Court Opinion

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Opinions of the United
2007 Decisions                                                                                                             States Court of Appeals
                                                                                                                              for the Third Circuit

9-26-2007

Edgar v. Avaya Inc
Precedential or Non-Precedential: Precedential

Docket No. 06-2770

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                                                PRECEDENTIAL

            UNITED STATES COURT OF APPEALS
                 FOR THE THIRD CIRCUIT

                           __________

                           No. 06-2770
                           __________

                         JANE EDGAR,

                            Appellant,

                                v.

  AVAYA, INC.; GARRY MCGUIRE, SR.; DONALD K.
PETERSON; JOSEPH P. LANDY; RICHARD F. WALLMAN;
       BRUCE LASKO; and JOHN DOES 1-30

                           __________

          On Appeal from the United States District Court
                   for the District of New Jersey
                      (D.C. No. 05-cv-03598)
           District Judge: Honorable Stanley R. Chesler
                            __________

                      Argued April 24, 2007

 Before: SCIRICA, Chief Judge, FUENTES and ALARCÓN,*
                      Circuit Judges.

                   (Filed September 26, 2007)

      *
        The Honorable Arthur L. Alarcón, Senior Judge of the
United States Court of Appeals for the Ninth Circuit, sitting by
designation.
Mark C. Rifkin (Argued)
Wolf, Haldenstein, Adler, Freeman & Herz LLP
270 Madison Avenue
New York, NY 10016

       Counsel for Appellant

H. Douglas Hinson (Argued)
Alston & Bird LLP
1201 Peachtree Street
One Atlantic Center
Atlanta, GA 30309

Joseph A. Martin
Archer & Greiner, P.C.
One Centennial Square
P.O. Box 3000
Haddonfield, NJ 08033

       Counsel for Appellees

                           __________

                   OPINION OF THE COURT
                         _________

FUENTES, Circuit Judge.

        In this lawsuit, Jane Edgar, a former employee of Avaya
Inc., alleges that Avaya and several of its officers (“defendants”)
breached their fiduciary duties under § 404 of the Employee
Retirement Income Security Act (“ERISA”), 29 U.S.C. § 1104, by
offering participants in three employee pension benefit plans the
option of investing in Avaya common stock. Edgar commenced
the lawsuit after the price of the stock declined from $10.69 to
$8.01 per share, following Avaya’s announcement that it would not
meet its previously forecasted earnings goals for the 2005 fiscal

                                2
year. We agree with the District Court that Edgar failed to plead
facts sufficient to establish that defendants breached their fiduciary
duties under ERISA by (1) imprudently offering Avaya common
stock as an investment option, and (2) failing to disclose material
information to plan participants. Accordingly, we will affirm the
District Court’s dismissal of the amended complaint under Rule
12(b)(6) of the Federal Rules of Civil Procedure.1

                       I. BACKGROUND

       Avaya, which came into existence in September 2000, as a
spin-off from Lucent Technologies, Inc., designs, builds, and
manages communications networks for businesses.          Avaya
sponsors three employee pension benefit plans administered in
accordance with ERISA, 29 U.S.C. §§ 1001-1461.2 At the time she

       1
        The District Court’s decision is set forth in Edgar v.
Avaya, No. 05-3598, 2006 WL 1084087 (D.N.J. Apr. 25, 2006).
       2
         An “employee pension benefit plan” is defined, in relevant
part, as any employer-established or maintained plan that “(i)
provides retirement income to employees, or (ii) results in a
deferral of income by employees for periods extending to
termination of covered employment or beyond.” 29 U.S.C. §
1002(2)(A). The three plans are also “individual account plans”
and “defined contribution plans” which allow participants to
contribute to individual accounts and provide “benefits based solely
upon the amount contributed to the participant’s account, and any
income, expenses, gains, and losses.” 29 U.S.C. § 1002(34)
(emphasis added). In her brief, Edgar misleadingly refers to the
plans as “traditional retirement plans.” We have explained,
however, that a “traditional pension plan is a defined benefit plan
that pays an annuity based on the retiree’s earnings history, usually
the most recent or highest paid years, and the number of completed
years of service to the company.” Depenbrock v. CIGNA Corp.,
389 F.3d 78, 80 n.1 (3d Cir. 2004) (emphasis added) (internal
quotation marks omitted). Thus, defined benefit plans, unlike
defined contribution plans, guarantee participants a fixed-income
at retirement. See Hughes Aircraft Co. v. Jacobson, 525 U.S. 432,
439 (1999).

                                  3
filed this lawsuit, Edgar participated in the Avaya Inc. Savings Plan
(“the Union Plan”), one of the three plans offered to eligible
employees. The other two plans are the Avaya Inc. Savings Plan
for the Variable Workforce (“the Variable Plan”) and the Avaya
Inc. Savings Plan for Salaried Employees (“the Management
Plan”).3 The Plans state that they are “intended to provide for a
portion of the livelihood of Participants in their retirement,” by
“allow[ing] each Participant to elect to set aside a portion of his or
her salary on a pretax and after tax basis.” (J.A. at 383, 479, 539.)
Participants are permitted to change or terminate the amount they
elect to contribute, subject to certain requirements, at any time.

       The Plans provide that the investment options “shall include
a broad range of investment alternatives as the Company
determines are necessary or appropriate to allow Participants to
materially affect the potential return and achieve a portfolio with
aggregate risk and return characteristics” typical of similar pension
plans. (J.A. at 415, 504, 570.) The Plans offer three asset classes:
short-term investments, bond and stock funds, and asset allocation
funds. Although Avaya selects the investment options, Plan
participants have discretion as to how their contributions are
invested, including whether to invest all of their contributions in
one fund or in a mix of funds. After initially electing which funds
to invest in, a Plan participant may change how future contributions
are invested and transfer existing investments into other funds.

       During the relevant time period, Avaya offered Plan
participants twenty-three investment options, which the Summary
Plan Descriptions explain, “differ in their investment objectives
and opportunities for risk and return.” (J.A. at 255, 301, 340.) The
Plan Descriptions state that participants should “consider the risks
and potential rewards” of each option. (Id.) Of particular
significance to this litigation, the Plans provide that the investment
options “shall include the Avaya Stock Fund, which shall be

       3
         We refer to the Union Plan, the Variable Plan, and the
Management Plan collectively as “the Plans.” Any reference to
“Plan participants” refers to individuals who participated in any of
the three Plans, unless otherwise specified.

                                  4
invested primarily in shares of Avaya common stock, with a small
portion in cash and other liquid investments.” (J.A. at 415, 504,
570.) With respect to the Avaya Stock Fund, the Plan Descriptions
state:

       The value of your investment will vary depending on
       Avaya’s performance, the overall stock market, the
       performance and amount of short-term investments
       held by the fund, and the amount of fund expenses.
       Investing in a non-diversified single stock fund
       carries more risk than investing in a diversified fund.

(J.A. at 261, 307, 346.) According to Avaya’s Form 11-K filed
with the Securities and Exchange Commission (“SEC”) on June 22,
2005, the Master Trust, which holds the total assets for all three
Plans, was valued at $1.4 billion at the end of December 2004. Of
this amount, approximately 16 percent, or $229 million, was
invested in the Avaya Stock Fund.

       On April 19, 2005, Avaya publicly released its quarterly
earnings statement in which it announced that it was unlikely to
meet its previously forecasted earnings goals for fiscal year 2005.
The announcement explained that this was primarily due to
disruption in sales caused by the company’s implementation of new
delivery methods; costs associated with integrating recent
acquisitions; and “potential softness in the U.S. technology
market.” (J.A. at 69.) On the first trading day following the

                                 5
announcement, the price of Avaya common stock fell from $10.69
to $8.01 per share.

        In July 2005, Edgar filed this class action lawsuit pursuant
to section 502 of ERISA, 29 U.S.C. § 1132(a)(2).4 She seeks
damages and injunctive relief under 29 U.S.C. § 1109(a), on behalf
of all similarly situated individuals who participated in the Plans
and invested in the Avaya Stock Fund between October 2004 and
July 2005 (“the Class Period”).5 Defendants moved to dismiss the
amended complaint pursuant to Rule 12(b)(1) for lack of standing,
and Rule 12(b)(6) for failure to state a claim for breach of fiduciary
duty. On April 25, 2006, the District Court granted defendants’
Rule 12(b)(6) motion without reaching the standing issue.6 This
timely appeal followed.

    II. JURISDICTION AND STANDARD OF REVIEW

      The District Court had jurisdiction pursuant to 28 U.S.C. §
1331 and 29 U.S.C. § 1132(e)(1). We have appellate jurisdiction
pursuant to 28 U.S.C. § 1291. We exercise plenary review over a

       4
        29 U.S.C. § 1132(a) allows a participant in an ERISA plan
to bring a civil action for breach of fiduciary duty. Graden v.
Conexant Sys. Inc., __F.3d __, No. 06-2337, 2007 WL 2177170,
at *2 (3d Cir. July 31, 2007).
       5
         29 U.S.C. § 1109(a) states that a fiduciary who breaches
his or her duty in administering an ERISA plan must “make good
to such plan any losses” resulting from the breach, and authorizes
other equitable relief as a court may find appropriate. 29 U.S.C. §
1109(a).
       6
        Defendants argued that Edgar lacked standing to sue on
behalf of participants in the Variable Plan and the Management
Plan. The District Court recognized that standing is typically a
threshold jurisdictional issue. But, because defendants conceded
that Edgar had standing to sue on behalf of participants in the
Union Plan, a ruling on the Rule 12(b)(1) motion would not have
completely disposed of the case. See Edgar, 2006 WL 1084087, at
*3 n.3.

                                  6
district court’s dismissal of claims pursuant to Rule 12(b)(6).
Miller v. Fortis, 475 F.3d 516, 519 (3d Cir. 2007). We accept all
well-pleaded allegations in the complaint as true and draw all
reasonable inferences in favor of the plaintiff. Id.

                       III. DISCUSSION

        We first address Edgar’s argument that defendants breached
their fiduciary duties by imprudently offering Avaya common stock
as an investment option during the Class Period. We then turn to
her contention that defendants had a duty to disclose to Plan
participants Avaya’s allegedly deteriorating financial condition.

                     A. Duty of Prudence

     Section 404 of ERISA imposes the following duty on
ERISA fiduciaries:

       (a) Prudent man standard of care
       (1) . . . a fiduciary shall discharge his duties with
       respect to a plan solely in the interest of the
       participants and beneficiaries . . .
       ...
       (B) 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

                                7
       enterprise of a like character and with like aims;
       (C) by diversifying the investments of the plan so as
       to minimize the risk of large losses, unless under the
       circumstances it is clearly prudent not to do so; and
       (D) in accordance with the documents and
       instruments governing the plan . . . .

29 U.S.C. § 1104(a)(1).7 In rejecting Edgar’s prudence claim, the
District Court first determined that defendants’ conduct should be
reviewed under an abuse of discretion standard, and then concluded
that Edgar failed to allege facts sufficient to establish an abuse of
discretion. We agree with both rulings.

1) An abuse of discretion standard governs defendants’ decision
                      to offer Avaya stock

       In concluding that defendants’ decision to offer Avaya
common stock as an investment option is reviewed for an abuse of
discretion, the District Court relied on Moench v. Robertson, 62
F.3d 553 (3d Cir. 1995). In Moench, we held that fiduciaries of an
Employee Stock Ownership Plan (“ESOP”) are entitled to judicial
deference when they decide to invest plan assets in the sponsoring
company’s stock. Id. at 571. Under ERISA, an ESOP is defined,
in relevant part, as an individual account plan “which is designed
to invest primarily in qualifying employer securities.” 29 U.S.C.
§ 1107(d)(6). Although the Plans are not ESOPs, we agree with
the District Court that the same deferential standard applies here.

       Moench involved an employer-sponsored ESOP which
required the Trustee to “invest all contributions received under the
terms of the plan . . . in ESOP stock.” Moench, 62 F.3d at 558.
After the price of the stock declined dramatically, a former
employee and participant in the ESOP sued the fiduciaries of the

       7
         We have observed that 29 U.S.C. § 1104(a) “in essence,
codifies and makes applicable to . . . fiduciaries certain principles
developed in the evolution of the law of trusts.” In re Unisys Sav.
Plan Litig., 74 F.3d 420, 434 (3d Cir. 1996) (internal quotation
marks omitted).

                                 8
plan for breach of their duty under ERISA, claiming that they
should have diversified plan assets in light of the company’s
financial deterioration. Id. at 559-60. On appeal, we reversed the
district court’s summary judgment ruling in favor of defendants
and held that “in limited circumstances, ESOP fiduciaries can be
liable under ERISA for continuing to invest in employer stock
according to the plan’s direction.” Id. at 556. We explained that
although the “primary purpose” of the ESOP was to invest in
employer stock, defendants were not “absolutely require[d]” to do
so; rather, they retained limited discretion over investment
decisions.8 Id. at 568.

       Turning to the standard governing defendants’ discretionary
decision to offer employer securities as an investment option, we
first considered the unique status of ESOPs under ERISA.
Specifically, we noted that ESOP fiduciaries are exempt from the
duty to diversify imposed by § 1104(a)(1)(C), and from §
1106(b)(1)’s strict prohibition against dealing with a party in
interest. 9 Id. at 568. We explained that these exceptions “arise[]

       8
         For example, we observed that the ESOP stated that funds
were to be invested “primarily,” not “exclusively,” in employer
stock, and that defendants had conceded that, on prior occasions,
they interpreted plan documents as permitting them to “refrain
from” making such investments if necessary. Id. at 567. In
addition, we explained that to interpret the ESOP as stripping
defendants of all investment discretion would conflict with the
common law rule that a “trustee in certain narrow instances must
take actions at odds with how it is directed generally to act.” Id.
       9
          Under § 1104(a)(1), plan fiduciaries are required to
“diversify[] the investments of the plan so as to minimize the risk
of large losses, unless under the circumstances it is clearly prudent
not to do so.” 29 U.S.C. § 1104(a)(1)(C). The Seventh Circuit has
observed that because “the very purpose of an ESOP is to give
employees stock in the employer, it would be anomalous if the
ESOP’s trustees were required to sell most of the stock donated by
the employer in order to create a diversified portfolio of stocks.”
Steinman v. Hicks, 352 F.3d 1101, 1103 (7th Cir. 2003). Section
1106(b)(1) prohibits an ERISA fiduciary from “deal[ing] with the

                                 9
out of the nature and purpose of ESOPs themselves,” id., which as
set forth in § 1107, is to “invest primarily in qualifying employer
securities.” 29 U.S.C. § 1107(d)(6)(A). In other words, “the
concept of employee ownership constituted a goal in and of itself.”
Moench, 62 F.3d at 568.

        Despite the special status of ESOPs, we emphasized that
ESOP fiduciaries are still required to act in accordance with the
duties of loyalty and care that apply to fiduciaries of typical ERISA
plans. Id. at 569; see also Kuper v. Iovenko, 66 F.3d 1447, 1457
(6th Cir. 1995) (“[T]he purpose of ESOPs cannot override
ERISA’s goal of ensuring the proper management and soundness
of employee benefit plans.”); Fink v. Nat’l Sav. & Trust Co., 772
F.2d 951, 955-56 (D.C. Cir. 1985) (“The investment decisions of
a profit sharing plan’s fiduciary are subject to the closest scrutiny
under the prudent person rule, in spite of the strong policy and
preference in favor of investment in employer stock.”) (internal
quotation marks omitted). “In other words, Congress expressly
intended that the ESOP would be both an employee retirement
benefit plan and a technique of corporate finance that would
encourage employee ownership.” Moench, 62 F.3d at 568 (internal
quotation marks omitted). Accordingly, we declined to adopt a per
se rule that the decision of an ESOP fiduciary to invest in employer
securities is not subject to judicial review.10 See id. at 571.

       In order to fashion an appropriate standard that would
balance the two roles that ESOPs are required to serve—as a
mechanism of corporate finance and a vehicle for retirement
savings—we noted that “trust law distinguishes between two types
of directions.” Id. at 571. On the one hand, if the trust “requires”

assets of the plan in his own interest or for his own account.” 29
U.S.C. § 1106(b)(1).
       10
          We noted that we were “not concerned with a situation in
which an ESOP plan in absolute unmistakable terms requires that
the fiduciary invest the assets in the employer’s securities
regardless of the surrounding circumstances.” Id. at 567 n.4. We
explicitly left open the issue of whether there could still be a breach
of fiduciary duty in such a case. Id.

                                  10
the trustee to invest in a particular stock, then the trustee is
“immune from judicial inquiry.” Id. On the other hand, if the trust
merely “permits” the trustee to invest in a particular stock, then the
trustee’s investment decision is subject to de novo judicial review.
Id.

        The situation presented in Moench did not fit either
category. Defendants were “not absolutely required to invest in
employer securities,” but they were “more than simply permitted to
make such investments.” Id. We therefore determined that an
intermediate abuse of discretion standard would strike the
appropriate balance between immunity from judicial review, at one
extreme, and de novo review, at the other. Accordingly, we set
forth the following rebuttable presumption: “[A]n ESOP fiduciary
who invests [plan] assets in employer stock is entitled to a
presumption that it acted consistently with ERISA by virtue of that
decision. However, the plaintiff may overcome that presumption
by establishing that the fiduciary abused its discretion by investing
in employer securities.” Id. Edgar refers to this deferential abuse
of discretion standard as Moench’s “presumption of prudence.”
(See, e.g., Appellant’s Br. at 23.)

        Edgar argues that Moench’s presumption of prudence does
not apply here, because the Plans at issue in this case are not
ESOPs. We are not persuaded. An ESOP is one of several types
of pension plans categorized under ERISA as “Eligible Individual
Account Plans” or “EIAPs.” 29 U.S.C. § 1107(d)(3)(A). An EIAP
is defined as “an individual account plan which is (i) a
profit-sharing, stock bonus, thrift, or savings plan; (ii) an employee
stock ownership plan; or (iii) a money purchase plan which . . . [is]
invested primarily in qualifying employer securities.” Id. It is
undisputed that the Plans at issue in this case are EIAPs.11

       Because one of the purposes of EIAPs is to promote
investment in employer securities, they are subject to many of the

       11
          There is also no dispute that, as in Moench, defendants
retained limited discretion not to offer Avaya common stock as an
investment option.

                                 11
same exceptions that apply to ESOPs. See Wright v. Oregon
Metallurgical Corp., 360 F.3d 1090, 1094 (9th Cir. 2004). For
example, § 1104(a)(2) provides that all EIAPs, not just ESOPs, are
exempt from ERISA’s duty to diversify: “In the case of an eligible
individual account plan . . . the diversification requirement . . . and
the prudence requirement (only to the extent that it requires
diversification) . . . is not violated by acquisition or holding of . .
. qualifying employer securities.” 29 U.S.C. § 1104(a)(2)
(emphasis added). And § 1108(e)(3)(A) states that ERISA’s
prohibitions against dealing with a party in interest or self-dealing
“shall not apply to the acquisition or sale by a plan of qualifying
employer securities . . . if the plan is an eligible individual account
plan.”      29 U.S.C. § 1108(e)(3)(A) (emphasis added).
Consequently, EIAPs, like ESOPs, “place employee retirement
assets at much greater risk” than traditional ERISA plans. Wright,
360 F.3d at 1097 n.2. Given these similarities, we conclude that
the underlying rationale of Moench applies equally here.12

       In sum, we conclude that the District Court correctly
determined that Moench’s abuse of discretion standard governs
judicial review of defendants’ decision to offer the Avaya Stock
Fund as an investment option.

       12
          In reaching our conclusion, we reject Edgar’s argument
that our decision In re Schering-Plough Corp. ERISA Litigation,
420 F.3d 231 (3d Cir. 2005), requires a contrary result. In
Schering-Plough, we addressed the narrow question of whether
participants in an ERISA retirement savings plan could prosecute
a derivative action on behalf of the plan even though the alleged
losses affected only a subset of participants who invested in
employer stock. Id. at 232. In resolving the standing issue, we
referenced Moench only to state that it was inapposite because the
plan at issue in Schering-Plough was not an ESOP, and did not
even direct plan fiduciaries to offer employer stock as an
investment option. See id. at 238 & n.5. In addition, we explicitly
stated that we were expressing “no opinion on the significance” of
§1104(a)(2)—which as previously stated, exempts EIAPs from the
duty to diversify—to the facts presented in the case. Id. at 238 n.5.

                                  12
2) The facts alleged in the amended complaint do not establish
                    an abuse of discretion

       Having set forth the appropriate standard of judicial review,
the District Court then correctly concluded that Edgar failed to
plead facts sufficient to establish that defendants abused their
discretion.

       In order to rebut the presumption that a fiduciary acted
prudently in investing in employer securities, a “plaintiff must
show that the ERISA fiduciary could not have believed reasonably
that continued adherence to the ESOP’s direction was in keeping
with the settlor’s expectations of how a prudent trustee would
operate.” Moench, 62 F.3d at 571. Thus, “the plaintiff may
introduce evidence that ‘owing to circumstances not known to the
settlor and not anticipated by him,’” investing in employer
securities “‘would defeat or substantially impair the
accomplishment of the purposes of the trust.’” Id. (quoting
Restatement (Second) § 227 comment g)).

       In Moench, we observed that the plaintiff alleged “that the
precipitous decline in the price of [the employer’s stock], as well
as [defendants’] knowledge of its impending collapse and [their]
own conflicted status, changed circumstances to such an extent that
[defendants] could effectuate the purposes of the trust only by
deviating from the trust’s direction or by contracting out
investment decisions to an impartial outsider.” Id. at 572.
Specifically, plaintiff proffered evidence that during the relevant
two-year period, the price of the company’s stock declined from
$18.25 to less than $0.25 per share; federal regulators informed the
company’s Board of Directors that they had concerns about the
company’s financial condition and had uncovered various
regulatory violations; the Federal Deposit Insurance Corporation
eventually took over control of one of the company’s subsidiaries;
and, ultimately, the company filed for Chapter 11 bankruptcy. Id.
at 557. Based on these facts, we remanded the matter to the district
court for further development of the record. Id. at 572.

      Here, Edgar alleges in the amended complaint that
defendants abused their discretion by knowingly or recklessly

                                13
disregarding the fact that: (1) the cost of integrating a recent
corporate acquisition was greater than defendants publicly
represented; (2) rather than having a positive financial impact, the
acquisition reduced Avaya’s earnings by at least $.06 per share
during the 2005 fiscal year; (3) changes to Avaya’s method of
delivering products to market were causing severe disruptions in
sales; and (4) the company was experiencing a dramatic reduction
in demand for its products. Therefore, Edgar contends, “Avaya had
no reasonable basis to project an increase in profits or an increase
in revenues of 25-27% for fiscal 2005.” (J.A. at 54-55, 59-60, 62,
64-65, 68.)

        Edgar’s allegations, if true, indicate that during the Class
Period, Avaya was undergoing corporate developments that were
likely to have a negative effect on the company’s earnings and,
therefore, on the value of the company’s stock. In fact, this is
precisely what happened when the price of Avaya stock declined
by $2.68 per share following Avaya’s April 19, 2005, earnings
announcement.        We cannot agree, however, that these
developments, or the corresponding drop in stock price, created the
type of dire situation which would require defendants to disobey
the terms of the Plans by not offering the Avaya Stock Fund as an
investment option, or by divesting the Plans of Avaya securities.
Indeed, had defendants divested the Plans of Avaya common stock
during the Class Period, they would have risked liability for having
failed to follow the terms of the Plans.13 See Moench, 62 F.3d at

       13
         We do not interpret Moench as requiring a company to be
on the brink of bankruptcy before a fiduciary is required to divest
a plan of employer securities. However, we believe that the bare
allegations of fraud and other wrongdoing set forth in Edgar’s
amended complaint are insufficient to establish an abuse of
discretion, particularly when a review of Avaya’s historic stock
price shows that, by July 26, 2005, the price of the stock rebounded
to $10.74 per share—$.05 per share more than its trading price on
the day of the April 19, 2005 earnings announcement. See Oran v.
Stafford, 226 F.3d 275, 288 (3d Cir. 2000) (noting that a court may
“take judicial notice of facts that are ‘capable of accurate and ready
determination by resort to sources whose accuracy cannot

                                 14
571-72 (“[C]ourts must recognize that if the fiduciary, in what it
regards as an exercise of caution, does not maintain the investment
in the employer’s securities, it may face liability for that caution,
particularly if the employer’s securities thrive.”).

        Finally, Edgar argues that the District Court’s application of
Moench’s presumption of prudence at the motion to dismiss stage
is somehow inconsistent with the liberal pleading standards set
forth in Rule 8 of the Federal Rules of Civil Procedure. We are
unconvinced. Quite simply, if a plaintiff does not plead all of the
essential elements of his or her legal claim, a district court is
required to dismiss the complaint pursuant to Rule 12(b)(6). For
example, in Wright v. Oregon Metallurgical Corp., the Ninth
Circuit concluded that “Plaintiffs’ alleged facts effectively
preclude[d] a claim under Moench, eliminating the need for further
discovery.” 360 F.3d at 1098. As the Court noted, “published
accounts of [the employer’s] earnings and financial fundamentals
during the relevant period, attached to the complaint, demonstrate
that [the employer] was far from the sort of deteriorating financial
circumstances involved in Moench and was, in fact, profitable and
paying substantial dividends throughout that period.” Id. Given
these circumstances, “[m]ere stock fluctuations, even those that
trend downward significantly, are insufficient to establish the
requisite imprudence to rebut the Moench presumption.” Id. at
1099. We find the Ninth Circuit’s reasoning to be logical, and see
no reason to allow this case to proceed to discovery when, even if
the allegations are proven true, Edgar cannot establish that
defendants abused their discretion.14 Accordingly, we will affirm

reasonably be questioned’”) (quoting Fed. R. Evid. 201(b)(2)).
       14
            Edgar cites a number of district court cases suggesting
that it is improper to consider Moench’s presumption of prudence
in ruling on a motion to dismiss. See, e.g., Rankin v. Rots, 278 F.
Supp. 2d 853, 879 (E.D. Mich. 2003); In re Elec. Data Sys. Corp.,
305 F. Supp. 2d 658, 669-70 (E.D. Tex. 2004). It is our view,
however, that a duty of prudence claim that is on its face
inadequate as a matter of law obviates the need for discovery.

                                 15
the District Court’s dismissal of Edgar’s prudence claim.15

                      B. Duty of Disclosure

       Edgar argues that even if the adverse corporate
developments revealed in Avaya’s April 19, 2005, earnings
announcement did not require defendants to divest the Plans of
Avaya common stock, “[a]t a minimum, they were required to
disclose the materially adverse facts to the Plans and their
participants” prior to the earnings announcement. (J.A. at 38.) We
do not agree.

        It is well-established that an ERISA fiduciary “may not
materially mislead those to whom section 1104(a)’s duties of
loyalty and prudence are owed.” In re Unisys Sav. Plan Litig., 74
F.3d 420, 440 (3d Cir. 1996). Indeed, the “‘duty to inform is a
constant thread in the relationship between beneficiary and trustee;
it is not only a negative duty not to misinform, but also an
affirmative duty to inform when the trustee knows that silence
might be harmful.’” Id. at 441 (quoting Bixler v. Cent. Pa.
Teamsters Health & Welfare Fund, 12 F.3d 1292 (3d Cir. 1994)).
In Unisys, we held that the same duty applies to “alleged material
misrepresentations made by fiduciaries to participants regarding the
risks attendant to a fund investment.” Id. at 442. In the investment
context, “a misrepresentation is ‘material’ if there was a substantial
likelihood that it would have misled a reasonable participant in
making an adequately informed decision about whether to place or
maintain monies” in a particular fund. Id.

       The Summary Plan Descriptions inform Plan participants
that their investments are tied to the market performance of the

       15
           Edgar summarily argues in her brief on appeal that
because the District Court improperly dismissed her duty of
prudence claim, it should not have dismissed her claims for breach
of the duty of loyalty, breach of the duty to monitor fiduciaries, and
co-fiduciary liability. Because we affirm the District Court’s
dismissal of Edgar’s duty of prudence claim, there is no basis for
us to disturb the District Court’s dismissal of these other claims.

                                 16
funds; that each fund carries different risks and potential returns;
that participants are responsible for investigating the investment
options; and that, in doing so, they might consider seeking the
advice of a personal financial advisor. In addition, the Plan
Descriptions explicitly warn participants that there are particular
risks associated with investing in a non-diversified fund. Nowhere
in the Plan Descriptions or the Plans themselves are participants
guaranteed a particular return on their investments. These
disclosures were sufficient to satisfy defendants’ obligation not to
misinform participants about the risks associated with investment
in the Avaya Stock Fund. Under Third Circuit law, they did not
have a duty to “give investment advice” or “to opine on” the
stock’s condition. See id. at 443. Rather, the information provided
Plan participants the opportunity to make their own informed
investment choice.

        To the extent Edgar argues that the adverse development
disclosed in the April 19, 2005 earnings announcement should have
been disclosed earlier, we agree with the District Court that had the
Avaya defendants “publicly released any adverse information they
had prior to the April 2005 announcement, under the ‘efficient
capital markets hypothesis,’ such a disclosure would have resulted
in a swift market adjustment.” Edgar, 2006 WL 1084087, at *9.
Therefore, as the District Court reasoned, “the Plans would not
have been able to sell their Avaya stock holdings at the higher, pre-
announcement price, and the Plans would have sustained the same
losses they incurred when the Company publicly announced the
quarterly results in April 2005.” Id. In addition, the District Court
observed, had defendants decided to divest the Plans of Avaya
stock prior to April 19, 2005, based on information that was not
publicly available, they would have faced potential liability under
the securities laws for insider trading. Id. at *10. That observation
does not, as Edgar argues, mean that the federal securities laws
relieve fiduciaries of their obligations under ERISA.

       In sum, we conclude that defendants fulfilled their duty of
disclosure under ERISA by informing Plan participants about the
potential risks associated with investment in the Avaya Stock Fund.
That defendants did not inform Plan participants about several
adverse corporate developments prior to Avaya’s earnings

                                 17
announcement, does not constitute a breach of their disclosure
obligations under ERISA.

                               IV.

       For the reasons stated above, we conclude that Edgar failed
to plead facts that, if proven, would establish that defendants
abused their discretion by offering participants in the company’s
three pension benefit plans the option of investing in Avaya
common stock. In addition, we conclude that defendants fulfilled
their disclosure obligations under ERISA by apprising plan
participants of the risks associated with investing in the Avaya
Stock Fund. Accordingly, we will affirm the District Court’s
dismissal of the amended complaint pursuant to Rule 12(b)(6).

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