Howell v. Motorola, Inc.

In the

United States Court of Appeals

For the Seventh Circuit

No. 07-3837

B RUCE G. H OWELL,

Plaintiff-Appellant,

v.

M OTOROLA , INC., et al.,

Defendants-Appellees.

No. 09-2796

S TEPHEN L INGIS, et al.,

Plaintiffs-Appellants,

v.

R ICK D ORAZIL, et al.,

Defendants-Appellees.

Appeals from the United States District Court

for the Northern District of Illinois, Eastern Division.

No. 03 C 5044—Rebecca R. Pallmeyer, Judge.

A RGUED O CTOBER 23, 2008 & M AY 27, 2010

D ECIDED JANUARY 21, 2011

2 Nos. 07-3837 & 09-2796

Before B AUER, W OOD , and T INDER, Circuit Judges.

W OOD , Circuit Judge. The two cases that we have con-

solidated for decision in this opinion both deal with the

responsibilities of a company with respect to a defined-

contribution pension plan that it offers to its employees.

The company in each instance is Motorola, Inc., and

the disputes concern employees’ retirement accounts in

the Motorola 401(k) Savings Plan (the “Plan”). Bruce

Howell was the original plaintiff when this litigation

began in 2003; later, Stephen Lingis, Peter White, and

Donald Smith intervened as plaintiffs. All were em-

ployees of Motorola who participated in the Plan. In

2007, the district court certified a plaintiff class of all

persons for whose individual accounts the Plan pur-

chased or held shares of Motorola common stock, from

May 16, 2000, through May 14, 2001. (The court later

excluded from that class the defendants, Motorola

officers and directors, and persons who signed valid

releases of their claims against Motorola. Since no issue

pertaining to the class certification or definition is before

us, we have no other comment on those points.) The

defendants include not only Motorola itself, but also

the Profit Sharing Committee of Motorola, Inc., and a

number of individual defendants who allegedly served as

fiduciaries for the Plan. We describe the facts in detail

below. It is enough here to say that Motorola entered

into a business transaction that turned out very badly;

the fallout from that transaction caused the price of

Motorola’s stock to decline; that decline led to litigation

against Motorola under the securities laws; and finally,

Nos. 07-3837 & 09-2796 3

because a Motorola Stock Fund was among the permissible

investments for the Plan, this litigation ensued.

Relying on the Employment Retirement Income

Security Act of 1974, 29 U.S.C. § 1001 et seq., known to all

as ERISA, the plaintiffs seek relief for three alleged

breaches of fiduciary duty committed by the defendants:

(1) imprudence, by selecting and continuing to offer the

Motorola Stock Fund to Plan participants despite the

defendants’ knowledge of Motorola’s bad business trans-

action; (2) either negligent or intentional misrepresenta-

tion of material information about the bad business

transaction or failure to disclose that information to

Plan participants; and (3) failure to appoint competent

fiduciaries to the committee that ran the Plan, failure

to monitor those fiduciaries, and failure to provide ade-

quate information to the fiduciaries themselves. The

district court granted summary judgment in favor of all

the defendants on all claims, ruling first that no one

had breached any duty imposed by ERISA, and second,

that all defendants were entitled to rely on the safe

harbor established in section 404(c) of the statute, 29

U.S.C. § 1104(c). We conclude that the safe harbor is

available for the plaintiffs’ disclosure and monitoring

theories (the latter two listed above), but not for the

imprudence theory. Nevertheless, we also conclude that

the Plan fiduciaries did not breach any duty imposed by

ERISA through their inclusion of the Motorola Stock

Fund as a Plan investment option. We therefore affirm

the judgments of the district court.

4 Nos. 07-3837 & 09-2796

I. General Background

A. Telsim

Motorola is a large telecommunications company.

During the boom years of the 1990s, its stock price in-

creased ten-fold, as the company expanded throughout

the world. The seeds of the present case were planted

when, on April 24, 1999, a Motorola affiliate called the

Motorola Credit Corporation (“Credit”) signed an agree-

ment to provide financing to a Turkish company, Telsim

Mobil Telekomunikasyon Hizmetleri A.S. (“Telsim”), for

a project to improve the infrastructure for mobile tele-

phone service in Turkey. Over time, Telsim borrowed

more than $1.8 billion from Credit; to secure the debt, it

pledged a number of shares then equaling 66% of its

stock as collateral. Telsim’s promise unfortunately

did not turn out to be worth very much. In April 2001, it

missed its first repayment deadline, and the next

month Credit issued a notice of default. Unbeknownst

to Credit or Motorola, around the same time Telsim

tripled the number of its outstanding shares, thus

diluting Credit’s collateral to about 22% of Telsim’s shares.

The parties in the cases before us dispute how forth-

coming Motorola was about its problems with Telsim in

its filings with the Securities and Exchange Commission

during this period. Almost a year earlier, on May 16,

2000, Motorola had filed a 10-Q quarterly report with the

SEC in which it reported that it had an agreement with

Telsim. (That date marks the beginning of the class

period defined by the district court.) The May 16 report

optimistically estimated the sales potential from the

Nos. 07-3837 & 09-2796 5

agreement to be $1.5 billion over three years; it said

nothing about the fact that Credit had loaned the lion’s

share of the funding for the project to Telsim. Motorola

said nothing more about Telsim in its SEC filings until

a proxy statement filed on March 30, 2001. In that docu-

ment, Motorola remarked that it had received several

large contracts, including one “for Telsim’s countrywide

network in Turkey.” Ten pages later, in an unrelated

section, the report explained that Motorola was owed

$2.8 billion as the result of financing it had provided

for wireless infrastructure. “[A]pproximately $1.7 billion

of the $2.8 billion,” said the company, “related to one

customer in Turkey.” The 10-Q that Motorola filed on

May 14, 2001, was slightly more direct: it acknowledged

that “[a]s of March 31, 2001, approximately $2.0 billion

of [Motorola’s] $2.9 billion in gross long-term finance

receivables related to one customer, Telsim, in Turkey. . . .”

The report mentioned Telsim’s pledge of 66% of its

shares to secure repayment of that debt, and it said

vaguely that “Motorola has other creditor remedies.”

Finally, the 10-Q report disclosed Telsim’s failure to

make the payment of $728 million that was due on

April 30, 2001. (The May 14, 2001, filing date of

Motorola’s quarterly report marks the end of the dis-

trict court’s class period.)

The only other disclosures that Motorola made be-

tween May 16, 2000, and May 14, 2001, did not mention

Telsim by name. Instead, they offered generic references

to Motorola’s practice of vendor financing. For example,

Motorola’s November 2000 10-Q warned that certain

factors could affect the company’s financial results;

6 Nos. 07-3837 & 09-2796

one factor it listed was “the demand for vendor

financing and the Company’s ability to provide that

financing in order to remain competitive.” Defendant Carl

Koenemann, Motorola’s Chief Financial Officer, discussed

potential problems with Telsim with KPMG, Motorola’s

accounting firm, during this time. He also raised the

subject with defendant Christopher Galvin, the Chairman

of Motorola’s Board and the Chief Executive Officer

during the relevant time, and with defendant Robert

Growney, a director and Motorola’s Chief Operating

Officer. The district court noted that the record contains

no evidence that any of the other defendants had any

knowledge of problems with the Telsim deal.

As we have noted, Motorola’s stock price increased

significantly throughout the 1990s. On April 24, 1999,

shares were trading at a price close to $30. Although the

price spiked to about $40 per share by May 1, 2000, it

had slipped back to just over $30 per share by May 16,

2000—the day when Motorola filed the 10-Q announcing

the planned sales to Telsim (but not mentioning the

corresponding financing) and the start date of the

class period. Motorola’s stock price continued to decline

during the class period. The price was steady through

the fall, but as of December 31, 2000, it had fallen to $20

per share. On that date, Motorola announced that it

had net income for the fiscal year of $2.2 billion.

In January 2001, Motorola gave a Summary Plan De-

scription (“SPD”) to all of its employees who were par-

ticipating in the Plan. That SPD warned participants

that there was some risk in investing in the Motorola

Nos. 07-3837 & 09-2796 7

Stock Fund. The Plan had explained this risk on two

separate occasions during the preceding year in docu-

mentation handed out to Plan participants. Moreover,

Motorola’s March 30, 2001, proxy statement, which we

discussed above, reiterated the risk of the Motorola

Stock Fund, noting that $1.7 billion of the company’s

$2.8 billion in gross long-term finance was tied up with

“one customer in Turkey.” By the time that statement

was filed, Motorola stock had dropped to $14.26 per

share. A week later, on April 6, 2001, Bloomberg News

broke the story of the Telsim deal, identifying Telsim

as “the customer in Turkey” that owed Motorola bil-

lions. Motorola stock sank 23% in one day, going

from $14.95 to $11.50 per share. Interestingly, however,

it had recovered a bit (to just above $15) by May 14,

2001—the end date of the class period and the day on

which Motorola filed the 10-Q with the SEC that

discussed the Telsim problems in some detail. Credit

issued a notice of default on May 22, 2001. The stock

then edged up to $19 a share by the end of July, but it

fell back to $15 a share by December 31, when Motorola

reported a net loss of $5.5 billion for the year.

B. The Motorola 401(k) Savings Plan

The Plan is a defined-contribution plan established

pursuant to ERISA section 407, 29 U.S.C. § 1107(d)(3).

This means that participants may contribute up to a

specified amount to individual accounts; those contribu-

tions are often (as here) matched to some degree by

the employer. Upon retirement, the participating em-

8 Nos. 07-3837 & 09-2796

ployee has whatever the account has accumulated

through contributions and earnings. Unlike a defined-

benefit plan, it does not assure any fixed level of retire-

ment income. See LaRue v. DeWolff, Boberg & Associates,

Inc., 552 U.S. 248, 250 n.1 (2008). In this case, Motorola

matched participant contributions up to 3% of the em-

ployee’s salary, and it paid 50 cents on the dollar for

participant contributions beyond that, up to 6% of salary.

The Plan is organized under ERISA section 404(c), 29

U.S.C. § 1104(c); this means that the participants (not

the Plan fiduciaries) are solely responsible for allocating

assets among the various funds supported by the

Plan. KPMG periodically audited the Plan to ensure

compliance with Plan documents.

During the relevant period, the Plan Administrator

was a group called the Profit Sharing Committee (the

“Committee”), which was made up of people appointed

by Motorola’s Board of Directors. The Committee

selected the investments that the Plan would offer its

participants, monitored those investments, and provided

reports to the Board. Defendant Koenemann served on

the Committee for the entire class period, as did

Paul DeClerck, Rich Engstrom, and Garth Milne (all of

whom were at one point defendants in this lawsuit). Gary

Tooker, a member of Motorola’s Board, chaired the Com-

mittee from May 2, 2000, until the end of 2000, at which

point Koenemann succeeded him. Steve Earhart,

Motorola’s Vice President of Finance, served on the

Committee from May 8, 2001, until the end of the

class period. The Committee monitored the Plan’s invest-

Nos. 07-3837 & 09-2796 9

ment options and periodically provided reports to

Motorola’s Board. It ceased to exist on January 1, 2006.

Before July 1, 2000, Plan participants could channel

their contributions (and those Motorola made on their

behalf) to any or all of four investment options: (1) the

Balanced Fund, (2) the Equity Fund, (3) the Short-Term

Income Fund, and (4) the Motorola Stock Fund. After

that date, the Plan offered nine choices: (1) the Short-

Term Bond Fund, (2) the Long-Term Bond Fund,

(3) Balanced Fund I, (4) Balanced Fund II, (5) the Large

Company Equity Fund, (6) the Mid-Sized Company

Equity Fund, (7) the International Equity Fund, (8) the

Small Company Fund, and (9) the Motorola Stock Fund.

For the entire relevant time, excluding a brief black-out

period that ran from May 1 to June 30, 2000, during

which participants were not allowed to make changes

in their accounts, Plan participants were entitled to

transfer funds out of the Motorola Stock Fund on a

daily basis. Before May 1, 2000, they had been allowed

to make transfers relating to other investment options

only on a monthly basis; but after July 1, 2000, they

could move their assets from or to any of the funds

offered on a daily basis.

This case involves the decision of the Plan and

associated defendants to include, as one option for Plan

participants, the Motorola Stock Fund. As the name

suggests, that is a fund that exclusively holds Motorola

common stock. Up until July 1, 2000, participants were

not permitted to invest any more than 25% of their

Plan assets in the Motorola Stock Fund—essentially they

10 Nos. 07-3837 & 09-2796

were forced to diversify. But then the Motorola em-

ployees voted to lift that cap and to permit participants

to invest up to 100% of their assets in that fund. The

Plan’s governing documents allowed, but did not re-

quire, the Plan to offer the Motorola Stock Fund as one

option, and no Plan participant was ever required to

invest in that fund.

Many of the communications that the Plan Admin-

istrators disseminated to Plan participants rated the

Motorola Stock Fund as the highest-risk investment

offered in the Plan. These missives noted that the fund

was not diversified, that it was volatile and subject to

substantial year-to-year fluctuations, that participants

were vulnerable to losses from sudden downturns in

securities markets, and that other investments offered

by the Plan did not share these problems.

C. Procedural History

Although the procedural history of these cases is com-

plex, most of it is not relevant to the issues on appeal.

We therefore mention only a few points that remain

important. Howell appealed the district court’s decision

to grant Motorola’s motion to dismiss on the ground

that Howell had signed an enforceable release of his

claims against Motorola. The case (No. 07-3837) reached

us after the district court certified that holding under

Federal Rule of Civil Procedure 54(b). After Howell’s

case was dismissed, Lingis, White, and Smith intervened

in the district court. On September 28, 2007 (about a

month before the court issued its order under Rule 54(b)),

Nos. 07-3837 & 09-2796 11

the court certified the class under Federal Rule of Civil

Procedure 23(b)(2), which permits plaintiffs seeking

injunctive relief to proceed as a class. We permitted an

immediate appeal from that decision, pursuant to Rule

23(f), but events in both the district court and the

Supreme Court overtook the appeal. At the district court

level, summary judgment motions were filed and under

consideration. For its part, the Supreme Court handed

down the decision in LaRue, which provided new guidance

on the legal issues surrounding defined-contribution plans.

On June 17, 2009, the district court granted Motorola’s

motions for summary judgment, denied the plaintiff

class’s motion, and closed the case with a judgment in

favor of the defendants. That case (No. 09-2796) is here

on the class’s appeal of the merits of the district court’s

summary judgment decision. In the meantime, we

agreed to accept interlocutory appeals challenging class

certification under Rule 23(b)(1) in two related cases

decided today, Spano v. The Boeing Co. and Beesley v.

International Paper, Nos. 09-3001 & 09-3018 (7th Cir. Jan. 21,

2011). While the Spano cases concern only the class certifi-

cation issue, they present questions on the underlying

merits that are very similar to the issues in the appeal

now before us. We set oral argument for all of these

cases for May 27, 2010, and carried forward Howell’s

appeal to that group. Between the Spano opinion and

this one, we are now resolving all matters that have

been presented to us.

12 Nos. 07-3837 & 09-2796

II. Howell Appeal

Although we earlier identified three major issues on

the merits that are common to both cases, there is a pre-

liminary question in Howell’s case that must be ad-

dressed. It relates to the General Release that Howell

signed, which reads as follows in pertinent part:

I hereby unconditionally and irrevocably release,

waive and forever discharge Motorola, Inc. and its

affiliates, parents, successors, subsidiaries, directors,

officers, and employees, from ANY and ALL causes

of action, claims and damages, including attorneys

fees, whether known or unknown, foreseen or unfore-

seen, presently asserted or otherwise, which have or

could have arisen to date out of my employment or

separation from employment. This General Release

(“Release”) includes, but is not limited to, any claim

or entitlement to pay, benefits or damages arising

under any federal law (including but not limited to . . .

the Employee Retirement Income Security Act . . .);

any claim arising under [any other law], or under

Motorola’s personnel policies. I understand by

signing this Release I am not releasing any claims for

benefits under the Motorola employee benefits plan.

Nor am I waiving any other claims or rights which

cannot be waived by law . . . .

At the time he signed this release Howell had been

working for Motorola for approximately five years.

Motorola terminated his employment in August 2001 as

part of a more general reduction in force. Pursuant to

Motorola’s severance program, he received an uncondi-

Nos. 07-3837 & 09-2796 13

tional standard severance payment. Motorola also

offered the opportunity to receive additional severance

pay for employees who were willing to sign this release.

Howell signed the release on September 17, 2001, nearly

a month after he received it. He acknowledged in the

release that he had been advised to contact an attorney

before signing it; that he was signing voluntarily; that

he had been given at least 45 days in which to consider

it; that he had a right to revoke within seven days of

signing it; and that, in a sense, he was swapping any

future claims he might have against Motorola for the

additional severance benefits.

Motorola reads this release as a comprehensive

promise not to bring any lawsuit based on ERISA for any

claim that had already accrued at the time that Howell

signed the release. In Motorola’s view, the only ERISA

claims not covered by the release are Howell’s “non-

waivable claims for . . . underlying pension benefit[s]

and claims for benefits that had not yet accrued” when

Howell signed the release. Howell gives much greater

emphasis to the two exceptions contained in the last

two sentences of the release quoted above. He insists

that a lawsuit complaining about a breach of fiduciary

duty under ERISA can still be a “claim for benefits,”

particularly after the Supreme Court’s LaRue decision

blurred the line between suits brought under ERISA

section 502(a)(1)(B), 29 U.S.C. § 1132(a)(1)(B) (permitting

recovery of benefits due under a plan), and those

brought under section 502(a)(2), 29 U.S.C. § 1132(a)(2)

(providing for suits asserting breach of fiduciary duty). See

generally LaRue, 552 U.S. at 257-60 (Roberts, C.J., con-

14 Nos. 07-3837 & 09-2796

curring). One thing is clear: unless Howell can show

that one or the other exception set forth in the release

applies to him, or that his agreement to the release

was somehow not made knowingly and voluntarily, then

the language barring claims that arise under ERISA

disposes of the present case.

Looking first at the latter question, we start with the

proposition that for a release to be valid, the party must

sign it knowingly and voluntarily. See Alexander v. Gardner-

Denver Co., 415 U.S. 36, 52 n.15 (1974) (applying this

principle to waivers of Title VII rights). A court must

examine the totality of the circumstances surrounding

the signature, including such matters as:

(1) the employee’s education and business experience;

(2) the employee’s input in negotiating the terms of

the settlement; (3) the clarity of the agreement; (4) the

amount of time the employee had for deliberation

before signing the release; (5) whether the employee

actually read the release and considered its terms

before signing it; (6) whether the employee was repre-

sented by counsel or consulted with an attorney;

(7) whether the consideration given in exchange for

the waiver exceeded the benefits to which the em-

ployee was already entitled by contract or law; and

(8) whether the employee’s release was induced by

improper conduct on the defendant’s part.

Pierce v. Atchison, Topeka and Santa Fe Ry. Co., 65 F.3d 562,

571 (7th Cir. 1995) (footnote omitted). Like other lists of

factors, these are illustrative. The critical question is

whether Howell presented enough evidence in response

Nos. 07-3837 & 09-2796 15

to Motorola’s motion for summary judgment somehow

to create a genuine issue of fact on the questions of knowl-

edge and voluntariness.

The district court thought that he had not, and we

agree with that assessment. Howell suggests that a jury

might find that his signature was unknowing because a

person of his educational level and sophistication

would not have signed away such valuable claims as

this lawsuit represents. This is just an assumption, how-

ever; it is not evidence. Howell does not dispute the

fact that he received the supplemental severance pay-

ment that Motorola gave to those who signed the re-

lease. We are given no reason to believe that a

rational person could not have deemed the amount of

that payment adequate compensation for the rights he

was giving up. Howell offers no concrete information in

his affidavit to support the existence or absence of the

factors identified in Pierce or any other circumstances—

e.g., that he was under heavy medication, or that Motorola

failed to disclose important information at the time he

signed—that might undermine a finding of knowing

and voluntary waiver.

The next question is whether this lawsuit falls into

the exception recognized in the release for “claims for

benefits under the Motorola employee benefits plan.”

Relying on Harzewski v. Guidant Corp., 489 F.3d 799 (7th

Cir. 2007), Howell argues that it does. He points to the

following passage in Harzewski: “The benefit in a defined-

contribution pension plan is, to repeat, just whatever is

in the retirement account when the employee retires or

16 Nos. 07-3837 & 09-2796

whatever would have been there had the plan honored the

employee’s entitlement, which includes an entitlement to

prudent management.” Id. at 804-05 (emphasis in origi-

nal). LaRue, Howell continues, is consistent with this

approach, since LaRue held that an individual em-

ployee has a claim for breach of fiduciary duty with

respect to a plan as a whole, even if only one person’s

account was affected by the breach. LaRue, 552 U.S. at 256.

Motorola responds that Howell’s reading of the release

would render meaningless the provision waiving

(among other things) his claims under ERISA. Normal

principles of contract interpretation require us to give

effect to each clause of the release. See, e.g., LaSalle Nat.

Trust, N.A. v. ECM Motor Co., 76 F.3d 140, 144 (7th Cir.

1996). It is Motorola’s position that the carve-out for

“claims for benefits” under the Plan cannot be co-extensive

with all ERISA claims without doing violence to the

contract as a whole.

Since LaRue was decided, it has been unclear whether

a claim for breach of fiduciary duty under section 502(a)(2)

of ERISA, 29 U.S.C. § 1132(a)(2), can be called a “claim

for benefits.” The majority opinion in LaRue recognized

that some breaches of fiduciary duty might impair

the value of plan assets in a participant’s individual

account, even if the plan takes the defined-contribution

form. See 552 U.S. at 256. The Court did not, however,

need to address the question whether these claims

arise exclusively under section 502(a)(2), or if they over-

lap with traditional claims for benefits under section

502(a)(1)(B). Concurring, Chief Justice Roberts called at-

Nos. 07-3837 & 09-2796 17

tention to this ambiguity, noting that section 502(a)(1)(B)

“allows a plan participant or beneficiary ‘to recover

benefits due to him under the terms of his plan, to enforce

his rights under the terms of the plan, or to clarify his

rights to future benefits under the terms of the plan.’ ”

LaRue, 552 U.S. at 257 (Roberts, C.J., concurring) (quoting

ERISA § 502(a)(1)(B), 29 U.S.C. § 1132(a)(1)(B)). He went on

to point out that there is a significant difference

between the two sections, as there are various safeguards,

including the requirement to exhaust plan remedies

and the possibility of conferring discretion on the plan

administrator, that apply in section 502(a)(1)(B) cases

but are not applicable under section 502(a)(2). LaRue, 552

U.S. at 258-59. He concluded by “highlight[ing] the

fact that the Court’s determination that the present

claim may be brought under § 502(a)(2) is reached

without considering whether the possible availability of

relief under § 502(a)(1)(B) alters that conclusion.” Id. at 259.

We do not need to resolve that question today, because

our task is an easier one. Rather than parsing the

statute itself, we must decide only what the parties to a

particular contract (the release) meant. Approached as a

contractual matter, the only reading that makes sense

is one under which the reservation of claims for benefits

applies only to any specific benefits that had already

vested in Howell’s 401(k) plan by the time that he

signed the release—there is no reason to think that

Motorola was trying to confiscate those assets. But

under the release, Howell has waived the right to bring

a lawsuit challenging the Plan as a whole, either in

the sense described in Massachusetts Mutual Life Insurance

18 Nos. 07-3837 & 09-2796

Co. v. Russell, 473 U.S. 134 (1985), or in the sense

described in LaRue. In short, as a contractual matter, if

the need were to arise (though we are given no reason

to think that it will), Howell remains entitled to sue to

recover the money that was in his retirement account at

the time he signed the release, but he cannot now claim

that his account would have been worth even more had

the defendants not breached a fiduciary duty.

Howell also asserts that his lawsuit falls under the

clause in the release that exempts claims that are non-

waivable as a matter of law. He relies particularly on

ERISA section 410(a), 29 U.S.C. § 1110(a), the anti-alien-

ation provision, which states:

Except as provided in sections 1105(b)(1) and

1105(d) of this title, any provision in an agreement

or instrument which purports to relieve a

fiduciary from responsibility or liability for any

responsibility, obligation, or duty under this part

shall be void as against public policy.

Howell argues that the part of the release that purports

to cover all claims, past, present, and future, even those

that arise from a breach of fiduciary duty, violates this

part of the statute. Motorola responds that section 410(a)

covers only agreements that would release fiduciaries

from duties in the future. It does not bar, Motorola con-

tinues, settlement of claims arising from past alleged

breaches of fiduciary duty.

Although we have not had occasion to consider this

question before, the Eighth Circuit did in Leavitt v. North-

western Bell Telephone Co., 921 F.2d 160 (8th Cir. 1990). It

Nos. 07-3837 & 09-2796 19

held there that a release is not the kind of “agreement

or instrument” that section 410(a) addresses. Id. at 161.

Instead, it wrote:

Section 1110(a) prohibits agreements that diminish

the statutory obligations of a fiduciary. A release,

however, does not relieve a fiduciary of any responsi-

bility, obligation, or duty imposed by ERISA; instead,

it merely settles a dispute that the fiduciary did not

fulfill its responsibility or duty on a given occasion.

Id. at 161-62. Our decision in Pierce, in the context of

discussing the voluntariness of a waiver, also took note of

the importance of the federal policy in favor of voluntary

settlement of claims. 65 F.3d at 572.

We conclude that Howell has read too much into

section 410(a), and that his interpretation would make

it impossible, as a practical matter, to settle any ERISA

case. All that the release he signed accomplished was

to settle, in advance, any claims that he might have

brought against Motorola arising out of his employment

there or his participation in the Plan, with the exception

of those benefits that were due to him under the Plan at

the time he signed his release. As the Eighth Circuit

held in Leavitt and as we intimated in Pierce, such a settle-

ment of claims is permissible under the statute.

In summary, we conclude that the district court

properly granted summary judgment in Motorola’s

favor on Howell’s claims.

20 Nos. 07-3837 & 09-2796

III. Lingis Class Appeal

A. The Fiduciary Status of the Defendants

The Lingis class, as we noted earlier, expressly

excludes persons who signed a release, as well as certain

others who might create intra-class conflicts. We are

therefore free to move to the merits. The class is suing

under section 502(a)(2) of ERISA, 29 U.S.C. § 1132(a)(2),

which permits a civil action to be brought “by the Sec-

retary, or by a participant, beneficiary or fiduciary for

appropriate relief under section 1109 of this title [ERISA

section 409].” Section 409 of ERISA creates liability for

a breach of fiduciary duty. See 29 U.S.C. § 1109. The

Supreme Court’s decision in LaRue puts to rest any con-

cern about the ability of a participant in a defined-con-

tribution plan to bring a lawsuit under section 502(a)(2).

(Our companion decisions today in Spano and Beesley

treat this subject in more detail. See Spano and Beesley,

Nos. 09-3001 & 09-3018, slip op. at 6-13.) Three ques-

tions remain: (1) Which, if any, defendants are Plan

fiduciaries as ERISA understands the term? (2) Did any

fiduciary breach his, her, or its duties? And (3) did any

such breach cause harm to the plaintiffs? Brosted v. Unum

Life Ins. Co. of America, 421 F.3d 459, 465 (7th Cir. 2005).

If a particular defendant is not a fiduciary, then nothing

more need be said. Similarly, even if a particular

defendant is a fiduciary, if it did not breach any

fiduciary duty, then there is no need to reach the ques-

tion whether its actions harmed the plaintiffs. Our dis-

cussion proceeds with those basic principles in mind,

beginning with the question whether the various defen-

dants named are Plan fiduciaries.

Nos. 07-3837 & 09-2796 21

1. Motorola, Inc. The list of defendants involved in

this litigation is long, but we can treat the defendants

in groups. The first question is whether Motorola, Inc.,

itself is a Plan fiduciary. The district court thought that

it was not. Recognizing that a company may be a plan

fiduciary as a result of its selection of plan admin-

istrators, the district court noted that Motorola’s Board,

rather than its executive officers, made appointments to

the Committee. It believed that this was enough to

exclude Motorola from the case.

We are not inclined to draw such a sharp distinction

between the Board, acting on behalf of Motorola, and

Motorola itself. Accordingly, we think it best to consider

Motorola’s status in slightly more detail. Courts have

been careful to respect the distinction between the

capacity of fiduciary or plan administrator, on the one

hand, and employer or plan author on the other. See, e.g.,

Lockheed Corp. v. Spink, 517 U.S. 882, 890 (1996) (drawing

a distinction between the plan sponsor’s role as

fiduciary and its actions to adopt, modify, or terminate a

plan, where it takes on a role analogous to settlor of a

trust); Varity Corp. v. Howe, 516 U.S. 489, 498 (1996)

(noting the difference between a plan sponsor acting as

employer and a sponsor acting as plan administrator). If

a company is exercising discretionary authority over a

plan’s management or administration, Varity indicates

that the company is to that extent behaving as a fidu-

ciary. 516 U.S. at 498. Under this court’s decision in

Leigh v. Engle, a company can be a plan fiduciary when

there is evidence that it played a role in appointing the

administrators of the plan (and thus had a duty to

22 Nos. 07-3837 & 09-2796

choose appointees wisely and to monitor their activities).

727 F.2d 113, 134-35 (7th Cir. 1984). In addition, Leigh

suggests that a company might also act as a fiduciary

to the extent that it exercises de facto control over plan

decisions through the plan administrators that it selects.

See id. at 134-35 & n.33. Either of those activities—ap-

pointing administrators or exercising control through

appointees—falls on the plan management or administra-

tion side of the line drawn in Varity.

Even if we assume that the Board and Motorola are

the same, however, there is no evidence in this record

that Motorola did anything more than appoint Com-

mittee members to administer the Plan. No evidence

suggests that the company exercised de facto control

over Plan decisions through those Committee members.

Thus the only serious question is whether Motorola

(technically, its Board) acted irresponsibly in its choice

of people for the Committee or in its efforts to monitor

those people. That question (Motorola’s own alleged

negligence in selecting fiduciaries) is closely related to

the issue whether Motorola might be liable to the plain-

tiffs based on the doctrine of respondeat superior. The

plaintiffs made this argument before the district court,

and they continue to press it here.

The federal common law of agency supplies the gov-

erning principles in ERISA cases. See, e.g., Nationwide

Mut. Ins. Co. v. Darden, 503 U.S. 318, 322-23 (1992). The

doctrine of respondeat superior can be found within that

body of law. See, e.g., Burlington Industries, Inc. v. Ellerth,

524 U.S. 742, 754-65 (1998). The Fifth Circuit has held

Nos. 07-3837 & 09-2796 23

that a company might be liable under section 502(a)(2),

but “only when the principal actively and knowingly

participated in the agent’s breach.” Bannistor v. Ullman,

287 F.3d 394, 408 (5th Cir. 2002) (discussing American

Federation of Unions Local 102 Health & Welfare Fund v.

Equitable Life Assur. Soc. of the U.S., 841 F.2d 658, 665

(5th Cir. 1988)). The Sixth Circuit permits vicarious

liability even without a showing that the principal

played an active and knowing part in the breach.

Hamilton v. Carell, 243 F.2d 992, 1002-03 (6th Cir. 2001). See

generally Bradley P. Humphreys, Comment, Assessing

the Viability and Virtues of Respondeat Superior for

Nonfiduciary Responsibility in ERISA Actions, 75 U. C HI. L.

R EV. 1683 (2008).

This court has implicitly recognized respondeat superior

liability in ERISA cases. In Wolin v. Smith Barney Inc., we

described a case as one in which a plaintiff had charged

that a fiduciary, “and so by the principle of respondeat

superior his employer as well,” had violated the statute.

83 F.3d 847, 859 (7th Cir. 1996), abrogated on other

grounds by Klehr v. A.O. Smith Corp., 521 U.S. 179, 193-95

(1997). In Wolin, however, we did not need to decide

how far this principle should reach. It is a knotty prob-

lem. On the one hand, ERISA is a comprehensive statute

that spells out exactly who should be liable for what;

engrafting extra common-law remedies on top of that

scheme is something that should not be done lightly.

On the other hand, we have Darden and many other

decisions telling us that ERISA must be read against the

backdrop of the common law of agency (as well as

other parts of the common law).

24 Nos. 07-3837 & 09-2796

In this case, the question of Motorola’s derivative

liability, like the question whether it is directly liable

for negligent selection and monitoring of Committee

members, must be resolved only if the evidence could

support a finding of unsatisfactory performance on the

part of one or more of the fiduciaries that we will discuss

in the following section. The Restatement (Third) of

Agency describes the principle of respondeat superior

as follows: “An employer is subject to liability for torts

committed by employees while acting within the scope

of their employment.” R ESTATEMENT (T HIRD ) OF A GENCY

§ 2.04 (2006). Since we conclude below that none of the

individual defendants (acting individually or through

the Committee) is liable, we set the question of derivative

liability aside for another day, when it matters to the

outcome of a case. We will assume, for purposes of this

opinion, that Motorola is a fiduciary based on the

Board’s role in appointing Plan administrators to the

Committee.

2. The Remaining Defendants. The remaining defendants

fall into three groups: (1) the Committee that acted as

the Plan Administrator; (2) the officers of Motorola,

some of whom were also directors; and (3) the outside

directors of the company. The most interesting question

is whether the Committee as a separate entity is a

fiduciary that can be sued. The defendants argue that

it is not, but our decision in Line Construction Benefit

Fund v. Allied Electrical Contractors, Inc., 591 F.3d 576, 579-

80 (7th Cir. 2010), points in the other direction. There

we ruled that a multiemployer plan was a fiduciary

Nos. 07-3837 & 09-2796 25

that could sue and be sued under section 502(a)(3),

29 U.S.C. § 1132(a)(3). We see no reason to treat an

entity like the Committee here differently, and so we

assume for present purposes that it is also a fiduciary.

(Whether the Committee has any meaningful existence

for purposes of this lawsuit apart from the people who

sit on it or Motorola itself is a separate question. Like

the question of Motorola’s derivative liability, it is one

that we need not resolve unless there is evidence that

one or more of the individual defendants breached a

fiduciary duty.)

With the fiduciary status of Motorola and the

Committee assumed for the sake of argument, we can

turn to the individual defendants. The following table

summarizes the defendants that have been named 1 and

what the theory of liability is for each one, to the extent

we are able to tell from the record:

1

At one point, the list of names also included William Declerck,

David Devonshire, Richard Does, Richard Engstrom, Donald

Jones, and Garth Milne. Motorola’s Rule 26.1 Disclosure

Statement, however, lists only the individual defendants set

forth in the table. The plaintiffs make no objection to that list

in their reply brief. We therefore take it as unopposed that

the additional people named in this note are no longer in

the case.

26 Nos. 07-3837 & 09-2796

Name Position Theories of

Breach

Christopher B. CEO; Chair- Imprudence; dis-

Galvin man of Board closure; monitor-

during class ing

period

Carl F. CFO; Com- Imprudence; dis-

Koenemann mittee mem- closure

ber

Robert L. COO; Board Imprudence; dis-

Growney member dur- closure; monitor-

ing class pe- ing

riod

Gary L. Tooker Former CEO Monitoring

and Chair-

man; Com-

mittee mem-

ber; Board

member dur-

ing class pe-

riod

Rick Dorazil VP of Benefits None shown

H. Laurance Outside Di- Monitoring

Fuller rector

Nos. 07-3837 & 09-2796 27

Anne P. Jones Outside Di- Monitoring

rector

Judy C. Lewent Outside Di- Monitoring

rector

Walter E. Massey Outside Di- Monitoring

rector

Nicholas Outside Di- Monitoring

Negroponte rector

John E. Pepper, Jr. Outside Di- Monitoring

rector

Samuel C. Scott III Outside Di- Monitoring

rector

John A. White Outside Di- Monitoring

rector

Under ERISA, “a person is a fiduciary with respect to

a plan to the extent (i) he exercises any discretionary

authority or discretionary control respecting manage-

ment of such plan or exercises any authority or control

respecting management or disposition of its assets, . . . or

(iii) he has any discretionary authority or discretionary

responsibility in the administration of such plan.” ERISA

§ 3(21)(A), 29 U.S.C. § 1002(21)(A). Of the people named

in the table, only Koenemann and Tooker served as

members of the Committee during the class period. Those

two are certainly covered by the statutory definition.

28 Nos. 07-3837 & 09-2796

Moreover, all of the inside and outside directors who

sat on the Board and in that capacity selected members

of the Committee are fiduciaries, at least to the extent

that they had obligations related to selecting and moni-

toring members of the Committee. See Leigh, 727 F.2d

at 134-35. That leaves just Dorazil. The summary judg-

ment record leaves unanswered questions about how

much of a connection he had to the administration of the

Plan. But we can imagine many scenarios in which

a company’s Vice-President of Benefits would fall

squarely within ERISA’s definition of fiduciary. For the

purposes of this case, we prefer to say that the definition

of fiduciary in ERISA section 3(21)(A) seems broad

enough to sweep in all of the defendants named by

the class. Because of the conclusions that we reach below,

we have no need to resolve the question of Dorazil’s

fiduciary status conclusively.

B. Claims Preserved Against the Defendants

To succeed in their suit, the plaintiffs must show

more than that the defendants were fiduciaries. They

must also present evidence that the fiduciaries breached

a duty and that the breach caused them harm. To deter-

mine whether the class has done this, we must first

check to see whether the plaintiffs have preserved a

claim against each defendant that we have identified

above. Recall that the class believes that the Plan fidu-

ciaries fell short in three respects: (1) imprudence, by

selecting and keeping the Motorola Stock Fund as a

Plan investment option; (2) failure to disclose material

Nos. 07-3837 & 09-2796 29

information; and (3) failure to appoint competent people

to the Committee and to monitor their activities ade-

quately.

The person who receives the most attention in the

plaintiffs’ briefs is Koenemann, who served on the Com-

mittee during the entire class period and became its

chair at the end of 2000. He worked on the Telsim

deal from 1998 forward and knew of the problems that

were brewing. He discussed his concerns with Galvin,

Growney, and KPMG in September 2000. He was not,

however, a member of the Board, and so the class can

assert only the imprudence and disclosure theories

against Koenemann. Growney’s involvement seems

more remote, though the plaintiffs allege that he too

knew about the problems with Telsim. Galvin is in the

same position as Growney, at least in terms of specific

allegations: he knew about the Telsim problems, but

his responsibility for the selection of funds or disclosure

is unclear. Nevertheless, both Galvin and Growney were

members of the Board during the class period, and so

presumably the class is pursuing all three theories

against these two defendants.

Tooker chaired the Committee from May 2, 2000,

until the end of the calendar year, but so far as the evi-

dence in the summary judgment record reveals, he

was unaware of the Telsim fiasco as of the time he left

the Committee. That means that Tooker cannot be liable

on the class’s prudence or disclosure theories. There

is evidence in the record, however, that Tooker was a

member of the Board until 2001, which means that

he is one of the director defendants against whom the

30 Nos. 07-3837 & 09-2796

plaintiffs assert their monitoring claim. Dorazil, the Vice

President of Benefits, was neither a director of Motorola

nor a member of the Committee. While he had some

responsibilities related to the Plan, it is unclear whether

he had any role in reviewing the Plan’s portfolio. In

addition, despite the plaintiffs’ statements in their briefs,

there is not a shred of evidence that would permit an

inference that Dorazil knew about Motorola’s problems

with Telsim during the class period—all of the evidence

points in the other direction. As a result, it appears that

the class has not preserved any of its three theories as

far as Dorazil is concerned. Finally, the remainder of

the defendants had no knowledge of the problems with

Telsim; the plaintiffs appear to have included them

solely for purposes of the monitoring theory.

For the remainder of this opinion, we shall proceed

theory-by-theory. For each theory we discuss below, we

will indicate which of the individual defendants are

involved, for ease of reference. First we must outline

general ERISA principles that guide our discussion of

the defendants’ fiduciary responsibilities.

C. General ERISA Principles

1. Scope of Fiduciary Duty. ERISA spells out what it means

by the term “fiduciary duties” in section 404(a), 29 U.S.C.

§ 1104(a). We set that part of the statute out for ease

of reference:

(a) Prudent man standard of care

(1) Subject to [certain exceptions not relied upon here],

a fiduciary shall discharge his duties with respect to

Nos. 07-3837 & 09-2796 31

a plan solely in the interest of the participants and

beneficiaries and—

(A) for the exclusive purpose of:

(i) providing benefits to participants and their

beneficiaries; and

(ii) defraying reasonable expenses of adminis-

tering the plan;

(B) with the care, skill, prudence, and diligence

under the circumstances then prevailing that a

prudent man acting in a like capacity and

familiar with such matters would use in the con-

duct of an enterprise of a like character and

with like aims;

(C) by diversifying the investments of the plan

so as to minimize the risk of large losses, unless

under the circumstances it is clearly prudent not

to do so; and

(D) in accordance with the documents and instru-

ments governing the plan insofar as such docu-

ments and instruments are consistent with the

provisions of this subchapter and subchapter III

of this chapter.

(2) In the case of an eligible individual account plan

(as defined in section 1107(d)(3) of this title), the

diversification requirement of paragraph (1)(C) and the

prudence requirement (only to the extent that it

requires diversification) of paragraph (1)(B) is not

violated by acquisition or holding of qualifying em-

32 Nos. 07-3837 & 09-2796

ployer real property or qualifying employer

securities (as defined in section 1107(d)(4) and (5) of

this title).

ERISA § 404(a), 29 U.S.C. § 1104(a). This is a prime

example of the Supreme Court’s observation in Firestone

Tire and Rubber Company v. Bruch, 489 U.S. 101, 110 (1989),

that “ERISA abounds with the language and terminology

of trust law.” The Bruch Court specifically noted that

“ERISA’s legislative history confirms that the Act’s fidu-

ciary responsibility provisions, 29 U.S.C. §§ 1101-1114,

codify and make applicable to ERISA fiduciaries certain

principles developed in the evolution of the law

of trusts.” Id. (internal quotation marks and citations

omitted). See generally JOHN H. L ANGBEIN, B RUCE A.

W OLK , S USAN J. S TABILE, P ENSION AND E MPLOYEE B ENEFIT

L AW 590-630 (5th ed. 2010). Self-dealing, conflicts of

interest, or even divided loyalties are inconsistent with

fiduciary responsibilities.

2. Safe Harbor under Section 404(c). The statute also

delineates a “safe harbor” for plan fiduciaries; it

relieves fiduciaries of potential claims for breach of duty

for self-directed accounts in section 404(c):

(c) Control over assets by participant or beneficiary

(1)(A) In the case of a pension plan which provides

for individual accounts and permits a participant or

beneficiary to exercise control over the assets in his

account, if a participant or beneficiary exercises

control over the assets in his account (as determined

under regulations of the Secretary)—

Nos. 07-3837 & 09-2796 33

(i) such participant or beneficiary shall not be

deemed to be a fiduciary by reason of such exer-

cise, and

(ii) no person who is otherwise a fiduciary shall

be liable under this part for any loss, or by rea-

son of any breach, which results from such par-

ticipant’s or beneficiary’s exercise of control,

except that this clause shall not apply in connec-

tion with such participant or beneficiary for any

blackout period during which the ability of such

participant or beneficiary to direct the investment

of the assets in his or her account is suspended by

a plan sponsor or fiduciary.

ERISA § 404(c), 29 U.S.C. § 1104(c). In our decision on

rehearing in Hecker v. Deere & Co., 569 F.3d 708, 710

(7th Cir. 2009) (Hecker II), we clarified that we had no

need to decide there whether the 404(c) safe harbor

could be used to defend against claims of imprudent

fund selection for a plan. Under the facts before us, no

such claim was plausible, cf. Bell Atlantic Corp. v. Twombly,

550 U.S. 544 (2007), and so we reserved that issue

for another day.

The question has returned in the present case. The

purpose of section 404(c) is to relieve the fiduciary of

responsibility for choices made by someone beyond its

control; that is, the participant (or beneficiary—we

mean to include both in this discussion). If an

individual account is self-directed, then it would make

no sense to blame the fiduciary for the participant’s

decision to invest 40% of her assets in Fund A and 60%

34 Nos. 07-3837 & 09-2796

in Fund B, rather than splitting assets somehow among

four different funds, emphasizing A rather than B, or

taking any other decision. In short, the statute ensures

that the fiduciary will not be held responsible for deci-

sions over which it had no control. See Mertens v. Hewitt

Assocs., 508 U.S. 248, 262 (1993) (remarking that provisions

of ERISA “allocate[ ] liability for plan-related misdeeds

in reasonable proportion to respective actors’ power to

control and prevent the misdeeds”). The language used

throughout section 404(c) thus creates a safe harbor

only with respect to decisions that the participant can

make. The choice of which investments will be presented

in the menu that the plan sponsor adopts is not within

the participant’s power. It is instead a core decision

relating to the administration of the plan and the

benefits that will be offered to participants.

Thus, we agree with the position taken by the

Secretary of Labor in her amicus curiae brief that the

selection of plan investment options and the decision to

continue offering a particular investment vehicle are

acts to which fiduciary duties attach, and that the safe

harbor is not available for such acts. The Fourth Circuit

came to the same conclusion in DiFelice v. U.S. Airways,

Inc., 497 F.3d 410, 418 n.3 (4th Cir. 2007). It is instead

the fiduciary’s responsibility, as the Secretary puts it, to

screen investment alternatives and to ensure that impru-

dent options are not offered to plan participants. The

regulations that the Secretary had put in place to imple-

ment the statute during the class period are consistent

with this position. The regulation implementing section

404(c) says that the fiduciaries may not be held liable

Nos. 07-3837 & 09-2796 35

for any loss or fiduciary breach “that is the direct and

necessary result of that participant’s or beneficiary’s

exercise of control.” 29 C.F.R. § 2550.404c-1(d)(2)(i). In

order to satisfy the requirement that the participant

have meaningful control of their plan assets, the regula-

tion requires the plan to provide sufficient information

so that participants can make informed decisions, and it

explains what must be done to satisfy that requirement.

29 C.F.R. § 2550.404c-1(b)(2)(i)(B).

D. Particular Theories of Liability

With those principles in mind, we are now in a position

to evaluate the three theories of liability that the Lingis

class is pursuing against the Motorola defendants. As

we explain below, we conclude that the safe harbor is not

available for the imprudence claim, but that this theory

fails on the merits. The safe harbor is available to the

defendants, however, for the plaintiffs’ disclosure and

monitoring theories. Even if it were not, the plaintiffs

have not brought forward enough evidence to prevail

on their disclosure theories, nor does this record sup-

port their inadequate monitoring theory.

1. Imprudence. As we noted earlier, the imprudence

theory turns on the plaintiffs’ ability to show that defen-

dants Galvin, Koenemann, or Growney breached a fidu-

ciary duty. For all of the other defendants, either the

record does not indicate that they had anything to do

with choosing the investment menu that was offered

under the Plan or there is no evidence that they had any

knowledge of Motorola’s problems with the Telsim

transaction.

36 Nos. 07-3837 & 09-2796

The plaintiffs’ theory is that these individual

defendants, along with Motorola and the Committee,

violated their fiduciary duties by including the Motorola

Stock Fund as one of the Plan’s investment options. It is

unclear whether they believe that the breach of duty

arose at the very moment that the Motorola Stock Fund

was designated for the Plan, or if they are arguing that

the decision not to revise the Plan and withdraw this

as an option was the violation. (The latter theory seems

more likely.) Their evidence, however, is fatally thin

(recalling, of course, that the only question before us is

whether it is enough to require the denial of summary

judgment). All they have is their expert’s ipse dixit

that Motorola stock was an imprudent option for a re-

tirement plan, a few conclusory assertions that the

Motorola Stock Fund should have been removed from

the Plan at some point, and the assertion that in

retrospect it seems that the 25% cap on the amount of

Motorola stock that could be in any one person’s

account that existed until July 1, 2000, (and that was

removed at the demand of Motorola’s employees) should

have remained in place. The plaintiffs add that there

were many warning signs that the Telsim loans were not

likely to be repaid and that the drop in the price of

Motorola stock is proof that the Motorola Stock Fund

did not belong in the Plan’s portfolio.

This is not enough. A single plan participant directing

his or her pension account does not have a duty to di-

versify assets. See ERISA §§ 404(a)(1)(C), (a)(2) and

407(d)(3), 29 U.S.C. §§ 1104(a)(1)(C), (a)(2) and 1107(d)(3)

(describing plan fiduciary diversification duties); see

Nos. 07-3837 & 09-2796 37

also Steinman v. Hicks, 352 F.3d 1101, 1103 (7th Cir. 2003)

(explaining Congress’s decision to exempt employee

stock ownership plans from diversification require-

ments). Even for normal employee stock ownership

plans (“ESOPs”), courts apply a presumption of prudence

where the fiduciary in charge of the plan is directed by

the plan to invest in the company’s stock. Summers v.

State Bank & Trust Co., 453 F.3d 404, 410 (7th Cir. 2006);

Moench v. Robertson, 62 F.3d 553, 571-72 (3d Cir. 1995). The

decision of the Plan fiduciaries in the present case to

continue offering—as one option—the Motorola Stock

Fund must be evaluated against that backdrop. And in

any event, even if this were a benefit plan devoted ex-

clusively to Motorola stock, “[m]ere stock fluctuations,

even those that trend down significantly, are insufficient

to establish the requisite imprudence . . . .” Wright v.

Oregon Metallurgical Corp., 360 F.3d 1090, 1099 (9th Cir.

2004). The value of Motorola stock did not collapse in

a day, or even in a few days. Plan participants were

entitled throughout the class period—with the very

brief exception of the blackout period, during which

the stock price did not fall much at all—to move their

dollars away from the Motorola Stock Fund into a dif-

ferent fund on a daily basis; anyone concerned by the

downward trend that persisted for some time could

have done so (and it is probable that many people did).

We have suggested before that the tension faced by

the administrators of an ESOP between protecting

against risk and establishing a portfolio dominated by

company stock is “not acute if the participants in the

ESOP have adequate sources of income or wealth that

38 Nos. 07-3837 & 09-2796

are not correlated with the risk of the [company]

stock . . . .” Summers, 453 F.3d at 410. The very existence

of the three other investment options (until July 1, 2000)

or eight other options (after that date), in the absence

of any challenge to any of those other funds, offers assur-

ance that the Plan was adequately diversified and no

participant’s retirement portfolio could be held hostage

to Motorola’s fortunes. Furthermore, the evidence

does not portray a situation in which Motorola was

facing imminent collapse. Cf. Moench, 62 F.3d at 572. The

volatility that Motorola stock was experiencing was

within the bounds described by the Plan documents.

Throughout the period covered by this case, Motorola

was a fundamentally sound company. Nothing should

have tipped the Plan’s fiduciaries off to the (dubious)

proposition that Motorola’s stock had become so risky

or worthless that the Motorola Stock Fund itself had

to be withdrawn from the Plan immediately. In short,

the plaintiffs have not done enough to defeat the defen-

dants’ motion for summary judgment, insofar as it relates

to the alleged imprudence of the Plan’s inclusion of the

Motorola Stock Fund as one of several investment vehicles.

2. Failure To Disclose. The plaintiffs’ theory that

Galvin, Koenemann, and Growney failed to disclose

material information about problems with Telsim impli-

cates both the basic fiduciary duty to provide suf-

ficient information to the Plan participants and the

section 404(c) safe harbor. The plaintiffs argue that the

defendants’ concealment of the extent of Motorola’s

problems before Bloomberg News broke the story on

April 6, 2001, caused the Plan to fail to meet two require-

Nos. 07-3837 & 09-2796 39

ments that the defendants must satisfy in order to take

advantage of the section 404(c) safe harbor: first, it de-

prived participants of sufficient information to make

informed decisions, because it did not provide an ade-

quate description of the investment objectives and

risk/return characteristics of the Motorola Stock Fund, see

29 C.F.R. § 2550.404c-1(b)(2)(i)(B); and second, it deprived

them of the opportunity to exercise individual control

of their accounts because the Plan fiduciaries concealed

material, non-public facts related to the Motorola

Stock Fund, see id. § 2550.404c-1(c)(2)(ii).

a. Provision of sufficient information. The governing

regulations set forth nine criteria that must be satisfied

in order to meet the obligation to provide sufficient

information to plan participants. See id. § 2550.404c-

1(b)(2)(i)(B)(1)(i)-(ix). The plaintiffs argue only that the

Plan fiduciaries failed to comply with requirement (ii),

which read (until December 20, 2010, and thus at the

relevant time):

[A participant or beneficiary will not be considered to

have sufficient investment information unless the

participant or beneficiary is provided by an identi-

fied plan fiduciary a] description of the investment

alternatives available under the plan and, with

respect to each designated investment alternative, a

general description of the investment objectives and

risk and return characteristics of each such alternative,

including information relating to the type and diversi-

fication of assets comprising the portfolio of the

designed investment alternative . . . .

40 Nos. 07-3837 & 09-2796

Id. § 2550.404c-1(b)(2)(i)(B)(1)(ii). The question is thus

whether there is a genuine issue about the sufficiency

of the information that the Plan provided to its par-

ticipants about the Motorola Stock Fund.

Motorola’s benefits pamphlet, its Summary Plan De-

scriptions, its Annual Reports, its benefits statements,

and an August 1, 2000, Prospectus ranked the different

funds sponsored by the Plan by risk and described the

investment strategies of each one. These documents

classified the Motorola Stock Fund as the high-risk

option. They disclosed that this fund was invested ex-

clusively in Motorola common stock, and they noted

that it was intended for long-term growth and was sus-

ceptible to substantial short-term fluctuations. The Pro-

spectus disclosed the various risks of the Motorola

Stock Fund, including market risk, nondiversification

risk, and stock risks. It acknowledged that the Motorola

Stock Fund had suffered a 25.5% loss in its worst

quarter and that year-by-year returns varied from 9.3%

to 142.2%. It is hard for us to imagine what else the

Plan fiduciaries could have told the participants that

would have provided better guidance. This information

satisfied the requirement of “a general description of the

investment objectives and risk” of the Motorola Stock

Fund.

b. Control of assets. ERISA’s regulations also require, as

a condition for the safe harbor of section 404(c), that

participants must exercise “independent control in fact,”

not just the illusion of control. 29 C.F.R. § 2550.404c-

1(c)(1)(i). The necessary control will be lacking if the

Nos. 07-3837 & 09-2796 41

plan fiduciary has “concealed material non-public facts

regarding the investment from the participant or benefi-

ciary, unless the disclosure of such information by the

plan fiduciary to the participant or beneficiary would

violate any provision of federal law or any provision

of state law which is not preempted by the Act . . . .” Id.

§ 2550.404c-1(c)(2)(ii). The plaintiffs argue that the evi-

dence will support a finding that such concealment

took place here.

The district court noted that there was no dispute that

the facts about the Telsim disaster were non-public.

The court also observed that the only people capable of

concealing these facts were those who knew about them.

As we have already discussed, the only defendants

who meet that description based on the summary judg-

ment record are Galvin, Growney, and Koenemann.

While the plaintiffs have not developed to any degree

the argument that Galvin and Growney failed to

disclose material information, we will consider all three

defendants for the sake of thoroughness.

The parties dispute whether the information about

Motorola’s transaction with Telsim was material at all.

We agree with the district court that the Telsim

debacle’s noticeable impact on Motorola’s stock price

resolves this question in favor of the plaintiffs. When

Credit entered its deal with Telsim in 1999 and at the

start of the class period in 2000, Motorola’s stock was

selling for approximately $30 per share. By the time the

Bloomberg News story broke, the price had slid to about

half that, and that news sent the stock price down ap-

42 Nos. 07-3837 & 09-2796

proximately 20% in a single day. Even though the defen-

dants have presented evidence that the decline in

Motorola’s stock was statistically insignificant, and al-

though Motorola’s price per share had recovered by

the end of the class period, we think the plaintiffs have

presented enough evidence to create a genuine issue

about whether the Telsim information was material. The

Telsim risk was a major one that predictably contributed

to fluctuations in value; we can see how this informa-

tion was material to the plaintiffs’ interest and would

have changed the investment strategy of Plan par-

ticipants who had the option of shifting assets from

the Motorola Stock Fund to other investments sponsored

by the Plan.

That leaves the question whether Galvin, Growney, or

Koenemann concealed the material, non-public facts in

question from the Plan participants. The regulations

governing section 404(c)’s safe harbor do not define

what constitutes concealment of material information,

and so the district court drew upon the more general

disclosure duty embodied in ERISA. Under the statute,

“material facts affecting the interests of plan participants

or beneficiaries must be disclosed.” Kamler v. H/N Telecom-

munication Services, Inc., 305 F.3d 672, 681 (7th Cir. 2002)

(internal quotation marks omitted). The district court’s

approach—defining the prohibition on concealment

of material information contained in the regulations

based on ERISA’s general fiduciary disclosure obliga-

tion—is sound. While the district court is correct that

this may well mean there will be no case where a defen-

dant can both breach ERISA’s fiduciary duty to disclose

Nos. 07-3837 & 09-2796 43

information and also take advantage of section 404(c)’s

safe harbor, we can think of no other principled way to

conceptualize the disclosure obligation embodied in the

regulations; nor, for that matter, do we see why the

disclosure required of Plan fiduciaries under ERISA

generally should be different than that required in order

for fiduciaries to take advantage of section 404(c).

A violation of ERISA’s disclosure requirement, which

arises under the general fiduciary duties imposed by

ERISA § 404(a)(1), 29 U.S.C. § 1104(a)(1), requires evidence

of either an intentionally misleading statement, or a

material omission where the fiduciary’s silence can be

construed as misleading. See Hecker v. Deere & Co., 556

F.3d 575, 585 (7th Cir. 2009) (Hecker I) (citing Varity Corp.,

516 U.S. at 505; Anweiler v. American Elec. Power Serv. Corp.,

3 F.3d 986, 992 (7th Cir. 1993)). The plaintiffs do not

point to any intentionally misleading statement issued

by Galvin, Koenemann, or Growney. To the extent

that they argue that the defendants negligently misrep-

resented information about Telsim in their SEC filings,

that negligence would not be enough to show a violation

of ERISA’s disclosure duty. See Vallone v. CNA Financial

Corp., 375 F.3d 623, 642 (7th Cir. 2004) (“[W]hile there is

a duty to provide accurate information under ERISA,

negligence in fulfilling that duty is not actionable.”).

Contrary to the plaintiffs’ position (and to the position

of other circuits, e.g., Pfahler v. National Latex Prods. Co.,

517 F.3d 816, 830 (6th Cir. 2007); Mathews v. Chevron Corp.,

362 F.3d 1172, 1183 (9th Cir. 2004)), this court has

required some deliberate misstatement before it finds a

violation of the ERISA duty to disclose material infor-

44 Nos. 07-3837 & 09-2796

mation, e.g., Brosted, 421 F.3d at 466; Beach v. Common-

wealth Edison Co., 382 F.3d 656, 658-59 (7th Cir. 2004).

“But this does not mean that the duty to convey com-

plete and accurate information is toothless. . . .

[A]lthough negligent misrepresentations are not them-

selves actionable, the failure to take reasonable steps to

head off such misrepresentations can be actionable.”

Kenseth v. Dean Health Plan, Inc., 610 F.3d 452, 470-71 (7th

Cir. 2010). A plaintiff may introduce evidence that a

fiduciary breached the duty to disclose by committing

some material omission that is misleading and action-

able under the statute.

But the plaintiffs have not introduced sufficient evi-

dence of that sort of omission by Galvin, Koenemann,

or Growney. We have required more than this record

reveals. For example, we have found a breach of fiduciary

duty stemming from a failure to disclose an integral part

of the plan. See Anweiler, 3 F.3d at 991-92 (finding

that defendants breached their fiduciary duties by

failing to disclose that a reimbursement agreement

related to an employee’s life insurance was revocable

at will and that the employee was not required to sign

it). Similarly, we found a breach when the fiduciary

withheld information about the actual value of plan

assets when employees are required to make a choice

about a payout under the plan. See Solis v. Current De-

velopment Corp., 557 F.3d 772, 777-78 (7th Cir. 2009).

Whatever omissions occurred here are not comparable.

As the district court noted, there is no support for the

view that Plan fiduciaries were required to provide all

information about Motorola’s business decisions in

real time to Plan participants; and the fact that the

Nos. 07-3837 & 09-2796 45

Telsim deal was a bad business decision is not enough

to make the omission of information a violation of

ERISA. We can think of at least one problem that such a

rule might create: insider trading. The following portion

of our discussion in Rogers v. Baxter International, Inc. is

relevant here:

Perhaps the defendants in this litigation did have

inside information, but could they use it for plain-

tiffs’ benefit? Plaintiffs’ position seems to be that

[plan fiduciaries] are obligated to adopt a policy

under which employees invest in a stock during

periods of good news for the issuer but not during

periods of bad news. The implication is that someone

else (which is to say, investors at large) must bear

the loss when bad news is announced, because the

[plan participants] will have bailed out. Corporate

insiders cannot trade on their own behalf using

private information, good or bad.

521 F.3d 702, 706 (7th Cir. 2008). It is enough to say for

present purposes that the class has presented no good

argument or evidence that Galvin, Koenemann, or

Growney misled Plan participants and violated ERISA

by failing to inform them about the problems with

Motorola’s deal with Telsim in a more timely fashion.

Our conclusion that the defendants did not violate the

general disclosure duty embodied in ERISA means that

they also complied with the section 404(c) regulations

concerning concealment of material, non-public facts

about the Motorola Stock Fund. Accordingly, we agree

with the district court that the defendants are entitled

46 Nos. 07-3837 & 09-2796

to take advantage of the section 404(c) safe harbor and

thus that they are entitled to summary judgment on the

plaintiffs’ disclosure theories.

3. Failure To Monitor. Our conclusion that the de-

fendants satisfied the Department of Labor’s regulations

for plans administered under ERISA section 404(c) and

thus are entitled to take advantage of section 404(c)’s

safe harbor applies with equal force to the plaintiffs’

monitoring theory. The plaintiffs allege that Motorola

Board members violated fiduciary duties imposed by

ERISA by failing to appoint competent Committee mem-

bers to run the Plan and by neglecting their duty to moni-

tor Committee members and provide them with

needed information. The plaintiffs’ argument is specific:

they say that “appointing fiduciaries must continually

monitor their appointees.” They press their theory

against every individual defendant who served as either

an inside director or an outside director of Motorola. We

agree with the district court that the defendants are

entitled to take advantage of section 404(c)’s safe harbor

on this claim. Even if there were no statutory safe

harbor, however, it is worth noting that the plaintiffs’

argument that summary judgment was not warranted on

this point borders on frivolous. There is no doubt that

those who appoint plan administrations have an

ongoing fiduciary duty under ERISA to monitor the

activities of their appointees. Leigh, 727 F.2d at 134-35.

The Department of Labor has elaborated on this duty:

At reasonable intervals the performance of trustees

and other fiduciaries should be reviewed by the

Nos. 07-3837 & 09-2796 47

appointing fiduciary in such manner as may be rea-

sonably expected to ensure that their performance

has been in compliance with the terms of the plan

and statutory standards, and satisfies the needs of the

plan. No single procedure will be appropriate in

all cases; the procedure adopted may vary in accor-

dance with the nature of the plan and other facts and

circumstances relevant to the choice of procedure.

29 C.F.R. § 2509.75-8 at FR-17 (Department of Labor

questions and answers). The duty exists so that a plan

administrator or sponsor cannot escape liability by

passing the buck to another person and then turning a

blind eye. There is no evidence that anything like that

occurred here. Plan procedures required annual renewal

of appointments to the Committee, periodic reports by

the Committee to the Board, and outside auditing of

the Plan by KPMG. There is no evidence about how

many reports were produced for the Board or what

resulted from annual reviews of the Committee by the

directors because the plaintiffs have not put anything on

the subject into the record. The plaintiffs essentially ask

us to recognize a duty to monitor that would require

every appointing Board member to review all business

decisions of Plan administrators. As the district court

rightly pointed out, that standard would defeat the pur-

pose of having trustees appointed to run a benefits plan

in the first place. Even if the defendants were not

entitled to take advantage of the section 404(c) defense

to the plaintiffs’ monitoring claim, the plaintiffs read the

duty outlined in Leigh much too broadly, and their claim

would fail on the merits. The district court correctly

48 Nos. 07-3837 & 09-2796

granted summary judgment to the defendants on this

theory.

IV

In conclusion, we wish to emphasize what we are,

and are not, holding in these cases. There are indeed

some fiduciary duties that arise in connection with a

company’s choice of investment vehicles for a defined-

contribution plan. The present cases, however, reach us

after all parties have had a chance to develop the record

for purposes of summary judgment. It was the plain-

tiffs’ burden in each case to show that genuine issues

of material fact remain that warrant a trial. We con-

clude, for the reasons we have given here, that neither

Howell (because of the release he signed) nor the

Lingis class have succeeded in doing so. We therefore

A FFIRM the judgments of the district court.

1-21-11