Opinion ID: 615595
Heading Depth: 3
Heading Rank: 2

Heading: The District Court Erred In Dismissing Plaintiffs' Prudence Claim

Text: To state a claim for breach of fiduciary duty under ERISA, plaintiffs must adequately allege that defendants were plan fiduciaries who, while acting in that capacity, engaged in conduct constituting a breach of fiduciary duty under ERISA. See 29 U.S.C. § 1109; Pegram v. Herdrich, 530 U.S. 211, 222-24, 120 S.Ct. 2143, 147 L.Ed.2d 164 (2000). I agree with the majority that plaintiffs sufficiently alleged that the Investment Committee and the Administration Committee were ERISA fiduciaries with respect to plaintiffs' ability to invest through the Plans in Citigroup stock. Accordingly, I turn now to whether plaintiffs' allegations, accepted as true, would render it plausible that these defendants, acting in their fiduciary capacities, breached any ERISA-imposed responsibilities, obligations or duties. As previously noted, an ERISA fiduciary must discharge his duties with the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent man 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. 29 U.S.C. § 1104(a)(1)(B). The court's task in evaluating fiduciary compliance with the prudent man standard is to inquire whether the individual [fiduciary], at the time [he] engaged in the challenged transactions, employed the appropriate methods to investigate the merits of the investment and to structure the investment. Flanigan, 242 F.3d at 86 (internal quotations omitted). The question is thus whether the fiduciary acted reasonably in light of the facts of which he knew or should have known at the time he engaged in the challenged transaction. See Roth, 16 F.3d at 920. A [fiduciary] who simply ignores changed circumstances that have increased the risk of loss to the trust's beneficiaries is imprudent. Armstrong, 446 F.3d at 734.
I would hold that plaintiffs have stated a claim against the Investment and Administration Committees for breach of the duty of prudence. Plaintiffs' allegations, if true, render it plausible that the Investment and Administration Committees knew about Citigroup's massive subprime exposure. To see why this is so, we must briefly examine (a) plaintiffs' allegations regarding the responsibilities (and membership) of the Investment and Administration Committees, and (b) the broader context of the subprime crisis, as well as Citigroup's prominent role in it. Pursuant to Plan documents, the Administration Committee was charged with managing the operation and administration of the Plans. The Plans also delegated to the Administration Committee the authority to impose certain restrictions on participants' investment selections. Meanwhile, the Plan documents charged the Investment Committee with, among other things, selecting and monitoring investment options for the Plans; it had the discretion and authority to suspend, eliminate, or reduce any Plan investment, including investments in Citigroup stock. Compl. ¶ 69. Plaintiffs explicitly allege that the Investment Committee regularly exercised its authority to suspend, eliminate, reduce, or restructure Plan investments. Id. Given plaintiffs' allegation that, as of 2008, Citigroup was the largest bank in the world in terms of revenue, we may reasonably infer (a) that Citigroup appointed relatively sophisticated businesspersons to staff the Investment Committee (as well as the Administration Committee); and (b) that such relatively sophisticated Investment Committee members would have had at least a basic knowledge of current events and market trends, especially insofar as they related to the selection and monitoring of Plan investments. Plaintiffs' Complaint contains detailed allegations regarding the growth of subprime lending and Citigroup's ill-fated entry into the subprime marketplace. By 2006 and 2007, reports of an incipient subprime meltdown began to appear in the Wall Street Journal, the New York Times, the Financial Times, Bloomberg News, and Reuters. Id. ¶ 189(a)-(y). Plaintiffs allege that the crisis was foreseeable by at least the end of 2006, given the steady decline in the housing market, ... the plethora of published reports by governmental agencies, real estate and mortgage industries, [and] the media at large. Id. ¶ 136. Citigroup allegedly increased its activity in the subprime and securitization market in early 2005. By November 2007, its subprime exposure amounted to a staggering $55 billion in at least one of its banking unitsalmost 30% of what the entire Company was worth at the time. Id. ¶ 134. According to plaintiffs, Citigroup reported subprime-related losses of $18.1 billion for the fourth quarter of 2007, and $7.5 billion for the first quarter of 2008. Plaintiffs allege that, as a result of Citigroup's dire financial condition, its share price declined by over 74% between June 2007 and July 2008a loss of over $200 billion in market value in a little over one year. Id. ¶ 175. The losses sustained during the Class Period of January 1, 2007 through January 15, 2008 allegedly had an enormous impact on the value of participants' retirement assets, id. ¶ 238. Such allegations support a reasonable inference that the relatively sophisticated members of the Investment Committee by virtue of their responsibilities as fiduciaries of the Planswould have had at least some awareness of both Citigroup's massive subprime exposure, and the growing potential for a market-wide crisis. That is, members of the Investment Committee were charged with selecting and monitoring Plan investment options, including Citigroup stock, which was the Plans' single largest asset. [10] It is thus reasonable to infer that in discharging their investment-related duties, Investment Committee members would have informed themselves of material information concerning Citigroup's business and operations that was relevant to the appropriateness of investing Plan assets in Citigroup stock. See In re Coca-Cola Enters. Inc., ERISA Litig., No. 06 Civ. 0953, 2007 WL 1810211, at  (N.D.Ga. June 20, 2007) (ruling that complaint withstood dismissal where plaintiffs alleged that defendants were senior employees who knew or should have known all material public and nonpublic information concerning [the employer's] business and operations that were relevant to the appropriateness of [the employer's] common stock as a Plan investment (internal quotations omitted)); In re Westar Energy, Inc., ERISA Litig., No. 03-4032, 2005 WL 2403832, at  (D.Kan. Sept. 29, 2005) (ruling that complaint withstood dismissal where plaintiffs alleged that at least some of the Committee members knew or should have known [of alleged misrepresentations] based on their status as officers in the Company, and based on their own conduct (emphasis added)). The Complaint's well-pleaded allegations also support a reasonable inference that the Administration Committee knew of Citigroup's dire financial condition, Compl. ¶ 175. At least one individual, Richard Tazik, apparently served on both the Investment Committee and the Administration Committee during the relevant time period. On the above analysis, it is at least plausible that Mr. Tazik, by virtue of his service on the Investment Committee, knew about Citigroup's subprime exposure. And because Mr. Tazik also allegedly served on the Administration Committee, it is plausible that at least one member of that Committee knew about it as well. If, in light of this knowledge, reasonably prudent fiduciaries would have taken meaningful steps to protect the Plans' participants from the inevitable losses ... [that] would ensue as [Citigroup's] non-disclosed material problems ... became public, id. ¶ 228, then defendants may have acted imprudently. [11] That, however, is a fact-intensive inquiry ill-suited for resolution at the pleading stage. I would thus vacate the District Court's dismissal and remand for further proceedings.