Amicus Curiae Brief — Retirement Plans Committee of IBM, et al., Petitioners v. Larry W. Jander, et al.

No. 18-1165

In the Supreme Court of the United States

RETIREMENT PLANS COMMITTEE OF IBM, ET AL.,

Petitioners,

v.

LARRY W. JANDER, ET AL.,

Respondents.

On Writ of Certiorari to the United States

Court of Appeals for the Second Circuit

BRIEF OF AMICI CURIAE AMERICAN ASSOCIATION

FOR JUSTICE AND PUBLIC JUSTICE IN SUPPORT OF

RESPONDENTS

BRUCE STERN

President

AMERICAN ASSOCIATION

FOR JUSTICE

777 6th Street, NW

Suite 200

Washington, DC 20001

(202) 944-2810

bruce.stern@justice.org

MATTHEW W.H. WESSLER

Counsel of Record

GREGORY A. BECK

GUPTA WESSLER PLLC

1900 L Street, NW

Suite 312

Washington, DC 20036

(202) 888-1741

matt@guptawessler.com

LEAH M. NICHOLLS

PUBLIC JUSTICE, P.C.

1620 L Street NW, Suite 630

Washington, DC 20036

(202) 797-8600

LNicholls@publicjustice.net

October 1, 2019

Counsel for Amici Curiae

-iTABLE OF CONTENTS

Table of authorities ...............................................................ii

Interest of amici curiae......................................................... 1

Introduction and summary of argument ............................ 2

Argument ............................................................................... 3

I.

ERISA’s stringent fiduciary duties are

limited by the considerations in

Dudenhoeffer only in the specific

circumstances where this Court held those

considerations relevant. ..................................... 3

II.

This Court should expressly limit

Dudenhoeffer to allegations involving

publicly traded companies. ................................ 5

III. The Court should also limit Dudenhoeffer to

allegations that a fiduciary over- or

undervalued an investment................................ 9

Conclusion ............................................................................ 15

-iiTABLE OF AUTHORITIES

Cases

Allen v. Greatbanc Trust Co.,

2015 WL 5821772 (N.D. Ill. 2015) ..........................9, 10

Allen v. GreatBanc Trust Co.,

835 F.3d 670 (7th Cir. 2016).......................... 5, 7, 10, 16

Basic Inc. v. Levinson,

485 U.S. 224 (1988) ......................................................10

Brannen v. First Citizens Bankshares Inc.,

2016 WL 4499458 (S.D. Ga. 2016) ..............................16

Bussian v. RJR Nabisco, Inc.,

223 F.3d 286 (5th Cir. 2000)........................................12

Coburn v. Evercore Trust Co., N.A.,

844 F.3d 965 (D.C. Cir. 2016) ......................... 10, 14, 16

DiFelice v. U.S. Airways, Inc.,

497 F.3d 410 (4th Cir. 2007)........................... 12, 13, 15

Donovan v. Bierwirth,

680 F.2d 263 (2d Cir. 1982) ...........................................4

Fifth Third Bancorp v. Dudenhoeffer,

573 U.S. 409 (2014) ............................................. passim

Fish v. GreatBanc Trust Co.,

2016 WL 5923448 (N.D. Ill. 2016) ................................7

Fish v. GreatBanc Trust Co.,

749 F.3d 671 (7th Cir. 2014)........................................15

-iiiGIW Industries, Inc. v. Trevor, Stewart, Burton

& Jacobsen, Inc.,

895 F.2d 729 (11th Cir. 1990)......................................13

Hill v. Hill Brothers Construction Co., Inc.,

2016 WL 1252983 (N.D. Miss. 2016)................. passim

Jones v. American General Life & Accident

Insurance Co.,

370 F.3d 1065 (11th Cir. 2004)......................................4

Martin v. Feilen,

965 F.2d 660 (8th Cir. 1992)......................................4, 8

Massachusetts v. Morash,

490 U.S. 107 (1989) ..............................................3, 4, 14

Pfeil v. State Street Bank and Trust Co.,

806 F.3d 377 (6th Cir. 2015)........................................14

Rinehart v. Lehman Brothers Holdings Inc.,

817 F.3d 56 (2d Cir. 2016) .....................................13, 14

Slupinski v. First Unum Life Insurance Co.,

554 F.3d 38 (2d Cir. 2009) .............................................3

Summers v. State Street Bank & Trust Co.,

453 F.3d 404 (7th Cir. 2006)........................................12

Tatum v. RJR Pension Investment Committee,

761 F.3d 346 (4th Cir. 2014)............................13, 15, 16

Tatum v. RJR Pension Investment Committee,

855 F.3d 553 (4th Cir. 2017)........................................11

Tibble v. Edison International,

135 S. Ct. 1823 (2015) ..................................................15

-ivUsenko v. MEMC LLC,

926 F.3d 468 (8th Cir. 2019)..................................13, 16

Vespa v. Singler-Ernster, Inc.,

2016 WL 6637710 (N.D. Cal. 2016) ..............................7

Statutes

29 U.S.C. § 1001(a) ................................................................ 4

29 U.S.C. § 1104(a)(1)(B) .................................................. 4, 5

-1INTEREST OF AMICI CURIAE1

The American Association for Justice (“AAJ”) is a

national, voluntary bar association established in 1946 to

strengthen the civil justice system, preserve the right to

trial by jury, and protect access to the courts for those

who have been wrongfully injured. With members in the

United States, Canada, and abroad, AAJ is the world’s

largest plaintiff trial bar. AAJ’s members primarily

represent plaintiffs in personal injury actions, employment rights cases, consumer cases, and other civil actions,

including ERISA actions. Throughout its more than

seventy-year history, AAJ has served as a leading advocate for the right of all Americans to seek legal recourse

for wrongful conduct.

Public Justice is a national public interest law firm

dedicated to pursuing justice for the victims of corporate

and governmental abuses. Public Justice specializes in

precedent-setting and socially significant cases designed

to advance consumers’ and victims’ rights, civil rights and

civil liberties, occupational health and workers’ rights, the

preservation and improvement of the civil justice system,

and the protection of the poor and powerless. This case is

of particular interest to Public Justice because it concerns

the pleading requirements that workers must satisfy to

use the civil justice system to enforce their federal statutory rights; unjustifiably stringent pleading standards

interfere with workers’ ability to get into court to hold

ERISA fiduciaries liable for breaches of their duties.

1

This brief was not authored in whole or in part by counsel for a

party and no one other than amici curiae and their counsel made a

monetary contribution to the preparation or submission of this brief.

All parties have consented to the filing of this brief; letters of consent

have been lodged with the Clerk.

-2AAJ and Public Justice agree, for the reasons set

forth in the respondents’ brief, that this Court should

apply Fifth Third Bancorp v. Dudenhoeffer, 573 U.S. 409

(2014), to affirm the Second Circuit’s decision below., AAJ

and Public Justice file this brief to urge that the Court, in

doing so, use caution in setting forth the boundaries of the

rules set forth in Dudenhoeffer. Lower courts have

already expanded those rules well beyond the circumstances that originally justified them. The Court should

take this opportunity to cabin Dudenhoeffer before it

becomes a general standard applicable in almost all

ERISA cases.

INTRODUCTION AND

SUMMARY OF ARGUMENT

A fiduciary’s duties of prudence and loyalty under

ERISA are the highest known to law. In Dudenhoeffer,

this Court held that those duties apply with full force to

fiduciaries of employee stock ownership plans (ESOPs).

573 U.S. 409. The Court declined to adopt a presumption

of prudence for such fiduciaries. Nor did it require new

pleading standards for claims in ESOP cases. All the

Court did was identify considerations relevant to the

plausibility of a claim under the particular circumstances

of that case, where the plaintiffs alleged that ESOP

fiduciaries breached their duty of prudence by overvaluing a publicly traded stock.

Since Dudenhoeffer was decided, however, lower

courts have applied it in contexts far afield from those

original circumstances, where application of the “contextspecific” considerations this Court identified no longer

makes sense. Taken together, these cases extend Dudenhoeffer not only to most allegations of imprudence regarding publicly traded stock, but even to non-public stock as

well. Left unchecked, the lower courts are likely to

-3continue inching Dudenhoeffer toward a general rule

requiring allegations of “special circumstances” in nearly

every ESOP case. In doing so, they will effectively bring

back the presumption of prudence that Dudenhoeffer

rejected.

This Court should take this opportunity to rein in

these lower courts by reiterating the limits of its holding

in Dudenhoeffer. In particular, the Court should clarify

that Dudenhoeffer has no application to claims involving

investments that are not available in a public market. In

addition, it should limit Dudenhoeffer’s scope to allegations that fiduciaries breached their duty of prudence by

over- or underpaying for stock. The Court, in other words,

should make clear that Dudenhoeffer applies only in those

circumstances that rendered its holding relevant in the

first place.

ARGUMENT

I.

ERISA’s stringent fiduciary duties are limited by

the considerations in Dudenhoeffer only in the

specific circumstances where this Court held

those considerations relevant.

ERISA’s overriding purpose is “to protect beneficiaries of employee benefit plans.” Slupinski v. First Unum

Life Ins. Co., 554 F.3d 38, 47 (2d Cir. 2009). Congress’s

concern was “the mismanagement of funds accumulated

to finance employee benefits and the failure to pay

employees benefits from accumulated funds.” Mass. v.

Morash, 490 U.S. 107, 115 (1989). The “inadequacy” of

existing management standards, it found, was a threat to

“the soundness and stability of plans.” 29 U.S.C. § 1001(a).

Congress thus imposed safeguards intended to “insure

against the possibility that the employee’s expectation of

the benefit would be defeated through poor management.” Morash, 490 U.S. at 115.

-4To that end, the law “imposes high standards of fiduciary duty upon those responsible for administering an

ERISA plan and investing and disposing of its assets.”

Martin v. Feilen, 965 F.2d 660, 664 (8th Cir. 1992). Those

standards include the duty of loyalty and the duty of

prudence, which requires that fiduciaries act “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.” 29

U.S.C. § 1104(a)(1)(B). Courts have characterized these

fiduciary duties as “the highest known to the law.”

Donovan v. Bierwirth, 680 F.2d 263, 272 n.8 (2d Cir.

1982); see also Jones v. Am. Gen. Life & Acc. Ins. Co., 370

F.3d 1065, 1071 (11th Cir. 2004).

In Dudenhoeffer, this Court held that the duty of

prudence applies equally to the fiduciary of an employee

stock ownership plan (ESOP)—that is, a plan that invests

primarily in an employer’s stock. 573 U.S. at 412. The

Court declined to recognize a “presumption of prudence”

for ESOP fiduciaries, holding that—although the statute

exempts them from a duty to diversify beyond the

employer’s stock—they are otherwise “subject to the

same duty of prudence that applies to ERISA fiduciaries

in general.” Id. The Court also declined to impose a

“heightened pleading standard” to ESOP cases. Allen v.

GreatBanc Tr. Co., 835 F.3d 670, 674 (7th Cir. 2016).

Instead, it required plaintiffs to plead only “the context

necessary to show a plausible claim for relief.” Id.

Dudenhoeffer also identified some “considerations”

bearing on the plausibility of the specific claims there—

that ESOP fiduciaries had breached their duty of

prudence by overvaluing a publicly traded stock. 573 U.S.

at 426. The Court did not, however, adopt those consider-

-5ations as general rules for ESOP cases. Rather, it emphasized that whether a complaint states a plausible claim for

breach of the duty of prudence “will necessarily be context

specific,” turning “on ‘the circumstances … prevailing’ at

the time the fiduciary acts.” Id. at 425 (quoting 29 U.S.C.

§ 1104(a)(1)(B)). Rather than imposing a per se rule,

Dudenhoeffer therefore requires “careful, contextsensitive scrutiny of a complaint’s allegations.” Id.

II. This Court should expressly limit Dudenhoeffer to

allegations involving publicly traded companies.

Although Dudenhoeffer involved investments in a

publicly traded stock, courts have also applied its

reasoning to investments in non-public companies. See,

e.g., Hill v. Hill Bros. Constr. Co., Inc., 2016 WL 1252983,

at *4 (N.D. Miss. 2016). Those cases misapply Dudenhoeffer’s reasoning and badly undermine settled standards of

fiduciary duty under ERISA. This Court should take this

opportunity to make clear that they are wrongly decided.

A. Dudenhoeffer held that, “[t]o state a claim for

breach of the duty of prudence on the basis of inside information, a plaintiff must plausibly allege an alternative

action that the defendant could have taken that would

have been consistent with the securities laws and that a

prudent fiduciary in the same circumstances would not

have viewed as more likely to harm the fund than to help

it.” 573 U.S. at 428. As the Court explained, trading (or

refraining from trading) on such information could violate

the federal securities laws, and the duty of prudence “does

not require a fiduciary to break the law.” Id. at 428. Moreover, there is a risk that “the market might take” a decision to stop purchases of the company’s stock “as a sign

that insider fiduciaries viewed the employer’s stock as a

bad investment” and thus that such a decision “would do

more harm than good to the fund by causing a drop in the

-6stock price and a concomitant drop in the value of the

stock already held by the fund.” Id. at 430.

Although Dudenhoeffer was talking about public

stock, lower courts have applied its “alternative action”

test to stock in companies that are not public. See, e.g.,

Hill, 2016 WL 1252983. The district court in Hill, for example, dismissed the plaintiffs’ claim that fiduciaries had

overpaid for private stock—the price of which was set by

a neutral third party rather than a public market—

because the plaintiffs failed to allege an “alternative action” under Dudenhoeffer. Id. at *9. Other courts have

followed suit. See Vespa v. Singler-Ernster, Inc., 2016 WL

6637710, at *2 (N.D. Cal. 2016); Fish v. GreatBanc Trust

Co., 2016 WL 5923448, at *53 n.24 (N.D. Ill. 2016).

Those decisions, however, make no sense. The securities laws do not apply to a company that is privately held.

See Allen, 835 F.3d at 679 (noting that “the need to protect

fiduciaries from running up against insider trading law …

has no application to the private stock context”). Thus, no

purpose would be served by requiring plaintiffs to allege

an alternative action “consistent with the securities laws.”

Dudenhoeffer, 573 U.S. at 428. And when a stock is not

publicly traded, there is no risk of a market reaction

causing a drop in stock price. There is thus also no need

for an allegation that the alternative action would not have

been “more likely to harm the fund than to help it.” Id.

The court in Hill acknowledged that “none of the

situations outlined by [Dudenhoeffer] are relevant for

closely held corporations.” 2016 WL 1252983 at *5. It

concluded, however, that this Court did “not necessarily

preclude the application of the alternative action pleading

standard” in such a case. Id. at *5. Although there was no

“potential for conflict” with the securities laws, the court

held that “a potential for conflict did exist due to the

-7alleged fiduciaries’ role as directors and/or officers” of the

company. Id. at *6. The existence of those “dual loyalties,”

it concluded, required the plaintiffs to allege an alternative action that the fiduciaries could have taken that would

not have conflicted with their duties until either role. Id.

Petitioners, and their amici, urge this Court to embrace essentially that same understanding. In their view,

affirming the Second Circuit’s decision would “eviscerate”

a fiduciary’s ability to wear “two hats” and “alternate

between corporate and fiduciary roles.” Amicus Br. of

Securities Industry, at 14; see also IBM Br. at 26–27. They

see the Second Circuit’s decision to allow the claims to

move past the pleading stage as tantamount to a “rule”

requiring “fiduciaries to act always in their fiduciary

capacity” and never in their corporate capacity. Amicus

Br. Securities Industry at 14. And they suggest that the

risks of allowing a case like this one to proceed “will naturally prompt employers to drop” ESOPs. Id. at 26. As a

result, they urge the Court to impose such a high pleading

bar so as to foreclose breach claims against ESOP fiduciaries. See id. at 25.

That approach, however, sets all the wrong incentives. When ESOP fiduciaries are also company insiders,

“the potential for disloyal self-dealing and the risk to the

beneficiaries from undiversified investing are inherently

great.” Martin, 965 F.2d at 670–71. Fiduciaries with such

dual loyalties thus face a “risk of liability” unless they

“obtain[] the impartial guidance of a disinterested outside

advisor to the plan” when making investment decisions. If

they do not obtain such guidance, courts subject their

decisions to careful scrutiny to ensure that they fulfilled

their fiduciary duties “with the utmost care and fairness.”

Id. at 670. Requiring plaintiffs to allege an alternative

action consistent with both roles, however, would allow

-8fiduciaries to hide behind their dual loyalties, leaving

them with no incentive to seek impartial advice. Rather

than subjecting their decisions to careful scrutiny, a fiduciary’s conflicts would allow them to escape liability

altogether.

Decisions like Hill are possible because this Court in

Dudenhoeffer never expressly “specified that the ‘alternative action’ standard is to be applied to ESOPs of publiclytraded entities only.” Hill, 2016 WL 1252983 at *5. The

Court should therefore make that express statement in

this case.

B. Dudenhoeffer also held that, “where a stock is

publicly traded, allegations that a fiduciary should have

recognized from publicly available information alone that

the market was over- or undervaluing the stock are

implausible as a general rule, at least in the absence of

special circumstances.” 573 U.S. at 426. That is because

fiduciaries have “little hope of outperforming the market

based solely on their analysis of publicly available

information.” Id. A fiduciary is thus usually “not imprudent to assume that a major stock market provides the

best estimate of the value of the stocks traded on it that is

available to him.” Id. at 427.

By its plain terms, that “special circumstances” test

is confined to cases “where a stock is publicly traded.” Id.

at 426. Like the “alternative action” requirement,

however, the rule has been extended beyond its logical

foundations. In Allen v. Greatbanc Trust Co., the district

court relied on Dudenhoeffer in dismissing the plaintiffs’

claim that ESOP fiduciaries overpaid for stock in a

privately held company. 2015 WL 5821772, at *3 (N.D. Ill.

2015). Although the court recognized that Dudenhoeffer

involved “publicly traded stock,” it nevertheless held that

-9the plaintiffs were required to allege “special circumstances” showing that reliance on the stock’s assessed

value was imprudent. Id. That requirement was necessary, the court wrote, to protect fiduciaries from “discovery costs” every time “the value of an asset declines.” Id.

The district court’s extension of Dudenhoeffer in

Allen is, again, nonsensical. Dudenhoeffer’s holding that

fiduciaries “may, as a general matter, … prudently rely

on the market price” of a security, 573 U.S. at 427, works

only because “the market price of shares traded on welldeveloped markets reflects all publicly available

information.” Basic Inc. v. Levinson, 485 U.S. 224, 246

(1988). The price of a nonpublic company, in contrast, is

not set by the market. See Coburn v. Evercore Tr. Co.,

N.A., 844 F.3d 965, 970 n.1 (D.C. Cir. 2016). Thus, it is

“plausible that a fiduciary could act imprudently by not

acting on publicly available information because there is

less assurance that that information has already been incorporated into the security price.” Id.

Ultimately, the Seventh Circuit reversed the decision

in Allen. Private stock, the court wrote, has “no market

price,” and thus there is “no reason to apply any ‘special

circumstances’ rule.” Allen, 835 F.3d at 679.

Nevertheless, this Court should reiterate that the rule in

Dudenhoeffer is limited to publicly traded stock to ensure

that future courts do not repeat the mistake of the district

court in Allen.

III. The Court should also limit Dudenhoeffer to

allegations that a fiduciary over- or undervalued

an investment.

Dudenhoeffer applied its “special circumstances” test

in the context of claims that an ESOP’s stock was inflated

in value, and its reasoning makes sense only in the context

of such claims. There are many possible ERISA claims,

-10however, that do not involve allegations of “over- or

undervaluing” a stock. 573 U.S. at 426. Lower courts have

already applied Dudenhoeffer in some of those contexts.

This Court should make clear that they are wrong to do

so.

A. Dudenhoeffer recognized that it usually “is not

imprudent” for a fiduciary “to assume that a major stock

market … provides the best estimate of the value of the

stocks traded on it that is available to him.” Id. at 427. The

decision thus forecloses claims that a fiduciary violated

the duty of prudence by failing to beat the stock market,

at least in the absence of special circumstances. See id.

But there are other ways that investments can be imprudent that do not involve the failure to second-guess the

market. In particular, the claim that a stock is excessively

risky does not depend on an allegation that the stock is

overpriced. Even assuming that the price of a risky stock

is efficient, the stock may still be an imprudent investment

for a retirement plan.

Why is that so? It is true that, all else being equal, the

market will value risky stocks at a lower price. But price

also incorporates potential reward, meaning that the price

of a very risky stock will be higher if the potential return

is also high. See Tatum v. RJR Pension Inv. Comm., 855

F.3d 553, 565 n.10 (4th Cir. 2017). A claim that such a stock

is excessively risky does not require second-guessing

market price. The market may be willing to gamble on a

small chance of a large payout, but that does not make it

a prudent investment strategy for a fund on which

employees depend for their financial security. Summers

v. State Street Bank & Trust Co., 453 F.3d 404, 409 (7th

Cir. 2006).

An investment may also be imprudently risky if it is

excessively volatile. See DiFelice v. U.S. Airways, Inc.,

-11497 F.3d 410, 424 (4th Cir. 2007). Again, such a claim does

not require second-guessing the market. A stock that

wildly fluctuates in value may reflect the best valuation

based on public information available at any given time.

But a fund that invested in such a stock would face the risk

that a sudden downturn could render the plan’s assets

unavailable. Even assuming that it is efficiently priced,

such a stock therefore may not be a prudent investment

choice.

Moreover, prudent fiduciaries do not consider just

price when choosing an investment, but also “the character and aim of the particular plan and decision at issue and

the circumstances prevailing at the time.” Bussian v. RJR

Nabisco, Inc., 223 F.3d 286, 299 (5th Cir. 2000). For a plan

with beneficiaries near retirement age, a highly risky

investment may be especially imprudent because, in the

event that the stock loses money, there will be little time

for it to recover. See GIW Indus., Inc. v. Trevor, Stewart,

Burton & Jacobsen, Inc., 895 F.2d 729, 732 (11th Cir.

1990) (upholding a duty-of-prudence claim based not on

the fiduciary’s “investment strategy from the vantage

point of hindsight,” but on failure to consider “the anticipated needs of the fund”).2

2

ESOP fiduciaries are exempt from the duty to diversify plan

investments “so as to minimize the risk of large losses.” Dudenhoeffer, 573 U.S. at 417 (2014). Some courts, however, have applied the

“special circumstances” test to fiduciaries of non-ESOP plans, who

are not exempt from the diversification requirement. See Usenko v.

MEMC LLC, 926 F.3d 468, 474–75 (8th Cir. 2019). At least in those

cases, prudence also requires consideration of a risky investment’s

role “within the overall plan portfolio.” Tatum v. RJR Pension Inv.

Comm., 761 F.3d 346, 370 (4th Cir. 2014). In some circumstances, investing “in a risky security as part of a diversified portfolio” can be

“an appropriate means to increase return while minimizing risk.”

DiFelice, 497 F.3d at 423. But it would probably not be prudent to

(continued …)

-12Courts, however, have applied the “special circumstances” test to such claims anyway, reasoning that, in an

efficient market, a stock’s price will have already incorporated information bearing on its risk. In Rinehart v.

Lehman Bros. Holdings Inc., for example, the court

dismissed claims that the fiduciaries had breached their

duty of prudence based on the “excessive risk” of their

investments. 817 F.3d 56, 65–66 (2d Cir. 2016). The

“purported distinction between claims involving ‘excessive risk’ and claims involving ‘market value,’” the court

wrote, “is illusory.” Id. at 66; see also Coburn, 844 F.3d at

971; Pfeil v. State Street Bank and Trust Co., 806 F.3d

377, 386 (6th Cir. 2015).

To limit these kinds of excessive-riskiness claims to

“special circumstances” would, in ordinary cases, let

fiduciaries off the hook for gambling away the assets of

beneficiaries with risky investments. That would defeat

ERISA’s core purpose of preventing the “possibility that

the employee’s expectation of the benefit would be

defeated through poor management.” Morash, 490 U.S. at

115. Indeed, the Second Circuit has held that “special

circumstances” are required not just for allegations of

excessive risk, but for “all allegations of imprudence

based upon public information.” Rinehart, 817 F.3d at 66.

If that were true, it would mean that there is no such thing

as an imprudent public stock.

The lower courts have squarely blamed Dudenhoeffer

for those results, claiming that the decision “foreclose[d]

breach of prudence claims based on public information

irrespective of whether such claims are characterized as

based on alleged overvaluation or alleged riskiness of a

invest all of a plan’s resources in such a stock, even assuming that the

stock price accurately reflects the investment’s risks.

-13stock.” Id.; see also Coburn, 844 F.3d at 971 (stating that

the court has “no license to deviate” from Dudenhoeffer’s

holding). This Court should make clear that Dudenhoeffer

requires no such thing.

B. Another example of claims where requiring

“special circumstances” makes little sense are claims

based on a fiduciary’s failure to adequately investigate or

monitor an investment. Courts have recognized that

“[w]hether an ERISA fiduciary has acted prudently

requires consideration of both the substantive reasonableness of the fiduciary’s actions and the procedures by

which the fiduciary made its decision.” Fish v. GreatBanc

Tr. Co., 749 F.3d 671, 680 (7th Cir. 2014). Dudenhoeffer,

which involved “an ESOP fiduciary’s decision to buy or

hold the employer’s stock,” was about substantive reasonableness. 573 U.S. at 412. But the duty of prudence

depends “not only on the merits of a transaction, but also

on the thoroughness of the investigation into the merits of

that transaction.” DiFelice, 497 F.3d at 418.

To demonstrate procedural prudence, fiduciaries

must “engage[] in a reasoned decision-making process”

and use “appropriate methods to investigate the merits of

the investment and to structure the investment.” Tatum,

761 F.3d at 356. And after an investment decision has been

made, they must continue to “monitor the prudence of

their investment decisions to ensure that they remain in

the best interest of plan participants.” Id. at 358. As this

Court recognized in Tibble v. Edison Int’l, the duty of

prudence thus requires a fiduciary “to conduct a regular

review of its investment with the nature and timing of the

review contingent on the circumstances.” 135 S. Ct. 1823,

1827–28 (2015). And that requirement “exists separate

and apart from the trustee’s duty to exercise prudence in

selecting investments at the outset.” Id. at 1828.

-14In Usenko v. MEMC LLC, the Eighth Circuit

affirmed dismissal of a failure-to-monitor claim under

Dudenhoeffer’s “special circumstances” test, holding that

it amounted to a claim that the fiduciaries “failed to

‘outperform the market.’” 926 F.3d at 474–75 (quoting

Dudenhoeffer, 573 U.S. at 427). But that is nonsense. The

allegation that a fiduciary failed to adequately investigate

an investment does not require the fiduciary to have made

the “decision that in the light of hindsight proves best.”

Tatum, 761 F.3d at 369. All that is required is a “reasoned

decision-making process.” Id. A “fiduciary need not be

prescient about future stock-value movements” to use

“the procedures that a prudent fiduciary would use.”

Allen, 835 F.3d at 679.

For that reason, the D.C. Circuit in Coburn v.

Evercore Trust Co. suggested that Dudenhoeffer’s

“special circumstances” test is inapplicable to a failureto-monitor claim under Tibble. 844 F.3d at 970. As

explained by a concurrence in that case, “Dudenhoeffer

involves the substance of investment decisions, while

Tibble has to do with a fiduciary’s obligation to monitor

those decisions.” Id. at 977 (Edwards, J., concurring). The

theories thus “embrace distinct, albeit not mutually

exclusive, causes of action for violations of a fiduciary’s

duty.” Id.; see also Brannen v. First Citizens Bankshares

Inc., 2016 WL 4499458, at *6 (S.D. Ga. 2016) (holding that

Dudenhoeffer did not apply to a case alleging that a

Defendant … fail[ed] to conduct an investigation into the

prudence of continuing to hold an investment”).

*

*

*

There are many other possible ERISA claims

relevant to ESOPs that do not involve allegations of “overor undervaluing the stock” and to which Dudenhoeffer’s

reasoning should not apply. To allow the lower courts to

-15require “special circumstances” in almost any ESOP case

would be to effectively bring back the presumption of

prudence that Dudenhoeffer rejected. This Court should

take this opportunity to firmly reject that result.

CONCLUSION

This Court should affirm the Second Circuit’s

decision below. In doing so, it should clarify that its

holding in Dudenhoeffer is limited to the particular

circumstances of that case.

Respectfully submitted,

MATTHEW W.H. WESSLER

Counsel of Record

GREGORY A. BECK

GUPTA WESSLER PLLC

1900 L Street, NW Suite 312

Washington, DC 20036

(202) 888-1741

matt@guptawessler.com

BRUCE STERN

President

AMERICAN ASSOCIATION

FOR JUSTICE

777 6th Street, NW Suite 200

Washington, DC 20001

LEAH M. NICHOLLS

PUBLIC JUSTICE, P.C.

1620 L Street NW, Suite 630

Washington, DC 20036

Counsel for Amici Curiae

October 1, 2019