# Snider v. Administrative Committee Seventy Seven Energy Inc Retirement & Savings Plan

> District Court, W.D. Oklahoma · October 8, 2021

URL: https://www.frixlaw.com/law-library/cases/10389219

## Case

- **Court:** District Court, W.D. Oklahoma
- **Decided:** October 8, 2021
- **Opinion:** 100trialcourt
- **Cited by:** 0 later opinions in the Frix Law Library

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## Opinion text

IN THE UNITED STATES DISTRICT COURT FOR THE
WESTERN DISTRICT OF OKLAHOMA

CHRISTOPHER SNIDER, on behalf of the )
Seventy Seven Energy Inc. Retirement & )
Savings Plan and a class of similarly )
situated participants of the Plan, )
)
Plaintiff, )
)
v. ) Case No. CIV-20-977-D
)
ADMINISTRATIVE COMMITTEE, )
SEVENTY SEVEN ENERGY, INC. )
RETIREMENT & SAVINGS PLAN; et al., )
)
Defendants. )

ORDER

Before the Court is Defendants’ Motion to Dismiss Plaintiff’s Class Action
Complaint [Doc. No. 24] under Fed. R. Civ. P. 12(b)(6). Defendants assert that Plaintiff
Christopher Snider’s claims under the Employee Retirement Income Security Act of 1974
(“ERISA”), 29 U.S.C. § 1001 et seq., fail for the same reasons previously found in a related
case, Myers v. Administrative Committee, Case No. CIV-17-200-D (W.D. Okla. Feb. 24,
2017), and for additional reasons, including untimeliness.1 Plaintiff has opposed the
Motion, which is fully briefed and ripe for decision. See Pl.’s Opp’n [Doc. No. 26]; Defs.’
Reply [Doc. No. 27].

1 The Court utilizes the style of the case in Myers after an amendment to correctly identify
the defendants. See id., Am. Compl. (Apr. 19, 2017). There are several differences between Myers
and this case, most notably that Plaintiff has not sued the directed trustee, Delaware Charter
Guarantee & Trust Company d/b/a Principal Trust Company.
Factual and Procedural Background
Plaintiff brings this ERISA action as a participant in the Seventy Seven Energy Inc.

Retirement & Savings Plan (the “Plan”) to obtain relief on behalf of the Plan and other
participants for alleged breaches of fiduciary duties. Defendants are administrators and
fiduciaries of the Plan, which was a “defined contribution plan” under 29 U.S.C.
§ 1002(34) sponsored by Seventy Seven Energy Inc. (“SSE”) for its employees. Plaintiff
filed this action on September 28, 2020, after he was identified during class-related
discovery in Myers as a potential class member. His complaint is identical to an amended

complaint that had been proffered earlier in Myers but was not allowed because the Court
found that it was unnecessary and futile. Plaintiff moved to consolidate the two cases, but
his motion was denied. See 12/22/20 Order [Doc. No. 25].
Briefly stated, SSE was formed in a spinoff from Chesapeake Energy Corporation
(“Chesapeake”) on June 30, 2014. The Plan was established on July 1, 2014, as a spinoff

of Chesapeake’s retirement plan. It was initially funded by a transfer of assets from
Chesapeake’s plan that were allocated to the accounts of individuals who became SSE
employees and included a substantial amount of Chesapeake common stock. The Plan
retained and increased its investment in Chesapeake stock from July 1, 2014, until
December 31, 2017, when the Plan merged into another retirement plan with different

fiduciaries.2

2 The Plan merged into the Patterson-UTI Energy, Inc. 401(k) Profit Sharing Plan effective
December 31, 2017, after SSE merged with Patterson-UTI Energy, Inc. following a Chapter 11
bankruptcy reorganization.
The Plan, like the Chesapeake plan before it, contained two components: a deferred
compensation plan (or 401(k) plan) consisting of elective contributions by participants to

be invested in funds other than SSE stock; and an employee stock ownership plan (ESOP)
consisting of matching or discretionary contributions by SSE in the form of SSE common
stock.3 The Chesapeake plan similarly contained an ESOP of Chesapeake stock that, after
the spinoff and transfer to the SSE Plan, was no longer a “qualifying employer security”
for Plan participants because they were not employees of Chesapeake.4 Under the Plan,
the Chesapeake stock fund was frozen to new investment by Plan participants, but they

could elect whether to keep it in their individual accounts. Plaintiff alleges that the
Chesapeake stock was an imprudent investment for the Plan because the stock was volatile,
risky, and steadily declining in value, because Chesapeake shared the same business sector
and maintained close ties with SSE, and because a single-stock fund is not a prudent
investment for a 401(k) plan, particularly given the large percentage of the Plan’s holdings

invested in Chesapeake stock.
By his Complaint, Plaintiff claims that Defendants breached their fiduciary duties
under 29 U.S.C. § 1104(a) in three ways: 1) by “wrongfully allowing the Plan to continue
to invest in Chesapeake stock” in violation of the duty of prudence because Defendants

3 A copy of the summary plan description and the Plan document appear in the record,
respectively, as Exhibit 5 [Doc. No. 24-5] and Exhibit 6 [Doc. No. 24-6] to Defendants’ Motion.
The Plan says it “is a restatement due to a spin-off from the Chesapeake Plan.” See Plan Doc. at 1.

4 ERISA contains an employer stock rule that exempts qualifying employer securities from
a fiduciary’s statutory duties of diversification and prudence to the extent it requires
diversification. See 29 U.S.C. § 1104(a)(2).
“erroneously believed it was a ‘qualifying employer security’ for Plan participants” and
ignored “plain information that including Chesapeake stock [as a Plan investment] was not

a prudent choice” (Compl. ¶ 114); 2) by “failing to liquidate the Chesapeake stock . . . and
map it to other, diversified Plan options” in violation of the duty to diversify the Plan’s
assets (id. ¶ 120); and 3) by “fail[ing] to conduct an appropriate investigation of the merits
of continued investment in Chesapeake” in violation of the duty to monitor and determine
prudent investments recognized in Tibble v. Edison International, 575 U.S. 523, 530-31
(2015). See Compl. ¶¶ 125, 128.5 Plaintiff alleges that the Plan suffered substantial losses

“because Plan assets were imprudently invested in the stock of one company, Chesapeake,
in breach of Defendants’ fiduciary duties” and because “[t]he Plan should have divested
itself of Chesapeake stock immediately following the spin-off and avoided any purchase
of Chesapeake stock throughout the Class Period” ending December 31, 2017. Id. ¶ 142.
Defendants assert: 1) the Court should reach the same decision as in Myers and

dismiss Plaintiff’s claim for breach of the duty of prudent investment under Fifth Third
Bancorp v. Dudenhoeffer, 573 U.S. 409 (2014), because Chesapeake common stock was
publicly traded and Plaintiff’s factual allegations are based on public information; 2) the
Court should revisit its decision in Myers and find that Defendants cannot be held liable
for a failure to diversify the Plan’s holdings because participants had a range of investment

5 Plaintiff also asserts a claim for co-fiduciary liability under 29 U.S.C. § 1105(a), alleging
that Defendants each knew of and participated in other fiduciaries’ breaches of duties to the Plan
and made no effort to remedy those breaches. Id. ¶¶ 136-37. Defendants address this claim in a
single sentence; they contend a co-fiduciary claim fails because it “is derivative of a viable claim
for some other breach” and Plaintiff has stated no other claim. See Defs.’ Mot. Dismiss at 25
(internal quotation omitted). Thus, the Court need not address it separately.
options and they decided whether to retain Chesapeake stock in their individual accounts;
3) the Court should follow its decision in Myers not to permit a claim for breach of a duty

to monitor investments because the procedural duty discussed in Tibble does not provide
an independent claim for relief; and 4) the Court should dismiss all claims as time barred
by the two-year limitations period provided by the Plan or the three-year statutory period
provided by ERISA, § 1113(2) or, alternatively, should dismiss any parts of Plaintiff’s
claims that are based on conduct beyond the six-year period of § 1113(1). Because a time
bar might dispose of all claims, the Court will address it first.

Standard of Decision
“To survive a [Rule 12(b)(6)] motion to dismiss, a complaint must contain sufficient
factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’”
Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atlantic Corp. v. Twombly, 550
U.S. 544, 570 (2007)). “A claim has facial plausibility when the plaintiff pleads factual

content that allows the court to draw the reasonable inference that the defendant is liable
for the misconduct alleged.” Id. “[W]here the well-pleaded facts do not permit the court
to infer more than the possibility of misconduct, the complaint has alleged – but it has not
‘show[n]’ – ‘that the pleader is entitled to relief.’” Id. at 679 (quoting Fed. R. Civ.
P. 8(a)(2)). The question to be decided is “whether the complaint sufficiently alleges facts

supporting all the elements necessary to establish an entitlement to relief under the legal
theory proposed.” Lane v. Simon, 495 F.3d 1182, 1186 (10th Cir. 2007).
Defendants’ statute of limitations argument raises an affirmative defense. See
Fed. R. Civ. P. 8(c)(1). Rule 12(b)(6) permits the dismissal of a claim that is barred by
an affirmative defense where the facts necessary to determine the defense appear on the
face of the complaint. See Fernandez v. Clean House, LLC, 883 F.3d 1296, 1299 (10th

Cir. 2018); accord Bistline v. Parker, 918 F.3d 849, 876 (10th Cir. 2019). “A statute of
limitations defense may be appropriately resolved on a [Rule] 12(b) motion when the
dates given in the complaint make clear that the right sued upon has been extinguished.”
Sierra Club v. Okla. Gas & Elec. Co., 816 F.3d 666, 671 (10th Cir. 2016); see Vasquez
Arroyo v. Starks, 589 F.3d 1091, 1096-97 (10th Cir. 2009) (“if the allegations show that
relief is barred by the applicable statutes of limitations, the complaint is subject to dismissal

for failure to state a claim”).
There are well-established exceptions to the general rule that “the sufficiency of a
complaint must rest on its contents alone.” Gee v. Pacheco, 627 F.3d 1178, 1186 (10th
Cir. 2010). Materials that can be considered under Rule 12(b)(6) include: “(1) documents
that the complaint incorporates by reference; (2) documents referred to in the complaint if

the documents are central to the plaintiff’s claim and the parties do not dispute the
documents’ authenticity, and (3) matters of which a court may take judicial notice.” Id.
(internal quotations and citations omitted); see Tellabs, Inc. v. Makor Issues & Rights, Ltd.,
551 U.S. 308, 322 (2007); Pace v. Swerdlow, 519 F.3d 1067, 1072 (10th Cir. 2008).
Matters subject to judicial notice and appropriate for consideration under Rule 12(b)(6)

include a court’s “own files and records, as well as facts which are a matter of public
record.” See Tal v. Hogan, 453 F.3d 1244, 1265 n.24 (10th Cir. 2006).
Here, the Complaint quotes from and cites Plan documents, published financial
statements, and public records such as SEC filings. Defendants have submitted copies of
some documents as exhibits to their Motion, and Plaintiff does not dispute their
authenticity. Thus, these materials can properly be considered. See GFF Corp. v. Assoc.

Wholesale Grocers, Inc., 130 F.3d 1381, 1384-85 (10th Cir. 1997); see also Berneike v.
CitiMortgage, Inc., 708 F.3d 1141, 1146 (10th Cir. 2013).
Discussion
The alleged facts of this case are familiar to the parties and the Court and were
described in detail in prior orders in Myers. They are related in this Order only as necessary
to address the parties’ arguments. For convenience of the reader, pertinent orders in Myers

include the March 22, 2019 order granting in part Defendants’ Rule 12(b)(6) motion
(available on Westlaw, 2019 WL 1320064) and the July 24, 2020 order denying a
Rule 15(a)(2) motion to file a second amended complaint (available through Public Access
to Court Electronic Records (PACER), https://pacer.uscourts.gov).
A. Are Plaintiff’s Claims Time Barred?

1. Limitations Period Provided by the Plan
Defendants first assert that Plaintiff’s action is barred by his failure to file suit within
the two-year limitations period provided by the Plan. Although the parties debate whether
ERISA permits the Plan to shorten the statutory period, the Court finds that the Plan’s
provision does not apply to this action in any event.

The Plan provides: “Should any Participant . . . pursue a legal action against the
Plan, such legal action may not be brought more than two years following the date such
cause of action or proceeding arose.” See Seventy Seven Energy Inc. Ret. & Sav. Plan
[Doc. No. 24-6] § 10.10 (emphasis added).6 Plaintiff brings this action under unique
remedial provisions of ERISA that authorize a plan participant to sue a fiduciary for

breaching a statutory duty and to obtain relief for “losses to the plan resulting from each
such breach.” See 29 U.S.C. §§ 1109(a), 1132(a)(2). Plaintiff’s action is not against the
Plan but, instead, is brought on behalf of the Plan against its fiduciaries. By its terms, the
two-year limitations provision of the Plan does not apply to this case.
2. Limitations Periods Provided by ERISA
Defendants alternatively assert that ERISA’s three-year statute of limitations bars

Plaintiff’s action because his claims arise from conduct that occurred before September 28,
2017, and, alternatively, the six-year statute of limitations bars any claim based on conduct
before September 28, 2014. The parties disagree on which statutory provision applies
under the factual allegations of the Complaint and related materials.
As pertinent here, ERISA contains two limitations periods for claims against

fiduciaries:
No action may be commenced . . . with respect to a fiduciary’s breach of any
responsibility, duty, or obligation under [ERISA], or with respect to a
violation of [ERISA], after the earlier of –

(1) six years after (A) the date of the last action which constituted a
part of the breach or violation, or (B) in the case of an omission the
latest date on which the fiduciary could have cured the breach or
violation, or

(2) three years after the earliest date on which the plaintiff had actual
knowledge of the breach or violation . . . .

6 As used in this provision, “‘Plan’ means the savings and incentive stock bonus plan of
the Employer set forth in this document . . . ;” the term does not encompass its administrators or
fiduciaries. Id. § 1.02.
29 U.S.C § 1113. To obtain the benefit of the shorter three-year period, Defendants must
show Plaintiff had “actual knowledge” of the alleged breach, that is, he was in fact aware
of it or aware of the relevant information. See Intel Corp. Inv. Policy Comm. v. Sulyma,
140 S. Ct. 768, 776-77 (2020). Although the Supreme Court stated in Sulyma that actual

knowledge could be proved through inferences from circumstantial evidence, the Court
was clear that no level of constructive knowledge – as might arise from a mere disclosure
of information Рis sufficient. The three-year period of Ҥ 1113(2) begins only when a
plaintiff actually is aware of the relevant facts, not when he should be.” Id. at 778.
Defendants argue that Plaintiff had actual knowledge of their alleged breaches –
failing to divest the Plan of Chesapeake stock or diversify the Plan’s investments – because

Plaintiff knew the Plan continued to hold Chesapeake stock after the spinoff and knew his
individual account had Chesapeake stock. It is certainly true that Plaintiff makes
categorical assertions that Defendants should have divested immediately and Chesapeake
stock was never a prudent 401(k) investment. See, e.g., Compl. ¶¶ 2, 47, 51-52, 61-62,
142. Knowing there was Chesapeake stock allocated to his individual account and the Plan

retained the Chesapeake stock may have provided Plaintiff with actual awareness of the
relevant information for these specific claims. However, Plaintiff also makes more
nuanced allegations that Defendants breached their duties of prudence and diversification
by retaining the Chesapeake stock throughout the proposed class period; he accuses
Defendants of not evaluating the effects of a change in status from an ESOP to a single-

stock fund in a 401(k) plan, not considering an alleged over-concentration of risk, and
never making a proper assessment of whether the stock was a prudent investment for the
Plan. Although discovery may show otherwise, the Court cannot say on the existing record

that Plaintiff had actual knowledge of all Defendants’ alleged breaches by September 28,
2017, and that all claims are barred by § 1113(2).
ERISA’s general six-year provision does not depend on Plaintiff’s knowledge.
Looking back six years from the date Plaintiff filed this action, only a claim that accrued
during the first three months of the proposed class period – that is, between July 1, 2014,
and September 28, 2014 – would be time barred. Again, although Plaintiff alleges that

divestment of the Chesapeake stock should have been immediate, his claims are not based
solely on that allegation; he contends Defendants should have evaluated the Chesapeake
stock as an appropriate investment and divested the Plan of the stock at some unspecified
point. See, e.g., Comp. ¶ 41 (prudent fiduciaries would have “removed [the Chesapeake
stock] from the Plan at the earliest possible date after the spin-off”) (emphasis omitted),

¶ 52 (if Defendants had performed their duties, they “would have liquidated the Plan’s
holding in [Chesapeake stock] at the earliest possible date following the spin-off”). It is
unclear that any breach, other than the lack of immediate divestment, occurred within the
limited three-month period subject to a time bar. Thus, the Court finds that even a partial
dismissal of Plaintiff’s claims as barred by § 1113(1) cannot be made on the existing record.

For these reasons, the Court finds that Defendants have failed to establish Plaintiff’s
action should be dismissed at the pleading stage as time barred.
B. Has Plaintiff Stated a Claim for Breach of the Duty of Prudence?
The Court found in Myers that neither the operative pleading nor a proposed

amendment was sufficient to state a plausible claim for breach of Defendants’ duty of
prudence under the Dudenhoeffer standard applicable to pension plans involving publicly
traded securities. Under this standard, because “a fiduciary usually is not imprudent to
assume that a major stock market provides the best estimate of the value of the stocks
traded on it,” a plaintiff must “point[ ] to a special circumstance affecting the reliability of
the market price as an unbiased assessment of the security’s value in light of all public

information that would make reliance on the market’s valuation imprudent.”
Dudenhoeffer, 573 U.S. at 427 (internal quotations and citations omitted).
Here, as in Myers, Plaintiff asserts that this standard does not apply to an imprudent
investment claim like the one asserted, which does not involve an ESOP or an over-
valuation of stock as in Dudenhoeffer and instead alleges an unacceptable degree of risk.

In Myers, the Court considered and rejected this argument in partially granting Defendant’s
motion to dismiss that case. See Myers, 2019 WL 1320064 at *9. Plaintiff also asserts that
the Dudenhoeffer standard does not apply because his imprudent investment claim is based
on a risk concentration associated with over-investing in a single-stock fund. The Court
rejected this argument in Myers in ruling on a motion to amend the operative pleading to

add this legal theory, ruling that the theory could be pursued under the rubric of an existing
claim that Defendants breached a fiduciary duty to diversify the Plan’s investments
(discussed infra). See Myers, Case No. 17-200-D, 7/24/20 Order at 10-11.
In this case, Plaintiff urges the Court to revisit these rulings based on interim
decisions of federal appellate courts. Two opinions present a potential basis to alter the

Court’s prior rulings: Schweitzer v. Investment Committee of Phillips 66 Savings Plan, 960
F.3d 190 (5th Cir. 2020); and Stegemann v. Gannett Co., 970 F.3d 475 (4th Cir. 2020),
petition for cert. filed sub nom., Gannett Co. v. Quatrone, No. 20-609 (U.S. Oct. 30, 2020).
Both cases involved similar circumstances, where a corporate spinoff caused employees of
a new company to have a pension plan that was heavily invested in the stock of a former
parent company (commonly known as legacy stock) and effectively converted a former

ESOP to a single-stock fund of a 401(k) defined contribution plan. Also, the former parent
and subsidiary companies continued to operate in the same business sector after the spinoff,
which magnified the concentration risk of the legacy stock. The two appellate opinions
have created a split of authority on some issues, and the Supreme Court is currently
considering whether to resolve the uncertainty. However, the decisions provide guidance

that was unavailable to the Court when it issued the original rulings.
The Fifth and Fourth Circuits were uniform in deciding that Dudenhoeffer
forecloses a duty-of-prudence claim alleging that plan fiduciaries should not have relied on
an efficient market to provide a fair valuation of the stock, but both held that Dudenhoeffer
does not apply to a duty-of-prudence claim alleging that a single-stock fund is “imprudent

because of the risk inherent in failing to diversify.” Schweitzer, 960 F.3d at 197; see
Stegemann, 970 F.3d at 474 (“We agree with the Fifth Circuit as to Dudenhoeffer . . .”).
From this point, the opinions diverged. The Fifth Circuit held that the plaintiffs “plausibly
alleged that the [legacy stock fund], by its resulting concentration of investment, became
an imprudent investment with the spinoff” but the duty-of-prudence claim failed because
the fiduciaries met the obligations imposed by ERISA (such as warning against an

undiversified portfolio) and properly allowed the plan participants to choose for themselves
whether to divest their individual accounts. See Schweitzer, 960 F.3d at 198-99. The
Fourth Circuit agreed that the plaintiffs’ allegations that the legacy stock was an imprudent
investment under the circumstances “were sufficient to state a claim for a breach of the
duty of prudence.” See Stegemann, 970 F.3d at 476. But the Fourth Circuit disagreed “as
to the effect of participant choice on a fiduciary’s duties with respect to a defined

contribution plan.” Id. at 474. Under its view, the duty of prudence includes duties of
diversification and risk management that may require a fiduciary to divest a defined
contribution plan of a legacy stock fund, even if the fund is frozen to new investment and
participants are free to remove it from their individual accounts. Id. at 478-79.7 The Fourth
Circuit rejected the Fifth Circuit’s reasoning, in part, as contrary to ERISA “because the

claim that intervening participant choice should relieve a fiduciary of liability is an
affirmative defense that courts do not consider at the motion to dismiss stage.” Id. at 480.
Under the persuasive weight of this authority, the Court now departs from its prior
decision to find that Plaintiff’s Complaint states a plausible claim that Defendants breached
their duty of prudence under § 1104(a)(1)(B). The Court further finds the Fourth Circuit’s

view of the effect of participant choice to be more persuasive. “The Fifth Circuit is
generally correct that fiduciaries should not be liable for participant autonomy, but we

7 A dissenting member of the panel disagreed with the majority’s treatment of participant
choice. See Stegemann, 970 F.3d at 486-87 (Niemeyer, J., dissenting).
disagree with the court on whether a defendant may invoke that autonomy in a motion to
dismiss.” Stegemann, 970 F.3d at 481.

In this Court’s view, the Fifth Circuit’s analysis resulted in a premature decision to
absolve the fiduciaries from any liability for including an allegedly imprudent investment
option in the defined contribution plan because the participants made informed decisions
to retain the investment in their individual accounts. Its analysis treated an affirmative
defense as appropriate for resolution at the pleading stage. Under Tenth Circuit law,
however, Rule 12(b)(6) permits the dismissal of a claim as barred by an affirmative

defense only when the complaint and properly considered materials admit “all the
elements of the affirmative defense by alleging the factual basis of those elements.” See
Fernandez, 883 F.3d at 1299. Only “where there is no disputed issue of fact raised by an
affirmative defense, or the facts are completely disclosed on the face of the pleadings, and
realistically nothing further can be developed by pretrial discovery or a trial on the issue

raised by the defense[,] it is appropriate and expedient to dispose of a claim by a motion to
dismiss under Rule 12(b).” Frost v. ADT, LLC, 947 F.3d 1261, 1267 (10th Cir. 2020).
Here, Defendants have not shown that their arguments regarding participant choice are
appropriate for resolution by their Motion.
For these reasons, the Court finds that Defendants are not entitled to a dismissal of

Plaintiff’s claim for breach of the duty of prudence.
C. Has Plaintiff Stated a Claim for Breach of the Duty to Diversify?
Plaintiff’s claim that Defendants breached a duty to diversify investments under
§ 1104(a)(1)(C) rests on the fact that the transfer of assets from the Chesapeake plan to the
SSE Plan resulted in more than 40 percent of the Plan’s total assets being invested in a
single-stock fund. See Compl. ¶¶ 4, 39, 55, 86. “In fact, the Plan’s investment in

Chesapeake was greater than the combined total of [the] Plan’s next five largest holdings
at the end of 2014.” Id. ¶ 90. Plaintiff claims that “the Plan’s investment was over-
concentrated in one company whose share price was historically volatile” and whose
concentration risk was magnified by the Plan’s ESOP. Id. ¶¶ 56, 61, 85 (emphasis
omitted). Defendants allegedly exacerbated the problem “by allowing the Plan to acquire
even more Chesapeake stock in 2014” and 2015. Id. ¶ 91-92.8 Plaintiff asserts: “Given

the Plan’s excessive holding in Chesapeake stock, coupled with the Plan’s concurrent
investment in SSE stock and SSE’s dependence on Chesapeake, a prudent fiduciary would
have sold the Chesapeake stock to properly diversify the Plan’s assets and avoid be[ing]
concentrated in the assets of one company and dependent on the success of one enterprise.”
Id. ¶ 87 (internal quotations omitted).

The duty imposed by § 1104(a)(1)(C) requires a fiduciary to discharge his duties
with respect to a plan “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.” In
this case, as in Myers, Plaintiff claims that Defendants breached the duty to diversify by
electing to retain a substantial investment of the Plan’s 401(k) assets in a legacy stock fund

whose risk concentration was amplified by the ESOP component and by allowing the

8 Defendants explain these acquisitions as dividend reinvestments and necessary
transactions to restore the individual accounts of terminated employees after a partial termination
of the Plan. See Defs.’ Mot. at 17-18 & nn.18-19. It is not clear that this explanation is based
solely on Rule 12(b)(6) materials.
Plan’s holdings to increase even though the fund was frozen to new investment. The Court
held in Myers these same allegations stated a plausible claim. See Myers, 2019 WL
1320064 at *8.9

Defendants urge the Court to revisit its decision in Myers, bolstering their prior
argument that the duty to diversify looks at a plan’s investments as a whole rather than a
single investment based on Schweitzer. See Defs.’ Mot. at 14-15.10 The Fifth Circuit
endorsed the view in Schweitzer that the fiduciaries of a defined contribution plan “need
only provide investment options that enable participants to create diversified portfolios;

they need not ensure that participants actually diversify their portfolios.” Schweitzer, 960
F.3d at 196. The court found that the plaintiffs’ “§ 1104(a)(1)(C) claim fail[ed]” because
they had “not alleged that the Fiduciaries did not offer sufficient investment options or
failed to warn Plan participants of the risk of a concentrated portfolio.” Schweitzer, 960
F.3d at 196.

Again, the view adopted by the court in Schweitzer contrasts with the opinion in
Stegemann, where the court addressed the duty to diversify as “a component of prudence”
and as a separate claim. Stegemann, 970 F.3d at 477. Under the Fourth Circuit’s analysis,
the duty to diversify under § 1104(a)(1)(C) is implicated, at a minimum, by “the interplay
between two single-stock funds” when a legacy stock fund and an ESOP “are in the same

9 Defendants incorrectly seek to limit this holding to the Plan’s acquisition of additional
Chesapeake stock. See Defs.’ Mot. at 19 & n.20. If the initial ruling was unclear, the Court’s
subsequent order denying further amendment of Ms. Myers’ pleading as unnecessary removed any
doubt that the holding was not so limited. See Myers, 7/24/20 Order at 10-11.

10 They also cited decisions that pre-date the Court’s ruling in Myers.
sector and tend to rise and fall together.” Id. at 478. The court found that this “correlation
theory plausibly states a claim for a breach of the duty of diversification.” Id.11

The parties have not identified, and the Court is not aware of, any Tenth Circuit
decision on this issue, and the Supreme Court is still considering whether to resolve a
circuit split. Under these circumstances, where there remains no controlling authority to
guide the decision in this case, the Court finds insufficient reason to depart from the path
that it carefully considered and chose in Myers. Accordingly, the Court finds that the
Complaint states a plausible claim that Defendants breached the duty of diversification.

D. Has Plaintiff Stated a Claim for Failure to Monitor Investments?
Plaintiff also claims that Defendants breached a duty to monitor investments and
remove an imprudent one (the Chesapeake stock), relying on a duty the Supreme Court
endorsed in Tibble v. Edison International, 575 U.S. 523, 530-31 (2015). See Compl.
¶¶ 125, 128. Here, as in Myers, Plaintiff makes no effective response to Defendants’

argument that the duty discussed in Tibble is a procedural one and a breach of this duty
does not provide an independent claim. Plaintiff provides citations of authority from
federal district court cases to support his position that such an ERISA claim exists. See
Pl.’s Opp’n at 15-17. The Court is not persuaded by these decisions.
The Fifth Circuit held in Schweitzer, 960 F.3d at 199, that a breach of fiduciary duty

claim fails where it “rest[s] solely on the fiduciaries’ procedural lapses” without a resulting
loss. The Fourth Circuit agreed in Stegemann that the duty to monitor discussed in Tibble

11 The dissenting opinion also disagreed with the majority and sided with Schweitzer on
this claim. See id. at 487 (Niemeyer, J., dissenting).
is included in the duty of prudence and “is an extension of the duty to investigate.” See
Stegemann, 970 F.3d at 474, 475. A separate Tibble claim is not necessary or available.
Therefore, the Court finds that Plaintiff's Complaint fails to state a plausible claim
based on a duty under Tibble to monitor the Plan’s investments.
Conclusion
For these reasons, the Court finds that the Complaint adequately states claims
against Defendants for breaching fiduciary duties under 29 U.S.C. § 1104(a)(1)(B) and (C)
to act with prudence and to diversify the Plan’s investments but that the Complaint fails to
state a separate claim that they breached a duty to monitor the Plan’s investments.
IT IS THEREFORE ORDERED that Defendants’ Motion to Dismiss Plaintiffs
Class Action Complaint [Doc. No. 24] is GRANTED in part and DENIED in part, as set
forth herein.
IT IS SO ORDERED this 8" day of October, 2021.

\ bl
Ny Q- Oust
TIMOTHY D. DeGIUSTI
Chief United States District Judge

18

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Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/10389219. Public record. Not legal advice.