2007 D e c i sion s O p inion s of the U nit e d S t at e s C our t of Appe al s for the Thir d C ir c uit

9-26-2007 

# E dgar v . Ava ya Inc
P r e c e de nt i al or N on-P r e c e de nt i al : P r e c e de nt i al D ocke t N o . 06-2770

F o llow thi s and a dd it ion al work s at : http://d i git alc ommon s .l a w . vi ll a nova . e du/thir dc ir c uit_2007

Thi s de c i sion i s br ou ght t o you for f r e e and ope n a c c e s s b y the O p inion s of the U nit e d S t at e s C our t of Appe al s for the Thir d C ir c uit at V i l l a nova U nive r sity S choo l of L a

w Di git al Reposit ory

. It h as be e n a c c ept e d for inclusion in 2007 D e c i sion s b y a n author i z e d a dmini s tr at or of V i l l a nova U nive r sity S choo l of L a

w Di git al Reposit ory

. F or mor e inform at ion, p le as e c ont a ct Be n j amin
. C arl s on@l a

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. Re c omme nde d C it at ion

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w . vi ll anova . e du/thir dc ir c uit_2007/322T h e H o nor abl e A r t hurL

. A l ar cón, Seni orJ udge of the * U ni t ed St at es C our tof A ppeal s fort he N i nt h C i r cui t , s i t t i ng by des i gnat i on. P RE CE DE NT I AL

UN I TED STATES CO UR T OF A PP EALS F O R T H E T H IR D C IR C U IT

__________ N o. 06- 2770

__________ J ANE EDGAR,
A p p e lla n t,

v. AVAYA , I NC

. ; GAR RY M CG UI RE , S R. ; DONAL D K. P E T E RS ON; J OS E P H P

. L ANDY; RI CH AR D F

. WALL M AN;

B R U C E L A SK O ; and J O H N D O E S 1- 30

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Be f o r e : S CI RI CA , Ch i e f

J u d g e , F UE NT E S a n d AL AR CÓ N , * C i rcui tJudg es.

( Fi l ed Sept ember26, 2007)2 M ark C

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I n t h i s l a w s u i t , J a n e E d g a r , a f o r m e r e m p l o ye e o f

A v a ya I nc. , al l eges t hatA vay a and s ever al of i t s offi cer s ( “def endant s ”) br eac hed t hei r fi duci ary dut i es under § 404 of t h e E m p loy ee R et i r ementI ncome Secur i t y A ct( “ER I SA ”) , 29 U

. S. C

. § 1104, by offe r i ng par t i ci pan ts i n t hr ee e m pl oy ee pe ns i on benef i tpl ans t he opt i on of i nves t i ng in A v ay a comm on s t ock. E dgarcomm ence d th e law su it af

ter th e p ric e o f

th e sto c k d e c lin e d f

r o m $ 1 0 .6 9 to $8. 01 per s har e, fol l ow i ng A vay a’ s announce m ent t hat i tw oul d not m eeti t s p r evi ous l yfor eca s t ed ea r ni ngs goal s fort he 2005 fi s calT he D istr i ctC our t ’ s deci s i on i s s etfor t h i n E dgarv. 1 A v a y a , N o . 0 5 -3 5 9 8 , 2 0 0 6 W L 1 0 8 4 0 8 7 (D .N .J . A p r. 2 5 , 2 0 0 6 ). A n “empl oy ee pe ns i on benef i tpl an” i s defi ned, i n r el evant 2 p a r t, as a n ye m p lo y e r-e sta b lish e d o r m a in tain e d p lan th a t “( i) pr ovi des r et i r emen t inc om e t o empl oy ees , or( i i ) r es ul t s i n a d e f e rra l o f in c o m e b y em p lo y e e s f o r p e rio d s e x ten d in g to te rm in a tio n o f

c o v e re d e m p lo ym e n t o r b e yo n d .” 2 9 U .S .C . § 10 02 (2) (A ). T he thr ee plans ar e al so “i nd i vidual a c c o un tplans” a n d “ d e f

in e d c o n trib u tio n p lan s” w h ich a llo w p a rticip a n ts to c o n tr i b u t e t o i n d i v i dual acc ount s and pr ovi de “ b e n e fi ts b a s e d

s o lely upon the am ountcontr i but ed t o the par t i ci pant ’s account

, and any i n co m e, ex

pens es , gai ns , and l os s es . ” 29 U

. S. C

. § 1002( 34) ( emphasi s added)

. I n herb ri ef, E dgarm i s l eadi ngl yr efe r s t o t he pl ans as “tr adi t i onal r et i r ementpl ans . ” W e have expl ai ned, how ever , t hata “t r adi t i onal pens i on pl an i s a def i ned bene f i tpl an th a t p a y s an a n n u ity b a se d o n th e re tiree ’s e a rn in g s h isto ry , u su a lly t he most r ece nt orhi ghes tpai d y ear s , and the numberof compl et ed y e a rs o f s e rv ic e to th e c o m p a n y .” D e p e n b ro c k v . C IG N A C o rp ., 389 F. 3d 78, 80 n. 1 ( 3d C i r . 2004) ( empha sis a d ded) ( i nt ernal quo tat i on m arks om i t t ed)

. T hus , defi ned bene fi tpl ans , unl i ke d e f i n e d c o n t r i b u t i o n p l a n s , g u a r a n t e e p a r t i c i p a n t s a f i x e d

- i n c o me atr et i r ement

. See H ughes A i r cr aftC o. v. J acobs on, 525 U

. S. 432, 4 3 9 (1 9 9 9 ). 3 y ear . W e agr ee w i t h t he D i s t r i ctC our tt hatE dgarfai l ed t o pl ead fa cts su ff ici en t t o estab li sh that d ef en d an ts brea ch ed their fidu ciary dut i es underE R I SA by( 1) i m prudentl yoffe r i ng A vay a comm on s t ock as an i nves t m ent opt i on, and ( 2) fai l i ng t o di s cl os e mat er i al i nform at i on t o pl an par t i ci pant s . A ccor di ngl y , w e w i l l aff i r m t he D is tr ic t C o u rt’s d ism iss a l o f th e a m e n d e d c o m p lain t u n d e r R u le 12( b) ( 6) of the Feder al R ul es of C i vi l Pr ocedur e. 1

I . BA CKGROUND
A vay a, w hich cam e i nto exi st ence i n S eptem ber 200 0, as a s pi n- off f

r om L u ce ntT echnol ogi es , I nc. , des i gns , bui l ds , and m a n a g e s c o m m u n i c a t i o n s n e t w o r k s f o rb u s i n e s s e s . A v a ya sp o n so rs th re e e m p lo y e e p e n s io n b e n e f it p lan s a d m in iste re d in acc or dance w i t h E R I SA , 29 U

. S. C

. §§ 1001- 1461. A tt he t i m e s he 2W e r ef er to the U ni on Pl an, t he V ar i abl e Pl an, and the 3 M a n a g e m e n t P lan c o llec tiv e lya s “ th e P lan s.” A n yre f e re n c e to “Pl an part i ci pant s ” r efe r s t o i ndi vi dual s w ho par t i ci pat ed i n anyof t he thr ee Pl ans , unl es s ot herw i s e s peci fi ed. 4 fi l ed thi s l aw s ui t , E dgar par t i ci pat ed i n t he A vay a I nc. Savi ngs Pl an (“ th e U n io n P lan ” ), o n e o f th e th re e p lan s o f f e re d to e lig ib le empl oy ees . T he other tw o pl ans ar e the A vay a I nc. Savi ngs Pl an f o r t h e V a r i a b l e W o r k f

o r c e ( “ t h e V a r i a b l e P l a n ” ) a n d t h e A v a ya I nc. Savi ngs Pl an forSal ar i ed Em pl oy ees ( “the M anage m ent P lan” ). T h e P lans stat e tha t th eyare “ in tend ed to p rov ide f o r a 3 por t i on of the l i vel i hood of Par t i ci p an ts in t hei rr et i r ement , ” by “al l ow [i ng] eac h Par t i ci pant t o el ectt o s etas i de a port i on of hi s or h e r s a la ry o n a p re ta x a n d a f te r ta x b a s is .” (J .A . a t 3 8 3 , 4 7 9 , 5 3 9 .) Par t i ci pant s ar e per m i t t ed t o change or t erm i nat e the amountt hey e le c t to c o n tr ib u te , s u b

je c t to c e rt a in re q u ir e m e n ts , a t a n ytim e . T he Pl ans pr ovi de t hat t he i nves t m entopt i ons “s hal l i ncl ude a br oad r ange of

i nves t m ental t ernat i ves as t he C om pany d e ter m in e s a re n e c e ss a ryo r a p p ro p ria te to a llo w P a r ticip a n ts to m a ter ially a f

f e c t th e p o ten tial re tu rn a n d a c h iev e a p o rtf o lio w ith aggr egat e r i s k and r etur n char act er i s t i cs ” t ypi cal of s i m i l arpens i on plans. (J

. A

. at 41 5, 50 4, 57 0. ) T he Plans offer three assetcl asses : s hor t

- t erm i nves t m ent s , bond and s t ock funds , and as s etal l ocat i on funds

. A l t hough A vay a s el ec ts t he i nves t m entopt i ons , Pl an p a rt ici p an ts ha v e d iscreti o n as to h o w their co n tr ibu ti o n s are in v e ste d , inc lu d in g w h e th e r to in v e st a ll o f th e ir c o n trib u tio n s in one fund ori n a m i x of funds

. A ft eri ni t i al l yel ect i ng w hi ch funds t o i nves ti n, a Pl an par t i ci pant m aychange how futur e contr i but i ons a re in v e s te d a n d tr a n s f

e r e x is tin g in v e s tm e n ts in to o th e r f u n d s . D ur i ng t he r el evantt i m e per i od, A vay a off er ed Pl an p arti cipa n ts tw en ty -th ree inv estm en t op ti o n s, w h ich th e S u m m ary Pl an D es cr i pt i ons expl ai n, “di ffe ri n t hei ri nves t m entobj ect i ves and oppor tuni t i es forr i s k and r etur n. ” ( J

. A

. at255, 301, 340. ) T he Pl an D es cr i pt i ons s t at e t hat par t i ci pant s s houl d “cons i dert he r i s ks and pot ent i al r ew ar ds ” of e ach opt i on. ( I d. ) O f pa rt icul ar s i gni fi canc e t o t hi s l i t i gat i on, t he P l ans pr ovi de t hatt he i nves t m ent opt i ons “s hal l i ncl ude the A vay a St ock Fund, w hi ch sh al l be5 in v e ste d p rim a rilyin sh a re s o f A v a y a c o m m o n sto c k , w ith a sm a ll por t i on i n c a s h a n d o t h e rl i q u i d i n v e s t me n t s . ” ( J

. A. a t4 1 5 , 504, 570. ) W i t h r es pect t o t he A vay a St ock Fund, t he Pl an D es cr i pt i ons s t at e: T he val ue of y ouri nves t m entw i l l varydependi ng on A v ay a’ s per form ance , t he over al l s t ock mar ket , t he p e rf o rm a n c e a n d a m o u n t o f sh o rt-te rm in v e stm e n ts held by t he fu nd , and t he am ou nt of fun d ex pen ses. I nves t ing i n a non- di ver s i fi ed s i ngl e s t ock fund carr i es m or e r i s k t han i nves t i ng i n a di ver s i fi ed fund. ( J

. A

. at261, 307, 346. ) A ccor di ng t o A vay a’ s For m 11- K fi l ed wi th th e Secur i t i es and Exchange Com m i s s i on ( “SE C ”) on J une 22, 2005, t he M as t erT rus t , w hi ch hol ds t he t ot al as s et s for a l l t hr ee P l a n s , wa s v a l u e d a t$ 1

. 4 b i l l i o n a tt h e e n d o f De c e mb e r2 0 0 4

. Of t hi s amount, ap pr oxi m at el y16 per cent , or$229 m i l l i on, w as i nves t ed i n t he A vay a St ock Fund.
O n A p ril 1 9 , 2 0 0 5 , A v a ya p u b liclyre lea se d its q u a rte rly e a rn in g s s tate m e n t in w h ich it an n o u n c e d th a t itw a s u n lik e lyto m eeti t s pr evi ous l y for eca s t ed earni ngs goal s forfi s cal y ear2005. T h e a n n o u n c e m e n t ex p lain e d th a t th is w a s p rim a rilyd u e to di s rupt i on i n s al es caus ed byt he comp a n y ’ s i m pl ement at i on of new del i verym eth o d s; cos t s as s oci at ed w i t h i nt egr at i ng r ece nt acqu is i t i ons ; and “pot ent i al s oftnes s i n t he U

. S. t echnol ogy m arket

. ” ( J

. A

. at69. ) O n the fi r s tt r adi ng dayfol l ow i ng t he29 U

. S. C

. § 1132( a) al l ow s a par t i ci panti n an ER I SA pl an 4 t o br i ng a ci vi l act i on forbr ea ch of fi duci arydut y . G r aden v. C onexantSy s . I nc. , __F. 3d __, N o. 06- 2337, 2007 W L 2177170, a t * 2 (3 d C ir . J u ly 3 1 , 2 0 0 7 ). 29 U

. S. C

. § 1109( a) s t at es t h at a fi duci aryw ho br eac hes 5 hi s orher dut y i n admi ni s t er i ng an E R I SA pl an m us t “make good t o s uch pl an anyl os s es ” r es ul t i ng fr om t he br eac h, and author i zes o th e r e q u ita b le re lie f

a s a c o u rt m a y f

in d a p p ro p ri a te

. 2 9 U .S .C . § 1 1 0 9 (a). D efe nd a n t s a r g u e d t h a tEd g a rl a c k e d s t a n d i n g t o s u e on

6 behal f of pa r t i ci pant s i n t he V ar i abl e Pl an an d the M anage m ent P l a n . T h e D i s t r i c tC o u r tr e c o g n i z e d t h a ts t a n d i n g i s t yp i c a l l y a t hr es hol d j ur i s di ct i onal i s s ue. B ut , becaus e def endant s conce ded t hatE dgarhad stan d ing t o s ue on beha l f of pa r t i ci pant s i n t he U ni on Pl an, a rul i ng on t he R ul e 12( b) ( 1) m ot i on w oul d nothave compl et el ydi s pos ed of t he cas e. See Edgar , 2006 W L 1084087, at *3 n. 3. 6 announce m ent , t he pr i ce of A vay a comm on s t ock fe l l fr om $10. 69 to $ 8 .0 1 p e r s h a re . I n J ul y2005, E dgar fi l ed t hi s cl as s act i on l aw s ui tpur s uant t o s ect i on 502 o f E R I SA , 29 U

. S. C

. § 1132( a) ( 2)

. She s eeks 4 d a m a g e s a n d in

ju n c tiv e re lief u n d e r 29 U .S .C

. § 1 1 0 9 (a ), o n b e h a lf of all si m i l arl ysi tuated i nd i vidual s w ho part i ci pated i n the Plans and i nves t ed i n t he A vay a St ock Fund betw een O ct ober2004 and J ul y 2005 ( “the C l as s Per i od”)

. D efe ndant s m oved t o di s m i s s t he 5 amended compl ai ntpur s uantt o R ul e 12( b) ( 1) forl ack of s t andi ng, an d R u le 12 (b)(6 ) fo r fa il u re to state a c lai m fo r bre ac h o f f idu ciary du t y . O n A pri l 25 , 20 06 , t he D i stri ct C ou rt grant e d d e fend ants ’ R u le 1 2 (b )(6 ) m o tio n w ith o u t re a c h in g th e sta n d in g is s u e . T h is 6 t i m el yappea l fol l ow ed.
II. J URI S DI CTI ON AND S TANDA RD O F REVI EW
T h e D is tr ic t C o u rt h a d ju ri s d ic tio n p u rs u a n t to 2 8 U .S .C . § 1331 and 29 U

. S. C

. § 1132( e) ( 1)

. W e have appel l at e j ur i s di ct i on p u rsua n t t o 2 8 U

. S

. C

. § 1 2 9 1

. W e e x erc ise p lena ryrev iew o v er a7 d istri ct co u rt ’s dism issal of claim s p u rsua n t t o R u le 12 (b)(6 ). M ill e r v . F o rtis, 4 7 5 F .3 d 5 1 6 , 5 1 9 (3 d C ir. 2 0 0 7 ). W e a c c e p t all w e ll-p lea d e d a lleg a tio n s in th e c o m p lain t as tru e a n d d ra w a ll re a s o n a b le in f

e re n c e s in f

a v o r o f th e p la in tif

f. Id

. III . DI S CU S S I ON
W e fi r s taddr es s E dgar ’ s ar gum entt hatde f e n dant s br eac hed t h e i rf i d u c i a ryd ut i es byi m prudent l yoffe r i ng A vay a comm on s t ock a s a n in v e stm e n t o p tio n d u rin g th e C las s P e rio d

. W e th e n tu rn to herc o n t e n t i o n t h a td e f e n d a n t s h a d a d u t yt o d i s c l o s e t o Pl an par t i ci pant s A vay a’ s al l egedl ydet er i or at i ng fi nanci al condi t i on.

A . D ut y of

P rudence Se cti on 404 of ER I SA i m pos es t he fol l ow i ng dut yon E R IS A f id u c iar ies : (a) P rud en t m an stan d ard o f c are (1 ) . . . a f

id u c iar ysh a ll d isc h a rg e h is d u ties w ith r es pe c t t o a p l a n s o l e l y i n t h e i n t e r e s t o f t he p a rt ic ip a n ts a n d b e n e f

ic ia ri e s . . .

. . . ( B ) w i t h t he ca r e, s ki l l , prudence , and di l i gence u n d e r th e c irc u m sta n c e s th e n p re v a ili n g th a t a prudentm an ac t i ng i n a l i ke ca p ac ityand fa m i l i ar w i t h s uch mat t er s w ould u se i n t he conduc tof anW e have obs erved t hat 29 U

. S. C

. § 1104( a) “i n essenc e, 7 codi fi es and makes appl i cabl e t o . . . fi duci ar i es cert ai n pr i nci pl es devel oped i n t he evol ut i on of t he l aw of t rus t s . ” I n r e U ni s y s Sav. Pl an Li t i g. , 74 F. 3d 420, 434 ( 3d C i r . 1 9 9 6 ) ( i nt ernal quot at i on m a rk s o m itte d ). 8 e n ter p rise o f

a lik e c h a ra c ter a n d w ith lik e a im s; ( C ) by di ver s i fy i ng t he i nves t m ent s of the pl an s o as t o m i ni m i ze the r i s k of l ar ge l os s es , unl es s undert he ci r cumst ance s i ti s cl ear l yprudentnott o do s o; and ( D ) i n acc or dance w i t h t he document s and in s tru m e n ts g o v e rn in g th e p la n . . . . 29 U

. S. C

. § 1104( a) ( 1)

. I n r ej ect i ng E dgar ’ s prudence cl ai m , t he 7 D i s t r i ctC our tfi r s t det erm i ned thatdefe ndant s ’ conducts houl d be r evi ew ed underan abus e o f d i s c r e t i on s t andar d, and then conc l uded t hat E dgar fai l ed t o al l ege fac t s s uffi ci ent t o es t abl i s h an abus e of dis cret i on . W e agree w i t h b oth ruli ng s. 1) A n abus e of

dis cr et i on s t andar d governs def endant s ’decis i on t o of f erA vaya s t ock
I n c o n c l u d i n g t h a td e f e n d a n t s ’ d e c i s i o n t o o f f e rA v a ya comm on s t ock as an i nves t m entopt i on i s r evi ew ed foran abus e of di s cr et i on, t he D i s t r i ctC our tr el i ed on M oench v. R ober t s on, 62 F. 3d 553 ( 3d C i r . 1995)

. I n M oench, w e hel d t hatfi duci ar i es of an E m pl oy ee St ock O w ner s hi p Pl an ( “ES O P”) ar e ent i t l ed t o j udi ci al defe r ence w hen theydeci de t o i nves tpl an as s et s i n t he s pons or i ng company ’ s s t ock. I d. at571. U nderE R I SA , an ES O P i s defi ned, i n r el evantpar t , as an i ndi vi dual acc ount pl an “w hi ch i s des i gned t o i n v e s tp r i ma r i l yi n q u a l i f y i ng e mpl o y e rs e c u r i t i e s . ” 2 9 U. S

. C. § 1 1 0 7 (d )(6 ). A lth o u g h th e P lan s a re n o t E S O P s, w e a g re e w ith t he D i s t r i ctC our tt hatt he s ame defer ent i al s t andar d appl i es her e. M oench i nvol ved an e m pl oy er - s pons or ed ES O P w hi ch r equi r ed the T rus t ee t o “i nves t al l contr i but i ons r ece i ved undert he t erm s of the pl an . . . i n E SO P st ock. ” M oench, 62 F

. 3 d at 558. A ft er t he pr i ce of t he s t ock decl i ned dr amat i cal l y , a f o rm er empl oy ee a nd par t i ci panti n t he ES O P sue d t he fi duciaries of theForexampl e, w e obs erved t hat t he ES O P st at ed thatfunds 8 w er e t o be i nves t ed “pr i m ar i l y , ” not“exc l us i vel y , ” i n empl oy er st oc k, a nd t ha tde fe nd a nt s ha d c on c e de d tha t , on pr i oroc c asi on s, th e yin ter p re ted p lan d o c u m e n ts a s p e rm itt in g th e m to “ re f ra in fro m ” m ak ing su c h inv estm en ts i f n ec essa ry . Id. at 56 7

. In addi t i on, w e expl ai ned thatt o i nt erpr et th e E SO P as s t r i ppi ng defe ndant s of al l i nves t m entdi s cr et i on w oul d confl i ctw i t h t he com m o n l aw rul e t hat a “trust ee i n cert ai n n arr ow i nst ances m ust ta k e a c tio n s a t o d d s w ith h o w it is d ir e c te d g e n e ra lly to a c t.” Id

. U n d e r § 1 1 0 4 ( a ) (1 ), p lan f id u c iar ies a re re q u ire d to 9 “diver si fy [] the invest m ents of the plan so as to m i nim i ze t he ri sk of l ar ge l os s es , unl es s undert he ci r cumst ance s i ti s cl ear l yprudent nott o do s o. ” 29 U

. S. C

. § 1104( a) ( 1) ( C )

. T he Seventh C i r cui thas obs erved thatbeca us e “th e v ery p urpos e of a n E SO P i s t o gi ve empl oy ees s t ock i n t he empl oy er, it w o u l d be anomal ous i f the E SO P’ s t rus t ees w er e r equi r ed t o s el l m os tof the s t ock donat ed by th e e m p loy er in o rde r t o cre ate a d iversified p o rt fo li o o f sto ck s .” St ei nm an v. H i cks , 352 F. 3d 1101, 1103 ( 7t h C i r . 2003)

. Sect i on 1106( b) ( 1) pr ohi bi t s an ER I SA fi duci aryfr om “dea l [i ng] w i t h t he 9 pl an forbr each of thei rdut yunderE R I SA , cl ai m i ng t hatt hey sh o u ld h av e d iversif

ied p lan a ssets in li g h t of the c o m p an y ’s fi nanci al det er i or at i on. I d. at 559- 60. O n appea l , w e r ever s ed the d istric t co u rt’s s u m m a r y j u d g m e n t ru lin g in f a v o r o f d e f e n d a n ts and hel d t hat“i n l i m i t ed ci r cumst ance s , E SO P fi duciaries can be l i abl e underE R I SA forcont i nui ng t o i nves t in em pl oy ers t ock acc o r d i n g t o t h e p l a n ’ s d i r e c t i o n . ” I d

. a t5 5 6

. W e e x p l a i n e d t hat a lth o u g h th e “ p rim a ryp u r p o se ” o f th e E S O P w a s to in v e st in empl oy ers t ock, defe ndant s w er e not“abs ol ut el yr equi r e[d] ” t o do s o ; r a t h e r , t h e yr e t a i n e d l i mi t e d d i s c r e t i o n o v e ri n v e s t m ent d e c is io n s . Id . a t 5 6 8

.

8
T u rnin g to the s t andar d gov ern ing d ef en d an ts’ d iscreti o n ary d e c i s i o n t o o f

f e r e m p l o y e r s e c u r i t i e s a s a n i n v e s t m e n t o p t i o n , we f i r s tc o n s i d e r e d t h e u n i q u e s t a tu s o f E S OP s u n d e rERI S A. Speci fi cal l y , w e not ed t hat E SO P fi duci ar i es ar e exe m ptfr om t he d u t yt o d i v e r s i f

yi mp o s e d by § 1 1 0 4 ( a ) ( 1 ) ( C) , a n d f r o m § 1 1 0 6 (b )(1 )’s stric t p ro h ib iti o n a g a in st d e a lin g w it h a p a rtyin i nt er es t

. I d

. a t5 6 8

. W e e x p l a i n e d t h a tt h e s e e x c e p t i o n s “ a r i s e []

9a s s e t s o f t h e p l a n i n h i s o wn i n t e r e s t o r f o r h i s o wn a c c o u n t

. ” 29 U .S .C . § 1 1 0 6 (b )( 1 ). W e n o ted th a t w e w e re “ n o t co n c e rn e d w ith a situ a tio n in 10 w hi ch an E SO P pl an i n abs ol ut e unmi s t akabl e t erm s r equi r es t hat t he fi duci aryi nves tt he as s et s i n t he empl oy er ’ s s ecur i t i es r e g a r d l e s s o f t h e s u r r o u n d i n g c i r c u m s t a n c e s . ” I d

. a t 5 6 7 n . 4

. We expl i ci t l yl eft open the i s s ue of w hethert her e coul d s t i l l be a br eac h of fi duci arydut yi n s uch a c as e. I d. 10 outof the natur e and purpos e of E SO Ps t hemsel ves , ” i d. , w hi ch as s etfor t h i n § 1107, i s t o “inv est p ri m ar i l yi n qual i fy i ng empl oy er s ecur i t i es . ” 29 U

. S. C

. § 1107( d) ( 6) ( A )

. I n ot her w o rds, “the c o n c e p t o f e m p lo y e e o w n e rs h ip c o n s titu te d a g o a l in a n d o f its e lf.” M o e n c h , 6 2 F .3 d a t 5 6 8

. D es pi t e the s peci al s t atus o f ES O Ps, w e emphas i zed that E SO P fi du ci ar i es ar e s t i l l r equi r ed t o acti n acc or dance w i t h t he du t i e s of l oy a l t ya nd c a r e t ha ta pp l y t o fi du c i a r i e s of t ypi c a l ER I SA pl ans. Id. at569; s ee a l s o K uperv. I ovenko, 66 F. 3d 1447, 1457 ( 6t h C i r . 1995) ( “[T] he purpos e of ESO Ps c an n o t ove r r i de E R ISA ’s go al of ensuri ng t he p roper m anag em ent and sou nd ness of empl oy ee benef

i t pl ans . ”) ; Fi nk v. N at ’ l Sav. & T rus tC o. , 772 F. 2d 951, 955- 56 ( D

. C

. C i r . 1985) ( “The i n v est m entdeci s i ons of a pr ofi ts har i ng pl an’ s fi duci ary ar e s ubj ectt o t he cl os es ts crut i ny undert he prudentper s on rul e, i n s pi t e of the s t r o n g p o li cyand pr efe r ence i n favor of i nves t m ent i n empl oy er s t ock.”) ( i nt ernal q u o tatio n m a rk s o m itt e d ). “ In o th e r w o rd s, C o n g re s s e x p re ss ly i nt ended thatt he E S O P w oul d be both an empl oy ee r et i r ement b e n e f it p lan a n d a tec h n iq u e o f c o rp o ra te f

in a n c e th a t w o u ld encour age em pl oy ee ow ner s hi p. ” M oench, 62 F. 3d at568 ( i nt ernal quot at i on m arks om i t t ed)

. A ccor di ngl y , w e decl i ned t o adopt a per s e rul e that t he deci s i on of an E SO P f i duci ary t o i nves ti n empl oy er s e c u ri tie s is n o t s u b

je c t to ju d ic ia l r e v ie w . S e e id . a t 5 7 1

. 10
In o rd e r to f

a sh io n a n a p p r o p ria te s tan d a rd th a t w o u ld balance t he tw o rol es that ES O P s ar e re q u ire d t o serve— as a m echa ni s m of corpor at e fi nance and a vehi cl e for r et i r ement s avi ngs

— w e not ed t hat“trus tl aw di s t i ngui s hes betw een tw o t ypes of d i rect i on s. ” Id. at57 1. O n the o ne han d, i f the trust“requi res ”T h e re is a lso n o d isp u te th a t, as in M o e n c h , d e f e n d a n ts 11 r et ai ned l i m i t ed di s cr et i on nott o offe rA vay a com m on s t ock as an in v e s tm e n t o p tio n . 11 th e tru ste e to in v e st in a p a rticu lar sto c k , the n th e tr u ste e is “i m m un e from j ud i ci al i nq uiry . ” Id. O n the ot her han d, i f t he trust m er el y“perm i t s ” the trus t ee t o i nves t i n a par t i cul ars t ock, t hen the t ru s t e e ’ s i n v e s t me n td e c i s i o n i s s u b j e c t t o d e n o v o j u d i c i a l r e v i e w. Id

. T he s i tuat ion p r es ent ed i n M oench di d notfi tei t her c a teg o ry . D e f

e n d a n ts w e re “ n o t ab so lu telyre q u ire d to in v e st in e m p lo y e r se c u rities ,” b u t th e yw e re “ m o re th a n sim p lyp e rm itt e d to m ake suc h i nves t m ent s . ” I d. W e ther efor e det erm i ned thatan i nt erm edi at e abus e of di s cr et i on s t andar d w oul d str ike t he appr opr i at e bal ance betw een i m m uni t y fr om j udi ci al r evi ew , atone extr eme, and de novo r evi ew , att he other. A cc or di ngl y , w e s et fo rth the f

o ll o w ing reb u tt ab le p resu m p ti o n : “[ A ]n E S O P fid u ciary w ho i nves t s [pl an] as s et s i n empl oy er stoc k i s ent i t l ed t o a pr es um pt i on t hati t act ed cons i s t ent l y w i t h E R I SA by vi r tue of that deci s i on. H ow ever , t he pl ai nt i ff m ay over come t hatpr es um pt i on byes t abl i s hi ng t hatt he fi duci ary abus ed i t s di s cr et i on byi nves t i ng i n em ploy er s ecuri t i es. ” Id. E dg ar r efers t o t his defe rent i al abu se o f d is c re tio n s ta n d a rd a s M o e n c h ’s “ p re s u m p tio n o f p ru d e n c e .” (S e e , e .g ., A p p e lla n t’ s B r. a t 2 3 .)
E dgarar gues t hat M oench’ s pr es um pt i on of prudence does not ap p l yh e r e , b e c a u s e t h e Pl a n s a ti s s u e i n t h i s c a s e a r e n ot E SO Ps. W e ar e not per s uaded. A n E SO P i s one of s ever al t ypes of pens i on pl ans cat egor i zed unde rE R I SA as “El i gi bl e I ndi vi dual Ac c o u n t P l a n s ” o r“ E I AP s . ” 2 9 U. S

. C. § 1 1 0 7 ( d ) ( 3 ) ( A)

. An E I AP is de fin ed as “ an ind ividu al ac co u n t p la n w h ich is (i ) a pr ofi t

- s har i ng, s t ock bonus, t hr i ft , or s avi ngs pl an; ( i i ) an empl oy ee st ock ow nershi p plan; or ( i i i ) a m on eypu rchase pl an w hich .

. . [i s] in v e ste d p rim a rilyin q u a lify in g e m p lo y e r se c u rities .” Id . It i s un dis pu t ed thatt he P l ans ati ssue i n thi s case ar e E IA P s. 11
B e c a u se o n e o f

th e p u rp o se s o f

E IA P s is to p ro m o te i nves t m enti n empl oy ers ecur i t i es , t heyar e s ubj ectt o m anyof theI n r eac hi ng ourconc lusi on, w e r ej ectE dgar ’ s ar gum ent 12 t h a to u rd e c i s i o n I n r e Sc h e r i n g - Pl o u g h Corp . ERI SA Li t i gat i on, 4 2 0 F

. 3 d 2 3 1 (3 d C ir. 2 0 0 5 ), req u ir es a co n tr aryresu lt

. In Scher i ng- Pl ough, w e ad d res s ed the narr ow ques t i on of w hether p a rticip a n ts in a n E R IS A re tirem e n t s a v in g s p lan c o u ld p ro se c u te a der i vat i ve act ion o n b ehal f of the pl an eve n t hough t he al l eged lo ss e s a f f e c ted o n lya su b se t o f p a rticip a n ts w h o in v e ste d in e mp l o y e rs t o c k

. I d

. a t2 3 2

. I n r e s o l v i n g t h e s t a n d i n g i s s u e , we r efe r ence d M oench onl yt o s t at e thati tw as i nappos i t e bec aus e the pl an ati s s ue i n Scher i ng -P l ough w as notan ES O P, and di d not even di r ect pl an fi duci ar i es t o offe r empl oy er s t ock as an in v e stm e n t o p tio n . S e e id

. a t 2 3 8 & n .5

. In a d d iti o n , w e e x p licitly s t at ed thatw e w er e expr es s i ng “no opi ni on on t he s i gni fi canc e” of §1104( a) ( 2)

— w hi ch as pr evi ous l y s t at ed, exempt s E I A Ps fr om t he dut yt o di ver s i fy

— t o t he fa ct s pr es ent ed i n t he ca s e. I d. at238 n. 5. 12 s ame except i ons t hatappl yt o E SO Ps. See W r igh t v. O r egon M et al l ur gi cal C orp. , 360 F. 3d 1090, 1094 ( 9t h C i r. 2 004)

. For ex am p le, § 1 1 0 4 (a)(2) p rov ides that all E IA P s, n o t just E S O P s, are exemptfr om E R I SA ’ s dut y t o di ver s i fy : “I n t he ca s e of a n e lig ib le in d iv id u a l a c c o u n t p la n . . . t he di ver s i fi cat i on r equi r ement

. . . and t he prudence r equi r ement( onl yt o t he ext ent t hati tr equi r es d iv e rs if ic a tio n ) . . . i s n o t v io la te d b ya c q u is itio n o r h o l d i n g o f

. .

. qual i fy i ng em p loy ers ecur i t i es . ” 29 U

. S. C

. § 1104( a) ( 2) (em p h asis ad d ed ). A n d § 1 1 0 8 (e)(3)(A ) st ates tha t E R IS A ’s pr ohi bi t i ons agai ns t deal i ng w i t h a par t y i n i nt er es tors el f- deal i ng “s hal l notappl yt o t he ac qui s i t i on ors al e bya pl an of qua l i fy i ng em ploy er securi t i es . . . i f t he p l an is an el igi bl e i ndi vi dualaccount pl an . ” 2 9 U .S

. C

. § 1 1 0 8 (e)(3)(A ) (em p h asis ad d ed ). C ons equent l y , E I A Ps, l i ke E S O P s , “pl ace empl oy ee r et i r ement a ss e ts a t m u c h g re a ter risk ” th a n tra d iti o n a l E R IS A p lan s. W rig h t, 3 6 0 F. 3 d a t 1 0 9 7 n . 2

. Gi v e n t h e s e s i mi l a r i t i e s , we c o n c l ude t hat t he under l y i ng r at i onal e of M oench a ppl i es equal l yher e. 12
In su m , w e c o n c lu d e th a t th e D istric t C o u rt c o rre c tly det erm ined thatM oench’ s abus e of di s cr et i on s t andar d governs j udi ci al r evi ew of def

endant s ’ deci s i on t o offe rt h e A v ay a St ock Fund as an i nves t m entopt i on.13 2) T he fact s al l egedi n the am end ed co m plai nt do no testab l ish an abus e of

dis cr et i on Ha v i n g s e t f

o r t h t h e a p p r o p r i a t e s t a n d a r d o f j u d i c i a l r e v i e w, th e D istric t C o u rt th e n c o rre c tlyc o n c lu d e d th a t E d g a r f a iled to p lea d f a c ts s u f f icie n t to e sta b lish th a t d e f e n d a n ts a b u se d th e ir d is c re tio n . I n or dert o rebutt he pr es um pt i on t hata fi duci aryact ed pruden t l yi n invest i ng i n em ploy er s ecuri t i es, a “p lain tiff m ust sh o w th a t th e E R IS A f

id u c iar y c o u ld n o t h a v e b e liev e d re a so n a b ly t hatcont i nued adhe r ence t o t he ES O P’ s d ir ect i on w as i n keepi ng w ith th e se ttl o r’s e x p e c tatio n s o f h o w a p ru d e n t tru ste e w o u ld oper at e. ” M oench, 62 F. 3d at 571. T hus , “the pl ai nt i ff may i nt r oduce e vi dence t hat‘ ow i ng t o ci r cumst ance s not know n t o t he s et t l orand notant i ci pat ed byhi m , ’ ” i nves t i n g i n empl oy er s ecur i t i es “‘ w oul d d e fea t or s ubs t ant i al l y i m pai r t he acc o mpl i s h me n to f

t h e p u rp o s e s o f

t h e t ru s t

. ’ ” I d

. ( q u o t i ng R e s ta te m e n t ( S e c o n d ) § 2 2 7 c o m m e n t g ))

. I n M oench, w e obs erved thatt he pl ai nt i ff a l l eged “ t hatt he p re c ip ito u s d e c lin e in th e p ric e o f [ th e e m p lo ye r’s sto c k ], as w e ll as [ d ef en d an ts’ ] kn o w ledg e o f it s im p en d ing co ll ap s e an d [th eir] ow n confl i ct ed s t atus , change d ci r cumst ance s t o s uch an ext entt hat [d ef en d ant s ] coul d eff

ectuat e the purpos es of the trus tonl yby d e v i a t i n g f

r o m th e t ru s t ’ s d i r e c t i o n o r b y c o n t r a c t i n g out i nves t m ent d ec is i ons t o an i m par t i al out s i der

. ” I d. at572. Speci fi cal l y , pl ai nt i ff pr offe r ed evi dence t hatdur i ng t he r el evant t w o- y ear p eri od, t he pr i ce of t he company ’ s s t ock dec l i ned fr om $18. 25 t o l es s t han $0. 25 pers har e; fede r al r egul at or s i nfor m ed the company ’ s B o ar d of D i r ect or s t hatt heyhad conc erns aboutt he company ’ s fi nanci al condi t i on and had uncover ed var i ous r egul at or y vi ol at i ons ; t he Feder al D epos i t I ns ur ance C orpor at i on even tuall y t oo k over con t rol of o ne o f t he co m pan y ’s subsi diar i es; and, ul t i m at el y , t he companyfi l ed forC hapt er11 bankrupt cy . I d. at557. B as ed on t hes e fac t s , w e r emanded t he m at t er t o t he di s t r i ct cour tforfur t herdevel opm entof the r ecor d. I d. at572.
H er e, E dgaral l eges i n t he amended compl ai n t that d e f e n d a n ts a b u se d th e ir d isc re tio n b yk n o w in g lyo r re c k les slyW e do not i nt erpr etM oench a s r equi r i ng a companyt o be 13 on t he b ri nk of ban kruptcy befo re a fi du ci aryi s r equ i red t o d i vest a p lan o f e m p lo y e r s e cu ri ti es. H o w ev er, w e b eli ev e tha t th e b are all eg ati o n s o f f

rau d an d o ther w ron g d o ing set fo rth in E d g ar’s amended compl ai ntar e i ns uffi ci ent t o es t abl i s h an abus e of di s cr et i on, par t i cul ar l yw hen a r evi ew of A vay a’ s hi s t or i c s t ock pr i ce s how s t hat , byJ ul y 26, 2005, t he pr i ce of t he s t ock r ebounded t o $10. 74 pers har e— $. 05 pers har e m or e t han i t s t r adi ng pr i ce on t he dayof the A pr i l 19, 2005 earni ngs announce m ent

. See O r an v. St aff or d, 226 F. 3d 275, 288 ( 3d C i r . 2000) ( not i ng t hata courtm ay “t ake j udi ci al not i ce of

fac t s t hat ar e ‘ capa bl e of acc ur at e and r eady det er mi n a t i o n b yr e s o r tt o s o u r c e s who s e a c c u r a c yc a n n ot 14 di s r egar di ng t he fa ctt hat : ( 1) t he cos tof i nt egr at i ng a r ece nt c orporat e acqu i si t i on w as great er than defe nd ants pu bli cly r epr es ent ed; ( 2) r ather t han havi ng a pos i t i ve fi nanci al i m pact , t he ac q u isi ti o n red u ce d A v a y a’s e arn ing s b yat l ea st $.06 p er sh are dur i ng t he 2005 fi s cal y ear ; ( 3) chang es t o A vay a’ s m ethod of d e liv e rin g p ro d u c ts to m a rk e t w e re c a u sin g se v e re d is r u p tio n s in s al es ; and ( 4) t he companyw as exper i enci ng a dr amat i c r educt i on i n demand fori t s pr oduct s . T her efor e, E dgar cont ends , “A vay a had no reas on able b asi s to p roj ect an i ncrease i n p rofi t s or an i ncrease i n r evenue s of 25- 27% forfi s cal 2005. ” ( J

. A

. at54- 55, 59- 60, 62, 6 4 -65 , 6 8

. )
E dg ar’ s al l egati on s, i f t rue, i nd i cat e t hat duri ng t he C l ass P eriod , A v ay a w as u n d erg o ing co rpo rate d ev elop m en ts that w ere l i kel yt o have a negat i ve ef fec ton t he comp an y ’s e arni ngs and, th e re f o re , o n th e v a lu e o f

th e c o m p a n y ’s s to c k . In f a c t, t h is is pr eci s el yw hathappene d w hen the pr i ce of A vay a s t ock dec l i ned by$2. 68 pers har e fol l ow i ng A vay a’ s A pr i l 19, 2005, ea rnings ann ou ncem ent. W e c ann ot agr ee, ho w ever, t hat these devel opm ent s , ort he corr es pondi ng dr op i n s t ock pri ce, cr eat ed the t ype of di r e s i tuat i on w hi ch w oul d r equi r e def endant s t o di s obey t he t erm s of the P l ans by notoffe r i ng t he A vay a St ock Fund as an i nv estm ent opt i on , or bydivest i ng t he P l ans o f A vay a securi t i es. I ndeed, had def

endant s di ves t ed the P l ans of A vay a comm on s t ock dur i ng t he C l as s Per i od, t hey w oul d have r i s ked l i abi l i t yforhavi ng fai l ed t o fol l ow t he t erm s o f t he Pl ans . See M oench, 62 F. 3d at 13rea so n ab lyb e q u esti o n ed ’”) (qu o ti n g F ed

. R

. E v id. 20 1 (b)(2 )). E dgarci t es a numberof di str i ctcour tcas es s ugges t i ng 14 t hat i t i s i m pr opert o cons i derM oench’ s pr es um pt i on of prudence i n rul i ng on a mot i on t o d i s mi s s . Se e , e . g. , Rank i n v . Rot s , 27 8 F. S u p p . 2 d 8 5 3 , 8 7 9 (E .D

. M ic h

. 2 0 0 3 ); In re E le c . D a ta S y s . C o rp ., 3 0 5 F

. S u p p . 2 d 6 5 8 , 6 6 9

- 7 0 ( E

. D

. T e x . 2 0 0 4 )

. I ti s o u rv i e w, how ever , t hata dutyof prudence cl ai m t hati s on i t s fac e i n a d e q u a t e a s a m a t t e ro f l a w o b v i a t e s t h e n e e d f o rd i s c o v e r y. 15 5 7 1 -7 2 (“ [ C ]o u rts m u st re c o g n ize th a t if th e f id u c iar y , in w h a t it r egar ds as an exer ci s e of caut i on, does not m ai nt ai n t he i nves t m ent i n t he empl oy er ’ s s ecur i t i es , it m ayfac e l i abi l i t yfort hatcaut i on, p arti cu larl yif th e e m p loy er’s sec u ri ti es th ri v e.”).
Fi nal l y , E dgar ar gues t hatt he D i s t r i ctC our t ’ s appl i cat i on of M oench’ s pr es um pt i on of prudence at t he m ot i on t o di s m i s s s t age i s s om ehow i ncons i s t entw i t h the li b er al pl eadi ng s t andar ds s et fo rth in R u le 8 o f th e F ed era l R u les o f C ivil P roc e d u re . W e a re unconvi nced. Q ui t e si m pl y , i f a pl ai nt i ff doe s notpl ead a l l of the e ss e n ti a l e lem e n ts o f

h is o r h e r le g a l cla im , a d istric t co u rt is req ui r ed t o di s m i s s t he compl ai ntpur s uantt o R ul e 12( b) ( 6)

. For e x a m p le, in W rig h t v . O re g o n M e tallu rg ica l C o rp ., th e N in th C irc u it co n c lu d e d th a t “P lain ti f f s’ a lleg e d f

a c ts e f f e c tiv e ly pr ecl ude[d] a cl ai m under M oench, el i m i nat i ng t he need forfur t her di s covery . ” 360 F. 3d at 1098. A s t he C ourt n o ted, “publ i s hed a c c o u n ts o f

[ th e e m p lo y e r’s ] e a rn in g s a n d f in a n c ial f

u n d a m e n tals d u rin g th e re lev a n t p e rio d , atta c h e d to th e c o m p lain t, de m o n stra te t hat[the empl oy er ] w as far fr om t he s or tof det er i or at i ng fi nanci al ci r cumst ance s i nvol ved i n M oench a nd w as , i n fac t , pr ofi t abl e and pay i ng s ubs t ant i al di vi dends t hr oughoutt hatper i od. ” I d. G i ven t hes e ci r cumst ance s , “[m]e r e s t ock fl uctuat i ons , eve n thos e that t r end dow nw ar d s i gni fi cant l y , ar e i ns uffi ci entt o es t abl i s h t he r equi s i t e i m p rud ence t o r ebutthe M oench pr es um pt i on. ” I d. at 1099. W e fi nd t he N i nt h C i r cui t ’ s r eas oni ng t o be l ogi cal , and s ee n o re a so n to a llo w th is ca se to p ro c e e d to d isc o v e ryw h e n , ev e n if t he al l egat ions a r e pr oven true, E dgarcannotes t abl i s h t hat d ef en d an ts ab u sed their d iscreti o n . A cc o rdin g ly , w e w il l aff irm 14E dgars um m ar i l yar gues i n herbr i ef on a ppeal t hat 15 beca us e the D i s t r i ctC our ti m pr oper l ydi s m i s s ed her dut yof prudence cl ai m , i ts houl d not have di s m i s s ed hercl ai m s forbr eac h of the dutyof l oy al t y , br eac h of the dut y t o m oni t orfi duci ar i es , and co -fidu ciaryli a b ility

. B ec au se w e a ff irm the D istri ct C o u rt ’s di s m i s s al of Edgar ’ s dut yo f prudence cl ai m , t her e i s no bas i s for us t o d i sturb t he D i stri ctC ou rt ’s dis m i ssal of these ot her cl ai m s. 16 t h e Di s t r i c tCo u r t ’ s d i s mi s s a l o f Ed g a r ’ s p ru d e n c e c l a i m. 15
B . D ut y of

D i s cl os ure E d g a r a r g u e s th a t ev e n if th e a d v e rse c o rp o ra te devel opm ent s r evea l ed i n A vay a’ s A pr i l 19, 2005, earni ngs announce m en t d id notr equi r e def endant s t o di ves tt he Pl ans of A v a y a c o m m o n st o c k , “[ a ]t a m in im u m , the yw e re re q u ire d to d isc lo se th e m a ter iallya d v e rse f a c ts to th e P lan s a n d th e ir p a r t i c i p a n t s ” p r i o r t o t h e e a r n i n g s a n n o u n c e m e n t

. ( J

. A

. a t3 8

. ) We d o n o t a g re e . I ti s w el l

- es t abl i s hed that a n E R I SA fi duci ary“maynot m at er i al l ym i s l ead thos e t o w hom s ect i on 1104( a) ’ s dut i es of l oy al t y and prudence ar e ow ed. ” I n r e U ni s y s Sav. Pl an Li t i g. , 74 F

. 3d 42 0, 44 0 (3d C i r. 19 96 ). Indeed , t he “‘du t yt o in f o rm i s a cons t antt hr ead i n t he re l at i ons hi p betw een be nefi ci aryand trus t ee; it is n o t onl ya nega t i ve dutynott o m i s i nfor m , butal s o an a f f i r ma t i v e d u t yt o i n f

o r m w h e n t h e t ru s t e e k n o ws t h a ts i l ence m i ghtbe harm ful

. ’ ” I d. at44 1 (quot i ng B i xl erv. C ent

. Pa. T ea m sters H ea lth & W elfa re F u n d , 1 2 F

. 3 d 1 2 9 2 (3d C ir

. 1 9 9 4 )). I n U ni s y s , w e hel d t hat t he s ame duty appl i es t o “al l eged mat er i al m i s rep rese n tat ion s m ad e b yfid u ciarie s t o part i ci pant s r egar di ng the r i s ks at t endantt o a fund i nves t m ent

. ” I d. at442. I n t he i nves t m ent cont ext , “a m i s r epr es ent at i on i s ‘ m at er i al ’ i f ther e w as a s ubs t ant i al lik e lih o o d th a t itw o u ld h a v e m isle d a re a so n a b le p a r ticip a n t in m aki ng an ade quat el y i nfor m ed deci s i on about w hethert o pl ace or m a in ta in m o n ie s ” in a p a rt ic u la r f u n d . Id

. T he S um m aryP l an D escr i pti on s i nfo rm P l an p art i cip a n ts t hatt hei ri nves t m ent s ar e t i ed t o t he mar ketper for m an ce o f the17 fun ds; th a t e a ch fu nd carr i es di fferentri sks and p otent i al returns; t hatpar t i ci pant s ar e r es pons i bl e fori nves t i gat i ng t he i n ves t m ent opt i ons ; and that , in doi ng s o, t heym i ghtcons i ders eeki ng t he advi ce of a per s onal fi nanci al advi s or . I n addi t i on, t he P la n D es cr i pt i o ns expl i ci t l yw arn par t i ci pant s t hatt her e ar e part i cul ar ri sk s asso ciated w ith inv esti n g in a n o n -div ersified fu n d

. N o w h ere in th e P lan D e s c r ip tio n s o r th e P lan s th e m se lv e s a re p a rticip a n ts gu arant eed a p art i cularreturn on t heiri nv est m ents

. T hese d isc lo su re s w e re su f

f icie n t to sa tisf

yd e f e n d a n ts’ o b lig a tio n n o t to m i s i nform par t i ci pant s aboutt he r i s ks as s oci at ed w i t h i nves t m ent i n t he A vay a St ock Fund. U nderT hi rd C ir cui tl aw , t heydi d not have a dut y t o “gi ve i nves t m entadvi ce” or“t o opi ne on” the s t ock’ s condi t i on. See i d. at 443. R ather , t he i nfor m at i on pr ovi ded Pl an part i ci pant s t he opportuni t yt o m ake thei row n i nfor m ed i nves t m entchoi ce. T o t he ext entE dgarar gues t hatt he adve rse devel opm ent di s cl os ed i n t he A pr i l 19, 2005 earni ngs announce m ents h o u l d h a ve been di s cl os ed ear l i er , w e agr ee w i t h t he D i s t r i ct C our t t hat had the A vay a def

endant s “publ i cl y r el eas ed anyadver s e i nfor m at i on t hey h ad pri ort o t he A pr i l 2005 announce m ent , undert he ‘ eff i ci ent capi t al m arket s hypot hes i s , ’ s uch a di s cl os ur e w oul d have r es ul t ed i n a s w i ft m ark et adj us t m ent

. ” Edgar , 2006 W L 1084087, at*9. T her efor e , a s t h e Di s t r i c tCou r tr e a s o n e d , “ t h e Pl a n s wou l d n ot have been abl e t o s el l t hei r A vay a s t ock hol di ngs att he hi gher , pr ea n n o u n c e me n tp r i c e , a n d t h e P l a n s wo u l d h a v e s u s t a i n e d t h e s a me l os s es t hey incu r r ed w hen the C om panypubl i cl yannounce d t he q u arterl y resu lt s in A p ri l 2 0 0 5

. ” Id. In a d d it ion , the D istri ct C o u rt o b s e rv e d , h a d d e f

e n d a n ts d e c id e d to d iv e s t th e P la n s o f A v a ya s t ock pr i ort o A pr i l 19, 2005, bas ed on i nfor m at i on that w as not publ i cl yavai l abl e, t hey w oul d have fac ed pot ent i al l i abi l i t yunder t he sec ur i t i es l aw s fori ns i dert r adi ng. I d. at*10. T hatobs ervat i on d o e s n o t , a s E d g a ra r g u e s , me a n t h a tt h e f e d e r a l s e c u r i t i e s l a ws re lie v e f id u c ia ri e s o f

th e iro b lig a tio n s u n d e r E R IS A

. I n s um , w e concl ude t hatdefe ndant s ful fi l l ed thei rdut yof di s cl os ur e underE R I SA by i nfor m i ng Pl an part i ci pant s aboutt he pot ent i al r i s k s a s s oci at ed w i t h i nves t m enti n t he A vay a St ock Fund. T hatdefe nd an ts di d noti nfor m Pl an part i ci pant s abouts ever al adve rse c orpor at e deve l opm ent s pr i ort o A vay a’ s earni ngs18 an n o u n ce m en t, d o es n o t con sti tute a b rea ch o f their disclos u re o b l i g a t i o n s u n d e rE RI S A.
I V.
Fort he re as ons s t at ed above, w e concl ude thatE dgarfai l ed to p lea d f

a c ts th a t, i f

p ro v e n , w o u ld e sta b lish th a t d e f e n d a n ts ab u sed th e ird iscreti o n b yo ff ering p arti cipa n ts i n the c o m p an y ’s t h r e e p e n s i o n b e n e f

i tp l a n s t h e o p t i o n o f

i n v e s t i n g i n A v a ya comm on s t ock. I n addi t i on, w e conc l ude thatdefe ndant s ful fi l l ed t hei rdi s cl os ur e obl i gat i ons underE R I SA byappri sing pl an p a r t i c i p a n t s o f

t h e r i s k s a s s o c i a t e d w i t h i n v e s t i n g i n t h e A v a ya S tock F u n d

. A cc o rdin g ly, w e w il l aff irm the D istri ct C o u rt ’s d ism issal of

the a m en d ed co m p lai n t pu rsua n t t o R u le 12 (b)(6 ).