Opinion ID: 821419
Heading Depth: 1
Heading Rank: 2

Heading: Count One: Duty of Prudence

Text: In our companion Opinion, we hold that the relevant fiduciaries’ management of the Plus Plan, but not the SIP, is entitled to the Moench presumption of prudence. See Moench v. Robertson, 62 F.3d 553 (3d Cir. 1995). As to the Plus Plan, then, we must determine whether plaintiffs have adequately alleged sufficiently “dire” circumstances at UBS during the class period so as to defeat this presumption and establish an abuse of discretion, thus stating a claim for breach of the duty of prudence upon which relief can be granted.1 These dire circumstances must be alleged also to have been “objectively unforeseeable by the settlor,” In re Citigroup ERISA Litig., 662 F.3d at 140, such that an “adequate investigation” regarding those circumstances “would have revealed to a reasonable fiduciary that the investment at issue was 1 Of course, knowledge would have to be adequately alleged as well. In re Citigroup ERISA Litig., 662 F.3d at 141. 5 improvident,” Kuper v. Iovenko, 66 F.3d 1447, 1460 (6th Cir. 1995). Because we hold that the District Court appropriately applied the presumption of prudence as to the Plus Plan, the decision of the Plus Plan fiduciaries to continue offering UBS stock as an investment option should be reviewed for an abuse of discretion. In re Citigroup ERISA Litig., 662 F.3d at 140 (“[T]he abuse of discretion standard ensures that a fiduciary’s conduct cannot be second-guessed so long as it is reasonable.”). A showing that the company made “bad business decisions is insufficient to show that [it] was in a ‘dire situation.’” Id. We have not defined precisely the contours of what constitutes a “dire” situation sufficient to defeat the presumption of prudence. In In re Citigroup ERISA Litig., we found that plaintiffs had not adequately alleged a “dire situation” where the employer’s stock had dropped “just over 50%,” 662 F.3d at 141, and where Citigroup was alleged to have undergone a more than $350 billion government bailout on the “eve of a potential bankruptcy,” Brief of PlaintiffsAppellants at 11, In re Citigroup ERISA Litig., 662 F.3d 128 (2d Cir. 2011) (No. 09-3804-cv). In Gearren II, we held that a stock price drop of some sixty-four percent was insufficient to defeat the Moench presumption, even where plaintiffs had alleged that defendants “knowingly provided inflated ratings to financial products linked to the subprime-mortgage market,” and that the discovery of these faulty ratings “led to the sharp drop in the price of McGraw-Hill stock.” 660 F.3d at 609. Given the comparable facts of this case, we need not further elaborate as to what circumstances qualify as “dire,” as plaintiffs’ allegations do not rise to such a level under our prior holdings. Here, during the seven-month class period, from March 17, 2008 through October 16, 2008, plaintiffs allege that UBS suffered the consequences of its significant investments in subprime mortgage backed securities and other risky fixed income assets. The SCAC alleges 6 that UBS’s stock — in spite of all of the financial difficulties it faced stemming from its allegedly risky investment decisions and ensuing write-downs — lost about thirty percent of its value during the class period, and about seventy-four percent of its value from its twelve-month high in April of 2007. Without more, however, the decline in stock value alleged here, as well as the write-downs and bailout funds the company received, are insufficient to demonstrate that UBS faced a “dire situation.” Further counseling against a determination that a “dire situation” existed are the SCAC’s own allegations that circumstances at UBS during the class period were not in complete decline. Plaintiffs allege, for example, that UBS was able to raise some $27 billion in capital during and near the class period from outside investors, a sign that UBS’s likelihood of financial recovery was generally viewed as favorable. The SCAC alleges also that UBS was able to significantly increase its cash on hand to meet possible increasing client demand to withdraw deposits held by the bank. Nothing set forth in the SCAC permits a plausible inference that at any point during the class period UBS was, objectively, no longer a viable company. We agree with the District Court that the SCAC fails to adequately allege that UBS “reach[ed] the brink of imminent collapse during the new putative class period in the . . . SCAC.” In re UBS AG ERISA Litig., No. 08 Civ. 6696, 2012 WL 1034445, at  (S.D.N.Y. Mar. 23, 2012). We therefore affirm the dismissal of plaintiffs’ breach of the duty of prudence claim as to the Plus Plan.