Taveras v. UBS AG et al., No. 12-1662 (2d Cir. 2013)
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Plaintiffs brought a putative class action on behalf of current and former UBS and UBSFS employees, alleging that defendants violated various fiduciary duties imposed on them by the Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. 1001 et seq. Plaintiffs argued that the district court erred in analyzing their claim for breach of the duty of prudence, as it applied a presumption of prudence to the fiduciaries of both investment plans at issue. The court held that the district court wrongly applied the presumption as to one of the two plans, the Savings and Investment Plan (SIP), as the SIP Plan Document neither required nor strongly encouraged investment in UBS stock or the UBS Stock Fund. The court held, however, that the District Court correctly applied the presumption of prudence as to the second plan, the Plus Plan, which required plan fiduciaries to invest in the UBS Stock Fund. Accordingly, the court affirmed the dismissal order of the district court in part, vacated in part, and remanded the case for further proceedings. Plaintiffs' remaining arguments were addressed in a companion Summary Order.
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12-1662-cv Taveras v. UBS AG et al. 1 2 3 4 12-1662-cv Taveras v. UBS AG et al. UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT _______________ 5 6 August Term, 2012 (Argued: November 15, 2012 Decided: February 27, 2013) 7 Docket No. 12-1662 8 _______________ 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 DEBRA TAVERAS, on behalf of herself and all others similarly situated, MARY MCKEVITT, 39 Plaintiffs-Appellants, BRIAN LUDLUM, BRIAN STANISLAUS, Consolidated Plaintiffs-Appellants, v. UBS AG, PETER KURER, STEPHAN HAERINGER, SERGIO MARCHIONNE, ERNESTO BERTARELLI, GABRIELLE KAUFMANN-KOHLER, ROLF A. MEYER, HELMUT PANKE, DAVID SIDWELL, PETER SPUHLER, PETER VOSER, LAWRENCE A. WEINBACH, JOERG WOLLE, PETER A. WUFFI, CLIVE STANDISH, DAVID S. MARTIN, EDWARD O DOWD, BARBARA AMONE, PER DYRVIK, THE RETIREMENT BOARD AND SAVINGS PLAN COMMITTEE, JOHN DOES 1-30, UBS BOARD OF DIRECTORS, EXECUTIVE BOARD OF UBS AG, JOE SCOBY, ROBERT WOLF, MARTEN HOEKSTRA, RAOUL WEIL, STEPHEN BAIRD, SIMON CANNING, MICHAEL DALY, RICHARD DURON, URSULA MILLS, JAIME TAICHER, UBS AMERICAS, INC., UBS FINANCIAL SERVICES, INC., UBFS BOARD OF DIRECTORS, DIANNE FRIMMEL, JOHN HANNASCH, ROBERT CHERSI, MICHAEL WEISBERG, EXECUTIVE COMMITTEE OF UBS FINANCIAL SERVICES INC., UBS FINANCIAL SERVICES, INC. INVESTMENT COMMITTEE, KEN CASTANELLA, EARLE DODD, MARILEE FERONE, WILLIAM FREY, MATTHEW LEVITAN, ED O CONNOR, KEVIN RUTH, RHONDA VIAPIANO, Defendants-Appellees, UBS AG, FINANCIAL SERVICES, INC., BENEFITS ADMINISTRATIVE COMMITTEE OF THE UBS FINANCIAL SERVICES INC. 401 K PLUS PLAN, ROBERT MCCORMICK, JOHN AND JANE DOES 1-20, Consolidated Defendants-Appellees. _______________ 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 Before: KEARSE, STRAUB, and POOLER, Circuit Judges. _______________ An appeal from a final judgment and a postjudgment order of the United States District Court for the Southern District of New York (Richard J. Sullivan, Judge), granting defendants motion to dismiss in full, and denying plaintiffs motion to alter or amend the judgment and for leave to file an amended complaint. After examining the terms in the documents pertaining to the two retirement savings plans at issue, we hold that the District Court erred in applying the presumption of prudence as to one of the two plans, the Savings and Investment Plan, as that plan did not require or strongly encourage investment in UBS stock or the UBS Stock Fund. We hold that the District Court did not err, however, in applying the presumption of prudence as to the other plan at issue, the Plus Plan. Accordingly, the dismissal order of the District Court is AFFIRMED in part, VACATED in part, and the case is REMANDED for further proceedings consistent with this opinion. _______________ MARK C. RIFKIN, (Michael Jaffe, Beth A. Landes, on the brief) Wolf Haldenstein Adler Freeman & Herz LLP, New York, NY, Thomas J. McKenna, Gregory M. Egleston, Gainley & McKenna, New York, NY, Todd S. Collins, Ellen T. Noteware, Berger & Montague, P.C., Philadelphia, PA, Jeffrey A. Klafter, Klafter Olsen & Lesser LLP, White Plains, NY, for Plaintiffs-Appellants. ROBERT J. GIUFFRA, JR. (Suhana S. Han, Matthew A. Schwartz, Thomas C. White, on the brief) Sullivan & Cromwell LLP, New York, NY, for Defendants-Appellees. _______________ STRAUB, Circuit Judge: Plaintiffs-Appellants, four former employees of UBS AG and/or UBS Financial 31 Services, Inc., appeal from a final judgment and a postjudgment order of the District Court for 32 the Southern District of New York (Richard J. Sullivan, Judge), the first granting defendants 33 motion to dismiss in its entirety, and the second denying plaintiffs motion to alter or amend the 34 judgment and for leave to file a Second Consolidated Amended Complaint ( SCAC ). 2 1 On appeal, plaintiffs argue that the District Court erred in analyzing their claim for 2 breach of the duty of prudence, as it applied a presumption of prudence to the fiduciaries of both 3 investment plans. 4 invested for retirement, offered the UBS Stock Fund as an investment option to plan participants 5 and assert that they are entitled to the presumption of prudence, which the District Court applied. 6 For the reasons that follow, we hold that the District Court wrongly applied the presumption as 7 to one of the two plans, the Savings and Investment Plan ( SIP ), as the SIP Plan Document 8 neither requires nor strongly encourages investment in UBS stock or the UBS Stock Fund. 9 hold, however, that the District Court correctly applied the presumption of prudence as to the 10 second plan, the Plus Plan, which requires plan fiduciaries to invest in the UBS Stock Fund. 11 Accordingly, we AFFIRM the dismissal order of the District Court in part, VACATE in part, 12 and REMAND the case for further proceedings consistent with this opinion. 13 remaining arguments on appeal are addressed in a companion Summary Order, filed today. Defendants, the alleged fiduciaries of these two plans, in which plaintiffs 14 15 We Plaintiffs BACKGROUND I. Parties and Investment Plans 16 Plaintiffs-Appellants Debra Taveras, Mary McKevitt, Brian Ludlum, and Brian 17 Stanislaus are four former employees of defendants UBS AG ( UBS ) and/or UBS Financial 18 Services ( UBSFS ). 19 employees of UBS and UBSFS, alleging that Defendants-Appellees violated various fiduciary 20 duties imposed on them by the Employee Retirement Income Security Act of 1974 ( ERISA ), 21 29 U.S.C. § 1001, et seq. They brought a putative class action on behalf of current and former 3 During the class period1 alleged, plaintiffs participated in either the SIP or the UBSFS 1 2 401(k) Plus Plan ( Plus Plan ) in order to save for their retirement. 3 Plan are tax-qualified retirement savings plans under which participants hold individual accounts 4 that reflect both the amount contributed as well as the gains and losses on a participant s account 5 investments. See 29 U.S.C. § 1002(2)(A), (3), (34). 6 eligible individual account plans ( EIAPs ) as defined by ERISA. See id. § 1107(b)(1), 7 (b)(3), (d)(3).2 8 and to determine how to allocate and invest those funds among the various available investment 9 options selected by certain of the defendants. 10 Both the SIP and the Plus It is uncontested that both plans are Participants in either plan have the ability to contribute funds from their salaries The UBS Stock Fund was an available investment option under both plans during the 11 class period. The SIP Investment Committee, a named defendant, has discretion to add or 12 delete authorized investment funds available to employees participating in the SIP, including the 1 The operative class period is that alleged in the Second Consolidated Amended Complaint ( SCAC ), March 17, 2008 October 16, 2008. For an explanation of why this period governs, see our companion Summary Order, filed today. 2 EIAPs are defined in 29 U.S.C. § 1107(d)(3) as follows: [A]n individual account plan which is (i) a profit-sharing, stock bonus, thrift, or savings plan; (ii) an employee stock ownership plan [ ESOP ]; or (iii) a money purchase plan which was in existence on September 2, 1974, and which on such date invested primarily in qualifying employer securities. Such term excludes an individual retirement account or annuity described in section 408 of Title 26. . . . Notwithstanding [i iii], a plan shall be treated as an eligible individual account plan with respect to the acquisition or holding of qualifying employer real property or qualifying employer securities only if such plan explicitly provides for acquisition and holding of qualifying employer securities or qualifying employer real property . . . . 29 U.S.C. § 1107(d)(3) (emphasis added). ESOPs are therefore a kind of EIAP, as are other profit-sharing, stock bonus, thrift or savings plans. See Wright v. Or. Metallurgical Corp., 360 F.3d 1090, 1094 (9th Cir. 2004). In general, ERISA plans are not permitted to invest more than ten percent of their assets in the sponsoring employer s securities or real property. 29 U.S.C. § 1107(a). EIAPs are exempt from this requirement. Id. § 1107(b)(1). Courts have noted accordingly that EIAPs seek to promote, among other things, investment in employer securities, and therefore are subject to many of the same exceptions [including the duty to diversify and prohibitions against self-dealing] that apply to ESOPs in particular. Edgar v. Avaya, Inc., 503 F.3d 340, 347 (3d Cir. 2007); see also 29 U.S.C. § 1104(a)(2) (exempting all EIAPs from duty to diversify in certain instances); Id. § 1108(e)(3)(A) (exempting all EIAPs from prohibition against self-dealing in certain instances). 4 1 UBS Stock Fund, which tracked the performance of the underlying common stock of UBS. 2 (JA-600.) The SIP Plan Document tasks the SIP Investment Committee with the general 3 responsibility to instruct and advise the Trustee and the Members [of the SIP] as to the addition 4 or deletion of an authorized Investment Fund. (JA 914, § 9.2.) 5 The Plus Plan Investment Committee, another named defendant, is permitted to add or 6 delete any investment fund authorized by the Plus Plan as an investment option, including the 7 UBS Stock Fund. The UBS Stock Fund, however, is identified in the Plus Plan Summary Plan 8 Description as one of the Core Tier funds, and the Plus Plan Plan Document states that the Plus 9 Plan Investment Committee shall provide it as an investment option under the plan. 10 (JA-1086; JA-992.) 11 Both the SIP and the Plus Plan sustained significant losses due to individual plan 12 participants accounts investment in the UBS Stock Fund. 13 percent between April 26, 2007, when it reached a twelve-month high, and the last day of the 14 class period, October 16, 2008. 15 claims that defendants breached their various fiduciary duties under ERISA. 16 UBS stock fell some seventy-four It is these losses that provide the foundation for plaintiffs Defendants are alleged fiduciaries of the plans and include UBS, UBSFS, UBS Americas, 17 Inc. ( UBSA ),3 the members of UBS s Executive Board, the members of UBSFS s Executive 18 Committee, UBSFS s Board of Directors, members of the SIP Investment Committee, members 19 of the Plus Plan s Benefits Administration Committee ( Plus Plan Administration Committee ), 20 and the members of the Plus Plan s Investment Committee. 21 II. Allegations of the Second Consolidated Amended Complaint 22 Plaintiffs allegations arise principally out of two decisions UBS made in the years 3 UBSFS is a wholly owned subsidiary of UBSA, which is, in turn, a wholly owned subsidiary of UBS. 5 1 leading up to and including the class period. 2 subsequent exposure to the risks of, more than $100 billion in subprime mortgage backed 3 securities and other fixed income assets. 4 contravention of its own stated risk policies, has been the subject of an SEC investigation, a 5 Swiss Federal Banking Commission investigation, and a Shareholder Report issued by UBS.4 6 The second related decision is the approximately $43 billion of write-downs in assets that UBS 7 undertook between October 30, 2007, and August 12, 2008. 8 9 The first is UBS s decision to invest in, and its UBS s decision to make these investments, often in As a result of these write-downs, which are alleged to be due in large part to UBS s risky subprime investments, plaintiffs allege that UBS found itself on the [b]rink of [c]ollapse in 10 2008. (JA-653.) 11 UBS was insolvent, and as such, the Swiss government had to bail out UBS by taking on a 12 $60 billion portfolio of illiquid and highly risky assets from the company that had little or no 13 real value. (JA-658.) 14 Based on these write-downs and UBS s reported assets, plaintiffs allege that Plaintiffs accordingly filed suit on behalf of themselves and all others similarly situated, 15 alleging that, during the relevant class period, defendants breached their fiduciary duties under 16 ERISA by (1) imprudently continuing to offer participants in both the Plus Plan and the SIP the 17 option to invest in the UBS Stock Fund because UBS stock and the UBS Stock Fund were 18 adversely affected by, inter alia, UBS s investments in risky subprime mortgage backed 19 securities and other fixed income assets ( Count 1 ); (2) making misstatements or omissions 4 A summary of the UBS shareholder report is publically available. See SHAREHOLDER REPORT ON UBS S WRITE-DOWNS (2008), available at http://www.static-ubs.com/global/en/about_ubs/investor_relations/agm/2008 /agm2008/invagenda/_jcr_content/par/linklist_9512/link.277481787.file/bGluay9wYXRoPS9jb250ZW50L2RhbS91 YnMvZ2xvYmFsL2Fib3V0X3Vicy9pbnZlc3Rvcl9yZWxhdGlvbnMvMTQwMzMzXzA4MDQxOFNoYXJlaG9sZ GVyUmVwb3J0LnBkZg==/140333_080418ShareholderReport.pdf. UBS prepared this summary for the public but provided the Swiss Federal Banking Commission with a longer 400-page report, which has not been made publicly available. 6 1 regarding UBS s true financial condition in breach of their duty of candor ( Count 2 ); (3) 2 failing to adequately monitor other fiduciaries, for co-fiduciary liability, and quantum meruit 3 ( Counts 3, 5, and 6 or secondary liability claims ); and (4) engaging in wrongful conflicts of 4 interest ( Count 4 ). 5 III. Procedural Background 6 Three separate ERISA actions were brought against UBS in the Southern District of New 7 York beginning in July 2008. After these actions were consolidated, plaintiffs filed a 8 consolidated complaint, followed in November 2008 by the Consolidated Amended Complaint 9 ( AC ). After receiving notification that defendants were seeking leave to file a motion to 10 dismiss the AC, plaintiffs elected to stand on the allegations of that complaint. 11 moved to dismiss on January 16, 2009, but the District Court stayed disposition of the motion 12 until certain issues in a related action were resolved. 13 14 Defendants A. Motion to Dismiss The District Court granted defendants motion to dismiss the AC in its entirety in an 15 opinion dated March 24, 2011, and entered final judgment on March 27, 2011. See In re UBS 16 AG ERISA Litig., No. 08 Civ. 6696, 2011 WL 1344734 (S.D.N.Y. Mar. 24, 2011). 17 It dismissed Count 1, plaintiffs duty of prudence claim, reasoning that because the Plus 18 Plan required that investors be offered the option of investing in the UBS Stock Fund, and the 19 SIP strongly encourage[d] defendants to offer the option to invest in the UBS Stock Fund, 20 defendants were entitled to a presumption of prudence in accordance with Moench v. Robertson, 21 62 F.3d 553 (3d Cir. 1995). In re UBS AG ERISA Litig., 2011 WL 1344734, at *4-5. Thus, 22 the District Court reviewed defendants decisions to continue offering the UBS Stock Fund as an 23 investment option under either plan for an abuse of discretion. Id. at *6. 7 It held that the 1 decline of UBS s share price, alleged to be approximately seventy-four percent,5 was 2 insufficient to overcome the presumption of prudence, and that there were no other allegations 3 making it plausible that UBS s solvency or viability as a going concern was ever realistically in 4 jeopardy or otherwise setting forth a sufficiently dire situation. Id. at *8. 5 Court held also that, even if the allegations of the complaint could be viewed as establishing 6 sufficiently dire circumstances for the company, there were no allegations that those 7 circumstances appeared imminent to Defendants. Id. The District 8 As to Count 2, plaintiffs duty of candor claim, the District Court held that defendants did 9 not have any duty to disclose to plan participants material information relating to the company s 10 financial condition, and that the alleged misstatements were made when defendants were acting 11 in their corporate fiduciary, rather than ERISA fiduciary, capacity. Id. at *9. 12 District Court noted it believed this claim was not pled with the requisite degree of specificity. 13 Id. at *10. It therefore dismissed Count 2. 14 Additionally, the The remaining counts, those alleging that defendants had breached their duties of care 15 and loyalty by failing to avoid conflicts of interest and for secondary liability, were also 16 dismissed. 17 dismissed] claims and thus failed as well. 18 The court determined that they were nothing more than a rehashing of [the other Id. at *11. B. Motion to Alter or Amend the Judgment 19 On April 20, 2011, plaintiffs filed a motion to alter or amend the judgment and requested 20 leave to file the proposed SCAC. The District Court denied this motion on March 23, 2012, in 21 part because all of the additional allegations in the SCAC could have been raised prior to the 5 As the District Court noted in its order, plaintiffs revised their figures in their brief opposing defendants motion to dismiss the AC to allege that UBS s stock price fell 69%. In re UBS AG ERISA Litig., 2011 WL 1344734, at *2, n.5. The AC and the SCAC both allege, however, that the stock price fell seventy-four percent. 8 1 entry of judgment (many, even prior to the end of briefing on the motion to dismiss), and the 2 motion was therefore untimely. In re UBS AG ERISA Litig., No. 08 Civ. 6696, 2012 WL 3 1034445, at *4 (S.D.N.Y. Mar. 23, 2012). 4 judgment, the District Court also considered the merits of the allegations in the SCAC, 5 determining that although Plaintiffs proposed SCAC contains dozens of amendments, they 6 would not alter the Court s conclusion that neither the presumption of prudence was overcome 7 nor the duty of candor violated. 8 additional allegations contained in the SCAC could not cure the deficiencies which had led to 9 dismissal previously, and so the proposed amendment was futile in any event. Id. at *7-8. 10 Id. at *7. In deciding plaintiffs motion to alter or amend the Thus, the District Court concluded that the DISCUSSION 11 I. Presumption of Prudence 12 A. Standard of Review 13 As with any review of a Rule 12(b)(6) motion to dismiss, the District Court s 14 determination that the Moench presumption of prudence applies to the fiduciaries of the two 15 plans is reviewed de novo. 16 (per curiam). We accept as true the facts alleged in the AC,6 and may consider documents it 17 incorporates by reference, as well as documents upon which it relies heavily, in deciding this 18 appeal. DiFolco v. MSNBC Cable L.L.C., 622 F.3d 104, 111 (2d Cir. 2010) (internal quotation 19 marks omitted). To survive a motion to dismiss, a complaint must contain sufficient factual 20 matter, accepted as true, to state a claim to relief that is plausible on its face. Ashcroft v. Iqbal, 21 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). See, e.g., Maloney v. Soc. Sec. Admin., 517 F.3d 70, 74 (2d Cir. 2008) 22 6 For an explanation of why the facts alleged in the AC, with the exception of the class period alleged in the SCAC, govern this Opinion, see our companion Summary Order, filed today. 9 1 B. The Moench Presumption 2 All ERISA fiduciaries are required to act in accordance with, inter alia, the duty of 3 prudence, which requires those fiduciaries to make reasonable investment and managerial 4 decisions on behalf of the ERISA plan they are overseeing, such that a prudent man acting in a 5 like capacity and familiar with such matters would use similar care, skill, prudence, and 6 diligence. 29 U.S.C. § 1104(a)(1). In In re Citigroup ERISA Litig., 662 F.3d 128, 138 (2d 7 Cir. 2011), we adopted a presumption of prudence that applies to fiduciaries of certain plans 8 who invest the plan they are overseeing, or offer participants the option to invest their individual 9 accounts, in the employer s stock. See also Gearren v. McGraw-Hill Cos., 660 F.3d 605, 610 10 (2d Cir. 2011) ( Gearren II ) (same). 11 fiduciary s decision to invest an employer s retirement plan in the employer s own stock or to 12 offer plan participants the option to so invest is a presumptively prudent decision in 13 compliance with ERISA, and thus the decision to invest in the employer s stock is reviewed only 14 for an abuse of discretion. 15 fiduciary appropriately may be found to have exceeded this discretion only where she knew or 16 should have known that the employer, and therefore its stock, was in a dire situation. Id. at 17 140 (internal quotation marks omitted). 18 The presumption dictates that, where applicable, a In re Citigroup ERISA Litig., 662 F.3d at 138-40. An ERISA The Moench presumption was created in consideration of the fact that while Employee 19 Stock Ownership Plans ( ESOPs ), unlike pension plans, are not intended to guarantee 20 retirement benefits, such ESOP fiduciaries still must act in accordance with the [applicable] 21 duties of loyalty and care. Moench, 62 F.3d at 568-69. 22 an ESOP fiduciary who invests the assets in employer stock is entitled to a presumption that it 23 acted consistently with ERISA by virtue of that decision. Id. at 571. We have subsequently 10 Thus, the Third Circuit decided that 1 held that the presumption applies not only to ESOPs, but also to certain EIAPs, the kind of plan at 2 issue in this case. See In re Citigroup ERISA Litig., 662 F.3d at 138 (adopting presumption, 3 where applicable, with respect to both EIAPs and ESOPs ). 4 We have stated, however, that it is not merely investment in employer stock that entitles a 5 defendant to a presumption of prudence. Rather, judicial scrutiny should increase with the 6 degree of discretion a plan gives its fiduciaries to invest. 7 from company stock is less likely to constitute an abuse of discretion if the plan s terms require 8 rather than merely permit investment in company stock. Id. (citation omitted); accord 9 Moench, 62 F.3d at 571 (indicating presumption does not apply where the fiduciary is simply Thus, a fiduciary s failure to divest 10 permitted to make investments in an employer s securities, but only where the fiduciary 11 presumptively is required to invest in employer securities ). 12 C. Presumption of Prudence in the Instant Case 13 The District Court found that both the SIP and the Plus Plan sufficiently mandated or 14 encouraged their fiduciaries to provide plan investors the option to invest in the UBS Stock Fund 15 so as to trigger the presumption of prudence. In re UBS AG ERISA Litig., 2011 WL 1344734, 16 at *4-6. 17 Stock Fund was to be offered as an investment option, we examine each in turn. 18 Because each plan document sets forth different language regarding whether the UBS i. Plus Plan 19 Section 1.2 of the Plus Plan Plan Document states that the purpose of the plan is to 20 attract and retain qualified individuals by providing them with an opportunity to accumulate 21 assets for their retirement and to acquire [UBS] Common Stock. 22 11.2(a) of the same document states that [t]he Trustee shall invest and reinvest all amounts in 23 each Participant s Accounts . . . from among the Investment Funds made available by the 11 (JA 990, § 1.2.) Section 1 Investment Committee . . . one of which shall be the [UBS] Common Stock Fund. (JA 992, § 2 11.2 (emphasis added).) The Investment Committee is allowed to add[ ] or delete[ ] any of 3 the available investment funds, presumably including the UBS Stock Fund, from time to time. 4 (Id.) 5 This language mirrors the language of the plan document at issue in Gearren. There, 6 the plan document provided that the Plan shall offer (a) the Stock Fund which will be invested 7 primarily in Common Stock of the Corporation. Gearren v. McGraw-Hill, 690 F. Supp. 2d 8 254, 262 (S.D.N.Y. 2010) ( Gearren I ). 9 that [t]he Pension Investment Committee is authorized to terminate the existing Funds, The plan document at issue in Gearren provided also 10 including the employer s own stock fund. Brief for Plaintiffs-Appellants at 8-9, Gearren v. 11 McGraw-Hill, 660 F.3d 605 (2d Cir. 2011) (No. 10-792-cv). 12 As in Gearren, the relevant sections of the Plus Plan Plan Document require, at least 13 initially, that the UBS Stock Plan be offered as an investment option. 14 provide the Plus Plan Investment Committee a means by which to terminate the company s fund 15 as an investment option if it so chooses. 16 those funds available to plan investors existed also in Gearren, where we applied the 17 presumption of prudence.7 See Gearren II, 660 F.3d at 610. 18 The Plan Document does But the ability to remove the company s fund from As the District Court held, [b]ecause the Plus Plan [Plan Document] clearly and 19 explicitly limits the trustee s discretion by requiring that the UBS Stock Fund be offered as an 20 investment option, the Plus Plan fiduciaries are entitled to a presumption of prudence. In re 21 UBS AG ERISA Litig., 2011 WL 1344734, at *5. 7 We agree that the Plus Plan Plan Document As the District Court deciding Gearren I reasoned, the plain language of the plan agreements thus states that the Committee must offer the Stock Fund . . . . [and] commanded the actions at issue. 690 F. Supp. 2d at 263-64. 12 1 required the plan s fiduciaries to offer the UBS Stock Fund and, therefore, affirm the District 2 Court s holding that the fiduciaries of the Plus Plan are entitled to the presumption of prudence 3 in reviewing their decision to offer the UBS Stock Fund as an investment option. 4 5 ii. SIP Unlike the Plus Plan, the SIP Plan Document contains no language mandating that the 6 UBS Stock Fund shall be offered as an option to investors in the plan. The SIP Plan 7 Document, however, does include several mentions of the UBS Stock Fund. 8 9 Section 2.1 of the SIP Plan Document lists and defines the UBS Stock Fund as among the relevant terms in the plan documentation. It offers the following definition of the UBS 10 Stock Fund: [T]he portion of the Plan and the Trust Fund invested in UBS Shares . . . 11 includ[ing] such other assets as the Trustee may deem appropriate while assets are awaiting 12 investment in UBS Shares. (JA 872, § 2.1(ll).) 13 Section 9.2 of the SIP Plan Document states that the [SIP Investment] Committee may 14 . . . from time to time eliminate any current Investment Fund and/or designate other Investment 15 Funds to be available for the investment of the funds credited to the Accounts of Members under 16 the Plan. (JA-914, § 9.2.) 17 section. 18 could add or delete from the Plan in accordance with section 9.2. 19 Notably, the UBS Stock Fund is not mentioned by name in this Presumably, however, it is an Investment Fund that the SIP Investment Committee Section 9.7 is entitled UBS Shares, and describes, inter alia, the manner in which 20 dividends from the UBS Stock Fund are to be reinvested subsequent to the Investment 21 Committee s decision to add the Fund as an investment option under the plan as of April 2, 2001, 22 as well as how voting rights for UBS stock are to be administered to plan participants. 23 13 1 The District Court determined that these references to the UBS Stock Fund, the only fund 2 mentioned by name in the SIP Plan Document, sufficiently established that the UBS Stock Fund 3 was a strongly encouraged investment option so as to entitle the SIP fiduciaries to the 4 presumption of prudence. 5 of any Investment Fund,] does not undermine the conclusion that . . . the settlor intended to 6 strongly encourage a fiduciary to . . . facilitate employee ownership of employer stock, and 7 [a]s such, the provisions of the SIP Document provide sufficient evidence of the settlor s clear 8 intent that the Stock Fund be offered as an investment option. In re UBS AG ERISA Litig., 9 2011 WL 1344734, at *5 (citations and internal quotations omitted). 10 It reasoned that [S]ection 9.2 [, allowing for the addition or deletion We are not similarly persuaded that the aforementioned passages from the SIP Plan 11 Document amount to strong encouragement. The SIP, unlike the Plus Plan and the plans in 12 Gearren and Citigroup, does not in any way require or encourage its fiduciaries to offer the UBS 13 Stock Fund as an investment option to plan participants, as opposed to any other available 14 investment fund. See In re Citigroup ERISA Litig., 662 F.3d at 138 ( [A] fiduciary s failure to 15 divest from company stock is less likely to constitute an abuse of discretion if the plan s terms 16 require rather than merely permit investment in company stock. ). 17 simply lists the UBS Stock Fund as one potential investment option, and notes that the 18 Investment Committee ultimately did, in 2001, decide to offer the fund as an investment option 19 to plan participants. 20 and voting rights accruing from the UBS Stock Fund should be distributed to plan participants 21 does not change our conclusion. 22 Committee has already made the entirely discretionary decision to add the fund as an option in 23 the first instance. The SIP Plan Document That the SIP Plan Document also describes particular ways that dividends These subsections are relevant only if the Investment 14 1 EIAPs, of which the SIP is one, have an ERISA-recognized interest in encourag[ing] . . . 2 employee ownership [of the employer s stock] through the special status provided to . . . eligible 3 individual account plans. In re Citigroup ERISA Litig., 662 F.3d at 136. 4 it is likely that many EIAPs will, when possible, provide their fiduciaries a discretionary means 5 by which to offer plan participants the ability to invest in the employer s stock. 6 presumption of prudence was triggered in every instance where the EIAP plan document, as 7 here, simply (1) named and defined the employer s stock in the plan document s terms, and (2) 8 allowed for the employer s stock to be offered by the plan s fiduciaries on a discretionary basis 9 to plan participants, then we are hard pressed to imagine that there exists any EIAP that merely 10 offered the option to participants to invest in their employer s stock whose fiduciaries would not 11 be entitled to the presumption of prudence. 12 In light of this goal, If the Such an outcome contravenes our reasoning in In re Citigroup ERISA Litig. and Gearren 13 II, and the reasoning employed by the Third Circuit in creating the presumption of prudence in 14 the first instance. 15 tension between the competing ERISA values of protecting retirement assets and encouraging 16 investment in employer stock that exists primarily in instances where a fiduciary has an 17 explicit obligation to act in accordance with plan provisions by offering employer stock to 18 participants. In re Citigroup ERISA Litig., 662 F.3d at 136, 138-39; see also Edgar v. Avaya, 19 503 F.3d 340, 346 (3d Cir. 2007) (noting guiding principle in trust law that if the trust merely 20 permits the trustee to invest in a particular stock, then the trustee s investment decision is subject 21 to de novo judicial review. ) (internal quotation marks omitted); In re Schering-Plough Corp. 22 ERISA Litig., 420 F.3d 231, 238 n.5 (3d Cir. 2005), amended by 2005 U.S. App. LEXIS 19862 23 (3d Cir. Sept. 15, 2005) (noting Moench presumption was inapposite where fiduciaries were The presumption of prudence was applied in those cases to address the 15 1 simply permitted to make investments in employer securities ) (internal quotation marks and 2 alterations omitted); Moench, 62 F.3d at 571 (indicating presumption applies where fiduciary 3 presumptively is required to invest in employer securities, but not where the fiduciary is 4 simply permitted to make such investments ). 5 Here, the tension between these competing concerns is weak at best, if not absent 6 entirely. And, as noted, the SIP fiduciaries had no such obligation to offer the UBS Stock 7 Fund. 8 Committee had the discretion to offer. 9 particularly Section 9.2, clearly establishes that the UBS Stock Fund was to be treated no The UBS Stock Fund was one investment fund among many that the SIP Investment It was free to offer it, or not. The SIP Plan Document, 10 differently from any other investment fund that the SIP Investment Committee elected to offer to 11 participants. 12 they behaved prudently merely by offering it to plan participants. 13 Thus, the SIP fiduciaries should not benefit from an especial presumption that Accordingly, we hold that, because the SIP Plan Document does not require or even 14 strongly encourage investment in the UBS Stock Fund, but instead simply presents it as one 15 permissible investment option, fiduciaries of the SIP are not entitled to the presumption of 16 prudence. The District Court erred in holding otherwise. 17 II. Additional Claims 18 The District Court dismissed plaintiffs claims for secondary liability, raised in Counts 3, 19 5, and 6 of the AC, reasoning that those claims were dependent upon, among others, plaintiffs 20 breach of the duty of prudence claim. 21 prudence claim as to the SIP was wrongly dismissed, the secondary liability claims raised in Because we hold that plaintiffs breach of the duty of 16 1 Counts 3, 5, and 6 based on the SIP and its fiduciaries8 are also reinstated. 2 District Court s dismissal of Counts 2 and 4, however, for the reasons stated in our companion 3 Summary Order, filed today. 4 We affirm the CONCLUSION 5 For the aforementioned reasons, the order of the District Court denying 6 Plaintiffs-Appellants motion to dismiss is AFFIRMED in part and VACATED in part, and the 7 case is REMANDED for further proceedings consistent with this opinion. 8 The District Court declined to address whether plaintiffs complaint adequately alleged that the various named defendants were ERISA fiduciaries of the SIP and/or Plus Plan. In re UBS AG ERISA Litig., 2011 WL 1344734, at *4 n.11. We decline to analyze this issue for the first time on appeal. 17
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