pages: 18