Source: http://tx.findacase.com/research/wfrmDocViewer.aspx/xq/fac.20180330_0000645.STX.htm/qx
Timestamp: 2019-04-24 06:12:58+00:00

Document:
EXXON MOBIL CORPORATION, et al, Defendants.
This is an Employee Retirement Income Security Act (“ERISA”) case alleging a breach of fiduciary duties in the management of a defined contribution plan. Defendants' Motion to Dismiss the Amended Class Action Complaint (Doc. No. 37) is pending.
A court may dismiss a complaint for “failure to state a claim upon which relief can be granted.” Fed.R.Civ.P. 12(b)(6). When considering a Rule 12(b)(6) motion to dismiss, a court must “accept the complaint's well-pleaded facts as true and view them in the light most favorable to the plaintiff.” Johnson v. Johnson, 385 F.3d 503, 529 (5th Cir. 2004). “To survive a Rule 12(b)(6) motion to dismiss, a complaint ‘does not need detailed factual allegations, ' but must provide the plaintiff's grounds for entitlement to relief-including factual allegations that when assumed to be true ‘raise a right to relief above the speculative level.'” Cuvillier v. Taylor, 503 F.3d 397, 401 (5th Cir. 2007) (citing Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007)). That is, “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 (2009) (quoting Twombly, 550 U.S. at 570).
ERISA requires the fiduciary of a pension plan to manage plan assets “with the care, skill prudence, and diligence . . . that a prudent man acting in a like capacity and familiar with such matters” would use under the circumstances. 29 U.S.C. § 1104(a)(1)(B). This duty of prudence “trumps the instructions of a plan document, such as an instruction to invest exclusively in employer stock even if financial goals demand the contrary.” Fifth Third Bancorp v. Dudenhoeffer, 134 S.Ct. 2459, 2468 (2014). The duty of prudence applies fully to ESOPs, except that ESOPs need not be diversified. Id.
The Supreme Court explained, “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 (quotation omitted). Generally, ERISA fiduciaries may prudently rely on the market price. Id. Plaintiffs may attempt to allege imprudence (1) on the basis of publicly available information by pointing to a special circumstance affecting the reliability of the market price or (2) on the basis of non-public information. Id. at 2471-72. Fifth Third established frameworks for assessing duty-of-prudence claims based on public information and insider information.
Plaintiffs' duty-of-prudence claim is based on the allegation that Defendants “knew or should have known that Exxon's stock had become artificially inflated in value due to fraud and misrepresentation.” (Doc. No. 36 at 2.) Thus, Plaintiffs' allegations are based entirely on how Defendants should have managed the Plan based on insider information. This Court first assesses whether Plaintiffs have alleged the existence of, and Trustee Defendants' knowledge of, insider information and false or misleading statements that were inconsistent with the information. Then, the Court will turn to whether Plaintiffs have sufficiently alleged alternative actions that the Defendants could have taken “that a prudent fiduciary in the same circumstances would not have viewed as more likely to harm the fund than to help it.” Fifth Third Bancorp, 134 S.Ct. at 2472.
To plausibly allege violations of the duty of prudence based on non-public information, a plaintiff must allege that the defendants knew or should have known that the market price was based on materially false or misleading statements that would make it an imprudent investment. See In re Citigroup ERISA Litig., 104 F.Supp.3d 599, 616 (S.D.N.Y. 2015) (failure to state a claim because plaintiffs “have not sufficiently alleged that there was any material, nonpublic information to be disclosed); In re BP p.l.c. Sec. Litig., No. 10-md-2185, 2015 WL 1781727, at *10 (S.D. Tex. Mar. 4, 2015), rev'd on other grounds, Whitley v. BP, P.L.C., 838 F.3d 523 (5th Cir. 2016) (the first hurdle to be cleared before an insider information prudence claim requires plaintiffs to plausibly allege that defendants “had knowledge of the relevant insider information which would indicate that the stock price is distorted”); Price v. Strianese, No. 17-cv-652, 2017 WL 4466614, at *2 (S.D.N.Y. Oct. 4, 2017).
Plaintiffs allege that Exxon's public statements were materially false and misleading when made because they failed to disclose: (1) that Exxon's own internally-generated reports concerning climate change recognized the environmental risks caused by climate change; (2) that, given the risks associated with climate change, Exxon would not be able to extract all of the hydrocarbon reserves Exxon claimed to have and it therefore should have written down those reserves as “stranded”; and (3) that Exxon used an inaccurate “price of carbon” in evaluating the value of its future oil and gas reserves. (Doc. No. 36 at 3.) Plaintiffs attribute Trustee Defendants' knowledge of the falsity of the statements to their positions and tenure within Exxon.
Defendants also argue that not only did Exxon disclose the risks of climate change before and during the Class Period-November 1, 2015 through October 28, 2016-but the “internal documents” on which the Plaintiffs relied were publicly available before the Class Period. (Doc. No. 37 at 17-18.) Defendants point to Exxon's publicly available 2015 Corporate Citizenship Report, which acknowledges “risks of climate change” (Doc. No. 37-2 at Exh. D), as well as a mention of “global climate change” in its Form 10-K for the fiscal years ending December 31, 2007 and December 31, 2015 (id. at Exh. E, Exh. F).
The parties' arguments miss the point. Plaintiffs have alleged that Exxon studied the risks of climate change for decades. During the Class Period, however, the insider information could only be that Exxon had studied the risks for decades; information about the risks of climate change was publicly available during 2015 and 2016. Even if Exxon knew more about climate change than the company publicly let on, an efficient market can incorporate other information than what a company discloses. See Singh v. RadioShack, 882 F.3d 137, 146 (5th Cir. 2018) (recognizing that a market can incorporate news articles and analyst reports into a company's stock price). During the Class Period, there was ample publicly available information about climate change for the market to consider in valuing Exxon's stock. (See Doc. No. 37-2 Exhs. IK.) The Supreme Court recognized that “[t]he harms associated with climate change are serious and well recognized” and could be attributed, at least in part, to “manmade greenhouse gas emissions, ” in 2007, years before the Class Period. Massachusetts v. EPA, 549 U.S. 497, 521, 523 (2007). To pretend that environmental risks about climate change were unknown until Exxon itself shared information about climate change is an affront to scientists, academics, and government bodies, not to mention the people who were already experiencing the effects of climate change by 2015.
While Exxon's decades-long misinformation campaign about the causes and effects of climate change should not be understated, the Amended Complaint provides no plausible reason to believe that the risks posed by climate change were not incorporated into the Exxon stock price. See RadioShack, 882 F.3d at 145-46. If Plaintiffs intend to bring a duty of prudence claim based on publicly available information, they must allege “a special circumstance affecting the reliability of the market price as an unbiased assessment of the security's value in light of all public information that would make reliance on the market's valuation imprudent.” Fifth Third Bancorp, 134 S.Ct. at 2472 (internal quotation omitted). Plaintiffs have not.

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