Court Opinion

ID: 4234978
Source: CourtListenerOpinion
Date Created: 2018-01-08 19:00:25.027235+00
Date Added: 2024-06-11T14:43:13.308994
License: Public Domain

NOT RECOMMENDED FOR PUBLICATION
                                File Name: 18a0016n.06
                                                                                        FILED
                                           No. 17-3407                            Jan 08, 2018
                                                                              DEBORAH S. HUNT, Clerk
                          UNITED STATES COURT OF APPEALS
                               FOR THE SIXTH CIRCUIT

TODD GRAHAM, PAUL JOHNSON, RUSS                           )
POPTANYCZ, individually and on behalf of all              )
others similarly situated,                                )
                                                          )
       Plaintiffs-Appellants,                             )     ON APPEAL FROM THE
                                                          )     UNITED STATES DISTRICT
             v.                                           )     COURT FOR THE NORTHERN
                                                          )     DISTRICT OF OHIO
RICHARD FEARON, KEN D. SEMELSBERGER,                      )
TRENT MEYERHOEFER, MARK MCGUIRE,                          )
                                                          )
       Defendants-Appellees.                              )

BEFORE: SILER, WHITE and THAPAR, Circuit Judges.

       HELENE N. WHITE, Circuit Judge.                 Plaintiffs-Appellants Todd Graham, Paul

Johnson, and Russ Poptanycz (“Plaintiffs”) appeal the 12(b)(6) dismissal of their putative class

action brought pursuant to Section 502 of the Employee Retirement Income Security Act

(“ERISA”), 29 U.S.C. § 1132, alleging that Defendants-Appellees—plan fiduciaries of the Eaton

Corporation employee stock ownership plan (“Defendants”)—breached their fiduciary duties by

failing to protect the plan from harm caused by the artificial inflation of Eaton’s stock price due

to an alleged fraud and misrepresentation by Eaton executives. We AFFIRM.

                                              I.

       Because Plaintiffs appeal from dismissal under Rule 12(b)(6), the facts set forth below,

pleaded in Plaintiffs’ Complaint, are accepted as true and in the light most favorable to Plaintiffs.

See Courtright v. City of Battle Creek, 839 F.3d 513, 518 (6th Cir. 2016).
No. 17-3407
Todd Graham, et al. v. Richard Fearon, et al.

        Eaton is a publicly traded company that manufactures products in the industrial,

agricultural, aerospace, and vehicle markets. Eaton sponsors a defined contribution plan (“the

Plan”) for eligible employees, who are permitted to defer up to fifty percent of their

compensation into the Plan. Plan participants may elect to direct their investments into a number

of investment options, including stock and bond mutual funds with various target date maturities.

One investment option is the Eaton Company Stock Fund (“the Fund”), an employee stock

ownership plan (“ESOP”) that invests primarily in Eaton common stock. From November 13,

2013 through July 28, 2014 (the “Class Period”), Plan participants purchased approximately

$40 million dollars’ worth of Eaton Stock through the ESOP, adding to the $909 million already

held.

        Plaintiffs are former Eaton employees currently enrolled in the Plan who invested in the

Fund during the Class Period.      Defendants1 were at relevant times senior Eaton corporate

officers, members of the Plan’s Pension Investment Committee, members of the Plan’s Pension

Administrative Committee, and/or “Named Fiduciaries” of the Plan under the governing

documents. In this appeal, it is uncontroverted that Defendants were fiduciaries of the Plan.

        Historically, Eaton was headquartered in Cleveland, Ohio and its primary business was

manufacturing vehicle components. Since 2008, Eaton “has been making strategic shifts away

from its vehicle business while growing its electrical component business.” [Complaint, R.1 at

PID 5]. In 2012, Eaton acquired Cooper Industries Plc (“Cooper”), an Ireland-based electrical

product manufacturer, for $11.8 billion.     Eaton accomplished the acquisition “through the

formation of a new Irish holding company resulting in Eaton’s reincorporation in Ireland and the

        1
         Defendants-Appellees are Eaton’s Chief Financial Officer Richard Fearon, Chief
Accounting Officer Ken Semelsberger, Treasurer Trent Meyerhoefer, and former General
Counsel Mark McGuire.

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re-domiciling of its headquarters . . . to Dublin, Ireland—a change that purportedly allowed

Eaton to lower its corporate tax rate.” [Id.].

       Following the Cooper acquisition, analysts speculated whether the transaction would

“prevent Eaton from engaging in a lucrative spin-off of its vehicle business.”2 [Id. at PID 19].

Several Eaton executives, including Defendant Fearon (“Fearon”), fielded questions about

Eaton’s ability and potential plans for such a spin-off. First, on May 21, 2012, during an investor

call discussing the Cooper merger, an analyst asked Eaton CEO Alexander Cutler3 if Eaton was

“precluded by any element of the tax structure of the deal to spin off the truck and automotive

part at any time?” [Id.]. Cutler responded: “There is nothing in the deal per se that would

prevent us from taking portfolio moves, but we have no such plans.” [Id.].

       During another investor call on October 31, 2012, an analyst asked Cutler the following:

“In 2013 is there anything from a regulatory basis vis-à-vis, I guess, the acquisition of Cooper

that would prevent you from doing additional divestitures if you wanted to?” [Id.]. Cutler

responded: “No. There wouldn’t be any—no regulatory restrictions.” [Id.]. On November 13,

2012, Cutler fielded similar questions at the Goldman Sachs Industrial Conference, answering:

“[T]here is nothing structural in our deal structure or any of our covenants that . . . prevents us

       2
          “A spin-off is a type of divestiture that involves a parent company distributing shares of
its subsidiary to shareholders on a pro rata basis. Unlike most corporate divestitures such as
subsidiary stock sales and asset sales, spin-offs often qualify as tax-free events.” [R.1 at PID
19].
        3
          Cutler is not named as a Defendant in Plaintiffs’ Complaint. A separate case, In re
Eaton Corp. Sec. Litig., No. 16-CV-5894, 2017 WL 4217146 (S.D.N.Y. Sept. 20, 2017), alleged
Cutler and Fearon violated the Securities Exchange Act. The district court granted a motion to
dismiss, finding that none of the alleged misstatements are actionable because, inter alia, “the
defendants were under no duty to disclose the hypothetical tax consequences of a potential spin-
off of Eaton’s automotive business because the defendants themselves repeatedly made clear that
the ‘indicated probability’ of such a spin-off was zero.” Id. at *8 (quoting Castellano v. Young
& Rubicam, Inc., 257 F.3d 171, 180 (2d Cir. 2001)).

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from making changes in our portfolio . . .” [Id. at PID 20]. Plaintiffs-Appellants allege “[a]s time

passed, analysts began to anticipate that Eaton was nearing a spin-off of its vehicle business.”

[Id. at PID 21]. One analyst asserted: “We [] believe a spin-off or sale of the [Eaton] Vehicle

segment is possible over the next 12-18 months and could be a positive catalyst for the stock.”

[Id.].

         On November 13, 2013—the first day of the Class Period, with Eaton’s stock price at

$72.45 per share—Fearon was asked whether Eaton was considering divesting its vehicle

business and whether it viewed the vehicle business as a “sacred cow.” He replied:

            In terms of your second question about vehicle, is it a sacred cow? Well,
            first of all, I’d say nothing is a sacred cow. You have seen us over the last
            15 years make pretty major portfolio shifts. We have sold or spun businesses
            that had roughly $1.5 billion of revenues. We’ve bought businesses that had
            $12 billion of revenues. And so we have [] made major changes. We have a
            systematic process of looking at where those kinds of actions would benefit
            us and a process, particularly on the acquisition side, of keeping our hand in
            various situations so that when the opportunity naturally arises for a
            transaction, we can act. . . . [W]e are continuing those processes. If we
            believe that a business is better owned by somebody else, we will not be
            afraid to act on that, but at this juncture we really think that the structure of
            the portfolio works.

[Id.]; [R. 25-5 at PID 205].

         During an earnings call with investors on July 29, 2014—the last day of the Class

Period—Cutler stated that Eaton was subject to a five-year restriction on tax-free spin-offs as a

result of the Cooper merger: “[W]e also wanted to clarify that we are not able to do a tax-free

spin[-off] of any business for five years. . . . any spin would result in a very significant tax

liability” and “this five year kind of prohibition . . . means that there is not really a compelling

economic rationale for further business portfolio transaction[s].” [Id. at PID 23]. Fearon added:

“Because of the legal steps we had to do to complete the transaction for Cooper, there are a

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couple of code sections that make it not possible to do a tax free spin for five years.” [Id.].

Cutler also said: “[I]t’s not new knowledge. We’ve been aware of this all along.” [Id.].

       That day, Eaton share prices dropped 8.13 percent, or $6.24 per share, to close at $70.51.

Eaton’s stock fell further to $61 per share in the following months. [Id.].

                                                II.

       Plaintiffs brought a putative class action pursuant to ERISA Section 502, 29 U.S.C.

§ 1132, alleging one count of breach of fiduciary duty:

       Eaton’s fraud and misrepresentation to investors about the feasibility of tax-free
       spin-offs caused its stock price to trade at artificially inflated prices. The Plan
       participants who purchased the Eaton Stock Fund during this time purchased an
       imprudent investment and were damaged by over-paying for this stock.

[Id. at PID 23]. Plaintiffs admit that Eaton executives denied that Eaton had current plans to

spin-off its vehicle business, but argue that in the absence of accurate information about the tax

consequences of a spin-off, “[a]ny reasonable person . . . would be hard pressed not to believe

that Eaton was at least contemplating a spin-off of the vehicle business.” [Appellants’ Br. at 9].

Plaintiffs allege Defendants failed to prudently manage the Plan’s assets when they took no

action “to protect the retirement savings of the Plan participants to whom they owed fiduciary

duties from harm as the result of the undisclosed fraud and inflation of Eaton’s stock prices.”

[Id. at PID 25].    Plaintiffs allege Defendants could have: (1) halted new contributions or

investments in the Fund; (2) issued corrective disclosures to cure the fraud in a timely fashion; or

(3) directed the Fund to divert a portion of its holdings into a low-cost hedging product to offset

some of the losses. [Id. at PID 8–9] (citing Fifth Third Bancorp v. Dudenhoeffer, 134 S. Ct.
2459 (2014)).

       Defendants moved to dismiss the complaint for failure to meet the pleading standards

required of claims against ESOP fiduciaries. Plaintiffs opposed the motion and alternatively

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asked that any dismissal be without prejudice so as to allow an amended complaint. Finding

Plaintiffs failed to state a plausible claim, the district court granted the motion to dismiss. It also

denied Plaintiffs’ request for an opportunity to amend the complaint.

                                                   III.

       We review the district court’s dismissal of a complaint for failure to state a claim de

novo. Saumer v. Cliffs Nat. Res. Inc., 853 F.3d 855, 858 (6th Cir. 2017) (citing Bennett v. MIS

Corp., 607 F.3d 1076, 1091 (6th Cir. 2010)). We must “accept all well-pleaded factual

allegations as true and construe the complaint in the light most favorable to plaintiffs.” Id.

(citation omitted). “[A] well-pleaded complaint may proceed even if it appears that a recovery is

very remote and unlikely.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 556 (2007).

       We generally review a district court’s denial of leave to amend for abuse of discretion,

Miller v. Champion Enters., Inc., 346 F.3d 660, 671 (6th Cir. 2003), except that we review de

novo if the district court bases its decision on the legal conclusion that an amended complaint

could not withstand a motion to dismiss. Monette v. Elec. Data Sys. Corp., 90 F.3d 1173, 1188

(6th Cir. 1996).    “[A] bare request in an opposition to a motion to dismiss—without any

indication of the particular grounds on which amendment is sought—does not constitute a

motion within the contemplation of Rule 15(a).” Beydoun v. Sessions, 871 F.3d 459, 469–70

(6th Cir. 2017) (citation omitted). In those situations, “there was no motion to deny, and

accordingly, [this court] review[s] the district court’s actions for abuse of discretion.” Id. at 470

(citing La. Sch. Emps.’ Ret. Sys. v. Ernst & Young, LLP, 622 F.3d 471, 485 (6th Cir. 2010))

(internal quotation marks omitted).

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                                                  IV.

       ERISA fiduciary standards arise from 29 U.S.C. § 1104, which prescribes four duties

owed to participants: (1) the duty of loyalty, 29 U.S.C. § 1104(a)(1); (2) the duty to act prudently

“under the circumstances then prevailing,” id. at § 1104(a)(1)(B); (3) the duty to diversify plan

assets, id. at § 1104(a)(1)(C); and (4) the duty to follow the plan’s terms, id. at § 1104(a)(1)(D).

The duties are slightly altered with respect to ESOPs. Because an ESOP invests primarily in the

stock of the company that employs its participants, the duty to diversify is inapplicable.

29 U.S.C. § 1104(a)(2).

       Prior to 2014, most courts applied a presumption that fiduciaries of ESOPs act prudently

when investing in company stock. See, e.g., Pfeil v. State St. Bank & Tr. Co., 671 F.3d 585, 591

(6th Cir. 2012), abrogated by Fifth Third Bancorp v. Dudenhoeffer, 134 S. Ct. 2459 (2014).

However, in Fifth Third, the Supreme Court rejected that presumption and held that ERISA

fiduciaries are “subject to the same duty of prudence that applies to ERISA fiduciaries in general,

except that they need not diversify the fund’s assets.” 134 S. Ct. at 2463. Nevertheless, because

“ESOP fiduciaries confront unique challenges given ‘the potential for conflict’ that arises when

fiduciaries are alleged to have imprudently ‘failed to act on inside information they had about the

value of the employer’s stock,’” the Court “laid out standards to help ‘divide the plausible sheep

from the meritless goats.’” Amgen Inc. v. Harris, 136 S. Ct. 758, 759 (2016) (quoting Fifth

Third, 134 S. Ct. at 2470). The Court explained:

       To state a claim for breach of the duty of prudence on the basis of inside
       information, a plaintiff must plausibly allege an alternative action that the
       defendant could have taken that would have been consistent with the securities
       laws and 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, 134 S. Ct. at 2472.

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        Applying Fifth Third, the Ninth Circuit considered a claim that ESOP fiduciaries

withheld non-public information that resulted in overvaluation of the employer’s stock. Harris

v. Amgen, Inc., 788 F.3d 916, 929–933 (9th Cir. 2014). The court held the plaintiffs stated a

claim by sufficiently alleging an alternative:

        Removal of the Fund as an investment option might cause a drop in the share
        price, perhaps slightly more than the amount of any initial artificial inflation. . . .
        [E]ven if the drop in stock price does not cause these fiduciaries to [disclose],
        removal of the Fund as an investment option will prevent the greater harm to
        plan participants that would result if no disclosure is made, if the stock price
        continues to inflate artificially, and if plan participants are allowed to make
        continued investments in the Fund at increasingly inflated prices. In other
        words, it is quite plausible that in this situation, too, defendants could remove the
        Fund as an investment option without causing undue harm to plan participants.

Id. at 938.

        The Supreme Court summarily reversed, explaining that the court “failed to assess

whether the complaint in its current form ‘has plausibly alleged’ that a prudent fiduciary in the

same position ‘could not have concluded’ that the alternative action ‘would do more harm than

good.’” Amgen Inc. v. Harris, 136 S. Ct. 758, 760 (2016) (quoting Fifth Third, 134 S. Ct. at

2463). The Court was clear that plaintiffs’ proposed action—removing the ESOP fund from

investment options—“could plausibly have satisfied Fifth Third’s standard,” but reversed and

remanded because the complaint did not contain sufficient facts and allegations to satisfy that

standard. Id.

        This court and several of our sister circuits have considered the pleading standards for

suits alleging an ESOP-related breach of fiduciary duty in light of Fifth Third and Amgen. See,

e.g., Saumer v. Cliffs Nat. Res. Inc., 853 F.3d 855 (6th Cir. 2017); Coburn v. Evercore Trust Co.,

844 F.3d 965 (D.C. Cir. 2016); Rinehart v. Lehman Bros. Holdings Inc., 817 F.3d 56 (2d Cir.

2016); Whitley v. BP, P.L.C., 838 F.3d 523 (5th Cir. 2016).

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       In Saumer, the plaintiffs alleged that, based on “inside information” that a particular mine

would not deliver the promised profits, prudent fiduciaries knew or should have known the

company stock was overvalued. Id. at 863. The complaint alleged fiduciaries should have

prevented ESOP losses by: (1) disclosing “inside information about the mine so that the market

would correct downward and the fiduciary would cease buying [company] stock at an inflated

price”; (2) holding new contributions to the ESOP fund in cash; or (3) “clos[ing] the Company

Stock itself to further contributions and direct[ing] that contributions be diverted from Company

Stock into other (prudent) investment options.”         Id. (alterations in original). We rejected

plaintiffs’ argument:

       [T]he complaint fails to plausibly allege that a prudent fiduciary could not have
       concluded that stopping purchases or publicly disclosing negative information
       would do more harm than good. [The] fiduciaries could have concluded that
       divulging inside information about the [mine] would have collapsed [the
       company’s] stock price, hurting participants already invested in the ESOP. And
       closing the fund without explanation might be even worse: It signals that
       something may be deeply wrong inside a company but doesn’t provide the
       market with information to gauge the stock’s true value.

Id. at 864 (internal citations, alterations, and quotation marks omitted).

                                                 V.

       In the instant case, Plaintiffs allege Defendants breached their fiduciary duties “when

Eaton’s stock became artificially inflated in value due to fraud and misrepresentation (in which

several of the Defendants participated), which made the Eaton stock fund . . . an imprudent

investment.” [R.1 at PID 3]. Plaintiffs argue Defendants could have prevented “or at least

mitigate[d] any damage caused by the fraud to the Plan” by: (1) “effectuat[ing] corrective, public

disclosures to cure the fraud”; (2) “temporarily closing or freezing the Eaton Stock Fund . . . until

such time as Eaton stock again became a prudent investment”; or (3) “divert[ing] some of Eaton

Stock Fund’s holdings into a low-cost hedging product.” [Id. at PID 3–4].

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       Applying Fifth Third’s pleading standard to the facts alleged in Plaintiffs’ Complaint, we

conclude that the district court properly determined the Complaint does not propose an

alternative course of action so clearly beneficial that a prudent fiduciary could not conclude that

it would be more likely to harm the fund than to help it.

                                                A.

       First, Plaintiffs contend Defendants “should have issued truthful or corrective disclosures

to cure the fraud and to make its stock a prudent investment again for the Plan.” [R.1 at PID 26].

This court and all other courts considering that alternative action post-Fifth Third have rejected

it. See, e.g., Saumer, 853 F.3d at 864; Rinehart v. Lehman Bros. Holdings Inc., 817 F.3d 56, 68

(2d Cir. 2016) (affirming a dismissal because the plaintiffs’ complaint did not “plausibly plead

facts and allegations showing that a prudent fiduciary during the class period ‘would not have

viewed [disclosure of material nonpublic information regarding Lehman . . . ] as more likely to

harm the fund than to help it’”) (quoting Amgen, 136 S. Ct. at 759)); Whitley v. BP, P.L.C., 838
F.3d 523, 529 (5th Cir. 2016) (“[I]t does not seem reasonable to say that a prudent fiduciary at

that time could not have concluded that [] disclosure of such information to the public . . . —[]

which would likely lower the stock price—would do more harm than good. In fact, it seems that

a prudent fiduciary could very easily conclude that such actions would do more harm than

good.”) (emphasis in original).

       The only specific allegation regarding the “more harm than good” test as applied to

Plaintiffs’ disclosure alternative is that “the longer a securities fraud goes on, the more harm it

causes to shareholders.” [Appellants’ Br. at 25]. The United States filed an amicus brief in Fifth

Third arguing the same point:

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       Petitioners argue that public disclosure would decrease the value of the assets
       already held by the plan. That would be true if the price has been artificially
       inflated by the company’s public misrepresentations. But if so, a similar or
       greater drop might well occur if correction of the misrepresentations were
       delayed – potentially months or years later, after even more of the employees’
       retirement savings have been invested in the overpriced assets. It better serves
       the interests of the plan participants if the fiduciaries take immediate actions to
       bring the price of the stock in line with its true value by disclosing the material
       nonpublic information.

Brief for the United States as Amicus Curiae Supporting Respondents, Fifth Third Bancorp v.

Dudenhoeffer, 2014 WL 880926, *28–*29. The Supreme Court rejected that argument, albeit

implicitly, when it vacated and remanded the lower court’s decision to deny the motion to

dismiss. More explicitly, the Court’s guidance to lower courts contemplates that argument:

       [L]ower courts faced with such claims should also consider whether the
       complaint has plausibly alleged that a prudent fiduciary in the defendant’s
       position could not have concluded that . . . publicly disclosing negative
       information would do more harm than good to the fund by causing a drop in the
       stock price and a concomitant drop in the value of the stock already held by the
       fund.

Fifth Third, 134 S. Ct. at 2473.

       Here, Plaintiffs do not plausibly allege that disclosing the tax consequences of the Cooper

merger was so clearly beneficial that a prudent fiduciary could not conclude that it would be

more likely to harm the fund than to help it. Plaintiffs’ argument does not account for the risk of

market overreaction to such a disclosure, resulting in a decline worse than actually warranted.

Nor does Plaintiffs’ proposal factor in the potential harm to ESOP participants planning to sell

their Eaton stock during the class period.

       Plaintiffs stress that the stock price continued to fall in the months following the

disclosure, which they argue “is evidence of the reputational penalty that Eaton suffered by

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prolonging its fraud.”4 [Appellants’ Br. at 28]. Plaintiffs contend this fact distinguishes their

allegations from previous cases. But see Brief of Plaintiffs-Appellants, Saumer v, Cliffs Natural

Resources, Inc., 2016 WL 5871410 (C.A.6), *26. However, recognizing ERISA imposes the

duty to act in a prudent manner “under the circumstances then prevailing,” courts have noted the

“duty . . . requires prudence, not prescience.” Rinehart, 817 F.3d at 64 (citation omitted).

       Both Cutler and Fearon repeatedly stated that Eaton had no plans to spin off its vehicle

business, so a reasonably prudent fiduciary may have determined that disclosing the tax

consequences of such unplanned actions would do more harm than good. Fearon told investors

that “nothing is a sacred cow,” and implied that Eaton could spin off any component, but he

immediately qualified that “at this juncture we really think that the structure of the [Eaton]

portfolio works.” [R. 25-5 at PID 205]. Although earlier disclosure may have ameliorated some

harm to the Fund, that course of action was not so clearly beneficial that a prudent

fiduciary could not conclude that it would be more likely to harm the fund than to help it.

                                                  B.

       Next, Plaintiffs suggest Defendants could have mitigated harm to the Plan “by halt[ing]

all new contributions or investments into the Eaton Stock Fund while it knew that it was an

imprudent investment because its stock price was inflated due to fraud and undisclosed material

information.” [R.1 at PID 31]. The district court rejected this alternative commenting that

“halting investment in a company fund can cause the market to infer that ‘insider fiduciaries

view[] the employer’s stock as a bad investment,’ resulting in a drop in stock price.” [R. 29 at

PID 537].

       4
           Before Plaintiffs filed their Complaint, the stock price had fully rebounded.

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       The plaintiffs in Amgen made the same argument Plaintiffs advance here and the Ninth

Circuit agreed, holding that where a company withheld material information, “the impact of the

eventual disclosure of that information must be taken into account in assessing the net harm that

will result from the withdrawal of the fund.” Harris v. Amgen, Inc., 788 F.3d 916, 920 (9th Cir.

2015). In such a case, “it is plausible to conclude that the withdrawal of the fund will result in a

net benefit, rather than a net harm, to plan participants.” Id. However, the Supreme Court found

this insufficient to meet the Fifth Third standard and reversed. Amgen, 136 S. Ct. at 760 (citing

Fifth Third, 134 S. Ct. at 2463).

       In Saumer, we explained why halting investments without explanation could be “even

worse” for Plan participants than disclosure: “It signals that something may be deeply wrong

inside a company but doesn’t provide the market with information to gauge the stock’s true

value.” Saumer, 853 F.3d at 864 (quoting Amgen, 788 F.3d at 925–26 (Kozinski, J., dissenting

from denial of reh’g en banc)).

       Attempting to distinguish this case from Saumer, Plaintiffs-Appellants argue that “a

prolonged fraud causes greater reputational damage and thus is less likely to eventuate in a

rebound.” [Appellants’ Br. at 28–29]. However, this does not establish that halting stock

purchases was so clearly beneficial that a prudent fiduciary, under the circumstances, could not

conclude that it would be more likely to harm the fund than to help it.

                                                C.

       Finally, Plaintiffs suggest Defendants could have “direct[ed] the Eaton Stock Fund to put

a small but significant portion of its holdings into a low-cost hedging product.” [R.1 at PID 34].

Such products “are not derivatives, and therefore their purchase need not be disclosed under the

securities laws.” [Id.]. The district court rejected this alternative, noting it “suggests that

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Defendants had a duty to diversify the Fund’s holdings.” [R. 29 at PID 539]. The district court

also found “Plaintiffs’ failure to identify what hedging product Defendants should have invested

in—whether it was a short position in Eaton stock, an insurance product, or something else—

dooms their claim.” [Id.].

       On appeal, Plaintiffs add no further detail to the kind of low-cost hedging product they

envision except to note that it would not be a short position in Eaton stock, because that would

be derivative. [Appellants’ Br. at 30–31]. Plaintiffs argue that its description—“a low-cost

product that trades counter to Eaton stock and that is not a derivative”—should be treated as a

true factual allegation at this stage. [Id.]. Plaintiffs do not address the district court’s finding

that this alternative imposes a duty to diversity.

       Even if this alternative would not impose a duty to diversify from which ESOP

fiduciaries are exempt, 29 U.S.C. § 1104(a)(2), the district court was required to conduct

“careful, context-sensitive scrutiny of a complaint’s allegations” to determine whether the

“complaint states a claim that the fiduciaries acted imprudently.” Fifth Third, 134 S. Ct. 2459,

2470, 2471. The district court—and this court—cannot do so without specific factual allegations

supporting Plaintiffs’ proposed alternative course of action.

       Finally, Plaintiffs argue it would make little sense for the Supreme Court to reject a

presumption of prudence in Fifth Third only to impose a standard that virtually forecloses all

similar actions in the future. [Appellants’ Br. at 23]. We recognize that the Fifth Third standard

is difficult for plaintiffs to meet and that no court since Amgen has found sufficiently pled

alternative actions. Nevertheless, under the particular facts of this case, none of Plaintiffs’

proposed alternatives was so clearly beneficial that a prudent fiduciary, under then prevailing

circumstances, could not conclude that it would be more likely to harm the fund than to help it.

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                                                VI.

       Plaintiffs also appeal the district court’s denial of leave to amend. Under Fed. R. Civ. P.

15(a)(2), “leave to amend shall be freely given when justice so requires.” Beydoun v. Sessions,

871 F.3d 459, 469 (6th Cir. 2017) (citing Riverview Health Inst. LLC v. Med. Mut. of Ohio, 601
F.3d 505, 520 (6th Cir. 2010). However, “implicit in [Rule 15(a)] is that the district court must

be able to determine whether ‘justice so requires,’ and in order to do this, the court must have

before it the substance of the proposed amendment.” Id. (citing Roskam Baking Co., Inc. v.

Lanham Machinery Co., Inc., 288 F.3d 895, 906 (6th Cir. 2002)).

       In Beydoun, the plaintiff’s failure to “submit[] . . . the facts to aid the court in deciding

whether justice required the court to grant leave to amend” was fatal to the motion. Id. at 469–70

(internal citations and quotation marks omitted). There, the plaintiff made an oral motion

seeking leave to amend if the district court were inclined to grant the defendant’s motion to

dismiss. Id. at 70. The plaintiff never informed the district court of what facts he could allege to

supplement his claim in order to survive a successive motion to dismiss. Id. Under those

circumstances, we found the district court did not abuse its discretion in denying the plaintiff’s

“unsupported motion.” Id.

       Here, on the penultimate page of Plaintiffs’ Suggestions in Opposition to Defendants’

motion to dismiss, Plaintiffs stated: “[I]f the Court does grant the motion, plaintiffs respectfully

request that it do so without prejudice so that plaintiffs may file an amended complaint curing the

defects in its original pleading.” [R. 27 at PID 504]. Plaintiffs did not state what facts they

would allege to cure any potential deficiencies, but argued that:

       The law regarding breach of fiduciary duty claims brought under ERISA . . . is
       evolving all the time. While plaintiffs believe they have adequately satisfied the
       demands of Dudenhoeffer’s pleading standard, in light of the tremendous
       uncertainty that still haunts this area of law, fairness suggests that plaintiffs

                                                -15-
No. 17-3407
Todd Graham, et al. v. Richard Fearon, et al.

         should be afforded at least one opportunity to correct any deficiencies in meeting
         this pleading standard . . . .

[Id.].

         The district court denied the motion, finding “[s]uch a perfunctory request, inserted at the

end of an opposition brief, without giving the Court any reason to believe that an amended

complaint would be anything other than futile, is improper.” [R. 29 at PID 540] (citation

omitted).

         Rule 15 instructs courts to “freely give leave” to amend, Kuyat v. BioMimetic

Therapeutics, Inc., 747 F.3d 435, 444 (6th Cir. 2014), and the district court certainly had

discretion to grant Plaintiffs’ request. However, Plaintiffs are not entitled to a directive from the

district court “informing them of the deficiencies of the complaint and then an opportunity to

cure those deficiencies.” [R. 29 at PID 541] (quoting Begala v. PNC Bank, Ohio, N.A., 214 F.3d
776, 784 (6th Cir. 2000); see also Louisiana Sch. Employees’ Ret. Sys. v. Ernst & Young, LLP,

622 F.3d 471, 486 (6th Cir. 2010). Under these circumstances, because Plaintiffs’ request was

perfunctory and did not point to any additional factual allegations that would cure the complaint,

the district court did not abuse its discretion in denying a motion to amend.

                                                 VII.

         For the foregoing reasons, we AFFIRM.

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