Opinion ID: 858494
Heading Depth: 2
Heading Rank: 2

Heading: Allegations of Imprudence

Text: Plaintiffs allege that M&I and the Plan fiduciaries breached their duty of prudence under ERISA by continuing to offer the M&I Stock Fund as an investment option in the Plan during a period of significant decline in the market value of M&I stock. Like many other financial institutions in 2008 and 2009, M&I Bank suffered significant losses in the wake of the collapse of the housing market and the financial crisis of the autumn of 2008 and following. Plaintiffs claim that amidst this turmoil, the Plan fiduciaries should have 8 No. 11-2660 violated the terms of the Plan, sold the M&I stock held by the Plan, and removed the M&I Stock Fund as one of the options in the Plan because M&I stock was over- valued and too risky an investment for retirement savings. According to plaintiffs, M&I’s problems began when M&I expanded too quickly into risky loans outside its familiar geographic area and its usual loan types. Many of these loans failed, which led to significant net losses and credit-quality deterioration and forced the bank to tap deeply into capital reserves. Observers and analysts recognized that M&I was in poor financial condition at the end of 2008. They repeatedly downgraded M&I bonds and stock because of the poor quality of the loans in M&I’s portfolio. Plaintiffs allege that these problems caused the price of M&I stock to drop dramatically and “created dire financial circumstances” that would inevitably result in significant losses to plan participants, Complaint ¶ 143, or at least increase the riskiness of the investment to intolerable levels. Complaint ¶ 75. The Complaint identifies several assessments of M&I’s financial condition that plaintiffs allege indicated the riskiness of M&I’s stock: in 2008 M&I’s stock was downgraded by four major investment banks; in November 2008 M&I received federal funds as part of the Troubled Asset Relief Program (TARP); in December 2008 Audit Integrity identified M&I as a “very risky company;” by April 2009 six percent of M&I’s loans were nonperforming, and on August 14, 2009 Bloomberg News noted that M&I was one of several banks with at least five percent “toxic” loans and quoted a finance No. 11-2660 9 expert as saying that at five percent toxicity, “chances are regulators have them classified as being in unsafe and unsound condition;” on September 14, 2009 the Pittsburgh Tribune Review opined that “the biggest loser in the S&P 500 this year is Marshall & Ilsley Corp.;” and by April 2010 M&I reported its sixth consecutive quarter of loss. Plaintiffs sought compensation for loss of value in their retirement savings during the class period from November 10, 2006 to April 21, 2010.2 In the district court, plaintiffs alleged and argued that the fiduciaries failed to provide beneficiaries with accurate information about the company’s financial condition, and that M&I failed to monitor other fiduciaries adequately and failed to provide them with accurate information. Plaintiffs have not pursued those theories on appeal. Plaintiffs focus all their attention on appeal on their claim for breach of the duty of prudence. From the beginning of the class period to the end of the period, M&I stock dropped 54 percent, from $46.92 per share to an adjusted value of $21.43 per share. Appellee Supp. App. 11-30. This price is adjusted to include both the value of M&I stock and the value of 2 Unlike plaintiffs suing for securities fraud, plaintiffs can sue under ERISA even if they simply held their investments. There is no purchase or sale requirement for fiduciary duty claims under ERISA. Compare 15 U.S.C. § 78j and Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723 (1975), with 29 U.S.C. §§ 1104(a)(1), 1109. 10 No. 11-2660 the stock of two spinoff entities — Metavante and FIS — whose stock M&I shareholders were permitted to retain when those stocks spun off from M&I. The Plan was also amended to allow the M&I Stock Fund to hold those two stocks. Thus, while M&I’s nominal stock price at the end of the proposed class period was $9.94, the parties agree that the total value of a shareholder’s investments from one share of M&I stock should be adjusted to include the converted spin-off shares, which was $21.43 at the end of the class period.3 During the class period, M&I stock bottomed out at an unadjusted nominal price of $3.11 per share on March 5, 2009. Id. In a deal announced December 17, 2010, Bank of Montreal (BMO) agreed to acquire M&I Bank for $7.75 per share, an approximate 33 percent premium over M&I’s nominal closing stock price on December 16, 2010 of $5.79. 3 When Metavante split off from M&I on November 2, 2007, shareholders received .333 shares of Metavante stock for each share of M&I stock. When Metavante was acquired by FIS on October 1, 2009, Metavante shareholders received 1.35 shares of FIS stock for each share of Metavante stock. These calculations assume that M&I shareholders maintained ownership of the transferred stock through both spinoffs, as employees were permitted to retain their Metavante stock when it spun off from M&I. The adjusted M&I price includes the nominal price of M&I itself plus the added value of the Metavante and then FIS stock. See Supp. App. 30. No. 11-2660 11