Petition for Writ of Certiorari — Alexander Y. Usenko, Derivatively on Behalf of the SunEdison Semiconductor Ltd. Retirement Savings Plan, Petitioner v. MEMC LLC, et al.
Supreme Court briefOct 2, 2019
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APPENDIX
-App. 1a-
APPENDIX A
United States Court of Appeals
for the Eighth Circuit
No. 18-1626
Alexander Y. Usenko, Derivatively on
Behalf of the SunEdison Semiconductor Ltd.
Retirement Savings Plan
Plaintiff - Appellant,
v.
MEMC LLC; The Investment Committee of the
SunEdison Semiconductor Ltd. Retirement Savings
Plan, Hemant Kapadia; Penny Cutrell; Steve Edens;
Karen Steiner; Cheng Yang; Ben Llorico
Defendants - Appellees.
John Does 1-10
Defendants
Appeal from United States District Court
for the Eastern District of Missouri - St. Louis
June 4, 2019
-App. 2aBefore BENTON, MELLOY, and KELLY, Circuit
Judges.
KELLY, Circuit Judge.
Alexander Usenko is a former employee of SunEdison Semiconductor, LLC (Semi). Semi was once a wholly
owned subsidiary of SunEdison, Inc. Semi made a
defined-contribution retirement savings plan available to
its employees, including Usenko, that offered SunEdison
stock as a retirement investment option. On April 21,
2016, SunEdison filed for bankruptcy. In August 2017,
Usenko brought suit derivatively on behalf of the plan
and, in the alternative, as a putative class action on
behalf of plan participants. Usenko claims that Semi, the
investment committee of Semi’s retirement savings plan,
and the members of the investment committee breached
their fiduciary duties under the Employee Retirement
Income Security Act of 1974 (ERISA). Usenko alleges
that between July 20, 2015, and April 21, 2016, the
defendants knew or should have known that SunEdison
was in poor financial condition and faced poor long-term
prospects and therefore should have removed SunEdison
stock from the plan’s assets. The district court1 dismissed Usenko’s complaint as to all defendants for
failure to state a claim—other than Penny Cutrell and
Karen Steiner, who were dismissed for lack of timely
service—and denied Usenko leave to amend his complaint. Usenko appeals the dismissal for failure to state a
claim and the denial of leave to amend.2 We affirm.
The Honorable Audrey G. Fleissig, United States District
Judge for the Eastern District of Missouri.
1
2
Usenko does not appeal the dismissal of Cutrell and Steiner.
-App. 3aI
We draw the following background from the wellpleaded factual allegations in Usenko’s complaint, which
we accept as true for purposes of the defendants’ motions to dismiss.3 Park Irmat Drug Corp. v. Express
Scripts Holding Co., 911 F.3d 505, 512 (8th Cir. 2018).
The plan was created in May 2014, after Semi spun
off from SunEdison. The plan made several investment
options available to its participants, including a fund that
invested solely in the common stock of Semi’s former
corporate parent. Usenko, among others, elected to
exercise this option and held shares of SunEdison common stock through his individual plan account. The plan
was later amended to freeze contributions to the SunEdison stock fund. Pursuant to the amendment, effective
February 1, 2015, participants could retain their existing
investments but could no longer direct additional investments into the SunEdison stock fund.
By mid-2015, it was widely reported that SunEdison
was facing liquidity problems and was in financial distress due to an ambitious series of acquisitions. On July
20, SunEdison issued a press release announcing that it
would acquire yet another company, Vivint Solar, Inc.,
for $ 2.2 billion. Markets reacted poorly, and SunEdison’s stock price fell from $ 31.56 per share to $ 26.01 per
share in a week. On August 6, SunEdison issued another
press release, reporting a $ 263 million loss in its second
quarter. That same day, the financial press warned that
SunEdison had a $ 10.7 billion corporate debt load and
We also derive certain information from plan documents and
an independent auditor’s report dated December 31, 2014, which
Usenko’s complaint refers to directly and whose authenticity is not
in question. See Dittmer Properties L.P. v. F.D.I.C., 708 F.3d 1011,
1021 (8th Cir. 2013).
3
-App. 4anegative cash flow from operations. By the end of the
day, SunEdison’s stock closed at $ 17.08 per share. At
the time, investor demand for energy stocks was generally weak.
On November 10, SunEdison issued a press release
reporting its third quarter results. These results spurred
more negative commentary from the financial press, who
questioned whether SunEdison would even be able to
meet its existing financial obligations. On November 18,
SunEdison’s stock closed at $ 3.25 per share. On January
7, 2016, SunEdison announced that it was restructuring $
738 million of its debt. That same day, the financial press
reported that this decision had triggered a massive selloff because of its dilutive effect on investors, even though
SunEdison’s strategy would add an estimated $ 555
million to its liquidity. That week, shares of SunEdison
dropped roughly 30 percent, closing at $ 3.41.
By January 12, the financial press was reporting that
SunEdison might not survive the year, and SunEdison’s
stock closed at $ 3.02 per share, hitting a low of $ 2.36
during the day. Commentary suggested that SunEdison
stock was risky due to its generally disappointing historical performance and feeble growth in earnings per
share as well as the company’s high debt-management
risk. SunEdison then twice publicly delayed filing its
annual report, stating that it needed additional time for
its audit committee to complete an internal investigation
and otherwise confirm the accuracy of its financial
position.
In April, SunEdison and certain of its subsidiaries
filed for bankruptcy. SunEdison’s common stock was
suspended immediately from trading at the market
opening on the New York Stock Exchange on April 21,
2016. All told, between July 20, 2015, and April 21, 2016,
-App. 5athe market price of SunEdison stock fell from $ 31.66 to
$ 0.34. As a result, those who had invested in SunEdison
stock through Semi’s retirement plan effectively lost the
entire value of their investment.
In his single-count complaint, Usenko alleges that the
defendants breached their fiduciary duties. He claims
that they knew or should have known that continuing to
hold SunEdison stock between July 20, 2015, and April
21, 2016, was imprudent because SunEdison’s failing
business prospects dramatically altered its suitability as
a retirement investment.
II
We review the district court’s decision granting a motion to dismiss for failure to state a claim de novo,
assuming all factual allegations as true and construing
all reasonable inferences in favor of the nonmoving
party. Retro Television, Inc. v. Luken Commc’ns, LLC,
696 F.3d 766, 768 (8th Cir. 2012). “To survive a motion to
dismiss, a complaint must contain sufficient factual
matter, accepted as true, to ‘state a claim to relief that is
plausible on its face.’ ” Ashcroft v. Iqbal, 556 U.S. 662,
678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (quoting Bell
Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955,
167 L.Ed.2d 929 (2007)). “Threadbare recitals of the
elements of a cause of action, supported by mere conclusory statements, do not suffice.” Id. Rather, well-pleaded
factual allegations must “plausibly give rise to an entitlement to relief.” Id. at 679, 129 S.Ct. 1937. That is, they
must “raise a right to relief above the speculative level.”
Twombly, 550 U.S. at 555, 127 S.Ct. 1955.
To prevail on a claim of breach of fiduciary duty under ERISA, the plaintiff “must make a prima facie
showing that [a] defendant acted as a fiduciary, breached
[his] fiduciary duties, and thereby caused a loss to the
-App. 6aPlan.” Braden v. Wal-Mart Stores, Inc., 588 F.3d 585,
594 (8th Cir. 2009).
ERISA imposes upon fiduciaries twin duties of loyalty and prudence, requiring them to act solely in the
interest of plan participants and beneficiaries and to
carry out their duties with the care, skill, prudence, and
diligence under the circumstances then prevailing that a
prudent man acting in a like capacity and familiar with
such matters would use in the conduct of an enterprise of
a like character and with like aims.
Id. at 595 (cleaned up). The “prudent person standard is an objective standard that focuses on the
fiduciary’s conduct preceding the challenged decision.”
Roth v. Sawyer-Cleator Lumber Co., 16 F.3d 915, 917–18
(8th Cir. 1994) (citation omitted). ERISA requires
fiduciaries to act with prudence, not prescience, and
therefore the relevant inquiry focuses on the information
available to the fiduciary at the time of the relevant
investment decision. Pension Benefit Guar. Corp. ex rel.
St. Vincent Catholic Med. Ctrs. Ret. Plan v. Morgan
Stanley Inv. Mgmt., Inc., 712 F.3d 705, 716 (2d Cir.
2013).
In Fifth Third Bancorp v. Dudenhoeffer, 573 U.S.
409, 134 S.Ct. 2459, 189 L.Ed.2d 457 (2014), the Supreme
Court considered how the pleading standard articulated
in Iqbal and Twombly guides the analysis of allegations
that ERISA fiduciaries “knew or should have known in
light of publicly available information, such as newspaper
articles, that continuing to hold and purchase [the employer’s] stock was imprudent.” Id. at 426, 134 S.Ct.
2459. In relevant part, the complaint in Dudenhoeffer
alleged that publicly available information warned that
the stock at issue was “overvalued and excessively risky”
and claimed that, under the circumstances, a prudent
-App. 7afiduciary would have known by July 2007 that continuing
to hold the stock was imprudent. Id. at 413, 134 S.Ct.
2459. Between July 2007 and September 2009, when the
complaint was filed, the stock’s price dropped by 74%,
which “eliminated a large part of the retirement savings
that the participants had invested in” the plan. Id.
The Court opined 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.” Id. at 426, 134 S.Ct. 2459. This is because “ERISA fiduciaries, who ... could reasonably see
little hope of outperforming the market based solely on
their analysis of publicly available information may, as a
general matter, ... prudently rely on the market price.”
Id. at 426–27, 134 S.Ct. 2459 (cleaned up). In its analysis,
the Court embraced the view that a security’s price in an
efficient market reflects all publicly available information and represents the market’s best estimate of its
value in light of its riskiness and the future net income
flows that those holding it are likely to receive. See
Coburn v. Evercore Trust Co., 844 F.3d 965, 969 (D.C.
Cir. 2016). Noting that the complaint at issue did not
point to any special circumstance that rendered reliance
on the market price imprudent, the Court remanded for
the lower courts to apply its guidance in the first instance. Dudenhoeffer, 573 U.S. at 427–30, 134 S.Ct. 2459.
The similarity between Usenko’s allegations and
those that the Supreme Court deemed insufficient to
plausibly state a breach of the duty of prudence in
Dudenhoeffer is undeniable. Usenko’s complaint presents a series of public announcements by SunEdison
that spurred negative commentary by the financial press
-App. 8aand concomitant drops in stock price. The complaint
faults the defendants for failing to act on this publicly
available information and alleges that the declines in
SunEdison’s stock price and reports of SunEdison’s
extraordinary debts and liquidity problems should have
prompted them to investigate and ultimately determine
that divesting from SunEdison stock would be prudent
as early as July 20, 2015. It contains no allegations that
the circumstances indicated to the defendants that they
could not rely on the market’s valuation of SunEdison
stock. See Singh v. RadioShack Corp., 882 F.3d 137, 147
(5th Cir. 2018) (per curiam) (“Plaintiffs cannot evade
Dudenhoeffer’s general implausibility rule by disguising
claims based on public information as special circumstances.”). Indeed, Usenko’s allegations suggest that
SunEdison’s stock price did react to the company’s
announcements and the financial press’s negative commentary as to the company’s high debt load and liquidity
problems, among other concerns.
In sum, Usenko, like the plaintiffs in Dudenhoeffer,
alleges that the defendants breached their fiduciary
duties because they failed to “outperform[ ] the market
based solely on their analysis of publicly available information” and to conclude that, because SunEdison stock
was excessively risky, the plan should divest from SunEdison. Id. at 427, 134 S.Ct. 2459 (cleaned up). As
explained by the Supreme Court in Dudenhoeffer, as
well as several of our sister circuits examining similar
claims, such allegations are insufficient to plausibly
allege that ERISA fiduciaries breached the duty of
prudence. See id; see also Kopp v. Klein, 894 F.3d 214,
218–21 (5th Cir. 2018) (per curiam) (dismissing a claim
that defendants breached fiduciary duty “by allowing
Plan participants to invest in Idearc stock at a time when
publicly available information revealed it was not a
-App. 9aprudent investment”); Rinehart v. Lehman Bros. Holdings Inc., 817 F.3d 56, 61, 65–68 (2d Cir. 2016) (per
curiam) (dismissing a claim that fiduciaries “permit[ted]
investment in Lehman stock in the face of circumstances
arguably foreshadowing its eventual demise”). Accordingly, Usenko fails to plausibly allege that the
defendants breached the duty of prudence and dismissal
for failure to state a claim is proper.4
Usenko’s attempts to evade Dudenhoeffer are unavailing. We reject Usenko’s argument that Tibble v.
Edison International, ––– U.S. ––––, 135 S. Ct. 1823, 191
L.Ed.2d 795 (2015) saves his deficient duty-of-prudence
allegations. The Supreme Court’s acknowledgment in
Tibble that an ERISA fiduciary “has a continuing duty
to monitor trust investments and remove imprudent
ones,” id. at 1828, does not exempt Usenko’s complaint
from meeting Dudenhoeffer’s pleading requirements,
see, e.g., Singh, 882 F.3d at 147 (5th Cir. 2018) (per
curiam) (noting that “Tibble establishes that ERISA
fiduciaries have a continuing duty to monitor the prudence of plan investments,” but nonetheless concluding
that “[b]ecause the complaint does not plausibly identify
any special circumstances undermining the market price
... , it does not state a duty of prudence claim based on
public information”). And Usenko cannot distinguish
Dudenhoeffer on the basis that it only applies to duty-ofprudence claims in the context of employer securities.
The Court in Dudenhoeffer explicitly rejected the contention that fiduciaries of employee stock ownership
And Usenko’s claim that the defendants also breached their cofiduciary obligations by knowingly participating in each other’s
purported breaches cannot “survive without a sufficiently pled
theory of an underlying breach.” Brown v. Medtronic, Inc., 628 F.3d
451, 461 (8th Cir. 2010). So dismissal of that claim was proper, too.
4
-App. 10aplans are entitled to a special presumption of prudence.
See Dudenhoeffer, 573 U.S. at 418, 134 S.Ct. 2459. As
such, we see no indication that the Court intended to
limit Dudenhoeffer to employer securities. See id. at
425–30, 134 S.Ct. 2459.5
III
Finally, we affirm the denial of Usenko’s motion for
leave to amend his complaint because he failed to submit
a proposed amended complaint with his motion. See, e.g.,
In re 2007 Novastar Fin. Inc., Sec. Litig., 579 F.3d 878,
884 (8th Cir. 2009).
Accordingly, the judgment of the district court is affirmed.
In his reply brief, Usenko argues for the first time that his
complaint survives the defendants’ Rule 12(b)(6) motion because he
also pleads that the defendants breached their fiduciary duties by
failing to diversify away from SunEdison common stock. We
ordinarily do not consider arguments raised for the first time in a
reply brief and decline to do so here. See, e.g., Viking Supply v. Nat’l
Cart Co., 310 F.3d 1092, 1099 (8th Cir. 2002).
5
-App. 11a-
APPENDIX B
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MISSOURI
ALEXANDER Y. USENKO,
Derivatively on Behalf of the
SunEdison Semiconductor Ltd.
Retirement Savings Plan,
Civil Action No.
4:17-cv-2227-AGF
Plaintiff,
vs.
SUNEDISON SEMICONDUCTOR, LLC, THE INVESTMENT
COMMITTEE OF THE SUNEDISON SEMICONDUCTOR
RETIREMENT SAVINGS PLAN,
HEMANT KAPADIA, PENNY
CUTRELL, STEVE EDENS,
KAREN STEINER, CHENG
YANG, and BEN LLORICO,
Defendants.
AMENDED COMPLAINT
Plaintiff Alexander Y. Usenko (“Plaintiff”), derivatively on behalf of the SunEdison Semiconductor
Retirement Savings Plan (the “Plan”), brings this action
in a derivative capacity against the below-named defendants (collectively “Defendants”) pursuant to §§ 404, 405,
409, and 502 of the Employee Retirement Income Secu-
-App. 12arity Act of 1974 (“ERISA”), 29 U.S.C. §§ 1104, 1105,
1109, and 1132. All allegations contained herein are
based upon personal information as to Plaintiff and the
investigation of Plaintiff’s counsel, including, but not
limited to, a review of publicly filed documents, or upon
information and belief, where indicated. It is likely that,
once discovery begins in earnest, the roles of additional
persons or entities in the wrongdoing alleged below will
be revealed and the wrongdoing itself will be further
illuminated. In that event, Plaintiff will seek to amend
this Complaint to add new parties and/or claims in
accordance with the Federal Rules of Civil Procedure
and this Court’s rules.
NATURE OF THE ACTION
1.
This case is about the failure of the fiduciaries
of the Plan, to protect the interests of Plan participants
in violation of their legal obligations under ERISA.
Defendants (defined below) breached the duties they
owed to the Plan by, inter alia, retaining SunEdison,
Inc.’s (“SunEdison”) common stock (hereafter, “SunEdison Stock”) as an asset held by the Plan, when a
reasonable fiduciary using the “care, skill, prudence, and
diligence . . . that a prudent man acting in a like capacity
and familiar with such matters” would have done otherwise. See ERISA § 404(a)(1), 29 U.S.C. § 1104(a)(1).
2.
Specifically, and as shown in greater detail below, Defendants permitted the Plan to continue to hold
and/or offer an asset (which consisted almost in its
entirety of another company’s stock — the SunEdison
Stock Fund) as an investment option to Plan participants
even after Defendants knew or should have known that
during the Relevant Period — between July 20, 2015 and
April 21, 2016 — that: (a) SunEdison was in extremely
poor financial condition; and (b) SunEdison faced equally
poor long-term prospects, making it an imprudent
-App. 13aretirement investment for the Plan. Defendants were
empowered, as fiduciaries, to remove this imprudent
asset (which was not a Semi stock fund but a completely
different company stock’s fund) held by the Plan, yet
they failed to do that, or to act in any way to protect the
interests of the Plan or its participants, in violation of
their legal obligations under ERISA.
3.
As set forth below, there were many red flags
and warning signs that came to light during SunEdison’s
demise that Defendants could not have reasonably
believed that SunEdison Stock was a prudent investment
option. As a result of Defendants’ failure to recognize the
imprudence of continued investment in SunEdison
Stock, the Plan participants lost their hard- earned
retirement money.
4.
The market price of SunEdison stock (symbol
SUNE) fell from $31.66 on July 20, 2015 (the beginning
of the Relevant Period) to $0.34 on April 21, 2016 (the
end of the Relevant Period), as a result of SunEdison’s
filing for bankruptcy relief. Thus, because bankruptcy
filings indicate that the SunEdison estate will not have
sufficient funds to satisfy unsecured creditors, Plan
participants holding the SunEdison Stock Fund in their
Plan retirement accounts have effectively lost the entire
value of their investment.
JURISDICTION AND VENUE
7.
Subject Matter Jurisdiction. This Court has
subject matter jurisdiction over this action pursuant to
28 U.S.C. § 1331 and ERISA § 502(e)(1), 29 U.S.C. §
1132(e)(1).
8.
Personal Jurisdiction. This Court has personal jurisdiction over all Defendants because they are
all residents of the United States and ERISA provides
for nation-wide service of process pursuant to ERISA §
-App. 14a502(e)(2), 29 U.S.C. § 1132(e)(2).
9.
Venue. Venue is proper in this District pursuant to ERISA § 502(e)(2), 29 U.S.C. § 1132(e)(2). The
Plan is administered in such District, some or all of the
fiduciary breaches for which relief is sought occurred in
such District, and one or more defendants reside or may
be found in such District.
PARTIES
Plaintiff
10. Plaintiff Alexander Y. Usenko was an employee of Semi and a “participant” in the Plan during the
Relevant Period, within the meaning of ERISA § 3(7), 29
U.S.C. § 1102(7). During the Relevant Period, Plaintiff
Usenko held shares of SunEdison Stock through his
individual Plan account, and suffered losses as a result of
the Plan’s investment of its assets in SunEdison Stock.
Specifically, during the Relevant Period, the value of the
SunEdison Stock Fund in Plaintiff Usenko’s account
diminished as a result of Defendants’ breaches of fiduciary duty described herein. Plaintiff Usenko is no
different, in all material respects, than the many other
Semi employees who entrusted the Defendantfiduciaries with their retirement savings.
DEFENDANTS
11. Defendant Semi is a limited liability company
headquartered at 501 Pearl Drive, St. Peters, Missouri.
Semi is a fiduciary of the Plan and charged with the
responsibility to appoint the other fiduciaries who sit on
the Investment Committee of the Plan and Semi is also
charged with the responsibility to monitor the performance of said other fiduciaries.
12. Defendant the Investment Committee of the
SunEdison Semiconductor Retirement Savings Plan
-App. 15a(“Investment Committee”). The Investment Committee
is charged with the day-to-day management and administration of the Plan and/or management and disposition
of the Plan’s assets.
13. The following Defendants are members of the
Investment Committee:
(a) Defendant Hemant Kapadia (“Kapadia”)
was a fiduciary of the Plan during the Relevant Period.
Defendant Kapadia is also the Vice President and Chief
Financial Officer (CFO) of Semi during the Relevant
Period.
(b) Defendant Penny Cutrell (“Cutrell”) was
a fiduciary of the Plan during the Relevant Period.
Defendant Cutrell was the Manager of Financial Reporting at Semi from November 2013 through May 2015; a
Senior Manager of Financial Reporting at Semi from
May 2015 through November 2015; and a Senior Manager at TerraForm Power.
(c) Defendant Steve Edens (“Edens”) was a
fiduciary of the Plan. Defendant Edens was the Senior of
Global Human Resource Services from May 2014
through the present.
(d) Defendant Karen Steiner (“Steiner”) was
a fiduciary of the Plan. Defendant Steiner was a Senior
Benefits Manager at Semi from June 2008 through the
present.
(e) Defendant Cheng Yang (“Yang”) was a fiduciary of the Plan. Defendant Yang was the Senior
Manager of Financial Reporting at Semi from March
2013 through May 2014. Thereafter, from March 2014
through March 2017, Defendant Yang was Controller,
Director of Financial Reporting and Technical Accounting at Semi.
-App. 16a(f) Defendant Ben Llorico (“Llorico”) was a
fiduciary of the Plan. Defendant Llorico was Director of
Compensation, Benefits and HRIS at Semi from November 2012 through April 2017. Thereafter, from April
2017 to the present, Defendant Llorico was Human
Resources Leader at Semi.
THE PLAN
Purpose
14. Semi was previously a wholly owned subsidiary
of SunEdison, its former parent company. Following an
initial public offering of stock in SunEdison Semiconductor Limited (stock symbol SEMI), on May 28, 2014, the
Plan was created. A transfer of $86,252,289, representing
all SunEdison, Inc. Retirement Savings Plan assets
owned by former SunEdison employees who were now
Semi employees, was made from the SunEdison, Inc.
Retirement Savings Plan to the Plan on June 24, 2014.
15. The Plan is a defined contribution retirement
savings plan, covering all eligible employees of Semi. The
Plan is intended “to provide a means whereby an Employer may share its profits with its eligible Employees
on a deferred basis and thereby provide a measure of
financial support for such Employees and their Beneficiaries upon retirement or in the event of death or
disability. See SunEdison Semiconductor Retirement
Savings Plan (“Semiconductor Plan Document”), Article
I, Section 1.3.
16.
Pursuant to the Semi Plan Document:
The Investment Committee may establish one or
one Pooled Investment Funds, with different investment objectives, from time to time; and establish
procedures consistent with the Plan permitting Participants to direct investment of all or a designated
-App. 17aportion of their Individual Accounts among such
Pooled Investment Funds. The Investment Committee also may designate Segregated Investment
Funds in which Participants may direct investment
of all or a designated portion of their Individual Accounts. In addition to options designated by the
Investment Committee, there shall be a SunEdison
Stock Fund.
Article XVIII, Section 18.1.
17. Upon information and belief, the Investment
Committee, as fiduciaries, are responsible for the day-today administration and operation of the Plan.
18. Further, pursuant to the Plan’s Financial
Statements with Independent Auditor’s Report, dated
December 31, 2014, “[t]he SunEdison, Inc. Stock fund
was frozen on February 1, 2015.” Id. at p. 8.
SUNEDISON STOCK FUND
19. The Plan held shares in the SunEdison Stock
Fund valued at $5,725,906.
CLASS ACTION ALLEGATIONS
IN THE ALTERNATIVE
20. Plaintiff brings this action derivatively pursuant to § 502(a)(2) and (3) of ERISA, 29 U.S.C. §
1132(a)(2) and (3). Plaintiff brings this action derivatively
on the Plan’s behalf pursuant to ERISA §§ 409 and 502,
29 U.S.C. §§ 1109 and 1132, and, in the alternative, as a
class action pursuant to Rules 23(a), (b)(1), and/or (b)(2)
of the Federal Rules of Civil Procedure on behalf of the
Plan, Plaintiff, and the following class of similarly situated persons (the “Class”):
All persons, except Defendants and their immediate
family members, who were participants in or beneficiaries of the SunEdison Semiconductor Ltd.
-App. 18aRetirement Savings Plan at any time between July
20, 2015 and April 21, 2016 (the “Relevant Period”)
and whose Plan accounts included investments in
SunEdison Stock.
21. Plaintiff reserves his right to modify the Relevant Period definition in the event that further
investigation/discovery reveals a more appropriate
and/or broader time period during which SunEdison
Stock constituted an imprudent investment option for
the Plan.
22. Given ERISA’s distinctive representative capacity and remedial provisions, courts have observed
that ERISA litigation of this nature presents a paradigmatic example of a FED. R. CIV. P. 23(b)(1) class action.
23. The members of the Class are so numerous
that joinder of all members is impracticable. While the
exact number of Class members is unknown to Plaintiff
at this time, and can only be ascertained through appropriate discovery, Plaintiff believes there are thousands of
employees of Semi who participated in, or were beneficiaries of, the Plan during the Relevant Period whose
Plan accounts included SunEdison Stock.
24. At least one common question of law or fact exists as to Plaintiff and all members of the Class. Indeed,
multiple questions of law and fact common to the Class
exist, including, but not limited to:
•
whether Defendants each owed a fiduciary duty to the Plan, Plaintiff, and members of the Class;
•
whether Defendants breached their fiduciary
duties to the Plan, Plaintiff, and members of the Class by
failing to act prudently and solely in the interests of the
Plan and the Plan’s participants and beneficiaries;
•
whether Defendants violated ERISA; and
-App. 19a•
whether the Plan, Plaintiff, and members of the
Class have sustained damages and, if so, what is the
proper measure of damages.
25. Plaintiff’s claims are typical of the claims of the
members of the Class because the Plan, Plaintiff, and the
other members of the Class each sustained damages
arising out of Defendants’ wrongful conduct in violation
of ERISA as complained of herein.
26. Plaintiff will fairly and adequately protect the
interests of the Plan and members of the Class because
they have no interests antagonistic to or in conflict with
those of the Plan or the Class. In addition, Plaintiff have
retained counsel competent and experienced in class
action litigation, complex litigation, and ERISA litigation.
27. Class action status in this ERISA action is
warranted under Rule 23(b)(1)(B) because prosecution of
separate actions by the members of the Class would
create a risk of adjudications with respect to individual
members of the Class which would, as a practical matter,
be dispositive of the interests of the other members not
parties to the action, or substantially impair or impede
their ability to protect their interests.
28. Class action status is also warranted under the
other subsections of Rule 23(b)(1)(A) and (b)(2) because:
(i) prosecution of separate actions by the members of the
Class would create a risk of establishing incompatible
standards of conduct for Defendants; and (ii) Defendants
have acted or refused to act on grounds generally applicable to the Class, thereby making appropriate final
injunctive, declaratory, or other appropriate equitable
relief with respect to the Class as a whole.
-App. 20aFACTS BEARING UPON DEFENDANTS’ FIDUCIARY BREACHES
SunEdison Stock Was an Imprudent Investment for
the Plan During the Relevant Period Due to SunEdison’s Changed Circumstances
29. Prior to and during the Relevant Period, SunEdison incurred a gargantuan amount of debt to fund its
operations. In particular, SunEdison’s debt load reached
$11.7 billion by the end of the third quarter of 2015 in
part due to acquisitions of other entities. This debt
threatened SunEdison’s liquidity and its ability to stay
solvent.
30. In 2014 and 2015, SunEdison spun off two separate entities, TerraForm Power, Inc. (“TERP”) and
TerraForm Global (“Global”), called “yieldcos.” Similar
to real estate investment trusts (“REITS”), yieldcos are
separate publicly traded companies that are formed to
own and hold operating assets that produce a predictable
cash flow and issue steady dividends to investors.
31. Due to the chilled investor demand for Global’s
stock, SunEdison agreed to acquire $30 million of Global’s Class A common stock in its IPO, which was
expected to be purchased by public investors.
32. In the spring of 2015, SunEdison took on massive debt consisting of $337 million in 3.75% Guaranteed
Exchangeable Senior Secured Notes due 2020 (the
“Exchangeable Notes”) and a $410 million two-year loan
(the “Margin Loan”) in order to fund new acquisitions.
33. As early as mid-2015, global markets turned
against SunEdison and its growth strategy. And, as
recognized by analysts reports (including May 19, 2015
Avondale Partners article and an August 31, 2015 J.P.
Morgan North American Equity Research article),
-App. 21ainvestor demand for energy stock was weak — with an
increasingly negative shift in attitudes toward yieldcos.
34. SunEdison’s overall corporate debt rose from
$7.2 billion at the end of 2014 to $10.7 billion by the end
of the second quarter of 2015.
35. Rather than address known needs to increase
revenues, lower debt, and service existing debt, SunEdison again jumped into another acquisition. On July 20,
2015, SunEdison announced in a press release that it had
entered into a merger agreement with Vivint Solar, Inc.
(“Vivint” or “VSLR”), a provider of residential solar
systems in the United States, for $2.2 billion in cash,
stock and convertible notes (the “Vivint Solar Acquisition”).
36. The liquidity risks facing SunEdison were
widely reported to the public during the Relevant Period
and were known or should have been well known to
Defendant-fiduciaries, who nonetheless failed to investigate the continued prudence of investing Plan assets in
SunEdison Stock Fund (an asset of an entirely different
company) and failed to act to protect the Plan participants’ assets invested in SunEdison Stock.
37. By the time of the Vivint Solar Acquisition,
SunEdison was already highly leveraged and in financial
distress as evidenced by its public quarterly reports
discussed herein. As such, SunEdison needed TERP’S
liquidity and credit resources to help finance the Vivint
Solar Acquisition. Consequently, SunEdison used its
control over TERP (SunEdison retained over 90% of the
voting power in TERP Power after its IPO) to compel
TERP to purchase the assets that SunEdison was
acquiring as part of its acquisition of Vivint.
38. The market’s negative reaction to the Vivint
Solar Acquisition drove down SunEdison’s Stock price
-App. 22afrom $31.56 on the trading day (July 17, 2015) before the
announcement of the Vivint Solar Acquisition compared
to $26.01 per share by the end of the following week.
39. On August 6, 2015, SunEdison issued a press
release, filed with the SEC as an exhibit to the Form 8K, reporting results of its operations for the 2015 second
quarter. The results were dismal and should have alerted
Defendant-fiduciaries (among other warning signs
alleged herein that were already out in the public domain) of the need to investigate the prudence of
maintaining the SunEdison Stock Fund as a Plan investment. In particular, SunEdison reported a loss of
$263 million in its second quarter. Additionally, SunEdison stated it had a loss of 93 cents per share. SunEdison
also reported that gross margins on the projects that it
had sold to TERP were only 12.5% (down from SunEdison’s prior guidance of 18%).
40. The market reacted poorly to SunEdison’s announcement of its 2015 second quarter earnings:
NEW YORK (TheStreet) -- SunEdison (SUNE - Get
Report) shares are down by 12.90% to $19.92 in early
market trading on Thursday, following the release of
the solar energy company’s 2015 second quarter
earnings results.
The company reported a net loss of $263 million, or a
loss of 93 cents per share on an adjusted basis on
revenue that rose 5.6% to $455 million for the quarter.
*
*
*
Separately, TheStreet Ratings team rates SUNEDISON INC as a Sell with a ratings score of D+.
TheStreet Ratings Team has this to say about their
recommendation:
-App. 23a“We rate SUNEDISON INC (SUNE) a SELL. This
is driven by a number of negative factors, which
we believe should have a greater impact than any
strengths, and could make it more difficult for investors to achieve positive results compared to
most of the stocks we cover. The company’s weaknesses can be seen in multiple areas, such as its
generally high debt management risk and weak
operating cash flow.”
See “SunEdison (SUNE) Stock Falling Following Earnings Results,” The Street, Aug. 6, 2015 (emphasis added).
SunEdison Stock closed at $17.08 on August 6, 2015.
41. On the same day that SunEdison released its
2015 second quarter earnings, alarms rang in the financial press that instead of building a successful renewable
energy conglomerate, SunEdison was actually building
nothing more than a “house of cards”:
Debt could be too much for this renewable energy
giant to overcome.
In a quarter when its competitors wowed investors
with better than expected profits, SunEdison
(NYSE: SUNE) is plunging after another massive
quarterly loss.
The loss itself shouldn’t surprise anyone who follows SunEdison, but it highlights how tough it’s
going to be to build a renewable energy powerhouse with nearly $11 billion in debt and negative
cash flow from operations. The market is finally
starting to realize that this high-profile renewable energy powerhouse may actually be building a
house of cards.
Constructing a renewable energy giant
-App. 24aWhat SunEdison has sold to investors over the
past few years is that it can build a massive renewable energy company that can play in nearly
every end market in every geography around the
world. The company has built an 8.1 GW pipeline of
projects with 1.9 GW under construction on top of
404 MW finished in the second quarter. Those are
impressive numbers no matter who is building them.
But building that scale has been costly for SunEdison. The company has a $10.7 billion debt load
and continual losses quarter after quarter. Case in
point was a loss of $263 million in the second quarter
of 2015 on $455 million of revenue.
There are a few alarming numbers in last quarter’s report besides
the loss. First is that
marketing and administration costs were $259 million, more than two and a half times the $103 million
gross margin the company generated. On top of
that, interest expense was $146 million, again more
than gross margin.
With losses mounting and debt piling up, the only
way for SunEdison to get out from under the pressure is to build more projects even faster with
even more debt. It’s the only path to potential profitability, but it’s fraught with risk if interest rates
rise or competitors with better technology begin
winning projects. Given First Solar and SunPower’s
profitable results over the last two weeks, I think
that second concern is bigger than SunEdison wants
to admit.
Terraform power paying money it doesn’t have.
You could say that SunEdison is just pushing
projects down to its yieldco, TerraForm Power
-App. 25a(NASDAQ: TERP), which will monetize projects
long term. That’s true, and it has grown cash
available for distribution (CAFD), but again, it’s
starting to look like a house of cards.
TerraForm Power’s CAFD for Q2 was reported to
be $65 million, and it paid a dividend of $0.335 per
share. But cash provided by operations was just
$45.9 million, and net income was just $29.1 million.
On top of that, the company has $2.3 billion of debt
to pay for with the cash flow.
At the very least, TerraForm Power is being aggressive about what it pays to shareholders and
SunEdison, who owns all of its incentive distribution
rights, and it is willing to leverage the balance sheet
to do that.
Beware buying the biggest in renewable energy
SunEdison likes to tout itself as the biggest company in renewable energy, but it’s far from the
most profitable, despite having one of the biggest
debt loads in the industry. That concerns me as an
investor, and I don’t see any sort of sustainable advantage for the company in renewable energy right
now. SunEdison uses commodity solar panels, wind
turbines manufactured by large conglomerates, and
even battery storage that’s a commodity.
I’m not sure that’s a path to success in renewable
energy, and nearly $11 billion in debt is enough to
scare me far away from this stock.
See “SunEdison’s Losses Become a Red Flag for Investors,” The Motley Fool, Aug. 6, 2015 (emphasis added).
-App. 26a42. The massive losses reported by SunEdison for
its second 2015 quarter, the significant SunEdison Stock
price decline, as well as media reports that SunEdison
was based on nothing but a “house of cards” because of
SunEdison’s massive debt load and weak operating cash
flow, among other problems, should have prompted
Defendants to investigate the continued prudence of
holding this asset in the Plan and to have concluded that
protective action to dispose of the Plan’s investment in
SunEdison Stock was necessary. Had a proper investigation been conducted, a prudent fiduciary would have
determined that SunEdison Stock was no longer a
prudent retirement investment for the Plan’s participants. However, Defendants did no reasonable
investigation and instead continued to hold and/or offer
the SunEdison Stock Fund as a Plan investment option,
in derogation of their ERISA duties.
43. At the same time, investor demand for energy
stocks was unexpectedly weak, with many energy investors (particularly hedge funds) retrenching in light of the
combined collapses of the oil and equities markets and an
increasingly negative shift in attitudes towards yieldcos.
See J.P. Morgan, North America Equity Research,
SunEdison, Inc.—In Light of Current Events: Initiating at Overweight, at 4 (Aug. 31, 2015). In fact, the stock
price of a SunEdison competitor’s yieldco — NRG Yield
Inc. — plunged nearly 70% between June and October
2015. See Keith Goldberg, Yieldco Bubble Set To Pop
For Clean Energy Cos., LAW360 (Oct. 8, 2015).
44. On November 10, 2015, SunEdison issued a
press release, filed with the SEC as an exhibit to the
Form 8-K, reporting results of its operations for the
third quarter ended September 30, 2015. Like the second
quarter results, these results were also nothing but
-App. 27adismal. SunEdison incurred a loss of 92 cents per share
from continuing operations for the third-quarter 2015,
much wider than the year-ago quarter loss of 77 cents.
SunEdison’s general and administration expenses
increased about 135% to $296 million. Moreover, interest
expenses doubled to $214 million because of higher debt.
Therefore, SunEdison posted a loss from continuing
operations of $287 million or 92 cents per share compared with a loss of $204 million or 77 cents posted in the
third quarter of 2014.
45. On the same day, SunEdison released its third
quarter 2015 results, Reuters reported that:
Nov 10 (Reuters) -- Shares of SunEdison Inc slid 24
percent to a nearly two-and- a-half-year low on Tuesday after the U.S. solar company posted a widerthan- expected loss, raising fresh concerns about its
ability to fund its operations, projects and acquisitions.
The stock was down $1.49, or 20.1 percent, at $5.91 in
midday trade on the New York Stock Exchange. The
stock has lost 82 percent of its value since hitting a
year high of $33.44 on July 20.
The company also said it would stop selling projects
to its two “yieldcos” -- bundles of solar, wind or other
power assets it spun off into dividend-paying public
entities.
The yieldcos had become an important source of
funding for SunEdison. The solar industry bellwether
said in its quarterly report on Monday that there
were no assurances it would be able to raise the $6.5
billion to $8.8 billion needed to fund the construction
of renewable energy assets through 2016. […]
-App. 28aSee “SunEdison shares slide 24 percent on liquidity
fears,” Reuters, Nov. 10, 2015 (emphasis added).
46. The following day, on November 11, 2015,
Business Insider reported that:
Renewable-energy firm SunEdison is down 14% after the company disclosed a number of cash
commitments in its quarterly earnings report.
Here are the details:
• According to an agreement SunEdison
made in September, it has bought $100 million worth of TerraForm Global stock from
one of its partners, Renova, in March 2016.
TerraForm Global is down 4.2%.
• It also may have to buy $4 billion worth of
wind-farm projects from Renova.
• Meanwhile, another SunEdison affiliate,
TerraForm Power, could be required to buy
450 megawatts of completed Vivint projects
in 2016, and up to 500 megawatts per year
from 2017 to 2020 from SunEdison.
• TerraForm Power is also obligated to pay
$580.3 million of assets for some residential
projects. TerraForm Power is down 4.3%.
That’s a lot of cash.
SunEdison has been hurting some of Wall Street’s
biggest names since the stock price started falling
this summer. The stock is down 75% year-to-date.
David Einhorn of Greenlight Capital, and Leon
Cooperman of Omega Advisors, have taken a hit. In
August, Cooperman asked SunEdison executives if
they would buy back some stock to stop the bleeding.
-App. 29aHe said: “Is there a massive change in the absolute
relative prices of a number of your entities you’re
involved with? Does this create an opportunity for
you creating additional value for shareholders by
capitalizing on the short-term pessimism in midterm
market or is that financial resource pretty much
earmarked for reinvestment in the business?”
In plain English, Cooperman was hoping that the
company might embark on stock buybacks. The answer was “no” then, and given these disclosures
regarding the company’s hefty cash commitments,
it’s probably “no” now, too.
See “SunEdison is getting obliterated,” Business Insider, Nov. 11, 2015.
47. In the meantime, despite the additional red
flags raised by the third quarter 2015 results regarding
SunEdison’s business and prospects and the negative
commentaries in the financial press, Defendantfiduciaries continued to hold the SunEdison Stock Fund
as a Plan investment asset, made no reasonable investigation of the prudence of continued investment of Plan
assets in SunEdison Stock and took no protective action
with regard to the Plan’s assets invested in SunEdison
Stock.
48. On November 19, 2015, following the release of
SunEdison’s financial results for the third quarter of
2015, Real Money reported that:
How did the former darling of the S&P 500 sink so
low? It seems the company cannot catch a break, as
liquidity concerns have caught the attention [of]
Wall Street analysts as well as hedge funds, who
pared down their position in the company. The Missouri-based renewable energy company develops,
builds and operates solar and wind power plants. As
-App. 30apart of its business, the company spun off two companies – TerraForm Global (GLBL) and TerraForm
Power (TERP), both YieldCos – to operate its projects. As of Wednesday’s market close, its stock
price has fallen 83% this year to $3.25 from $19.74.
“The company overextended itself, continuing to
make big acquisitions even when it became clear
that the market had turned against them,” Jim
Cramer said of the company in August as the stock
was already in freefall.
Recent news hasn’t been much better for SunEdison. The company’s disappointing third-quarter
earnings, released on November 10, raised questions
about its ability to meet current obligations.
The reality is this: SunEdison’s debt went from
$2.6 billion to $11.7 billion currently,” Gordon
Johnson of Axiom Capital Management told Real
Money. “A lot of that debt was due to the purchase
of companies and projects they intended to drop
down to the YieldCo. They can no longer do that so
the question is can they sell that stuff into the open
market at accretive margins?”
The company’s current ratio, which measures current assets vs. current liabilities, stands at 1.3, below
the 1.5 to 2.0 range considered prudent by stock analysts.
Axiom also takes issue with the company meeting its
targets and how it measures – and discloses – its
margins. In October, SunEdison said it planned to
sell projects at 18% to 19% gross margin, but it reported that the projects were actually sold at 15%.
Making matters worse, SunEdison said that the project excluded equipment, according to James
Bardowski of Axiom.
-App. 31a“When you include the full solar system, they actually sold it at 9.6% gross margin – far below what they
told everyone a month prior,” Bardowski told Real
Money.
Also concerning analysts is a $160 million loan SunEdison received from Goldman Sachs. Axiom as
well as other analysts believe the loan was used to
pay off another loan from Deutsche Bank. The company stated an interest rate on the loan of 9.25%, but
paid a hefty origination fee, which made the effective
rate closer to 15% — a high rate for short-term financing.
“There’s an absence of transparency in their financials,” said Doug Kass, of Seabreeze Partners
Management and columnist for Real Money Pro. In
reference to the company’s sales figures as well as
the Goldman Sachs loan.
While fundamental issues about the company’s sustainability persist, SunEdison has also taken several
other hits this week. On Monday, as hedge funds
submitted their 13Fs, it was revealed that several,
including David Einhorn’s Greenlight Capital and
Dan Loeb’s Third Point, significantly pared down or
completely exited their positions in SunEdison during the third quarter. Share of stock plummeted 33%
on Tuesday, in response to the news.
See “Will Troubled SunEdison Need to Raise More
Equity?,” Real Money, Nov. 19, 2015 (emphasis added).
49. Barron’s also echoed the analysts’ concerns regarding SunEdison’s liquidity, as well as analyst
downgrades of SunEdison Stock:
-App. 32aUBS dropped its price target to $3 a share from $6 on
Wednesday. Analyst Julien Dumoulin-Smith explained:
We value SUNE on a SOTP [sum of the parts] basis
using a combination of EV/EBITDA and DCF [distributable cash flow’ approaches plus the market
value of LP ownership stakes in TERP and GLBL.
We no longer assign any credit for GP incentive distribution rights (~$2/sh previously) and we now
subtract the value of -$169M of expensive (9.25%)
term loans taken out in August as disclosed in the
most recent 10Q (another $0.50). We’ve decreased
Vivint Solar (VSLR)’s cash balance from ~$150 mn
to $82 mn per the earnings update. It remains unclear the new sale price for the VSLR assets to
TERP via SUNE (who is responsible for pricing this
sale, presumably driving further downgrade if unable
to receive relief on VSLR terms).
SUNE shares have been sliding this month following third quarter results that raised questions
about its liquidity and ability to afford all its recent acquisitions. Reports that hedge funds were
unloading their holdings in the third quarter and
that management was not providing answers to
analysts’ questions have made matters worse.
See “SunEdison Closes Below $3 A Share,” Barron’s,
Nov. 19, 2015 (emphasis added).
50. SunEdison’s Stock plunged by 83% during the
second half of 2015, as investors became increasingly
concerned about SunEdison’s ability to finance its plans,
according to Bloomberg. In addition to the enormous
decline of its stock price, SunEdison continued to experience other serious financial difficulties during the fall of
2015, including a dearth of liquidity, falling margins, and
-App. 33aa reclassification of $739 million of its debt from “nonrecourse” to “recourse.” However, throughout this time,
despite the red flags concerning, inter alia, SunEdison’s
extraordinary debt and market fears it would not be able
to survive, raised by both SunEdison’s own quarterly
reports, as well as the financial press covering SunEdison, Defendant-fiduciaries did nothing to investigate the
continued prudence of SunEdison Stock as an investment for retirement nor to protect the Plan participants’
assets invested in SunEdison Stock.
51. SunEdison’s struggles continued in 2016. On
January 7, 2016, SunEdison filed Form 8-K with the
SEC, announcing pricing of $725 million of second lien
secured term loans and entry into a series of exchange
agreements, through which SunEdison swapped its debt
for a mix of equity and new debt with a higher interest
payment than the old debt did, resulting in $738 million
debt restructuring. However, SunEdison’s desperate
move to restructure its debt in an effort to stay afloat did
not succeed in propping up the SunEdison Stock price,
which already had been declining for months during the
preceding year (which went ignored by the Plan’s fiduciaries). The same date of the debt restructuring
announcement, it was publicly reported that:
Shares of the solar power semiconductor manufacturer are down over 40% following a series of
complex moves that the company made to reduce
debt.
First of all, SunEdison is offering a new $725 million
second lien loan that will be used to pay about $170
million on a second lien credit. Included in this loan
are 28.7 million shares worth of warrants.
Also, $580 million worth of notes will be traded for a
$225 million note due in 2018, plus 28 million com-
-App. 34amon shares. Finally, 11.8 million common shares are
being traded for $158.3 million in preferred stock.
This has triggered today’s massive sell-off because
how dilutive it is for investors. Unfortunately, diluting the stock seems like a necessary evil for
SunEdison, which desperately needs to reduce its
debt. However, no one was expecting the costs to be
this high.
See “Why Is SunEdison Stock Crashing?” Zacks Equity
Research, Jan. 7, 2016.
52. SunEdison’s January 7, 2016 announcement
that it was restructuring its debt did not stave off the
analysts’ concerns about SunEdison’s ability to survive.
On the contrary, more alarms concerning, inter alia,
SunEdison’s massive debt, liquidity risks, and ability to
raise more funds for project financing continued to
sound in the financial press:
Highlights of Debt Restructuring
SunEdison revealed that it is offering a $725 million
second lien loan comprising of $500 million of A1
loans and $225 million of A2 loans. Both the loans, to
mature on Jul 2, 2018, carry an interest rate of LIBOR+10%. The loan also includes 28.7 million
shares worth of warrants.
This loan is part of its series of exchange agreements with certain holders of its Convertible Senior
Notes due 2018, 2020, 2022 and 2025 and Perpetual
Convertible Preferred Stock (the “2018 Notes,”
“2020 Notes,” “2022 Notes,” “2025 Notes,” and “Preferred Stock,” respectively).
The company intends to use part of the net proceeds
to repay the existing $170 million second lien credit.
The remaining will be utilized for the payment of in-
-App. 35aterests, transaction costs and general corporate
purposes.
Also, $580 million worth of notes will be traded for a
$225 million note due in 2018, plus 28 million common shares. Finally, 11.8 million common shares will
be traded for $158.3 million in preferred stock.
What Triggered the Sell-off?
According to Bloomberg, though the aforementioned
deals will increase SunEdison’s net debt position by
$42 million, it will add $555 million to liquidity — a
very positive strategy for a cash-strapped company.
Then what made investors sell the stock? The high
cost SunEdison is incurring to enhance liquidity.
Citing Sven Eenmaa, an analyst at Stifel Financial
Corp., Bloomberg revealed that the new transaction
will increase SunEdison’s annual interest expenses
by about $40 million. The financial data provider also
stated that this will dilute existing shareholders by
approximately 18%.
Conclusion
It is to be noted that SunEdison has been struggling to finance its projects due to the tremendous
debt burden it incurred because of the string of
buyouts, including First Wind and Solar Grid
Storage, made over the past one year.
The situation worsened in July last year when SunEdison entered into a definitive agreement to
acquire Vivint Solar Inc. VSLR in a cash-stock deal
worth $2.2 billion. The deal made investors increasingly cautious about its rising debt pressure.
-App. 36aThese acquisitions, once believed to be strategic, are
now burning a hole in SunEdison’s pocket. The acquisitions have taken a toll on its balance sheet with
total outstanding debt (including current portion)
nearly doubling to $11.7 billion at the end of thirdquarter 2015 from $6.3 billion a year ago.
Although SunEdison has taken a series of initiatives, such as lowering its offer price for the Vivint
Solar buyout and quitting the development projects
in Brazil, to improve the liquidity position, we don’t
see any material impact on its balance sheet.
Further, we believe that with the recent sell-off, it
will become difficult for SunEdison to raise more
funds for project financing. Therefore, as the going gets tough for the company, we would advise
investors to stay away from this Zacks Rank #3
(Hold) stock for now.
See “SunEdison Dives 39% on Complex Debt Restructuring Moves,” Zacks Equity Research, Jan. 8, 2016
(emphasis added).
53. Following SunEdison’s January 7, 2016 debt
restructuring announcement, it was widely reported in
the financial press that SunEdison’s financial prospects
(and therefore the value of SunEdison Stock, and the
corresponding value of the Plan’s assets invested in this
asset) continued to look grim:
A move to reduce debt may tell us more about how
much trouble SunEdison Inc. is in than anything
else.
On the surface, you wouldn’t think a financial swap
that reduces both long- and short-term debt would
be a bad thing for a highly indebted company. But
for SunEdison Inc (NYSE: SUNE), the an-
-App. 37anouncement that it was swapping debt for equity
and a reduced amount of debt was met with scorn
on Wall Street. …
The problem for SunEdison is that it got so indebted
that creditors started demanding higher and higher
interest rates. At the same time, the company was
forced to pivot strategies to selling projects to third
parties, which is lower margin than holding them on
the balance sheet. The combination of higher borrowing costs and lower margins may be too much
for SunEdison to overcome.
The thing with debt...
*
*
*
The problems with debt start to show if returns
don’t exceed the cost of debt. And with $11.7 billion
in debt, $7.9 billion of which is at the parent company, the cost of debt is high for SunEdison.
*
*
*
According to analyst Sven Eenmaa at Stifel Financial Corp., the exchange offer made on Thursday will
actually increase interest expense annually by about
$40 million because it exchanged low interest rate
convertible debt for higher interest rate term debt.
With this included, SunEdison’s interest costs are
about $276 million per year.
*
*
*
Just breaking even will be a challenge based on the
numbers above, but it’s possible with an expected 3.5
GW installed in 2016. The real problems start to
emerge when you start looking at its future cost of
debt.
-App. 38a. . . the $725 million term loans announced yesterday
came with interest rates of LIBOR + 10%, or about
10.85% as of today at 6-month LIBOR rates.
That’s an insanely high interest rate compared to
competitors like First Solar and SunPower, who are
paying LIBOR plus 3.5% or less on short-term debt.
Not only does that mean interest costs may be increasing further in the future, it make it harder
for SunEdison to build projects with competitive
financing structures versus competitors.
*
*
*
The general theme here is that SunEdison’s business is moving toward the lower-margin business
of selling projects to third parties at the same
time its borrowing costs are trending higher.
That’s a slippery slope for any business, and it
doesn’t bode well for SunEdison, especially when
it’s competing against companies with much
lower cost structures.
As an investor, I’m staying far away from a highrisk company like SunEdison. It’s possible the company survives all of these challenges, but the path
it’s currently on is unsustainable, and I think
there’s a lot more dilution and/or restructuring to be
done before it gets out from under its messy financial situation.
The history of highly indebted companies in renewable energy isn’t good, and the path forward
for SunEdison doesn’t look like a profitable one
for investors.
“SunEdison Inc’s Digging a Hole It May Never Get Out
Of”, The Motley Fool, Jan. 9, 2016 (emphasis added).
54.
Indeed, because the market did not react posi-
-App. 39atively to SunEdison’s debt restructuring maneuver
announced on January 7, 2016, the value of the Plan’s
assets invested in SunEdison Stock continued to decline,
reflecting the severe deterioration of SunEdison’s
financial performance:
…24/7 Wall St. has tracked five companies in which
shareholders were destroyed last week.
*
*
*
Investors pummeled SunEdison Inc. (NYSE:
SUNE) after it restructured more of its debt this
week, sending the share price down 46% at one
point. The restructuring deal extinguishes about
$580 million in convertible debt and $158.3 million in
preferred stock. The so-called Second Lien Secured
Term Loans are expected to close on January 11,
and SunEdison expects to receive $725 million in
cash. After paying off approximately $170 million on
its existing second lien credit facility, SunEdison will
retain $555 million for, among other things, general
corporate purposes.
The transactions will dress up the company’s balance sheet, but the price is very high, according to
one analyst cited by Bloomberg. SunEdison’s interest expense is likely to grow by $40 million a year
and existing shareholders are being slapped with
about 18% dilution to the value of their shares. Over
the past week, the stock dropped roughly 30%.
Shares of SunEdison closed at $3.41 late on Friday,
with a consensus price target of $14.93 and a 52week range of $2.55 to $33.45.
See “5 Stocks That Destroyed Shareholders This Past
Week,” 24/7 Wall St.com, Jan. 9, 2016 (emphasis added).
55.
On January 12, 2016, as SunEdison Stock con-
-App. 40atinued on its downward slide, it was reported that:
Gordon Johnson has doubts about SunEdison Inc
(NYSE: SUNE)’s chances of making it through
the year.
Speaking Tuesday on PreMarket Prep, Johnson said
he’s concerned by the company’s debt.
“SunEdison amassed a massive amount of debt . . . .
The majority of that debt was used to buy projects
they intended to drop down into their yieldco,”
Johnson said, noting that SunEdison took on $10 billion in new debt from 2011-2015. “Essentially what
happened is the yieldco story ended, and this was a
company left with a lot of debt and a lot of projects
which are extremely capital intensive. When the
yieldco story fell apart, you didn’t have that buyer of
first resort.”
The stock, which traded as high as $33.45 in July,
was trading around $3 on Tuesday morning. The
stock was briefly halted on a circuit breaker.
The question now, according to Johnson, is whether
SunEdison can sell these projects in the third-party
merchant market. It’s been trying since the second
quarter of 2015, yet so far haven’t been able to sell
outside its own warehouses and yieldcos.
This is the core of Johnson’s worry: “Given the
number of deals and the type of deals that they’ve
done . . . if they’re unable to sell those projects, I
don’t know how much longer the equity can last.”
-App. 41aWhen asked if SunEdison’s new financing deal
was a good move, Johnson responded, “Absolutely
not. I think this deal makes me more cautious on
the company’s ability to make it through 2016. ”
See “Axiom’s Gordon Johnson ‘More Cautious’ On
SunEdison’s Ability To Make It Through 2016,” Benzinga.com, Jan. 12, 2016 (emphasis added).
56. On January 12, 2016 alone, SunEdison Stock
plummeted by 29% in mid-day trading, and closed down
9.6 % further undermining SunEdison’s ability to survive:
More concerns about high debt costs are hitting
SunEdison and calling its future into question.
What: Shares of SunEdison Inc (NYSE: SUNE) fell
as much as 29% mid-day on Wall Street Tuesday after another analyst questioned the company’s longterm survival.
So what: Analyst Gordon Johnson at Axiom Capital
Management raised more concerns about the company’s recent debt restructuring. Details of that
restructuring can be seen here, but the short story is
that SunEdison traded debt for a combination of equity and new debt that actually holds a higher
interest payment than the old debt.
What’s concerning is that the restructuring came
with debt that holds an interest rate in excess of
10%, incredibly high considering the fact that SunEdison bid aggressively to win projects on the idea
that it had a low cost of capital. Johnson said on a
podcast this morning, “I don’t know how much
longer the equity can last.”
Now what: SunEdison has been in a downward
spiral and it’s a situation that will be almost im-
-App. 42apossible to get out of at this point. The company
needs low cost funding to build projects and needs
new projects to pay for debt already on the balance
sheet. With both working against the company
there’s not a likely scenario where it can get enough
funding to dig out of its current hole. For investors,
the risk of bankruptcy sometime in the next year
is too big to ignore and I see no reason to buy the
stock now.
See “Why SunEdison Inc’s Shares Dropped Another
29% Today,” The Motley Fool, Jan. 12, 2016 (emphasis
added).
57. SunEdison Stock hit a new 52-week trading
low of $2.36 on January 12, 2016, closing at $3.02. Summing up the serious issues plaguing SunEdison, one
financial publication reported as follows:
. . . Separately, recently, TheStreet Ratings objectively rated this stock according to its “riskadjusted” total return prospect over a 12-month investment horizon. . . . TheStreet Ratings has this to
say about the recommendation:
We rate SUNEDISON INC as a Sell with a ratings score of D. This is driven by a few notable
weaknesses, which we believe should have a greater
impact than any strengths, and could make it more
difficult for investors to achieve positive results
compared to most of the stocks we cover. The company’s weaknesses can be seen in multiple areas,
such as its generally high debt management risk,
generally disappointing historical performance in
the stock itself and feeble growth in its earnings
per share.
-App. 43aHighlights from the analysis by TheStreet Ratings
Team goes as follows:
The debt-to-equity ratio is very high at 8.33 and
currently higher than the industry average, implying increased risk associated with the
management of debt levels within the company.
Along with the unfavorable debt-to-equity ratio,
SUNE maintains a poor quick ratio of 0.76, which
illustrates the inability to avoid short-term cash
problems.
Looking at the price performance of SUNE’s
shares over the past 12 months, there is not much
good news to report: the stock is down 82.14%, and
it has underperformed the S&P 500 Index. In addition, the company’s earnings per share are
lower today than the year-earlier quarter. Naturally, the overall market trend is bound to be a
significant factor. However, in one sense, the stock’s
sharp decline last year is a positive for future investors, making it cheaper (in proportion to its earnings
over the past year) than most other stocks in its industry. But due to other concerns, we feel the stock
is still not a good buy right now.
SUNEDISON INC’s earnings per share declined
by 19.5% in the most recent quarter compared to
the same quarter a year ago. The company has
reported a trend of declining earnings per share
over the past two years . . . .
See “Here’s Why SunEdison (SUNE) Stock Is Plummeting Today,” The Street, Jan. 12, 2016 (emphasis added).
58. On February 29, 2016, SunEdison admitted
that its Audit Committee had been conducting an internal investigation since November 2015 or earlier when it
-App. 44afiled with the SEC a Form NT 10- K reporting that it
would delay filing of its Form 10-K Annual Report.
SunEdison cited the activity of its Audit Committee as
the reason for the delay, identifying “the need to complete all steps and tasks necessary to finalize
SunEdison’s annual financial statements” as well as
“ongoing inquiries and investigations by the Audit
Committee.”
59. In March 2016, SunEdison announced that the
filing of its Annual Report on Form 10-K for the year
ended December 31, 2015 with the SEC would be delayed beyond the extended due date of March 15, 2016.
The scope of work required to finalize SunEdison’s
financial statements included in the 2015 Annual Report
on Form 10-K expanded due to the identification by
management of material weaknesses in its internal
controls over financial reporting, primarily resulting
from deficient information technology controls in connection with newly implemented systems. Because of these
material weaknesses, additional procedures are necessary for management to complete SunEdison’s annual
financial statements and related disclosures, and for
SunEdison’s independent registered accounting firm,
KPMG LLP, to finalize its audits of SunEdison’s annual
financial statements and the effectiveness of internal
controls over financial reporting as of December 31,
2015. In addition, an investigation by SunEdison’s Audit
Committee concerning the accuracy of its anticipated
financial position previously disclosed to SunEdison’s
Board was not finalized until April 2016.
60. In March 2016, SunEdison received a subpoena
from the U.S. Department of Justice (the “DOJ”) seeking information and documentation relating to: (a)
certain financing activities in connection with SunEdi-
-App. 45ason’s acquisition of Vivint, (b) the conduct of a former
non- executive employee who is alleged to have committed wrongdoing in connection with the Vivint termination
negotiations, (c) the previously disclosed investigations
by SunEdison’s Audit Committee, (d) intercompany
transactions involving SunEdison and each of TERP and
Global and (e) the financing of SunEdison’s Uruguay
projects in connection with project costs and equity
contributions that remain to be contributed by SunEdison and the DOJ may have additional requests.
61. In April 2016, SunEdison and certain of its
subsidiaries filed a voluntary petition for relief (the
“Bankruptcy Petition”) under Chapter 11 of the United
States Bankruptcy Code (the “Bankruptcy Code”) in the
United States Bankruptcy Court for the Southern
District of New York (the “Bankruptcy Court”) under
the caption In re SunEdison, Inc., Case No. 16-10992
(the “Bankruptcy Case”). SunEdison stated that it
intended to continue to operate its business as a “debtorin-possession” under the jurisdiction of the Bankruptcy
Court and in accordance with the applicable provisions of
the Bankruptcy Code and the orders of the Bankruptcy
Court
62. In April 2016, SunEdison received a delisting
notification (the “Delisting Notice”) from the staff of
NYSE Regulation (the “Staff”). The Delisting Notice
advised SunEdison that, following SunEdison’s announcement that it and certain of its domestic and
international subsidiaries had filed the Bankruptcy
Petition under the Bankruptcy Code in the Bankruptcy
Court, SunEdison’s securities were subject to delisting
from the New York Stock Exchange (the “NYSE”). The
Delisting Notice noted that the common stock was
suspended immediately from trading at the market
-App. 46aopening on the NYSE on April 21, 2016.
63. Defendants could have and should have taken
action prior to the Delisting Notice. During the Relevant
Period, at the same time institutional investors were
dumping SunEdison stock. During the quarter-end
period beginning June 30, 2015 through March 31, 2016,
institutional investors divested of 176 million shares.
S&P CapitalQ. Net sales in the quarter ended September 30, 2015 totaled 24.7 million shares. In the quarter
ended December 31, 2015, net sales of SunEdison stock
by institutional investors totaled 75.6 million shares.
During the period July 1, 2015 through March 31, 2016,
the largest net sellers included, as follows:
Reporting Institutions That
Were Net Sellers of >3 Million
SunEdison Shares
Net Change
6/30/15–
3/31/16
Wellington Management Group LLP
(12,843,551)
Third Point LLC
(12,400,000)
Glenview Capital Management, LLC
(11,403,277)
Lone Pine Capital LLC
(9,663,802)
Fred Alger Management, Inc.
(8,758,755)
Fir Tree Partners
(8,700,769)
Steadfast Capital Management LP
(8,577,740)
Omega Advisors, Inc.
(8,473,571)
SRS Investment Management, LLC
(6,714,986)
Emerging Sovereign Group, LLC
(6,097,949)
York Capital Management
(5,942,661)
Van Eck Associates Corporation
(5,567,845)
Canyon Capital Advisors, LLC
(4,822,636)
Valinor Management, LLC
(4,708,873)
-App. 47aCriterion Capital Management, LLC
(4,615,742)
Indus Capital Partners, LLC
(4,435,603)
Pennant Capital Management, LLC
(4,257,635)
GreenLight Capital, Inc.
(3,790,415)
Norges Bank Investment Management
(3,750,584)
Millennium Management LLC
(3,463,765)
Balyasny Asset Management L.P.
(3,272,282)
KKR Prisma
(3,242,363)
Point72 Asset Management, L.P.
(3,084,726)
64. Accordingly, during the Relevant Period, SunEdison Stock was not a prudent investment option for
the Plan participants, in light of, inter alia, (a) poor
historical performance of SunEdison Stock; (c) massive
amounts of debt threatening SunEdison’s ability to
finance its projects and thereby threatening SunEdison’s
survival; (d) SunEdison’s rising debt-to-equity ratio; (e)
SunEdison’s likelihood of bankruptcy; (f) SunEdison’s
high debt management risk; and (g) SunEdison’s continued financial losses as noted in its quarterly reports.
DEFENDANTS HAD A CONTINUING DUTY TO
MONITOR THE SUITABILITY OF ALL ASSETS IN
THE PLAN (INCLUDING PLAN ASSETS IN STOCK
ISSUED BY ANOTHER COMPANY) BUT FAILED
TO DO SO
65. Under trust law, a trustee has a continuing duty to monitor trust investments and remove imprudent
ones. This continuing duty exists separate and apart
from the trustee’s duty to exercise prudence in selecting
investments at the outset. Here, the Defendants failed to
monitor the assets held in the SunEdison Stock Fund
and failed to remove this investment from the Plan as it
was clearly an imprudent investment option for the
-App. 48areasons stated above and below.
66. The price of SunEdison Stock collapsed by
100% during the Relevant Period. The Plan’s losses
would have been avoided, in whole or in part, had Defendants complied with their ERISA fiduciary duties,
including, but not limited to (a) investigating, evaluating,
and deciding whether SunEdison Stock was a prudent
retirement investment in light of SunEdison’s severe
liquidity problems from the start of the Relevant Period
and (b) allowing for the orderly liquidation of the Plan’s
holdings of SunEdison Stock.
67. The Plan suffered millions of dollars in losses
because Defendants caused substantial assets of the
Plan to be imprudently invested, or allowed participants
to remain invested in SunEdison Stock during the
Relevant Period, in breach of Defendants’ fiduciary
duties. These losses were reflected in the diminished
account balances of the Plan participants.
68. Defendants failed to actively monitor and assess whether an investment of retirement savings in
SunEdison Stock was prudent, in light of the deteriorating financial condition of SunEdison and severe liquidity
problems which presented a material risk of complete
loss to the SunEdison Stock Fund. As a consequence of
Defendants’ actions and failure to act, Defendants are
liable under ERISA for losses caused by the Plan’s
investment in the SunEdison Stock Fund when it was
imprudent to make such investments.
THE RELEVANT LAW: CLAIMS FOR RELIEF
UNDER ERISA
69. ERISA requires that every plan name one or
more fiduciaries who have “authority to control and
manage the operation and administration of the plan.”
ERISA § 1102(a)(1). Additionally, under ERISA, any
-App. 49aperson or entity, other than the named fiduciary that in
fact performs fiduciary functions for the Plan is also
considered a fiduciary of the Plan. A person or entity is
considered a Plan fiduciary to the extent:
(i) he exercises any discretionary authority or discretionary control respecting management of such
plan or exercises any authority or control respecting
management or disposition of its assets, (ii) he renders investment advice for a fee or other
compensation, direct or indirect, with respect to any
moneys or other property of such plan, or has any
authority or responsibility to do so, or (iii) he has
any discretionary authority or discretionary responsibility in the administration of such plan.
ERISA § 3(21)(A)(i), 29 U.S.C. § 1002(21)(A)(i).
70. At all relevant times, Defendants are/were and
acted as fiduciaries within the meaning of ERISA §
3(21)(A)(i), 29 U.S.C. § 1002(21)(A)(i).
71. ERISA § 502(a)(2), 29 U.S.C. § 1132(a)(2), provides, in pertinent part, that a civil action may be
brought by a participant for relief under ERISA § 409,
29 U.S.C. § 1109.
72. ERISA § 409(a), 29 U.S.C. § 1109(a), “Liability
for Breach of Fiduciary Duty,” provides, in pertinent
part, that:
any person who is a fiduciary with respect to a plan
who breaches any of the responsibilities, obligations,
or duties imposed upon fiduciaries by this title shall
be personally liable to make good to such plan any
losses to the plan resulting from each such breach,
and to restore to such plan any profits of such fiduciary which have been made through use of assets of
the plan by the fiduciary, and shall be subject to
-App. 50asuch other equitable or remedial relief as the court
may deem appropriate, including removal of such fiduciary.
73. ERISA §§ 404(a)(1)(A) and (B), 29 U.S.C. §§
1104(a)(1)(A) and (B), provide, in pertinent part, that a
fiduciary shall discharge his duties with respect to a plan
solely in the interest of the participants and beneficiaries, for the exclusive purpose of providing benefits to
participants and their beneficiaries, and with the care,
skill, prudence, and diligence under the circumstances
then prevailing that a prudent man acting in a like
capacity and familiar with such matters would use in the
conduct of an enterprise of a like character and with like
aims.
74. These fiduciary duties under ERISA §
404(a)(1)(A) and (B) are referred to as the duties of
loyalty, exclusive purpose and prudence and are the
highest known to the law and entail, among other things:
(a) the duty to conduct an independent and
thorough investigation into, and continually to monitor, the merits of all the investment alternatives of a
plan;
(b) the duty to avoid conflicts of interest and
to resolve them promptly when they occur. A fiduciary must always administer a plan with an “eye
single” to the interests of the participants and beneficiaries, regardless of the interests of the fiduciaries
themselves or the plan sponsor;
(c) the duty to disclose and inform, which encompasses: (i) a negative duty not to misinform; (ii)
an affirmative duty to inform when the fiduciary
knows or should know that silence might be harmful;
and (iii) a duty to convey complete and accurate information material to the circumstances of
-App. 51aparticipants and beneficiaries.
75. Accordingly, if the fiduciaries of a plan know,
or if an adequate investigation would reveal, that an
investment option is no longer a prudent investment for
that plan, then the fiduciaries must disregard any plan
direction to maintain investments in such stock and
protect the plan by investing the plan assets in other,
suitable, prudent investments.
76. ERISA § 405(a), 29 U.S.C. § 1105 (a), “Liability
for breach by co-fiduciary,” provides, in pertinent part,
that:
[I]n addition to any liability which he may have under any other provision of this part, a fiduciary with
respect to a plan shall be liable for a breach of fiduciary responsibility of another fiduciary with respect
to the same plan in the following circumstances: (A)
if he participates knowingly in, or knowingly undertakes to conceal, an act or omission of such other
fiduciary, knowing such act or omission is a breach;
(B) if, by his failure to comply with section 404(a)(1),
29 U.S.C. § 1104(a)(1), in the administration of his
specific responsibilities which give rise to his status
as a fiduciary, he has enabled such other fiduciary to
commit a breach; or (C) if he has knowledge of a
breach by such other fiduciary, unless he makes reasonable efforts under the circumstances to remedy
the breach.
77. Plaintiff therefore brings this action under the
authority of ERISA § 502(a) for Plan-wide relief under
ERISA § 409(a) to recover losses sustained by the Plan
arising out of the breaches of fiduciary duties by Defendants for violations under ERISA § 404(a)(1) and
ERISA § 405(a).
-App. 52aREMEDIES FOR BREACHES OF FIDUCIARY
DUTY
78. As noted above, as a consequence of Defendants’ breaches, the Plan suffered significant losses.
79. ERISA § 502(a), 29 U.S.C. § 1132(a) authorizes
a plan participant to bring a civil action for appropriate
relief under ERISA § 409, 29 U.S.C. § 1109. Section 409
requires “any person who is a fiduciary . . . who breaches
any of the . . . duties imposed upon fiduciaries . . . to
make good to such plan any losses to the plan . . . .”
Section 409 also authorizes “such other equitable or
remedial relief as the court may deem appropriate ”
80. Plaintiff, the Plan, and the Plan participants
are therefore entitled to relief from Defendants in the
form of: (1) a monetary payment to the Plan to make
good to the Plan the losses to the Plan resulting from the
breaches of fiduciary duties alleged above in an amount
to be proven at trial based on the principles described
above, as provided by ERISA § 409(a), 29 U.S.C. §
1109(a); (2) injunctive and other appropriate equitable
relief to remedy the breaches alleged above, as provided
by ERISA §§ 409(a) and 502(a), 29 U.S.C. §§ 1109(a) and
1132(a); (3) reasonable attorney fees and expenses, as
provided by ERISA § 502(g), 29 U.S.C. § 1132(g), the
common fund doctrine, and other applicable law; (4)
taxable costs; (5) interests on these amounts, as provided
by law; and (6) such other legal or equitable relief as may
be just and proper.
81. Each Defendant is jointly and severally liable
for the acts of the other Defendants as a co-fiduciary.
COUNT I
82. Plaintiff incorporates the allegations contained
in the previous paragraphs of this Complaint as if fully
-App. 53aset forth herein.
83. This Count alleges fiduciary breaches against
Defendants for failing to do a proper investigation into,
and failing to properly monitor, the continued prudence
of investing Plan assets in another company’s stock fund
and for continuing to allow the investment of the Plan’s
assets in another company’s stock fund throughout the
Relevant Period despite the fact that they knew or
should have known that such investment was imprudent
as a retirement vehicle because SunEdison’s financial
outlook had been so dramatically altered due to its
failing business prospects that it was no longer a prudent
retirement investment.
84. At all relevant times, as alleged above, Defendants were fiduciaries of the Plan within the meaning of
ERISA § 3(21)(A), 29 U.S.C. § 1002(21)(A) in that they
exercised discretionary authority or control over the
administration and/or management of the Plan and/or
disposition of the Plan’s assets and/or had a duty to
properly appoint and monitor other fiduciaries.
85. Under ERISA, fiduciaries who exercise discretionary authority or control over management of a plan
or disposition of a plan’s assets are responsible for
ensuring that all investment options made available to
participants under a plan are prudent. Furthermore,
such fiduciaries are responsible for ensuring that assets
within the plan are prudently invested. Defendants were
responsible for ensuring that all investments in the Plan
(including another company stock asset) were prudent.
Defendants are liable for losses incurred as a result of
such investments being imprudent.
86. Upon information and belief, Defendants failed
to engage in a reasoned decision- making process regarding the prudence of continued investment in an
-App. 54aimprudent company stock fund of a company exhibiting
extreme financial distress throughout the Relevant
Period. An adequate investigation by Defendants would
have revealed to Defendants that investment by the Plan
in company stock fund of a company exhibiting extreme
financial distress was clearly imprudent during the
Relevant Period and/or that other fiduciaries were not
carrying out their duties with the requisite care. A
prudent fiduciary acting under similar circumstances
would have acted to protect Plan participants against
unnecessary losses, and would have made different
investment decisions and/or different appointment
and/or monitoring decisions.
87. Defendants breached their duties to prudently
manage the Plan’s assets invested in SunEdison Stock.
During the Relevant Period, Defendants knew or should
have known that, as described herein, SunEdison Stock
was not a suitable and appropriate investment for the
Plan. Yet, during the Relevant Period, despite their
knowledge of the imprudence of the investment, Defendants failed to take any meaningful steps to protect Plan
participants from losses stemming from the Plan’s
investment in SunEdison Stock.
88. Defendants further breached their duty of
prudence by failing to divest the Plan of SunEdison
Stock during the Relevant Period when they knew or
should have known that it was not a suitable and appropriate investment for the Plan.
89. Defendants also breached their co-fiduciary
obligations by, among their other failures, knowingly
participating in each other’s failure to protect the Plan
from inevitable losses. Defendants had or should have
had knowledge of such breaches by other fiduciaries of
the Plan, yet made no effort to remedy them.
-App. 55a90. As a direct and proximate result of the breaches of fiduciary duties during the Relevant Period alleged
herein, the Plan and, indirectly, the Plan participants
lost a significant portion of their retirement investments.
Had Defendants taken appropriate steps to comply with
their fiduciary obligations during the Relevant Period,
the Plan could have liquidated some or all of its holdings
in SunEdison Stock fund (a stock that was not issued by
Semi but of a different company), and thereby eliminated, or at least reduced, the losses to Plan participants.
91. Pursuant to ERISA § 502(a), 29 U.S.C. §
1132(a) and ERISA § 409, 29 U.S.C. § 1109(a), Defendants in this Count are liable to restore the losses to the
Plan caused by their breaches of fiduciary duties alleged
in this Count.
REQUEST FOR RELIEF
WHEREFORE, Plaintiff requests the following relief:
A. A Judgment that Defendants, and each of
them, breached their ERISA fiduciary duties to the Plan
participants during the Relevant Period;
B. A Judgment compelling Defendants to make
good to the Plan all losses to the Plan resulting from
Defendants’ breaches of their fiduciary duties, including
losses to the Plan resulting from imprudent investment
of the Plan’s assets and from failure to properly monitor
the performance of other fiduciaries and from failure to
properly appoint other fiduciaries, and to restore to the
Plan all profits which the participants would have made
if Defendants had fulfilled their fiduciary obligations;
C.
A Judgment awarding actual damages in the
amount of any losses the Plan suffered, to be allocated
among the Plan participants’ individual accounts in
-App. 56aproportion to the accounts’ losses;
D. A Judgment requiring that Defendants allocate
the Plan’s recoveries to the accounts of all Plan participants who had any portion of their account balances
invested in SunEdison Stock (a stock that was not issued
by Semi but of a different company) maintained by the
Plan in proportion to the accounts’ losses attributable to
the decline in the price of SunEdison Stock;
E. A Judgment awarding costs pursuant to 29
U.S.C. § 1132(g);
F. A Judgment awarding attorneys’ fees pursuant
to 29 U.S.C. § 1132(g) and the common fund doctrine;
and
G. A Judgment awarding equitable restitution and
other appropriate equitable monetary relief against
Defendants.
JURY DEMAND
Plaintiff demands a trial by jury.
Dated: November 10, 2017
DYSART TAYLOR COTTER
McMONIGLE & MONTEMORE, P.C.
By: /s/ Don R. Lolli
Don R. Lolli, #56263MO
4420 Madison Avenue, Suite 200
Kansas City, MO 64111
Telephone: (816) 931-2700
Email: dlolli@DysartTaylor.com
HARWOOD FEFFER LLP
Robert I. Harwood
-App. 57aDaniella Quitt
488 Madison Ave., 8th Floor
New York, NY 10022
Telephone: 212-935-7400 Email: rharwood@hfesq.com
Email: dquitt@hfesq.com
GAINEY McKENNA & EGLESTON
Thomas J. McKenna
Gregory M. Egleston
440 Park Avenue South, 5th Floor
New York, NY 10016
Telephone: (212) 983-1300
Email: tjmckenna@gme-law.com
Email: gegleston@gme-law.com
Attorneys for Plaintiff
-App. 58a-
APPENDIX C
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MISSOURI
EASTERN DIVISION
ALEXANDER Y. USENKO,
derivatively on
Behalf of the SunEdison Semiconductor Ltd.
Retirement Savings Plan
Plaintiff,
vs.
No.
4:17–cv–02227–AGF
SUNEDISON SEMICONDUCTOR LLC, THE
INVESTMENT COMMITTEE
OF THE SUNEDISON SEMICONDUCTOR RETIREMENT
SAVINGS PLAN, HEMANT
KAPADIA, PENNY CUTRELL, STEVE EDENS,
KAREN STEINER, CHENG
YANG, and BEN LLORICO,
Defendants.
MEMORANDUM AND ORDER
This action is brought under the Employee Retirement Income Security Act of 1974, (“ERISA”), claiming
breach of fiduciary duties by Defendants, the fiduciaries
-App. 59aof an ERISA-governed retirement savings plan (the
“Plan”) sponsored by Defendant SunEdison Semiconductor, LLC (“Semi”), for permitting Semi employees to
continue to hold the stock of Semi’s former parent
company, SunEdison, Inc. (“SUNE”), as a retirement
investment option. Plaintiff Alexander Usenko filed this
action derivatively on behalf of the Plan and, in the
alternative, as a putative class action.
The matter is now before the Court on the motion
(ECF No. 31) of Defendants Semi and the Investment
Committee of the Plan to dismiss with prejudice the
amended complaint,6 in which the individual Defendants
Hemant Kapadia, Steve Edens, Cheng Yang, and Ben
Llorico have joined (ECF No. 50).7 For the reasons set
forth below, the motions to dismiss will be granted.
BACKGROUND
Semi was previously a subsidiary of SUNE but became an independent entity in 2014, following an initial
public offering. According to the amended complaint,
Plaintiff’s original complaint was substantively identical to the
amended complaint but identified the now-named individual
Defendants as “John Does.” Defendants Semi and the Investment
Committee moved to dismiss this complaint on September 28, 2017,
but rather than respond to that motion, Plaintiff moved for leave to
file the current amended complaint. The Court granted that motion
as unopposed, and denied the original motion to dismiss as moot.
Defendants thereafter filed the current motions to dismiss.
7
Upon review of the record, the Court notes that the file
contains no proof of service upon, or entry of appearance on behalf
of, the remaining Defendants, Penny Cutrell and Karen Steiner.
Because it does not appear that service of Plaintiff’s complaint has
been timely made upon these two Defendants, as required by
Federal Rule of Civil Procedure 4(m), the Court will dismiss
Plaintiff’s complaint against them without prejudice.
6
-App. 60aDefendants breached their fiduciary duties when they
ignored public information regarding the instability of
SUNE and permitted Semi employees to retain SUNE
stock during the “Relevant Period,” defined as July 20,
2015, to April 21, 2016, while the price of that stock
collapsed. Plaintiff argues that the Plan suffered losses
that would have been avoided, in whole or in part, had
Defendants complied with their fiduciary duties.
Plaintiff’s amended complaint contains a single count,
alleging the following breaches of fiduciary duty against
all Defendants: (1) allowing employees to continue
holding the stock of SUNE throughout the Relevant
Period notwithstanding that, based on public information
regarding the instability of SUNE, Defendants knew or
should have known that the stock was no longer a prudent investment; (2) failing to properly monitor the
propriety of the Plan’s investment in the SUNE stock
throughout the Relevant Period; and (3) breaching their
co-fiduciary obligations by knowingly participating in
each other’s breaches as described above.
In their motion to dismiss, Defendants argue that
Plaintiff’s claims are foreclosed by the United Supreme
Court’s decision in Fifth Third Bancorp v. Dudenhoeffer,
134 S. Ct. 2459 (2014), and its progeny. Dudenhoeffer
held with respect to public information claims against
ERISA fiduciaries that:
[W]here 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...affecting the reliability of the market price as an
unbiased assessment of the security’s value in light of
all public information.
-App. 61aDudenhoeffer, 134 S. Ct. at 2471–72 (citations omitted). Defendants contend that the amended complaint
does not cite any special circumstances affecting the
reliability of the market price; rather, the amended
complaint “confirm[s] that the market was capable of
processing, and in fact did process and react to, publicly
available information regarding SUNE by lowering the
SUNE stock price throughout the Relevant Period.”
ECF no. 32 at 12.
Defendants further argue that Plaintiff cannot evade
Dudenhoeffer by characterizing his claim as one based
on excessive risk of the SUNE stock or failure to adequately monitor the Plan’s investments, because
Dudenhoeffer applies equally to public information
claims alleging that a stock is too risky, and because
even if Plaintiff could plausibly allege that Defendants
abandoned any duty to monitor (which Defendants
dispute), a breach of the duty to monitor, alone, is insufficient to state a claim based on public information in
light of Dudenhoeffer. Finally, Defendants contend that
Plaintiff’s claim for co-fiduciary breach should be dismissed as it is purely derivative of Plaintiff’s deficient
claim for breach of fiduciary duty.
In response, Plaintiff argues that Dudenhoeffer is
limited to public information claims involving “employer
securities,” or an employee-owned stock ownership plan
(“ESOP”), and does not apply to claims involving the
stock of a different company, like this one involving the
stock of Semi’s former parent company. Second, Plaintiff
argues that Dudenhoeffer does not apply to claims
asserting that a stock was excessively risky, as opposed
to overvalued. Finally, Plaintiff contends that his failureto-monitor claim can stand alone. Alternatively, Plaintiff
requests that if the Court agrees with Defendants,
-App. 62aPlaintiff should be given leave to amend.
In reply, Defendants contend that Dudenhoeffer applies to all public information claims involving “publicly
traded stock,” regardless of whether the stock is an
employer security. Defendants also reiterate their
arguments that Plaintiff cannot evade Dudenhoeffer by
framing his claims in terms of excessive risk or a failure
to monitor. Next, Defendants note that Plaintiff failed to
respond to their argument in support of dismissal of the
claim for co-fiduciary breach. Finally, Defendants contend that Plaintiff should not be permitted to amend his
complaint, as he has already amended once, and he has
failed to identify any basis for further, non-futile
amendment.
On December 20, 2017, Defendants filed a notice of
supplemental authority, notifying the Court of Yates v.
Nichols, No. 3:17CV1389, 2017 WL 6451888 (N.D. Ohio
Dec. 18, 2017), a recent federal district court decision
rejecting the arguments Plaintiff raises here, including
that Dudenhoeffer applies only to employer securities.
With the Court’s leave, Plaintiff filed a memorandum of
law in response to Defendants’ notice, and Defendants
filed a short reply.
DISCUSSION
Standard
To survive a motion to dismiss for failure to state a
claim, a complaint must contain “sufficient factual matter, accepted as true, to state a claim to relief that is
plausible on its face.” Ashcroft v. Iqbal, 556 U.S. 662, 678
(2009) (citation omitted). The court must accept the
complaint’s factual allegations as true and construe them
in the plaintiff’s favor, but it is not required to accept the
-App. 63alegal conclusions the complaint draws from the facts
alleged. Id. at 678. “A claim has facial plausibility when
the plaintiff pleads factual content that allows the court
to draw the reasonable inference that the defendant is
liable for the misconduct alleged.” Id.; see also
McDonough v. Anoka Cty., 799 F.3d 931, 945 (8th Cir.
2015).
Public Information Claim
ERISA imposes duties of loyalty and prudence on a
plan fiduciary. 29 U.S.C. § 1104(a)(1)(A)–(B). Prudence
requires the fiduciary to act “with the care, skill, prudence, and diligence under the circumstances then
prevailing that a prudent [person] acting in a like capacity and familiar with such matters would use in the
conduct of an enterprise of a like character and with like
aims.” Id. This includes choosing wise investments and
monitoring investments to remove imprudent ones.
Tibble v. Edison Int’l, 135 S. Ct. 1823, 1828–29 (2015).
The Court agrees with Defendants that Dudenhoeffer
forecloses Plaintiff’s claims. In Dudenhoeffer, the Supreme Court declined to define the standard for a special
circumstance that would permit a plaintiff’s public
information claim to survive a motion to dismiss. Dudenhoeffer, 134 S. Ct. at 2472. However, the special
circumstance would need to be pled as a circumstance
“affecting the reliability of the market price as an unbiased assessment of the security’s value in light of all
public information.” Id. Plaintiff admittedly has not pled
such a special circumstance. Moreover, although the
Eighth Circuit has also not yet addressed the question of
what constitutes a “special circumstance” that would
render reliance on the market price imprudent, a number of other federal courts at the district and appellate
-App. 64alevel have found that a company’s “serious deteriorating
condition” is not one. See, e.g., Roe v. Arch Coal, Inc., No.
4:15–CV–910 (CEJ), 2017 WL 3333928, at *3–4 (E.D.
Mo. Aug. 4, 2017) (collecting cases).
Nor is the Court persuaded by Plaintiff’s various attempts to distinguish Dudenhoeffer. First, the Court
rejects Plaintiff’s argument that Dudenhoeffer’s pleading
standard for public information claims is limited to
ESOP fiduciaries. In Dudenhoeffer, the Supreme Court
held that “the same standard of prudence applies to all
ERISA fiduciaries, including ESOP fiduciaries,”8 and in
all cases, an ERISA fiduciary is not imprudent “to
assume that a major stock market provides the best
estimate of the value of the stocks traded on it,” absent
special circumstances affecting the reliability of the
market price. Dudenhoeffer, 134 S. Ct. at 2463. Nothing
in Dudenhoeffer’s discussion of the standard for public
information claims suggests that the holding is limited to
employer securities. See Yates, 2017 WL 6451888, at *4
(same). Nor has Plaintiff cited, or the Court found, any
case law limiting Dudenhoeffer in such a way.
Second, the Court agrees with those federal courts
that have found that Dudenhoeffer forecloses 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 stock.”
Rinehart v. Lehman Bros. Holdings Inc., 817 F.3d 56, 66
(2d Cir. 2016); Saumer v. Cliffs Nat. Res. Inc., 853 F.3d
855, 862 (6th Cir. 2017) (same). The plaintiffs in Dudenhoeffer, too, alleged that “the fiduciaries knew or should
have known that Fifth Third’s stock was...excessively
The only difference the Supreme Court noted is that ESOP
fiduciaries “need not diversify the fund’s assets.” Dudenhoeffer, 134
S. Ct. at 2463.
8
-App. 65arisky.” Dudenhoeffer, 134 S. Ct. at 2464. And such an
allegation did not preclude the application of the heightened pleading standard.
Lastly, the Court agrees with Defendants that Plaintiff’s primary claim is that Defendants made imprudent
decisions, not that Defendants abandoned their decisionmaking duties, and “[n]either Dudenhoeffer nor Tibble
permits ERISA claims to withstand challenge based on
such threadbare allegations” that the defendants did not
monitor a plan’s investments. In re Lehman Bros. Sec. &
ERISA Litig., 113 F. Supp. 3d 745, 758 (S.D.N.Y. 2015),
aff’d sub nom. Rinehart, 817 F.3d at 56. The Court
further agrees that Plaintiff’s failure-to-monitor allegations cannot save their otherwise deficient public
information claims. See, e.g., Saumer, 853 F.3d at 862
(upholding a district court’s determination that a plaintiff’s allegations that fiduciaries’ failure to engage in a
reasoned decision-making process regarding the prudence of company stock did not constitute a special
circumstance and could not save their public information
claims); Roe, 2017 WL 3333928, at *2 (same); see also
Brown v. Medtronic, Inc., 628 F.3d 451, 461 (8th Cir.
2010) (holding that failure-to-monitor claims derivative
of imprudent investment claims cannot “survive without
a sufficiently pled theory of an underlying breach”). In
sum, the Court will dismiss Plaintiff’s breach of fiduciary
duty claims.
Co–Fiduciary Breach Claims
Plaintiff does not dispute that his co-fiduciary breach
claims are merely derivative of his breach of fiduciary
duty claims. Therefore, the Court will dismiss these
claims, too. Roe, 2017 WL 3333928, at *7 (“Because there
was no breach of duty on behalf of the Arch Defendants,
-App. 66aMercer cannot be liable as a co-fiduciary for the same
conduct.”).
Leave to Amend
Because the Court has already permitted Plaintiff to
amend his complaint once, and because Plaintiff has not
explained the basis for his amendment or shown that
such amendment would not be futile, the Court will deny
Plaintiff’s request for leave to amend.
Oral Argument
The Court notes that Plaintiff has requested oral argument on the motion to dismiss. But in light of the
extensive briefing permitted by the Court, including the
opportunities to submit and respond to supplemental
authorities, as well as ample case law governing the
relevant issues, the Court believes that oral argument is
unnecessary.
CONCLUSION
Accordingly,
IT IS HEREBY ORDERED that the motions to
dismiss with prejudice, filed by Defendants SunEdison
Semiconductor, LLC, the Investment Committee of the
SunEdison Semiconductor Retirement Savings Plan,
Hemant Kapadia, Steve Edens, Cheng Yang, and Ben
Llorico, are GRANTED. ECF Nos. 31 & 50.
IT IS FURTHER ORDERED that Plaintiff’s claims
against Defendants Penny Cutrell and Karen Steiner are
DISMISSED without prejudice, for lack of timely
service.
All claims against all parties having been resolved,
-App. 67athe Court will enter a separate Order of Dismissal.
AUDREY G. FLEISSIG
UNITED STATES DISTRICT JUDGE
Dated this 21st day of February, 2018.
This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.