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Usenko v. Memc LLC

United States Court of Appeals, Eighth Circuit

June 4, 2019

Alexander Y. Usenko, Derivatively on Behalf of the SunEdison Semiconductor Ltd. Retirement Savings PlanPlaintiff - 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

          Submitted: January 16, 2019

          Appeal from United States District Court for the Eastern District of Missouri - St. Louis

          Before 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 court[1] 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.

         I

         We draw the following background from the well-pleaded 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 negative 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 sell-off 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, the 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 ...


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