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Roe v. Arch Coal, Inc.

United States District Court, E.D. Missouri, Eastern Division

August 4, 2017

DOUGLAS R. ROE, ELMER BUSH, RONALD K. HUFF and JEROME MCLAUGHLIN on behalf of themselves and the Arch Coal, Inc. Employee Thrift Plan, and/or on behalf of a class consisting of similarly situated participants of the Plan, Plaintiffs,
ARCH COAL, INC., et al., Defendants.



         This matter is before the Court on the separate motions of the Arch Defendants[1] and Mercer Trust Company to dismiss the plaintiffs' amended complaint for failure to state a claim. Plaintiffs have responded, and the issues are fully briefed.

         I. Background

         Plaintiffs Douglas R. Roe, Elmer Bush, Ronald K. Huff, and Jerome McLaughlin, individually and as representatives of the Arch Coal, Inc. Employee Thrift Plan (the Plan), bring this consolidated class action pursuant to §§ 404, 405, 409 and 502 of the Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. §§ 1104, 1105, 1109 and 1132. Plaintiffs claim that the defendants breached duties of prudence and loyalty in administering the Plan. The defendants are Arch Coal, its directors, the company officers who served as Plan Administrator and/or on the Retirement Committee (collectively, the Arch Defendants), and Mercer Trust, the Plan's trustee. The Plan is a retirement savings plan which required the Arch Coal Stock Fund (the Fund) to include Arch Coal stock as one of the investment options offered to Plan participants. During the period July 27, 2012 to November 12, 2015 (the Class Period), Arch Coal was the sponsor of the Plan.

         According to the amended complaint, the Plan and its participants suffered tens of millions of dollars of losses during the Class Period, as the market price of Arch Coal Stock fell from approximately $680.00 on July 27, 2012 to $1.42 on November 12, 2015. On or about November 12, 2015, the Plan's investment in the Fund was forcibly liquidated. Before and during the Class Period “massive amounts of publicly-available information” about the collapse of the coal industry in general, and Arch Coal in particular, was generated. [Doc. #43, ¶6, 9-10, 85-399]. On January 11, 2016, Arch Coal filed for bankruptcy. Plaintiffs claim that the defendants failed to protect the interests of the Plan's participants and beneficiaries, in violation of the defendants' legal obligations under ERISA.

         II. Legal Standard

         The purpose of a motion to dismiss under Rule 12(b)(6) is to test the legal sufficiency of the complaint. Fed.R.Civ.P. 12(b)(6). The factual allegations of a complaint are assumed true and construed in favor of the plaintiff, “even if it strikes a savvy judge that actual proof of those facts is improbable.” Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 556 (2007) (citing Swierkiewicz v. Sorema N.A., 534 U.S. 506, 508 n.1 (2002)); Neitzke v. Williams, 490 U.S. 319, 327 (1989) (“Rule 12(b)(6) does not countenance . . . dismissals based on a judge's disbelief of a complaint's factual allegations.”); Scheuer v. Rhodes, 416 U.S. 232, 236 (1974) (stating that a well-pleaded complaint may proceed even if it appears “that a recovery is very remote and unlikely”). The issue is not whether the plaintiff will ultimately prevail, but whether the plaintiff is entitled to present evidence in support of his claim. Scheuer, 416 U.S. at 236. A viable complaint must include “enough facts to state a claim to relief that is plausible on its face.” Twombly, 550 U.S. at 570; see Id. at 563 (stating that the “no set of facts” language in Conley v. Gibson, 355 U.S. 41, 45-46 (1957), “has earned its retirement”); see also Ashcroft v. Iqbal, 556 U.S. 662, 678-84 (2009) (holding that the pleading standard set forth in Twombly applies to all civil actions). “Factual allegations must be enough to raise a right to relief above the speculative level.” Twombly, 550 U.S. at 555.

         II. Discussion

         A. Count I

         ERISA imposes duties of loyalty and prudence on a plan fiduciary. 29 U.S.C. § 1104(a)(1)(A)-(B). The duty of 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.” 29 U.S.C. § 1104(a)(1)(B). The duty of prudence includes choosing wise investments and monitoring investments to remove imprudent ones. Tibble v. Edison Int'l, 135 S.Ct. 1823, 1828-1829 (2015).

         In Count I of the amended complaint, the plaintiffs claim that the Arch Defendants breached their fiduciary duty by “failing to adequately monitor the prudence of investment in Arch Stock for Plan beneficiaries and continuing to allow the investment of the Plan's assets in Arch Stock throughout the Class Period.” [Doc. # 43 at ¶ 414]. The Arch Defendants argue that the allegations in Count I fail to state a claim for breach of any duty to manage the plan prudently and that plaintiffs' claim is foreclosed by the Supreme Court's decision in Fifth Third Bancorp v. Dudenhoeffer, 134 S.Ct. 2459, 189 L.Ed.2d 457 (2014).

         In Dudenhoeffer, the Supreme Court wrote 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 2471. Here, plaintiffs' claim rests on allegations that the Arch Defendants should have recognized from publicly available information alone that the market was improperly valuing Arch Coal stock. Courts applying Dudenhoeffer have concluded that allegations that fiduciaries breached their duties of prudence in managing employee stock ownership plans based upon public information revealing poor performance failed to state a claim. See Saumer v. Cliffs Nat. Res. Inc., 853 F.3d 855, 862 (6th Cir. 2017) (finding that participants in an employee stock ownership plan failed to state a claim that fiduciaries breached their duty of prudence based on public information which revealed company's declining revenues, high operating costs, and unmanageable debt); Coburn v. Evercore Trust Co., N.A., 844 F.3d 965, 969 (D.C. Cir. 2016) (foreclosing breach of prudence claims where fiduciaries relied on a stock price reflecting all publicly available information, absent allegations of special circumstances); Rinehart v. Lehman Bros. Holdings Inc., 817 F.3d 56 (2d Cir. 2016) (interpreting Dudenhoeffer to foreclose 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”). The Court concludes that the ruling in Dudenhoeffer applies in this case such that, absent allegations of special circumstances, plaintiffs cannot maintain a breach of prudence claim based on the fiduciaries' alleged failure to recognize public information indicating that the Arch Coal stock was improperly valued.

         Plaintiffs argue that they plausibly alleged Arch Coal Stock was an imprudent investment for the Plan during the Class Period and claim the Supreme Court's opinion in Tibble v. Edison Int'l confirms the viability of their claims. 135 S.Ct. at 1829. Plaintiffs suggest that Tibble's holding that market-priced retail class mutual funds can be imprudent for retirement savings is incompatible with defendants' argument. In Tibble, the Court wrote that “[a] plaintiff may allege that a fiduciary breached the duty of prudence by failing to properly monitor investments and remove imprudent ones.” Id. at 1826. In Dudenhoeffer, however, the Court agreed that “a fiduciary usually ‘is not imprudent to assume that a major stock market…provides the best estimate of the value of the stocks traded on it that is available to him.” 134 S.Ct. at 2471-72. [quoting Summers v. State Street Bank & Trust Co., 453 Fed. 404, 408 (7th Cir. 2006). Therefore, applying both Dudenhoeffer and Tibble, a plaintiff could properly allege that a fiduciary breached the duty of prudence by failing to properly monitor investments and remove imprudent ones, but not when the allegations are based upon publicly available information.

         Plaintiffs also argue that Tatum v. RJR Pension Inv. Comm., 855 F.3d 553, 564 (4th Cir. 2017), supports their position. Tatum does not address the Dudenhoeffer pleading standard at issue and was decided after a bench trial in which the district court found that a prudent fiduciary would have relied on the market price as a correct estimate of the present value of the stock. Id. at 564-65. Further, Tatum distinguishes Dudenhoeffer, noting that it “concerned allegations that the market overvalued a stock and that a fiduciary should have known the stock was overvalued because of public information, ” not loss causation which was at issue in Tatum. Id. at 566. Because the ...

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