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Usenko v. Sunedison Semiconductor LLC

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

February 21, 2018

ALEXANDER Y. USENKO, derivatively on behalf of the SunEdison Semiconductor Ltd. Retirement Savings Plan, Plaintiff,



         This action is brought under the Employee Retirement Income Security Act of 1974, (“ERISA”), claiming breach of fiduciary duties by Defendants, the fiduciaries of 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, [1] in which the individual Defendants Hemant Kapadia, Steve Edens, Cheng Yang, and Ben Llorico have joined (ECF No. 50).[2] For the reasons set forth below, the motions to dismiss will be granted.


         Semi was previously a subsidiary of SUNE but became an independent entity in 2014, following an initial public offering. According to the amended complaint, Defendants 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.

Dudenhoeffer, 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 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 failure-to-monitor claim can stand alone. Alternatively, Plaintiff requests that if the Court agrees with Defendants, Plaintiff 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.



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