The Clerk of Court is directed to amend the caption as set 1 forth above. 2 1… v. McGraw-Hill Cos., Inc. UNITED STATES COURT OF APPEALS 1 FOR THE SECOND CIRCUIT 2 3…

* The Clerk of Court is directed to amend the caption as set 1
forth above. 2
1
10-792-cv (L)
Gearren v. McGraw-Hill Cos., Inc.
UNITED STATES COURT OF APPEALS 1
FOR THE SECOND CIRCUIT 2
3
August Term 2010 4
(Argued: September 28, 2010 Decided: October 19, 2011) 5
Docket No. 10-792-cv (L) 10-934-cv(Con) 6
7
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PATRICK L. GEARREN, JAN DEPERRY, MARY SULLIVAN, HARVEY 9
SULLIVAN, and CYNTHIA DAVIS, on behalf of themselves and 10
all others similarly situated, 11
12
Plaintiffs-Appellants, 13
14
-- v. -- 15
16
THE MCGRAW-HILL COMPANIES, INCORPORATED, THE PENSION 17
INVESTMENT COMMITTEE OF MCGRAW-HILL, MARTY MARTIN, THE 18
BOARD OF DIRECTORS OF THE MCGRAW-HILL COMPANIES, 19
INCORPORATED, WINFRIED BISCHOFF, DOUGLAS N. DAFT, LINDA 20
KOCH LORIMER, HAROLD MCGRAW, HILDA OCHOA-BRILLEMBOURG, 21
MICHAEL RAKE, JAMES H. ROSS, EDWARD B. RUST, KURT L. 22
SCHMOKE, SIDNEY TAUREL, JOHN DOES 1-20, ROBERT J. 23
BAHASH, HENRY HIRSCHBERG, ALEX MATURRI, JAMES H. 24
MCGRAW, IV, DAVID L. MURPHY, JOHN C. WEISENSEEL, 25
KATHLEEN A. CORBET, PHIL EDWARDS, ROBERT P. MCGRAW, and 26
PEDRO ASPE, 27
28
Defendants-Appellees.*
29
30
------------------------------------------------------x 31
32
B e f o r e : WALKER, CABRANES, and STRAUB, Circuit Judges. 33
Plaintiffs-Appellants appeal from a decision of the District 34
Court for the Southern District of New York (Richard J. Sullivan, 35
Judge) granting defendants’ motion to dismiss plaintiffs’ class- 36

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2
action complaints for failure to state a claim upon which relief 1
can be granted. Plaintiffs, participants in two retirement plans 2
offered by The McGraw-Hill Companies, Inc. (“McGraw-Hill”), 3
brought suit alleging breach of fiduciary duty under the Employee 4
Retirement Income Security Act (“ERISA”), 29 U.S.C. § 1001 et 5
seq. As in the companion Citigroup case, plaintiffs allege (1) 6
that defendants acted imprudently by including employer stock as 7
an investment option in the retirement plans and (2) that 8
defendants failed to provide adequate and truthful information to 9
participants regarding the status of employer stock. We hold 10
that the facts alleged by plaintiffs are, even if proven, 11
insufficient to establish that the defendants abused their 12
discretion by continuing to offer Plan participants the 13
opportunity to invest in McGraw-Hill stock. We also hold that 14
plaintiffs have not alleged facts sufficient to prove that 15
defendants made any statements, while acting in a fiduciary 16
capacity, that they knew to be false. AFFIRMED. 17
Judge STRAUB dissents for substantially the same reasons 18
expressed in his dissent and partial concurrence in In re: 19
Citigroup ERISA Litigation, No. 09-3804-cv (2d Cir. [DATE]). 20
EDWIN J. MILLS, Stull, Stull & 21
Brody, New York, NY (Michael J. 22
Klein, Stull, Stull & Brody, New 23
York, NY; Francis A. Bottini, Jr. 24
Albert Y. Chang, Johnson Bottini, 25
LLP, San Diego, CA, on the brief), 26
for Plaintiffs-Appellants. 27
28

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3
MYRON D. RUMELD, Proskauer Rose LLP, 1
New York, NY (Russell L. Hirschhorn, 2
Proskauer Rose LLP, New York, NY; 3
Howard Shapiro, Proskauer Rose LLP, 4
New Orleans, LA; Floyd Abrams, Susan 5
Buckley, Tammy L. Roy, Cahill Gordon 6
& Reindel LLP, New York, NY, on the 7
brief), for Defendants-Appellees. 8
9
MICHAEL SCHLOSS, Senior Trial 10
Attorney (M. Patricia Smith, 11
Solicitor of Labor, Timothy D. 12
Hauser, Associate Solicitor for Plan 13
Benefits Security, Elizabeth 14
Hopkins, Counsel for Appellate and 15
Special Litigation, on the brief), 16
United States Department of Labor, 17
Washington, DC, for amicus curiae 18
Hilda L. Solis, Secretary of the 19
United States Department of Labor. 20
21
CAROL CONNOR COHEN, Arent Fox LLP, 22
Washington, DC (Caroline Turner 23
English, Arent Fox LLP, Washington, 24
DC; Robin S. Conrad, Shane B. Kawka, 25
National Chamber Litigation Center, 26
Washington, DC), for amicus curiae 27
Chamber of Commerce of the United 28
States of America. 29
30
JOSEPH M. M C LAUGHLIN, Simpson 31
Thacher & Bartlett LLP, New York, NY 32
(George S. Wang, Agnès Dunogué, 33
Hiral D. Mehta, Simpson Thacher & 34
Bartlett LLP, New York, NY; Ira D. 35
Hammerman, Kevin M. Carroll, 36
Securities Industry and Financial 37
Markets Association, Washington, 38
DC), for amicus curiae Securities 39
Industry and Financial Markets 40
Association. 41
42
43
44
45
46
47

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1 The district court consolidated for resolution two 1
substantially identical complaints. All references in this 2
opinion to the “Complaint” are to the complaint brought by 3
plaintiffs Harvey and Mary Sullivan. 4
4
PER CURIAM: 1
Plaintiffs-Appellants Patrick L. Gearren, Jan Deperry, Mary 2
Sullivan, Harvey Sullivan, and Cynthia Davis, on behalf of 3
themselves and a putative class of persons similarly situated 4
(“Plaintiffs”), appeal from a decision of the District Court for 5
the Southern District of New York (Richard J. Sullivan, Judge) 6
granting defendants’ motion to dismiss plaintiffs’ complaints for 7
failure to state a claim upon which relief can be granted. 1
8
Plaintiffs, participants in two retirement plans offered by The 9
McGraw-Hill Companies, Inc. (“McGraw-Hill”), brought suit alleging 10
breach of fiduciary duty under the Employee Retirement Income 11
Security Act (“ERISA”), 29 U.S.C. § 1001 et seq. As in the 12
companion Citigroup case, plaintiffs allege (1) that defendants 13
acted imprudently by including employer stock as an investment 14
option in the retirement plans and (2) that defendants failed to 15
provide adequate and truthful information to participants regarding 16
the status of employer stock. We hold that the facts alleged by 17
plaintiffs are, even if proven, insufficient to establish that the 18
defendants abused their discretion by continuing to offer Plan 19
participants the opportunity to invest in McGraw-Hill stock. We 20
also hold that plaintiffs have not alleged facts sufficient to 21

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5
prove that defendants made any statements, while acting in a 1
fiduciary capacity, that they knew to be false. 2
BACKGROUND 3
This case was argued in tandem with In re: Citigroup ERISA 4
Litig., No. 09-3804-cv, which raised similar issues and which we 5
decide by separate opinion filed today. The facts alleged by 6
plaintiffs are substantially similar to those alleged in the 7
Citigroup case. Plaintiffs are participants in one of two defined- 8
contribution retirement plans offered by McGraw-Hill: the 401(k) 9
Savings and Profit Sharing Plan of the McGraw-Hill Companies, Inc. 10
and Its Subsidiaries (the “McGraw-Hill Plan”) and the Standard and 11
Poor’s 401(k) Savings and Profit Sharing Plan for Represented 12
Employees (the “S&P Plan”) (collectively, the “Plans”). Both Plans 13
are eligible individual account plans (“EIAPs”), 29 U.S.C. § 14
1107(d)(3)(A). The Plans allow McGraw-Hill employees to make pre- 15
tax contributions from their salaries to individual retirement 16
accounts. The employees are then able to allocate the funds within 17
their accounts among a set of investment options. Each Plan was 18
managed by Defendant Marty Martin, who served as McGraw-Hill’s Vice 19
President for Employee Benefits and as each Plan’s name 20
administrator, and by the Pension Investment Committee, which was 21
responsible for selecting the investment options to be offered to 22
Plan participants. The McGraw-Hill Stock Fund (the “Stock Fund”), 23
which was “invested primarily in the Common Stock of [McGraw- 24

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6
Hill],” remained an investment option in both Plans throughout the 1
Class Period (December 3, 2006, through December 5, 2008), as 2
mandated by the Plan documents. 3
Plaintiffs filed their class action complaint on June 12, 4
2009, following a drop in the price OF McGraw-Hill stock from 5
$68.02 to $24.23 during the Class Period. The defendants are 6
McGraw-Hill, Marty Martin, the Pension Investment Committee, and 7
McGraw-Hill’s Board of Directors. Plaintiffs challenge the 8
defendants’ management of the Plans and, in particular, the Stock 9
Fund. They allege that McGraw-Hill became an imprudent investment 10
option during the Class Period because its financial services 11
division, Standard and Poor’s (S&P), knowingly provided inflated 12
ratings to financial products linked to the subprime-mortgage 13
market. The public’s discovery of these ratings practices, 14
plaintiffs allege, led to the sharp drop in the price of McGraw- 15
Hill stock. 16
Count I of plaintiffs’ complaint alleges that the defendants 17
breached their fiduciary duties by continuing to offer the Stock 18
Fund as an investment option in the Plans throughout the Class 19
Period, while “McGraw-Hill’s true adverse financial and operating 20
condition was being concealed.” Compl. ¶ 86. Count II alleges 21
that the defendants violated their duty of loyalty by making 22
misrepresentations and nondisclosures regarding McGraw-Hill’s 23
financial condition and S&P’s ratings practices. Compl. ¶ 93. 24

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7
Counts III and IV are, in substance, derivative of Counts I and II. 1
Count III alleges that the defendants violated their duty of 2
loyalty by acting “in their own interests rather than solely in the 3
interests” of the Plans’ participants. Compl. ¶ 102. Finally, 4
Count IV alleges that the Board of Director defendants failed to 5
properly appoint, monitor, and inform the members of the Pension 6
Investment Committee. 7
On February 10, 2010, the district court granted in full 8
defendants’ motion to dismiss. See Gearren v. McGraw-Hill Cos., 9
Inc., 690 F. Supp. 2d 254 (S.D.N.Y. 2010). With respect to Count 10
I, the district court held that the defendants were entitled to a 11
presumption that their decision to offer the Stock Fund as an 12
investment option was prudent. The court concluded that the facts 13
alleged by plaintiffs were, if proven, insufficient to overcome the 14
presumption. Id. at 265-70. The court also rejected Count II, 15
finding that the defendants had no affirmative duty to disclose 16
McGraw-Hill’s financial position to Plan participants and that any 17
alleged misrepresentations were not made in the defendants’ 18
capacity as ERISA fiduciaries. Id. at 271-73. The court dismissed 19
Counts III and IV because they depended on the success of Counts I 20
and II. Id. at 273. 21
Plaintiffs now appeal from the district court’s judgment 22
dismissing the complaint. 23
24

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8
DISCUSSION 1
We review de novo the district court’s dismissal under 2
Federal Rule of Civil Procedure 12(b)(6). Gallop v. Cheney, 642 3
F.3d 364, 368 (2d Cir. 2011). “To survive a motion to dismiss, 4
a complaint must contain sufficient factual matter, accepted as 5
true, to ‘state a claim to relief that is plausible on its 6
face.’” Ashcroft v. Iqbal, 129 S. Ct. 1937, 1949 (2009) (quoting 7
Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). We 8
consider each of plaintiffs’ claims in turn and conclude that 9
plaintiffs have failed to state a claim for relief. 10
I. Count I: Inclusion of the McGraw-Hill Stock Fund as an 11
Investment Option 12
Plaintiffs first argue that the district court erred by 13
dismissing their claims that the defendants acted imprudently by 14
continuing to allow plan participants to invest in McGraw-Hill 15
stock during the Class Period. We disagree. As we explain in 16
the companion Citigroup opinion, we adopt the Moench presumption 17
and review defendants’ decision to continue to allow Plan 18
participants to invest in employer stock, in accordance with the 19
Plans’ terms, for an abuse of discretion. See Moench v. 20
Robertson, 62 F.3d 553, 571 (3d Cir. 1995) (“[A]n ESOP fiduciary 21
who invests the assets in employer stock is entitled to a 22
presumption that it acted consistently with ERISA by virtue of 23
that decision.”). Plan fiduciaries are only required to divest 24

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9
an EIAP or ESOP of employer stock where the fiduciaries know or 1
should know that the employer is in a “dire situation.” Edgar v. 2
Avaya, Inc., 503 F.3d 340, 348 (3d Cir. 2007). “Mere stock 3
fluctuations, even those that trend downward significantly, are 4
insufficient to establish the requisite imprudence to rebut the 5
presumption.” Wright v. Or. Metallurgical Corp., 360 F.3d 1090, 6
1099 (9th Cir. 2004). 7
Here, we agree with the district court that even if we 8
assume that plaintiffs’ allegations are proved, plaintiffs are 9
unable to establish that defendants knew or should have known 10
that McGraw-Hill was in a dire situation. Plaintiffs’ 11
allegations relate entirely to operations within the Credit 12
Market Services group of S&P, which is one of McGraw-Hill’s three 13
operating segments. More specifically, plaintiffs allege that 14
Credit Market Services provided inflated ratings to two 15
structured-finance products: collateralized debt obligations and 16
residential mortgage backed securities. Even if the defendant 17
fiduciaries were aware of these problems in the Credit Market 18
Services group of S&P, the facts alleged do not support 19
plaintiffs’ contention that defendants should have determined 20
that McGraw-Hill itself was in a dire situation. Defendants 21
could not reasonably have foreseen, based on the information 22
alleged to have been available to them at the time, the sharp 23
decline in the price of McGraw-Hill stock that occurred after the 24

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10
problems with S&P’s ratings practices become public. Moreover, 1
they were not compelled to conclude that McGraw-Hill was in the 2
kind of dire situation that would have required them to limit 3
participants’ investments in the Stock Fund. 4
II. Count II: Misstatements and Omissions 5
Plaintiffs also allege that defendants breached their 6
fiduciary duty of loyalty both by failing to disclose information 7
about McGraw-Hill’s financial condition to Plan participants and 8
by making false or misleading statements about McGraw-Hill to the 9
participants. In the Citigroup opinion, we explained why we 10
reject the argument that fiduciaries have a duty to disclose 11
nonpublic information about the expected performance of the 12
employer’s stock. Accordingly, plaintiffs cannot state a claim 13
for relief based on defendants’ failure to disclose to 14
participants information regarding S&P’s rating practices and, 15
more generally, McGraw-Hill’s financial strength. 16
Plaintiffs’ claims that defendants made false or misleading 17
statements or omissions regarding McGraw-Hill stock also cannot 18
survive defendants’ motion to dismiss. The only specific false 19
or misleading statements identified by defendants are those 20
contained in SEC filings that were later incorporated into the 21
Plans’ Summary Plan Descriptions (“SPDs”). ERISA, however, only 22
holds fiduciaries liable to the extent that they were “acting as 23
a fiduciary . . . when taking the action subject to the 24

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11
complaint.” Pegram v. Herdrich, 530 U.S. 211, 226 (2000). Here, 1
defendants who signed or prepared the SEC filings were acting in 2
a corporate, rather than ERISA fiduciary, capacity when they did 3
so. See Kirschbaum v. Reliant Energy, Inc., 526 F.3d 243, 257 4
(5 th Cir. 2008) (defendants were not “acting in anything other 5
than a corporate capacity” when preparing SEC filings). 6
Therefore, in the circumstances presented here, these defendants 7
may not be held liable under ERISA for misstatements contained in 8
the SEC filings. 9
Plaintiffs also argue that because the Plans’ SPDs 10
incorporated the SEC filings, the SPDs contained the same 11
misstatements as the SEC filings. Defendant Marty Martin, as the 12
Plans’ administrator, was responsible for distributing the SPDs 13
to participants. 29 U.S.C. § 1021(a)(1). We have held that a 14
fiduciary may be held liable for false or misleading statements 15
when “the fiduciary knows those statements are false or lack a 16
reasonable basis in fact.” Flanigan v. Gen. Elec. Co., 242 F.3d 17
78, 84 (2d Cir. 2001). Plaintiffs have not provided any specific 18
allegations as to how Martin knew or should have known that S&P’s 19
rating practices were improper or that, consequently, the SEC 20
filings contained misstatements or omissions. While plaintiffs 21
do allege in conclusory fashion that all of the defendants “knew 22
or should have known of the material misrepresentations” 23
contained in the SEC filings, Compl. ¶ 48, they provide no basis 24

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12
for this conclusion, especially as it is applied to Martin, who 1
served as McGraw-Hill’s Vice President for Employee Benefits. 2
Accordingly, plaintiffs have not adequately alleged that Martin 3
made any intentional or knowing misstatements to Plan 4
participants by incorporating SEC filings into the SPDs. 5
III. Plaintiffs’ Remaining Claims 6
Finally, plaintiffs allege both that defendants failed to 7
manage the Plans “solely in the interests of the Participants” 8
and that the Board of Director defendants failed to properly 9
appoint, monitor, and inform the members of the Plans’ Pension 10
Investment Committee about the condition of McGraw-Hill stock. 11
Compl. ¶¶ 103, 109. Before both the district court and this 12
court, plaintiffs have conceded that these secondary claims fail 13
if plaintiffs are unable to survive Rule 12(b)(6) as to their 14
primary claims, addressed above. Gearren v. McGraw-Hill Cos., 15
Inc., 690 F. Supp. 2d 254, 273 (S.D.N.Y. 2010); Plaintiffs- 16
Appellants’ Brief at 50. Accordingly, we affirm the district 17
court’s dismissal of plaintiffs’ theories of secondary liability. 18
CONCLUSION 19
We have carefully considered all of appellants’ other 20
arguments and found them to be without merit. For the foregoing 21
reasons, the judgment of the district court is hereby affirmed. 22
23
24

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