     11-4232
     In re Lehman Bros. ERISA Litig.

 1
 2                      UNITED STATES COURT OF APPEALS
 3
 4                          FOR THE SECOND CIRCUIT
 5
 6
 7
 8                            August Term, 2012
 9
10        (Argued: March 14, 2013             Decided: July 15, 2013)
11
12                          Docket No. 11-4232-cv
13
14
15             ALEX E. RINEHART, JO ANNE BUZZO, MARIA DESOUSA,
16                   LINDA DEMIZIO, MONIQUE FONG MILLER,
17
18                          Plaintiffs-Appellants,
19
20                                     -v.-
21
22      JOHN F. AKERS, MICHAEL L. AINSLIE, THOMAS H. CRUIKSHANK,
23   MARSHA EVANS JOHNSON, CHRISTOPHER GENT, ROLAND A. HERNANDEZ,
24        HENRY KAUFMAN, JOHN D. MACOMBER, MARY PAT ARCHER,
25           AMITABH ARORA, MICHAEL BRANCA, EVELYNE ESTEY,
26         ADAM FEINSTEIN, DAVID ROMHILT, ROGER S. BERLIND,
27    JERRY A. GRUNDHOFER, RICHARD S. FULD, JR., WENDY M. UVINO,
28
29                          Defendants-Appellees.*
30
31
32
33
34   Before:
35        SACK, WESLEY, Circuit Judges, NATHAN, District Judge.**


          *
            The Clerk of Court is directed to amend the official
     caption to conform to the listing of the parties stated above.
          **
            The Honorable Alison J. Nathan, of the United States
     District Court for the Southern District of New York, sitting by
     designation.
 1        Plaintiffs-Appellants, former employees of Lehman
 2   Brothers Holdings, Inc. (“Lehman”), initiated this action
 3   under the Employee Retirement Income Security Act (“ERISA”)
 4   in the United States District Court for the Southern
 5   District of New York (Kaplan, J.). They claimed that
 6   Defendants-Appellees who were members of Lehman’s Employee
 7   Benefit Plans Committee breached their fiduciary duty to
 8   prudently manage the company’s employee stock ownership plan
 9   (“ESOP”) by failing to “eliminate or curtail” Plaintiffs’
10   investment in Lehman stock during the class period.
11   Plaintiffs also claimed that these Defendants breached their
12   fiduciary duty of disclosure, and that Defendants who were
13   members of Lehman’s Board of Directors breached their
14   fiduciary duties to appoint, monitor and inform the plan
15   managers. The district court dismissed Plaintiffs’
16   complaint(s) pursuant to Rule 12(b)(6) because Plaintiffs
17   did not allege sufficient facts to show that members of the
18   Employee Benefit Plans Committee knew or should have known
19   that continued investment in Lehman stock was imprudent.
20   The district court dismissed Plaintiffs’ claims against the
21   former Directors as derivative of Plaintiffs’ failed claims
22   against the ERISA plan managers. We AFFIRM.
23
24       AFFIRMED.
25
26
27
28
29
30            MARK C. RIFKIN, Wolf Haldenstein Adler Freeman &
31                 Herz LLP (Daniel W. Krasner, Gregory M.
32                 Nespole, Matthew M. Guiney, Beth A. Landes,
33                 Maja Lukic, Wolf Haldenstein Adler Freeman &
34                 Herz LLP, New York, NY; Thomas J. McKenna,
35                 Gainey & McKenna, New York, NY, on the brief),
36                 Interim Co-Lead Counsel for Plaintiffs-
37                 Appellants.
38
39
40            JONATHAN K. YOUNGWOOD (Janet Gochman, Hiral D.
41                 Mehta, on the brief), Simpson Thacher &
42                 Bartlett LLP, New York, NY, for the Benefit
43                 Committee Defendants-Appellees.
44
45

                                  2
 1            ADAM J. WASSERMAN (Andrew J. Levander, Kathleen N.
 2                 Massey, Dechert LLP, New York, NY; Thomas K.
 3                 Johnson II, J. Ian Downes, Dechert LLP,
 4                 Philadelphia, PA, on the brief), for all of
 5                 the Director Defendants-Appellees Other than
 6                 Richard S. Fuld, Jr.
 7
 8            Patricia M. Hynes, Todd S. Fishman, Allen & Overy
 9                 LLP, New York, NY, for Defendant-Appellee
10                 Richard S. Fuld, Jr.
11
12            BENJAMIN R. BOTTS, Attorney (M. Patricia Smith,
13                 Solicitor of Labor, Timothy D. Hauser,
14                 Associate Solicitor for Plan Benefits
15                 Security, Elizabeth Hopkins, Counsel for
16                 Appellate and Special Litigation, on the
17                 brief), United States Department of Labor,
18                 Washington, DC, for Amicus Curiae Hilda L.
19                 Solis, Secretary of the United States
20                 Department of Labor.
21
22
23
24   WESLEY, Circuit Judge:

25       Plaintiffs-Appellants (“Plaintiffs”) are former

26   employees of Lehman Brothers Holdings Inc. (“Lehman”), or

27   its subsidiaries, who participated in the Lehman Brothers

28   Savings Plan (the “Plan”) and, specifically, in the Lehman

29   Stock Fund (the “LSF”).   The Plan is covered by the Employee

30   Retirement Income Security Act, 29 U.S.C. §§ 1001 et seq.

31   (“ERISA”).   Under the Plan, employees of Lehman could choose

32   to contribute portions of their salaries to different


                                   3
 1   investment funds to save for retirement.   One of the funds,

 2   the LSF, is an employee stock ownership plan (“ESOP”)

 3   invested exclusively in Lehman common stock.   Though the

 4   Plan prohibited employees from allocating all of their

 5   contributions to the LSF, after Lehman declared bankruptcy

 6   in September 2008, that portion of Plaintiffs’ retirement

 7   savings invested in the LSF was rendered essentially

 8   worthless.

 9       Arguing that Defendants-Appellees, the members of

10   Lehman’s Employee Benefit Plans Committee (the “Benefit

11   Committee Defendants”) and the company’s Directors (the

12   “Director Defendants”) who appointed them, breached their

13   fiduciary duties under ERISA, Plaintiffs instituted this

14   action in the United States District Court for the Southern

15   District of New York in October 2008.   The district court

16   (Kaplan, J.) dismissed Plaintiffs’ initial and amended

17   complaints for failure to state a claim.   We affirm the

18   district court’s decisions and hold that Plaintiffs failed

19   to plead a plausible claim that Defendants breached their

20   ERISA fiduciary duties.

21

22

                                  4
 1                             Background

 2       I. The Plan

 3       The Benefit Committee Defendants were responsible for

 4   administering Lehman’s employee retirement savings plan.

 5   Lehman Directors who served as members of the Board’s

 6   Compensation Committee were directly responsible for

 7   appointing individuals to the Benefit Committee, which the

 8   full Board endowed with “complete authority and discretion

 9   to control and manage the operation and administration of

10   the Plan.”   Joint App’x 436.

11       The Plan consisted of a Trust Fund that offered

12   multiple investment funds including the LSF.        Id. at 433.

13   During the class period, if a Lehman employee failed to

14   designate a fund, the default investment option was a target

15   date mutual fund, not the LSF.      SCAC ¶ 243.    Plan-

16   participants “were permitted to allocate 20 percent (20%) of

17   their Plan contributions to the” LSF.      Id. ¶ 80.       The Plan

18   specifies that the LSF “shall at all times be invested

19   exclusively in Lehman Stock except for such reserve invested

20   in short-term fixed income investments or cash as shall be

21   determined to be necessary or advisable for the purpose of

22   maintaining appropriate liquidity . . . .”        Joint App’x 430

                                     5
 1   (emphasis added).   However, the Benefit Committee retained

 2   the right to cease offering the LSF, or to divest some or

 3   all of the Plan’s holdings in the LSF, as necessary to

 4   comply with ERISA’s fiduciary duties.   Specifically, the

 5   Plan provided:
 6
 7            The [Benefit] Committee shall have the
 8            right . . . to eliminate or curtail
 9            investments in Lehman Stock . . . if and
10            to the extent that the [Benefit]
11            Committee determines that such action is
12            required in order to comply with the
13            fiduciary duty rules of section 404(a)(1)
14            of ERISA, as modified by section
15            404(a)(2) of ERISA.
16
17   Id. at 433.

18       The Benefit Committee Defendants continued to offer the

19   LSF as an investment option throughout the spring and summer

20   of 2008, when Lehman’s stock price fluctuated before falling

21   to less than $4.00 per share on the last trading day before

22   the company declared bankruptcy on September 15, 2008 – 158

23   years after its founding in 1850.   Two days later, NYSE

24   Regulation, Inc. suspended trading of Lehman stock on the

25   New York Stock Exchange.

26   II. Procedural History

27       Plaintiffs filed a Consolidated Amended Complaint (the

28   “CAC”) on October 27, 2008.   The CAC alleged that the

                                   6
 1   Director Defendants, along with Wendy Uvino, the chair of

 2   the Benefit Committee, breached their ERISA fiduciary

 3   duties.     Plaintiffs premised this claim on Defendants’

 4   failure to limit or divest Plaintiffs’ allegedly imprudent

 5   investment in the LSF during the class period, which ran

 6   from September 13, 2006 through October 27, 2008.

 7   Plaintiffs lodged three counts against Defendants: (1)

 8   breach of the duties of prudence and loyalty (including

 9   disclosure obligations); (2) breach of the duty to avoid

10   conflicts of interest; and (3) breach of the duties to

11   monitor other fiduciaries and to provide them with accurate

12   information (solely against the Director Defendants).

13       On February 2, 2010, the district court granted

14   Defendants’ Federal Rule of Civil Procedure 12(b)(6) motion

15   for failure to state a claim and dismissed the CAC in its

16   entirety.     In re Lehman Bros. Sec. & ERISA Litig., 683 F.

17   Supp. 2d 294 (S.D.N.Y. 2010) (Lehman I).     The district court

18   subsequently granted Plaintiffs leave to amend; Plaintiffs

19   filed a Second Consolidated Amended Complaint (the “SCAC”)

20   on September 22, 2010.

21       Plaintiffs made three key changes.     First, in addition

22   to Wendy Uvino, Plaintiffs named the rest of the Benefit


                                     7
 1   Committee members as Defendants.     Second, Plaintiffs

 2   narrowed the class period to March 16, 2008 through June 10,

 3   2009.   These dates respectively represent the date that Bear

 4   Stearns was acquired by JPMorgan Chase (in lieu of total

 5   collapse) and the date that the Benefit Committee liquidated

 6   shares of Lehman stock in the LSF.     Third, the SCAC included

 7   additional facts purporting to show that the Benefit

 8   Committee Defendants knew or should have known that Lehman

 9   stock was an imprudent investment for Plaintiffs.

10       The 496-paragraph SCAC provides a thorough recitation

11   of the 2008 financial crisis with a focus on Lehman’s ill-

12   fated involvement with mortgage-backed securities.

13   Plaintiffs claim that “by no later than the collapse of Bear

14   Stearns, Defendants knew or should have known that the

15   Plan’s heavy investment in [Lehman] Stock was imprudent”

16   because of, inter alia: Lehman’s alleged leverage ratio of

17   more than 30:1; Lehman’s use of questionable accounting

18   tactics (including Repo 105);3 the extent of Lehman’s

         3
           Ordinary repo transactions involve entering into sale and
     repurchase agreements to satisfy short-term cash needs. Repo 105
     transactions, however, entail removing the asset collateralizing
     the loan from the company’s balance sheet (as if it has been
     sold) and then using the cash from the transaction to pay down
     other existing liabilities. The result of this transaction is to
     temporarily reduce a company’s net leverage ratio. Shortly after
     the quarter ends (and reports are submitted), the company then

                                    8
 1   potential losses from trading in subprime mortgage-backed

 2   derivatives; and Lehman’s inadequate reserves to cover its

 3   exposure.   SCAC ¶¶ 162-63.

 4        Plaintiffs allege that the Benefit Committee Defendants

 5   should have been aware of these risks to Lehman’s financial

 6   stability as a result of their positions within the

 7   company,4 presentations by an outside investment consulting

 8   firm, and the numerous published articles and reports that

 9   questioned Lehman’s profits and long-term viability during

10   the spring and summer of 2008.      Plaintiffs also claim that a

11   reasonable investigation by the Benefit Committee Defendants

12   would have revealed probative information, including, for

13   example, the frantic but ultimately unsuccessful efforts

14   made by Lehman management, in conjunction with government

15   officials, to seek an outside capital infusion or to arrange

16   a sale of Lehman in the weeks prior to bankruptcy.


     repays the Repo 105 counter-party and the collateralized assets
     reappear on the company’s balance sheet. See generally In re
     Lehman Bros. Sec. & ERISA Litig., 799 F. Supp. 2d 258, 268-69
     (S.D.N.Y. 2011).
          4
            For example, Plaintiffs claim that Benefit Committee
     Defendant Amitabh Arora, who allegedly served as Lehman’s Global
     Head of Rates Strategy during the class period and who had
     previously been the Chief of Mortgage Research at Morgan Stanley,
     should have recognized “Lehman’s exposure to catastrophic
     losses,” given his “background and expertise in the mortgage
     industry.” SCAC ¶ 63.

                                     9
 1          The district court dismissed the SCAC pursuant to Rule

 2   12(b)(6).    In re Lehman Bros. Sec. & ERISA Litig., No. 09 MD

 3   02017 (LAK), 2011 WL 4632885 (S.D.N.Y. Oct. 5, 2011) (Lehman

 4   II).    With respect to Plaintiffs’ duty of prudence claim,

 5   the court determined that the complaint failed to plead

 6   sufficient facts to show that the Benefit Committee

 7   Defendants knew or should have known that Lehman faced a

 8   dire situation when Bear Stearns was sold.     Id. at *3-5.

 9          The district court also dismissed Plaintiffs’ two

10   disclosure claims.    Id. at *5-6.   First, the court found

11   that the Benefit Committee Defendants had no affirmative

12   duty to disclose information about Plan investments –

13   specifically, the status of Lehman’s financial condition –

14   in addition to information about the Plan itself.      Id. at

15   *5-6.    Second, while the court recognized that fiduciaries

16   who provided information to plan-participants had an

17   obligation to provide accurate information, it determined

18   that the Benefit Committee Defendants had not breached this

19   duty by incorporating filings made with the Securities and

20   Exchange Commission (the “SEC”) into the SPD issued to plan

21   participants on January 1, 2008 because this incorporation

22   occurred outside of the class period.     Id. at *6.   Moreover,


                                    10
 1   the court reasoned that although the incorporation was

 2   forward-looking, the Benefit Committee Defendants could not

 3   be said to have intentionally connected allegedly

 4   misleading, future SEC filings to the SPD.     Id.

 5       With respect to Plaintiffs’ claims against the Director

 6   Defendants, the court accepted that the Directors were

 7   properly considered fiduciaries, but only insofar as they

 8   appointed the members of the Compensation Committee, which

 9   in turn appointed the members of the Benefit Committee.         Id.

10   at *6-7.   This meant that Plaintiffs’ claim for breach of

11   the duty of prudence (and disclosure) was not properly

12   lodged against the Director Defendants.     Id. at *7.   The

13   court rejected Plaintiffs’ claim that the Director

14   Defendants had breached their fiduciary duty to appoint

15   qualified plan managers because it was “unsupported by even

16   the barest factual allegations.”   Id.    Finally, the court

17   dismissed Plaintiffs’ claim that the Director Defendants

18   breached their fiduciary duty to monitor the Benefit

19   Committee Defendants as derivative of Plaintiffs’

20   unsuccessful claim for breach of the duty of prudence.         Id.

21   at *8.

22


                                   11
 1        Plaintiffs argue on appeal that the district court

 2   erred by dismissing the CAC and the SCAC under Rule 12(b)(6)

 3   because Plaintiffs plausibly alleged that: (1) the Benefit

 4   Committee Defendants breached their fiduciary duty of

 5   prudence by continuing to offer the LSF as an investment

 6   option and by failing to sell Lehman stock invested in the

 7   LSF; (2) the Benefit Committee Defendants breached their

 8   fiduciary duty of disclosure by incorporating Lehman’s

 9   allegedly inaccurate SEC filings into SPDs sent to plan-

10   participants; and (3) the Director Defendants breached their

11   fiduciary duties to monitor, appoint and inform the Benefit

12   Committee Defendants in their management of Lehman’s ERISA

13   Plan.5

14

15

16



          5
            Plaintiffs do not raise any arguments on appeal
     challenging the district court’s dismissal of Plaintiffs’ claims
     for: (1) all defendants’ duty to avoid conflicts of interest; (2)
     the Benefit Committee Defendants’ affirmative duty to disclose
     information about Lehman’s financial condition to plan-
     participants; (3) the Director Defendants’ duty to manage the
     Plan prudently; and (4) the Director Defendants’ duty to disclose
     information directly to plan-participants. Accordingly,
     Plaintiffs have waived these claims. United States v. Babwah,
     972 F.2d 30, 34-35 (2d Cir. 1992).

                                    12
 1                             Discussion

 2        “We review de novo a district court’s dismissal under

 3   Federal Rule of Civil Procedure 12(b)(6).”     In re Citigroup

 4   ERISA Litig., 662 F.3d 128, 135 (2d Cir. 2011).     Although

 5   “[w]e accept as true the facts alleged in the complaint[s],”

 6   id., “[t]o survive a motion to dismiss, a complaint must

 7   contain sufficient factual matter . . . to ‘state a claim to

 8   relief that is plausible on its face,’” Ashcroft v. Iqbal,

 9   556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v.

10   Twombly, 550 U.S. 544, 570 (2007)).

11   I. Duty of Prudence

12       A. The Moench Presumption

13       Under ERISA, fiduciaries must discharge their duties

14   “with the care, skill, prudence, and diligence under the

15   circumstances then prevailing that a prudent man acting in a

16   like capacity and familiar with such matters would use in

17   the conduct of an enterprise of a like character and with

18   like aims.”   29 U.S.C. § 1104(a)(1)(B).   Ordinarily, ERISA

19   fiduciaries must act prudently “by diversifying the

20   investments of the plan so as to minimize the risk of large

21   losses.”   Id. § 1104(a)(1)(C).    The primary purpose of an

22   ESOP, however, is investment in employer securities – and

                                   13
 1   employer securities only.      See Citigroup, 662 F.3d at 137.

 2   This is facially inconsistent with ERISA’s requirement that

 3   fiduciaries diversify plan-participants’ investments.

 4   Although “Congress has encouraged ESOP creation by, for

 5   example, exempting ESOPs from ERISA’s ‘prudence

 6   requirement,’” it did so “‘[]only to the extent that it

 7   requires diversification[].’”      Id. (quoting Moench v.

 8   Robertson, 62 F.3d 553, 568 (3d Cir. 1995)); 29 U.S.C. §

 9   1104(a)(2).    The possibility of a serious conflict is

10   apparent; an ERISA fiduciary of an ESOP can easily become

11   torn between the duties to “protect[] retirement assets and

12   encourag[e] investment in employer stock.”      Citigroup, 662

13   F.3d at 138.

14       In Moench, the Third Circuit proposed a means of

15   resolving this potential dilemma: minimal judicial review

16   for challenges to a fiduciary’s management of an ESOP.      See

17   62 F.3d at 571.     The Third Circuit reasoned that an ESOP is

18   “simply a trust under which the trustee is directed to

19   invest the assets primarily in the stock of a single company

20   . . . a purpose explicitly approved and encouraged by

21   Congress.”     Id. at 571.   The court observed that trustees

22   are under a duty to “conform to the terms of the trust,”


                                      14
 1   such that “[i]f the trust requires the fiduciary to invest

 2   in a particular stock, the trustee must comply unless

 3   compliance would be impossible or illegal.”       Id. (internal

 4   quotation marks and alteration omitted).       As recently noted

 5   by the Seventh Circuit, an ESOP fiduciary abuses its

 6   discretion under Moench if the fiduciary permits investment

 7   in employer stock when the fiduciary “‘could not have

 8   [believed reasonably] that continued adherence to the ESOP’s

 9   direction was in keeping with the settlor’s expectations of

10   how a prudent trustee would operate.’”     White v. Marshall &

11   Ilsley Corp., 714 F.3d 980, 988 (7th Cir. 2013) (Hamilton,

12   J.) (quoting Moench, 62 F.3d at 571).

13        We recently adopted the Moench presumption in

14   Citigroup.6   662 F.3d at 138.    This Court specifically

15   rejected the argument that the Moench presumption should not

16   apply at the pleading stage.     Id. at 139.    Because we view

17   the presumption as a standard of review, rather than an

18   evidentiary presumption, “[w]here plaintiffs do not allege

19   facts sufficient to establish that a plan fiduciary has

          6
           This Court noted that, at the time, “[t]he Sixth, Fifth,
     and Ninth Circuits ha[d] all adopted the Moench presumption.”
     Citigroup, 662 F.3d at 138 (citing Kuper v. Iovenko, 66 F.3d 1447
     (6th Cir. 1995); Kirschbaum v. Reliant Energy, Inc., 526 F.3d 243
     (5th Cir. 2008); and Quan v. Computer Scis. Corp., 623 F.3d 870
     (9th Cir. 2010)).

                                      15
 1   abused his discretion, there is no reason not to grant a

 2   motion to dismiss.”   Id.; cf. Pfeil v. State Street Bank and

 3   Trust Co., 671 F.3d 585, 592-93 (6th Cir. 2012).

 4       Citigroup further endorsed the “‘guiding principle’”

 5   discussed by the Ninth Circuit in Quan v. Computer Sciences

 6   Corp., 623 F.3d 870 (9th Cir. 2010), that “judicial scrutiny

 7   should increase with the degree of discretion a plan gives

 8   its fiduciaries to invest.”    Citigroup, 662 F.3d at 138

 9   (quoting Quan, 623 F.3d at 883).    “Thus a fiduciary’s

10   failure to divest from company stock is less likely to

11   constitute an abuse of discretion if the plan’s terms

12   require – rather than merely permit – investment in company

13   stock.”   Id.   Plans that do not give fiduciaries discretion

14   to divest from an ESOP are more heavily shielded from

15   searching judicial review.    Accordingly, when an ERISA

16   fiduciary is torn between following the terms of a plan

17   requiring investment in employer stock and the provisions of

18   ERISA requiring prudent management, we will presume that the

19   fiduciary acted prudently unless the plaintiff-participant

20   pleads “facts sufficient to show that [fiduciaries] either

21   knew or should have known that [the employer] was in the

22   sort of dire situation that required them to override Plan


                                    16
 1   terms in order to limit participants’ investments in

 2   [employer] stock.”   Id. at 141.

 3       Moench applies here.    Although we had not officially

 4   adopted it at the time the district court dismissed either

 5   of Plaintiffs’ complaints, the court presciently employed

 6   this standard of review on both occasions.    See Lehman I,

 7   683 F. Supp. 2d at 301; Lehman II, 2011 WL 4632885, at *3-4.

 8   Plaintiffs argue that the Moench presumption is inapplicable

 9   (or, in the alternative, weak) because the Plan gives the

10   Benefit Committee discretion to “eliminate or curtail”

11   investments in the LSF.    Appellants’ Br. at 21.   Were this

12   the case, Plaintiffs would be correct that the Moench

13   presumption should apply in limited form.    However, contrary

14   to Plaintiffs’ characterization, the Plan here does not

15   provide the Benefit Committee with discretion sufficient to

16   undermine the policies requiring application of the Moench

17   presumption.

18       The LSF must “at all times be invested exclusively in

19   Lehman Stock,” with the exception of minor cash reserves,

20   Joint App’x 430, and the Trust Fund “shall consist of the

21   Lehman Stock Fund,” among others, id. at 433 (emphasis

22   added).   The Plan gives the Benefit Committee the right “to


                                    17
 1   eliminate or curtail investments in Lehman Stock . . . if

 2   and to the extent that the Committee determines that such

 3   action is required in order to comply with the fiduciary

 4   duties rules” of Section 404 of ERISA.    Id. at 433 (emphasis

 5   added).    This does not equate to “discretion” to divest from

 6   the LSF.    See Taveras v. UBS AG, 708 F.3d 436, at 443-46 (2d

 7   Cir. 2013) (distinguishing between plans’ differing levels

 8   of discretion and finding a plan that offered fiduciaries “a

 9   means by which to terminate the company’s fund as an

10   investment option if [they] so choose[]” was still covered

11   by Moench because plan language mandated offering the

12   company’s fund).    The Plan here merely states the law:

13   Fiduciaries must comply with the applicable tenets of ERISA.

14   In Citigroup, we acknowledged “ERISA’s requirement that

15   fiduciaries follow plan terms only to the extent that they

16   are consistent with ERISA,” thus ensuring that even plans

17   affording zero discretion contain implicit legal limits.

18   See 662 F.3d at 139 (emphasis added).    The limit here is

19   simply made explicit.    The Moench presumption applies in

20   full force.

21       Before applying the Moench presumption in this case, we

22   first address two legal questions implicated by its


                                    18
 1   application.   First, can Plaintiffs claim that the Benefit

 2   Committee Defendants knew or should have known that Lehman

 3   stock was an imprudent investment based on material,

 4   nonpublic information?     Second, how specific must Plaintiffs

 5   be with regard to when the Benefit Committee Defendants knew

 6   or should have known that Lehman was in a “dire situation”?

 7             1. Inside Information

 8        Many of the facts that Plaintiffs allege gave rise to

 9   the Benefit Committee Defendants’ awareness (or actionable

10   ignorance) of Lehman’s “dire situation,” were not public

11   during the class period.     For example, Plaintiffs claim that

12   the Benefit Committee Defendants knew or should have known

13   about private conversations between Lehman’s Chief Executive

14   Officer, Defendant Richard S. Fuld, Jr. (“CEO Fuld”), and

15   Treasury Secretary Paulson.

16        Plaintiffs argue that the Benefit Committee Defendants

17   had a duty to investigate whether Lehman was in a dire

18   situation, and that any reasonable investigation would have

19   revealed material, nonpublic information sufficient to

20   confirm that Lehman was on the verge of collapse.7     In its


          7
            Plaintiffs anticipate that the Benefit Committee
     Defendants would have discovered material, nonpublic information
     in part because Plaintiffs claim that the Director Defendants had

                                     19
 1   amicus brief supporting Plaintiffs, the Secretary of Labor

 2   (the “Secretary”) asserts that “a reasonable investigation

 3   of Lehman’s financial health” would have revealed such

 4   nonpublic information as Lehman’s use of improper accounting

 5   methods and private conversations between CEO Fuld and the

 6   government about selling Lehman or obtaining a capital

 7   infusion.      Amicus Br. at 25-26.    According to the Secretary,

 8   objectively prudent fiduciaries would have uncovered this

 9   type of inside information and acted upon it.8

10          Several other Circuits have confronted, and rejected,

11   similar arguments.      Recently, in White, the Seventh Circuit

12   disposed of any contention that insiders should engage in

13   transactions based on material, nonpublic information, as

14   this “would violate federal securities laws.”        714 F.3d at

15   992.       In Kirschbaum v. Reliant Energy, Inc., 526 F.3d 243,

16   256 (5th Cir. 2008), the Fifth Circuit confirmed that

17   “[f]iduciaries may not trade for the benefit of plan


     a duty to provide it to them – a duty that we refuse to find on
     these facts. See infra Part III.
            8
            Although the Secretary of Labor’s amicus brief implies
     that the Benefit Committee Defendants should have divested the
     LSF of Lehman stock, at oral argument, the attorney representing
     the Department of Labor clarified the Secretary’s position as
     solely that the Benefit Committee Defendants should have ceased
     purchasing Lehman stock on behalf of participants who elected to
     put their savings into the LSF during the class period.

                                       20
 1   participants based on material information to which the

 2   general shareholding public has been denied access,” and

 3   that this served to “reenforce[] . . . the conclusion that

 4   the Moench presumption cannot be lightly overcome.”

 5   Likewise, in Quan, the Ninth Circuit noted that one reason

 6   to adopt the Moench presumption is because its high burden

 7   “gives fiduciaries a safe harbor from failing to use insider

 8   information to divest from employer stock.”       623 F.3d at

 9   881.       “We do not construe an ERISA fiduciary’s duties of

10   loyalty and prudence to include violating the law to serve a

11   plan’s beneficiaries.”       Id. at 882 n.8.

12          Fiduciaries are under no obligation to either seek out9

13   or act upon inside information in the course of fulfilling

14   their duties under ERISA.       The duty of a fiduciary to

15   prudently discharge his obligations “solely in the interest

16   of the participants and beneficiaries” should be read to end

17   with the words within the bounds of the law.       29 U.S.C. §

18   1104(a)(1)(B).       The prudent man does not commit insider

19   trading.       We recognize that, had the Benefit Committee

20   Defendants sought inside information that revealed the


            9
           This is not a case in which fiduciaries in charge of day-
     to-day plan management already knew material, nonpublic
     information by virtue of their corporate insider status.

                                       21
 1   imprudence of continued investment in Lehman stock,

 2   breaching the terms of the Plan by ceasing to offer the LSF

 3   as an investment option would not run afoul of federal

 4   securities laws given the absence of a purchase or sale of

 5   stock.     See, e.g., Harris v. Amgen, Inc., – F.3d –, No. 10-

 6   56014, 2013 WL 2397404, at * 14 (9th Cir. June 4, 2013).

 7       Consider, however, that if plan managers are obligated

 8   to conduct an investigation into the financial condition of

 9   a plan asset that extends to material, nonpublic

10   information, plan managers will face a dilemma if inside

11   information shows that continued investment is imprudent.

12   On the one hand, plan managers will be able to adhere to

13   their duty of prudence by limiting further investment in the

14   improvident asset without breaching securities laws.     On the

15   other hand, plan managers will not be able to comply with

16   their duty of prudence by divesting the plan of its pre-

17   existing investment without risking liability for insider

18   trading.    There is no happy solution to this quandary, and –

19   particularly when ERISA plans are managed internally – it is

20   a situation that is bound to occur.    Given the conflicted

21   state of the law, there seems but one reasonable approach:

22   The duty of prudence must not be construed to include an


                                     22
 1   obligation to affirmatively seek out material, nonpublic

 2   information pertaining to plan investments.

 3            2. Timing

 4       In Lehman I, the district court dismissed Plaintiffs’

 5   claim against the Benefit Committee Defendants for breach of

 6   the duty of prudence because Plaintiffs failed “to allege

 7   facts that permit a determination of when Lehman’s financial

 8   condition” reached the point of imminent corporate collapse.

 9   683 F. Supp. 2d at 302.   Although Plaintiffs specified a

10   moment of clarity in the SCAC – March 16, 2008, the sale

11   date for Bear Stearns – the district court was not persuaded

12   that Plaintiffs had alleged sufficient facts to explain “why

13   those circumstances alerted or ought to have alerted Lehman

14   that it would suffer the same fate” as Bear Stearns.   Lehman

15   II, 2011 WL 4632885, at *5.

16       Plaintiffs argue that “[t]he district court’s

17   unprecedented requirement that a complaint must specify the

18   precise moment in time when a company faces imminent

19   collapse or other dire circumstances imposes an impossible

20   pleading burden on a plaintiff.”   Appellants’ Br. at 41.

21   While such a requirement might well be unduly onerous, see

22   Pfeil, 671 F.3d at 596 n.3, the district court here did not


                                   23
 1   reject Plaintiffs’ claims solely because Plaintiffs failed

 2   either to allege any specific point in time (in the CAC) or

 3   to allege the correct point in time (in the SCAC) when

 4   Lehman stock became an imprudent investment.    Instead, the

 5   court concluded that Plaintiffs did not allege facts

 6   sufficient to show that the Benefit Committee Defendants

 7   knew or should have known that Lehman was in a dire

 8   situation at any point within the class period.     See Lehman

 9   I, 683 F. Supp. 2d at 302-03; Lehman II, 2011 WL 4632885, at

10   *4-5.

11       In Lehman I, the district court noted that “[e]ven

12   assuming that the CAC sufficiently alleged that Lehman’s

13   collapse became imminent at some time materially before the

14   bankruptcy filing, it contains nothing to support the

15   inference that Ms. Uvino [the only Benefit Committee

16   Defendant] . . . knew or should have known that.”     683 F.

17   Supp 2d. at 302.   In Lehman II, the district court

18   considered four allegations that Plaintiffs claimed

19   indicated the Benefit Committee Defendants’ necessary

20   knowledge.   2011 WL 4632885, at *3-5.   Of these, two involve

21   events that took place after Bear Stearns collapsed, thus

22   indicating that the district court was open to considering


                                   24
 1   the sufficiency of Plaintiffs’ allegations of imprudence

 2   throughout the class period.   Id. at *4-5.   Like the

 3   district court, we will consider Plaintiffs’ allegations

 4   regarding what the Benefit Committee Defendants knew or

 5   should have known throughout the entire class period.     We do

 6   not demand any particular timing specificity – only that the

 7   facts alleged, if true, lead to the conclusion that

 8   Defendants knew or should have known that the company was in

 9   a dire situation at some time during the class period.

10       B. Applying the Moench Presumption

11       There is no “bright-line rule” regarding how much

12   evidence is necessary to rebut the Moench presumption.

13   Quan, 623 F.3d at 883.   It is clear, however, that the

14   Moench presumption is very difficult to overcome – as it is

15   designed to be.   See id.; see also White, 714 F.3d at 991-

16   93; Citigroup, 662 F.3d at 140-41.   “[P]roof of the

17   employer’s impending collapse may not be required,” but mere

18   stock fluctuations are insufficient to show that fiduciaries

19   acted imprudently by adhering to the terms of an ESOP.     Id.

20   at 140; see also Kirschbaum, 526 F.3d at 256 n. 12 (citing

21   cases featuring approximately 75% decreases in stock price

22   that did not include facts sufficient to overcome the Moench


                                    25
 1   presumption).    Whether a fiduciary knew or should have known

 2   that the employer was in a “dire situation” is assessed

 3   “based upon information available to the fiduciary at the

 4   time of each investment decision and not ‘from the vantage

 5   point of hindsight.’”    Citigroup, 662 F.3d at 140 (citing 29

 6   U.S.C. § 1104(a)(1)(B)).

 7        Thus, the fact that Lehman ultimately declared

 8   bankruptcy must not be allowed to influence our assessment

 9   of whether the Benefit Committee Defendants acted prudently

10   during the class period.    Armed with the information

11   available in the months preceding bankruptcy, the Benefit

12   Committee Defendants risked liability for action (violating

13   the terms of the ESOP by limiting Plaintiffs’ investment) or

14   inaction (remaining invested and exposing plan-participants

15   to what may have been unintended risk).     See Summers v.

16   State Street Bank & Trust Co., 453 F.3d 404, 410 (7th Cir.

17   2006).    Had the Benefit Committee Defendants10 sold Lehman

18   stock immediately after Bear Stearns was sold, for example,

19   plan-participants might have protested and claimed that the

20   fiduciaries erroneously violated the terms of the Plan and

          10
           The Benefit Committee Defendants are fiduciaries for
     purposes of Plaintiffs’ claims because they had “complete
     authority and discretion to control and manage the operation and
     administration of the Plan.” Joint App’x 436.

                                    26
 1   deprived them of the subsequent increase in the value of

 2   Lehman’s stock.   Although Lehman’s share price exhibited a

 3   downward trend overall during the spring and summer of 2008,

 4   the daily price per share fluctuated widely.     Immediately

 5   after Bear Stearns was sold, on March 17, 2008, Lehman was

 6   trading at $31.75 per share.    Six weeks later, on April 28,

 7   2008, Lehman’s stock price had risen to $47.52 – an

 8   approximately 50% increase.11

 9        During the week before Lehman filed for bankruptcy, its

10   stock price fell steadily from $14.15 per share on Monday,

11   September 8, 2008, to $3.65 per share at the close of

12   business on Friday, September 12, 2008.     But even then, in

13   Lehman’s final hours, the market arguably viewed the 158-

14   year-old company as a going concern by assigning it a

15   positive expected value.12   “A [fiduciary] is not imprudent

          11
            As the Seventh Circuit observed in similar circumstances,
     “[c]ourts can take judicial notice of public stock price
     quotations without converting a motion to dismiss into one for
     summary judgment.” White, 714 F.3d at 985.
          12
            We assume for these purposes that markets operate
     efficiently. Any other assumption is incompatible with
     developing a workable standard. See generally White, 714 F.3d at
     992-93; see also Ronald J. Gilson & Reinier H. Kraakman, The
     Mechanisms of Market Inefficiency, 70 VA. L. REV. 549 (1984); but
     see Lynn A. Stout, The Mechanisms of Market Inefficiency: An
     Introduction to the New Finance, 28 J. CORP. L. 635 (2003).
           Although Plaintiffs did not raise the issue in either the
     CAC, the SCAC or their briefs on appeal, we note two SEC Orders
     from July 2008 that had the potential to affect market efficiency

                                     27
 1   to assume that a major stock market . . . provides the best

 2   estimate of the value of the stocks traded on it.”        Id. at

 3   408.        We realize, of course, that it is not quite that

 4   simple.        While we do not believe that fiduciaries should be

 5   forced to second-guess the market’s valuation of an

 6   investment, we understand that (although it is empirically

 7   impossible to quantify) ERISA plan-participants have

 8   interests that are distinct from market investors

 9   collectively – namely, greater risk-aversion.        Congress,

10   too, recognized this when it enacted ERISA.        See generally

11   29 U.S.C. § 1104(a).        However, Congress explicitly allows

12   (some have said encourages)13 fiduciaries to contract around


     during the class period. See Emergency Order Pursuant to Section
     12(k)(2) of the Securities Exchange Act of 1934 Taking Temporary
     Action to Respond to Market Developments, Release No. 58166, July
     15, 2008, available at
     http://www.sec.gov/rules/other/2008/34-58166.pdf; see also
     Amendment to Emergency Order Pursuant to Section 12(k)(2) of the
     Securities Exchange Act of 1934 Taking Temporary Action to
     Respond to Market Developments, Release No. 58190, July 18, 2008,
     available at http://www.sec.gov/rules/other/2008/34-58190.pdf.
     In July 2008, in order to “maintain fair and orderly securities
     markets,” the SEC prohibited short selling securities of certain
     large financial firms, including Lehman. Id. Because Plaintiffs
     did not allege that the Benefit Committee Defendants knew or
     should have known about the SEC Orders or the potential effect
     they may have had on the market’s valuation of Lehman stock, we
     do not consider the uncertain impact of this temporary
     regulation.
            13
            “Congress favors ESOPs as a policy matter because they
     provide a way for employers to align employee and management
     interests.” White, 714 F.3d at 986 (citing Tax Reform Act of

                                        28
 1   the basic core of prudent investing: diversification.       Id. §

 2   1104(a)(2).

 3        Here, Plaintiffs have not rebutted the Moench

 4   presumption because they fail to allege facts sufficient to

 5   show that the Benefit Committee Defendants knew or should

 6   have known that Lehman was in a “dire situation” based on

 7   information that was publicly available during the class

 8   period.   First, we note that the forced sale of Bear Stearns

 9   alone does not show that Lehman specifically was in serious

10   danger.   In fact, given that Bear Stearns was (effectively)

11   bailed out by the government,14 the events of March 16, 2008

12   could be construed to cut against Plaintiffs’ claims because

13   the Benefit Committee Defendants may have believed that

14   Lehman would be saved as well.15    Likewise, the general


     1976, Pub. L. No. 94-455, § 803(h), 90 Stat. 1520, 1590 (1976)).
     Indeed, to preserve and encourage ESOPs, Congress exempted
     fiduciaries of ESOPs from the duty to diversify and accordingly
     limited the duty of prudence. 29 U.S.C. § 1104(a)(2).
          14
            The government orchestrated Bear Stearns’ sale to JPMorgan
     Chase by providing JPMorgan Chase with a non-recourse loan
     collateralized only by Bear Stearns’ assets, thus, in effect,
     bailing out Bear Stearns.
          15
            Although the SCAC alleges that in or around July 2008,
     “the government announced that it would not bail out other
     failing financial institutions,” SCAC ¶ 337, it also claims that
     on September 11, 2008, Lehman’s CEO, “Defendant Fuld[,] was asked
     to resign from the board of the New York Federal Reserve, to
     avoid the appearance of impropriety in case the government was
     required to front any money to find Lehman a strategic partner,”

                                    29
 1   climate for financial firms in 2008, the collective

 2   information known (or knowable) to the Benefit Committee

 3   Defendants by virtue of their positions at Lehman, the

 4   investment consulting firm’s presentations, public articles

 5   and reports, Lehman’s financial disclosures and Lehman’s

 6   declining (but still positive) stock price do not counter

 7   the presumption that these fiduciaries acted prudently by

 8   remaining invested in Lehman stock.

 9       Plaintiffs claim that the Benefit Committee Defendants

10   should have been aware of Lehman’s alleged high leverage

11   ratio, its broad exposure to the subprime mortgage market,

12   its inability to cover the extent of its potential losses

13   and its use of questionable accounting tactics (such as Repo

14   105) by virtue of their expertise and their positions at

15   Lehman.   We agree with the district court that Plaintiffs’

16   allegations are “conclusory,” Lehman II, 2011 WL 4632885, at

17   *3, and that, regardless, they merely show that the members

18   of the Benefit Committee would have possessed comparable


     id. ¶ 382. However, Plaintiffs also allege that on September 12,
     2008, the last trading day before Lehman declared bankruptcy,
     Treasury Secretary Paulson leaked to the media that the
     government would not aid Lehman’s survival. Id. ¶ 389. Based on
     the SCAC, the government was not Lehman’s last hope, however, as
     both CEO Fuld and representatives of the Federal Reserve
     continued their efforts to negotiate a sale of Lehman over the
     weekend of September 13-14, 2008. Id. ¶¶ 391-92, 395-96.

                                    30
 1   knowledge to the market analysts and investors who helped

 2   maintain Lehman’s substantial market capital even

 3   immediately prior to the company’s bankruptcy.

 4       Plaintiffs further allege that the Benefit Committee

 5   Defendants knew or should have known that Lehman was an

 6   imprudent investment because of presentations by an outside

 7   consulting firm showing that the subprime mortgage market

 8   was on the verge of collapse.    The presentations to the

 9   Benefit Committee Defendants, however, did not deal

10   specifically with the potential effects of a credit crunch

11   on Lehman.   The majority of the investment consulting firm’s

12   analyses focused on comparing the degree of Lehman’s

13   downward spiral with the market-wide decline.    Based on

14   Plaintiffs’ allegations, which we accept as true, the

15   Benefit Committee Defendants were not obligated, after

16   allegedly being told that Lehman was under-performing the

17   market, to breach the terms of the Plan by refusing to offer

18   the LSF or by divesting Lehman stock.

19       Plaintiffs argue that several published articles and

20   reports questioning Lehman’s viability should have alerted

21   the Benefit Committee Defendants to Lehman’s imprudence as

22   an investment.   Even accepting the truth of Plaintiffs’


                                     31
 1   allegations, these types of statements in the financial

 2   press do not give rise to a plausible assertion that the

 3   Benefit Committee Defendants knew or should have known that

 4   Lehman was in a “dire situation.”     We agree with Plaintiffs

 5   that Lehman’s increasingly frequent write-downs of losses

 6   (and the media coverage thereof) should have given rise to

 7   concern.   However, we still cannot find that Plaintiffs

 8   plausibly alleged that the Benefit Committee Defendants knew

 9   or should have known that Lehman was an imprudent investment

10   given the mixed signals with which the fiduciaries grappled

11   throughout the class period.   For example, Plaintiffs allege

12   in the SCAC that Lehman “materially overstated its liquidity

13   pool” when it “publicly announced that it[ ] was $41

14   billion” on September 10, 2008, just days before the company

15   filed for bankruptcy.   SCAC ¶ 367.    It seems that

16   Plaintiffs’ claims are improperly directed; the true objects

17   of Plaintiffs’ ire are the Lehman executives whom Plaintiffs

18   allege made material misstatements regarding the financial

19   health of the company – not the ERISA fiduciaries who relied

20   on them.

21       Still, Plaintiffs claim that even if these indicators

22   could not, standing alone, compel the Benefit Committee


                                    32
 1   Defendants to “curtail or eliminate” the LSF, the facts

 2   alleged should have incited these fiduciaries to conduct an

 3   investigation that would have revealed the imprudence of

 4   maintaining the investment in the LSF.   But Plaintiffs

 5   recognize that a failure to investigate, on its own, is

 6   insufficient to state a claim for breach of the duty of

 7   prudence, and that “plaintiffs must allege facts that, if

 8   proved, would show that an ‘adequate investigation would

 9   have revealed to a reasonable fiduciary that the investment

10   at issue was improvident.’”   Citigroup, 662 F.3d at 141

11   (citing Kuper v. Iovenko, 66 F.3d 1447, 1460 (6th Cir.

12   1995)) (emphasis added).   Here, any reasonable investigation

13   undertaken by the Benefit Committee Defendants would not

14   have revealed additional facts sufficient to compel the

15   fiduciaries to break the terms of the Plan because they

16   could not have based “prudent” investment choices on the

17   material, nonpublic information that Plaintiffs claim showed

18   that Lehman was failing.

19       We find that the sum of Plaintiffs’ plausible

20   allegations do not overcome the Moench presumption.   Market

21   fluctuations and an above-water price immediately in advance

22   of bankruptcy would not have put a prudent investor on


                                   33
1   notice that Lehman had reached a “dire situation.”      We

2   understand that the risk-tolerance of participants in an

3   ESOP may differ from the risk-tolerance of the market as a

4   whole, but single-stock portfolios are inherently risky.16

5   We cannot penalize fiduciaries who allow plan-participants

6   to invest in Congressionally-encouraged ESOPs absent very

7   strong indications that fiduciaries knew or should have

8   known that participants no longer desired to remain

9   invested.17

         16
           Curiously, research indicates that this is not the
    public’s perception. See White, 714 F.3d at 993-94. However,
    “[t]here is no doubt that it is highly risky for an individual
    employee to invest heavily in the employer’s stock.” Id. (citing
    numerous expert sources for proposition that single-stock
    investments are exposed to greater risk than diversified
    portfolios).
         17
           Plaintiffs’ reliance on several out-of-Circuit district
    court cases is misplaced. See Appellants’ Br. at 31-34. The
    facts alleged in In re YRC Worldwide, Inc. Erisa Litigation, No.
    09-2593-JWL, 2010 WL 4386903 (D.Kan. 2010), for example, are
    arguably more severe than those pled here; the district court
    found the Moench presumption rebutted on the basis of, inter
    alia, the company’s debt-for-equity exchange program that diluted
    the value of existing shareholders’ shares by 95% by creating one
    billion new shares. Id. at *6-7. Two of Plaintiffs’ cases did
    not involve ERISA plans that required the availability of a
    company stock fund. See Dann v. Lincoln Nat. Corp., 708 F. Supp.
    2d 481, 489-90 (E.D.Pa. 2010) (applying the “intermediate abuse
    of discretion standard as defined in Moench” but on the basis of
    plans that merely “contemplate and expect that the [company]
    Common Stock Fund is available as an investment option”); Carr v.
    Int’l Game Tech., 770 F. Supp. 2d 1080, 1094 (D.Nev. 2011)
    (finding that “Committee members were fiduciaries with the
    discretion to remove [company] stock from the menu of investment
    options” and that, even with the lower threshold, plaintiffs
    failed to rebut the Moench presumption).

                                   34
 1   II. Duty of Disclosure

 2       Plaintiffs also claim that the Benefit Committee

 3   Defendants breached their duties of disclosure under ERISA

 4   by incorporating Lehman’s allegedly inaccurate SEC filings

 5   into SPDs sent to plan-participants.   According to

 6   Plaintiffs, assessing the viability of their claim requires

 7   answering three questions: (1) whether the Benefit Committee

 8   Defendants were acting as fiduciaries when they incorporated

 9   the SEC filings; (2) whether the SPDs were sent to plan-

10   participants during the class period; and (3) whether the

11   Benefit Committee Defendants knew these SEC filings

12   contained misleading information, and, if not, whether they

13   had an obligation to investigate the possibility based on

14   “‘warning’ signs.”   Appellants’ Br. at 56.

15       Using Plaintiffs’ proposed framework, first, liability

16   under ERISA can “arise[] only from actions taken or duties

17   breached in the performance of ERISA obligations.”     In re

18   WorldCom, Inc., 263 F. Supp. 2d 745, 760 (S.D.N.Y. 2003)

19   (finding that SPD incorporation of SEC filings was

20   “insufficient to transform those documents into a basis for

21   ERISA claims against their signatories” – the directors).

22   In its recent decision in Dudenhoefer v. Fifth Third


                                   35
 1   Bancorp., 692 F.3d 410, 422-23 (6th Cir. 2012), the Sixth

 2   Circuit addressed the previously unanswered “question of

 3   whether the express incorporation of SEC filings into an

 4   ERISA-mandated SPD is a fiduciary communication.”     The court

 5   answered this question in the affirmative because “selecting

 6   the information to convey through the SPD is a fiduciary

 7   activity.”   Id. at 423.   We agree.   The Benefit Committee

 8   Defendants in this case were acting as ERISA fiduciaries

 9   when they incorporated Lehman’s SEC filings into the SPD

10   distributed to plan-participants.

11       Second, Plaintiffs argue that the district court erred

12   because, although the SEC filings were prepared before the

13   class period began, the SPDs were sent to plan-participants

14   during the class period.   The SPDs of concern here were

15   issued on January 1, 2008; the class period began on March

16   16, 2008, as specified by the SCAC.    Plaintiffs’ argument

17   depends on their claim that the SPDs were “sent to Plan

18   participants during the Class Period,” but Plaintiffs do not

19   plausibly allege this fact.   Appellants’ Br. at 56 (emphasis

20   added).   Still, as the district court recognized, “the

21   incorporation was forward-looking inasmuch as the SPD

22   purported to incorporate future SEC filings.”     Lehman II,


                                    36
 1   2011 WL 4632885, at *6.    However, Plaintiffs must still

 2   articulate a viable claim that the Benefit Committee

 3   Defendants knew of false statements contained in (or yet to

 4   be contained in) the SEC filings incorporated in (or yet to

 5   be incorporated in) the SPDs.

 6        Thus, third, “a fiduciary may be held liable for false

 7   or misleading statements when ‘the fiduciary knows those

 8   statements are false or lack a reasonable basis in fact.’”

 9   Gearren v. The McGraw-Hill Cos., Inc., 660 F.3d 605, 611 (2d

10   Cir. 2011) (quoting Flanigan v. Gen. Elec. Co., 242 F.3d 78,

11   84 (2d Cir. 2001)).   Here, Plaintiffs have not identified

12   any specific portions of Lehman’s SEC filings that the

13   Benefit Committee Defendants knew were false or misleading –

14   or that even are false or misleading.18

15        Plaintiffs also argue that the Benefit Committee

16   Defendants had a duty to investigate the veracity of

17   Lehman’s SEC filings before incorporating them into the SPD


          18
            Plaintiffs do assert that “Lehman’s accounting treatment
     for its Repo 105 transactions, and the total absence of any
     disclosure about Repo 105 in . . . SEC filings . . . created a
     false impression of Lehman’s business condition, violating
     [Generally Accepted Accounting Principles].” SCAC ¶ 195.
     Plaintiffs, do not, however, plead facts to show that the Benefit
     Committee Defendants knew about Repo 105 or its allegedly
     misleading omission from SEC filings incorporated into the SPD.


                                     37
 1   because they were “undoubtedly privy to multiple ‘warning’

 2   signs” that these corporate documents were materially

 3   misleading.     Appellants’ Br. at 56-57.   In Citigroup, we

 4   held that Plaintiffs must “allege[] facts that, without the

 5   benefit of hindsight” show that an investigation of the

 6   accuracy of a company’s SEC filings was warranted.     662 F.3d

 7   at 145.   This Court observed that

 8             requiring Plan fiduciaries to perform an
 9             independent investigation of SEC filings
10             would increase the already-substantial
11             burden borne by ERISA fiduciaries and
12             would arguably contravene Congress’s
13             intent ‘to create a system that is [not]
14             so complex that administrative costs, or
15             litigation expenses, unduly discourage
16             employers from offering [ERISA] plans in
17             the first place.’
18
19   Id. (quoting Conkright v. Frommert, 130 S.Ct. 1640, 1649

20   (2010)) (alterations in original).

21       Here, the publicly-known information available to the

22   Benefit Committee Defendants did not give rise to an

23   independent duty to investigate Lehman’s SEC filings prior

24   to incorporating their content into SPDs issued to plan-

25   participants.

26   III. Duties to Appoint, Monitor and Inform

27       Plaintiffs also appeal from the district court’s

28   dismissal of several related claims lodged against the

                                     38
 1   Director Defendants.   Specifically, Plaintiffs argue that

 2   the Director Defendants, acting in a fiduciary capacity,

 3   breached their duties under ERISA in four ways: (1) failing

 4   to appoint qualified plan managers; (2) failing to replace

 5   the Benefit Committee Defendants; (3) failing to monitor the

 6   Benefit Committee Defendants; and (4) failing to provide the

 7   Benefit Committee Defendants with “crucial information about

 8   Lehman’s dire situation.”    Appellants’ Br. at 48-49.

 9        Initially, the Director Defendants contend that not all

10   of them are ERISA fiduciaries for purposes of Plaintiffs’

11   claims because only the members of the Compensation

12   Committee were responsible for appointing and monitoring

13   plan managers.19   Because we agree with the Director

14   Defendants’ argument that the district court properly

15   dismissed Plaintiffs’ claims as either inadequately pled or

16   derivative of the failed prudence claim, we decline to reach

17   the question of which particular Directors qualified as

18   ERISA fiduciaries.



          19
           ERISA authorizes fiduciaries to allocate their
     responsibilities to other named fiduciaries pursuant to a plan’s
     express provisions. 29 U.S.C. § 1105(c). However, the
     allocating fiduciaries may still be liable if their decision to
     delegate their responsibilities breached ERISA’s duty of prudence
     under Section 404(a)(1). Id. § 1105(c)(2)(A).

                                    39
 1       First, we affirm the district court’s dismissal of

 2   Plaintiffs’ duty to appoint and duty to replace claims as

 3   conclusory and unsupported.   Second, we affirm the court’s

 4   dismissal of Plaintiffs’ duty to monitor claim as derivative

 5   of Plaintiffs’ failed duty of prudence claim.   Plaintiffs

 6   cannot maintain a claim for breach of the duty to monitor by

 7   the Director Defendants absent an underlying breach of the

 8   duties imposed under ERISA by the Benefit Committee

 9   Defendants.

10       Third, we find that the district court also correctly

11   dismissed Plaintiffs’ claim for breach of the duty to inform

12   as derivative of Plaintiffs’ claims against the Benefit

13   Committee Defendants.   But, even if we determined that

14   Plaintiffs adequately alleged that the Benefit Committee

15   Defendants had violated their duty of prudence, we would be

16   unlikely to conclude that the Director Defendants had a duty

17   to keep the plan managers apprised of material, nonpublic

18   information regarding the soundness of Lehman as an

19   investment.   We have already declined to “create a duty to

20   provide participants with nonpublic information pertaining

21   to specific investment options.”   Citigroup, 662 F.3d at

22   143; see also Lanfear v. Home Depot, Inc., 679 F.3d 1267,


                                   40
 1   1284-86 (11th Cir. 2012).    Since ERISA fiduciaries have no

 2   duty to disclose inside information to plan-participants so

 3   that participants may act on it, Plaintiffs’ argument that

 4   the Benefit Committee Defendants should have been privy to

 5   inside information so that they could act on it on behalf of

 6   plan-participants is simply not persuasive.

 7

 8                               Conclusion

 9       Lehman’s demise was doubtless attributable to a number

10   of identifiable causes that become apparent through the lens

11   of hindsight.   We conclude, however, that Plaintiffs have

12   not adequately pled that Lehman was in a dire situation that

13   the Plan fiduciaries could or should have recognized during

14   the class period.   ERISA puts those fiduciaries in an

15   unfortunately difficult position – on the proverbial

16   “razor’s edge,” White, 714 F.3d at 990 – in attempting to

17   meet their fiduciary duty of prudence while simultaneously

18   offering an undiversified investment option to employees

19   trying to save for retirement.       Plaintiffs have not

20   adequately alleged that Defendants fell off of that edge.

21       For the foregoing reasons, the orders of the district

22   court are hereby AFFIRMED.

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