In re Lehman Bros. ERISA Litig. 1

11-4232
In re Lehman Bros. ERISA Litig.
1
UNITED STATES COURT OF APPEALS 2
3
FOR THE SECOND CIRCUIT 4
5
6
7
August Term, 2012 8
9
(Argued: March 14, 2013 Decided: July 15, 2013) 10
11
Docket No. 11-4232-cv 12
13
14
ALEX E. RINEHART, JO ANNE BUZZO, MARIA DESOUSA, 15
LINDA DEMIZIO, MONIQUE FONG MILLER, 16
17
Plaintiffs-Appellants, 18
19
-v.- 20
21
JOHN F. AKERS, MICHAEL L. AINSLIE, THOMAS H. CRUIKSHANK, 22
MARSHA EVANS JOHNSON, CHRISTOPHER GENT, ROLAND A. HERNANDEZ, 23
HENRY KAUFMAN, JOHN D. MACOMBER, MARY PAT ARCHER, 24
AMITABH ARORA, MICHAEL BRANCA, EVELYNE ESTEY, 25
ADAM FEINSTEIN, DAVID ROMHILT, ROGER S. BERLIND, 26
JERRY A. GRUNDHOFER, RICHARD S. FULD, JR., WENDY M. UVINO, 27
28
Defendants-Appellees. *
29
30
31
32
33
Before: 34
S ACK , W ESLEY , Circuit Judges, N ATHAN , District Judge. **
35
* The Clerk of Court is directed to amend the official
caption to conform to the listing of the parties stated above.
** The Honorable Alison J. Nathan, of the United States
District Court for the Southern District of New York, sitting by
designation.

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Plaintiffs-Appellants, former employees of Lehman 1
Brothers Holdings, Inc. (“Lehman”), initiated this action 2
under the Employee Retirement Income Security Act (“ERISA”) 3
in the United States District Court for the Southern 4
District of New York (Kaplan, J.). They claimed that 5
Defendants-Appellees who were members of Lehman’s Employee 6
Benefit Plans Committee breached their fiduciary duty to 7
prudently manage the company’s employee stock ownership plan 8
(“ESOP”) by failing to “eliminate or curtail” Plaintiffs’ 9
investment in Lehman stock during the class period. 10
Plaintiffs also claimed that these Defendants breached their 11
fiduciary duty of disclosure, and that Defendants who were 12
members of Lehman’s Board of Directors breached their 13
fiduciary duties to appoint, monitor and inform the plan 14
managers. The district court dismissed Plaintiffs’ 15
complaint(s) pursuant to Rule 12(b)(6) because Plaintiffs 16
did not allege sufficient facts to show that members of the 17
Employee Benefit Plans Committee knew or should have known 18
that continued investment in Lehman stock was imprudent. 19
The district court dismissed Plaintiffs’ claims against the 20
former Directors as derivative of Plaintiffs’ failed claims 21
against the ERISA plan managers. We AFFIRM. 22
23
AFFIRMED. 24
25
26
27
28
29
MARK C. RIFKIN, Wolf Haldenstein Adler Freeman & 30
Herz LLP (Daniel W. Krasner, Gregory M. 31
Nespole, Matthew M. Guiney, Beth A. Landes, 32
Maja Lukic, Wolf Haldenstein Adler Freeman & 33
Herz LLP, New York, NY; Thomas J. McKenna, 34
Gainey & McKenna, New York, NY, on the brief), 35
Interim Co-Lead Counsel for Plaintiffs- 36
Appellants. 37
38
39
JONATHAN K. YOUNGWOOD (Janet Gochman, Hiral D. 40
Mehta, on the brief), Simpson Thacher & 41
Bartlett LLP, New York, NY, for the Benefit 42
Committee Defendants-Appellees. 43
44
45
2

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ADAM J. WASSERMAN (Andrew J. Levander, Kathleen N. 1
Massey, Dechert LLP, New York, NY; Thomas K. 2
Johnson II, J. Ian Downes, Dechert LLP, 3
Philadelphia, PA, on the brief), for all of 4
the Director Defendants-Appellees Other than 5
Richard S. Fuld, Jr. 6
7
Patricia M. Hynes, Todd S. Fishman, Allen & Overy 8
LLP, New York, NY, for Defendant-Appellee 9
Richard S. Fuld, Jr. 10
11
BENJAMIN R. BOTTS, Attorney (M. Patricia Smith, 12
Solicitor of Labor, Timothy D. Hauser, 13
Associate Solicitor for Plan Benefits 14
Security, Elizabeth Hopkins, Counsel for 15
Appellate and Special Litigation, on the 16
brief), United States Department of Labor, 17
Washington, DC, for Amicus Curiae Hilda L. 18
Solis, Secretary of the United States 19
Department of Labor. 20
21
22
23
W ESLEY , Circuit Judge: 24
Plaintiffs-Appellants (“Plaintiffs”) are former 25
employees of Lehman Brothers Holdings Inc. (“Lehman”), or 26
its subsidiaries, who participated in the Lehman Brothers 27
Savings Plan (the “Plan”) and, specifically, in the Lehman 28
Stock Fund (the “LSF”). The Plan is covered by the Employee 29
Retirement Income Security Act, 29 U.S.C. §§ 1001 et seq. 30
(“ERISA”). Under the Plan, employees of Lehman could choose 31
to contribute portions of their salaries to different 32
3

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investment funds to save for retirement. One of the funds, 1
the LSF, is an employee stock ownership plan (“ESOP”) 2
invested exclusively in Lehman common stock. Though the 3
Plan prohibited employees from allocating all of their 4
contributions to the LSF, after Lehman declared bankruptcy 5
in September 2008, that portion of Plaintiffs’ retirement 6
savings invested in the LSF was rendered essentially 7
worthless. 8
Arguing that Defendants-Appellees, the members of 9
Lehman’s Employee Benefit Plans Committee (the “Benefit 10
Committee Defendants”) and the company’s Directors (the 11
“Director Defendants”) who appointed them, breached their 12
fiduciary duties under ERISA, Plaintiffs instituted this 13
action in the United States District Court for the Southern 14
District of New York in October 2008. The district court 15
(Kaplan, J.) dismissed Plaintiffs’ initial and amended 16
complaints for failure to state a claim. We affirm the 17
district court’s decisions and hold that Plaintiffs failed 18
to plead a plausible claim that Defendants breached their 19
ERISA fiduciary duties. 20
21
22
4

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Background 1
I. The Plan 2
The Benefit Committee Defendants were responsible for 3
administering Lehman’s employee retirement savings plan. 4
Lehman Directors who served as members of the Board’s 5
Compensation Committee were directly responsible for 6
appointing individuals to the Benefit Committee, which the 7
full Board endowed with “complete authority and discretion 8
to control and manage the operation and administration of 9
the Plan.” Joint App’x 436. 10
The Plan consisted of a Trust Fund that offered 11
multiple investment funds including the LSF. Id. at 433. 12
During the class period, if a Lehman employee failed to 13
designate a fund, the default investment option was a target 14
date mutual fund, not the LSF. SCAC ¶ 243. Plan- 15
participants “were permitted to allocate 20 percent (20%) of 16
their Plan contributions to the” LSF. Id. ¶ 80. The Plan 17
specifies that the LSF “shall at all times be invested 18
exclusively in Lehman Stock except for such reserve invested 19
in short-term fixed income investments or cash as shall be 20
determined to be necessary or advisable for the purpose of 21
maintaining appropriate liquidity . . . .” Joint App’x 430 22
5

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(emphasis added). However, the Benefit Committee retained 1
the right to cease offering the LSF, or to divest some or 2
all of the Plan’s holdings in the LSF, as necessary to 3
comply with ERISA’s fiduciary duties. Specifically, the 4
Plan provided: 5
6
The [Benefit] Committee shall have the 7
right . . . to eliminate or curtail 8
investments in Lehman Stock . . . if and 9
to the extent that the [Benefit] 10
Committee determines that such action is 11
required in order to comply with the 12
fiduciary duty rules of section 404(a)(1) 13
of ERISA, as modified by section 14
404(a)(2) of ERISA. 15
16
Id. at 433. 17
The Benefit Committee Defendants continued to offer the 18
LSF as an investment option throughout the spring and summer 19
of 2008, when Lehman’s stock price fluctuated before falling 20
to less than $4.00 per share on the last trading day before 21
the company declared bankruptcy on September 15, 2008 – 158 22
years after its founding in 1850. Two days later, NYSE 23
Regulation, Inc. suspended trading of Lehman stock on the 24
New York Stock Exchange. 25
II. Procedural History 26
Plaintiffs filed a Consolidated Amended Complaint (the 27
“CAC”) on October 27, 2008. The CAC alleged that the 28
6

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Director Defendants, along with Wendy Uvino, the chair of 1
the Benefit Committee, breached their ERISA fiduciary 2
duties. Plaintiffs premised this claim on Defendants’ 3
failure to limit or divest Plaintiffs’ allegedly imprudent 4
investment in the LSF during the class period, which ran 5
from September 13, 2006 through October 27, 2008. 6
Plaintiffs lodged three counts against Defendants: (1) 7
breach of the duties of prudence and loyalty (including 8
disclosure obligations); (2) breach of the duty to avoid 9
conflicts of interest; and (3) breach of the duties to 10
monitor other fiduciaries and to provide them with accurate 11
information (solely against the Director Defendants). 12
On February 2, 2010, the district court granted 13
Defendants’ Federal Rule of Civil Procedure 12(b)(6) motion 14
for failure to state a claim and dismissed the CAC in its 15
entirety. In re Lehman Bros. Sec. & ERISA Litig., 683 F. 16
Supp. 2d 294 (S.D.N.Y. 2010) (Lehman I). The district court 17
subsequently granted Plaintiffs leave to amend; Plaintiffs 18
filed a Second Consolidated Amended Complaint (the “SCAC”) 19
on September 22, 2010. 20
Plaintiffs made three key changes. First, in addition 21
to Wendy Uvino, Plaintiffs named the rest of the Benefit 22
7

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Committee members as Defendants. Second, Plaintiffs 1
narrowed the class period to March 16, 2008 through June 10, 2
2009. These dates respectively represent the date that Bear 3
Stearns was acquired by JPMorgan Chase (in lieu of total 4
collapse) and the date that the Benefit Committee liquidated 5
shares of Lehman stock in the LSF. Third, the SCAC included 6
additional facts purporting to show that the Benefit 7
Committee Defendants knew or should have known that Lehman 8
stock was an imprudent investment for Plaintiffs. 9
The 496-paragraph SCAC provides a thorough recitation 10
of the 2008 financial crisis with a focus on Lehman’s ill- 11
fated involvement with mortgage-backed securities. 12
Plaintiffs claim that “by no later than the collapse of Bear 13
Stearns, Defendants knew or should have known that the 14
Plan’s heavy investment in [Lehman] Stock was imprudent” 15
because of, inter alia: Lehman’s alleged leverage ratio of 16
more than 30:1; Lehman’s use of questionable accounting 17
tactics (including Repo 105); 3 the extent of Lehman’s 18
3 Ordinary repo transactions involve entering into sale and
repurchase agreements to satisfy short-term cash needs. Repo 105
transactions, however, entail removing the asset collateralizing
the loan from the company’s balance sheet (as if it has been
sold) and then using the cash from the transaction to pay down
other existing liabilities. The result of this transaction is to
temporarily reduce a company’s net leverage ratio. Shortly after
the quarter ends (and reports are submitted), the company then
8

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potential losses from trading in subprime mortgage-backed 1
derivatives; and Lehman’s inadequate reserves to cover its 2
exposure. SCAC ¶¶ 162-63. 3
Plaintiffs allege that the Benefit Committee Defendants 4
should have been aware of these risks to Lehman’s financial 5
stability as a result of their positions within the 6
company, 4 presentations by an outside investment consulting 7
firm, and the numerous published articles and reports that 8
questioned Lehman’s profits and long-term viability during 9
the spring and summer of 2008. Plaintiffs also claim that a 10
reasonable investigation by the Benefit Committee Defendants 11
would have revealed probative information, including, for 12
example, the frantic but ultimately unsuccessful efforts 13
made by Lehman management, in conjunction with government 14
officials, to seek an outside capital infusion or to arrange 15
a sale of Lehman in the weeks prior to bankruptcy. 16
repays the Repo 105 counter-party and the collateralized assets
reappear on the company’s balance sheet. See generally In re
Lehman Bros. Sec. & ERISA Litig., 799 F. Supp. 2d 258, 268-69
(S.D.N.Y. 2011).
4 For example, Plaintiffs claim that Benefit Committee
Defendant Amitabh Arora, who allegedly served as Lehman’s Global
Head of Rates Strategy during the class period and who had
previously been the Chief of Mortgage Research at Morgan Stanley,
should have recognized “Lehman’s exposure to catastrophic
losses,” given his “background and expertise in the mortgage
industry.” SCAC ¶ 63.
9

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The district court dismissed the SCAC pursuant to Rule 1
12(b)(6). In re Lehman Bros. Sec. & ERISA Litig., No. 09 MD 2
02017 (LAK), 2011 WL 4632885 (S.D.N.Y. Oct. 5, 2011) (Lehman 3
II). With respect to Plaintiffs’ duty of prudence claim, 4
the court determined that the complaint failed to plead 5
sufficient facts to show that the Benefit Committee 6
Defendants knew or should have known that Lehman faced a 7
dire situation when Bear Stearns was sold. Id. at *3-5. 8
The district court also dismissed Plaintiffs’ two 9
disclosure claims. Id. at *5-6. First, the court found 10
that the Benefit Committee Defendants had no affirmative 11
duty to disclose information about Plan investments – 12
specifically, the status of Lehman’s financial condition – 13
in addition to information about the Plan itself. Id. at 14
*5-6. Second, while the court recognized that fiduciaries 15
who provided information to plan-participants had an 16
obligation to provide accurate information, it determined 17
that the Benefit Committee Defendants had not breached this 18
duty by incorporating filings made with the Securities and 19
Exchange Commission (the “SEC”) into the SPD issued to plan 20
participants on January 1, 2008 because this incorporation 21
occurred outside of the class period. Id. at *6. Moreover, 22
10

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the court reasoned that although the incorporation was 1
forward-looking, the Benefit Committee Defendants could not 2
be said to have intentionally connected allegedly 3
misleading, future SEC filings to the SPD. Id. 4
With respect to Plaintiffs’ claims against the Director 5
Defendants, the court accepted that the Directors were 6
properly considered fiduciaries, but only insofar as they 7
appointed the members of the Compensation Committee, which 8
in turn appointed the members of the Benefit Committee. Id. 9
at *6-7. This meant that Plaintiffs’ claim for breach of 10
the duty of prudence (and disclosure) was not properly 11
lodged against the Director Defendants. Id. at *7. The 12
court rejected Plaintiffs’ claim that the Director 13
Defendants had breached their fiduciary duty to appoint 14
qualified plan managers because it was “unsupported by even 15
the barest factual allegations.” Id. Finally, the court 16
dismissed Plaintiffs’ claim that the Director Defendants 17
breached their fiduciary duty to monitor the Benefit 18
Committee Defendants as derivative of Plaintiffs’ 19
unsuccessful claim for breach of the duty of prudence. Id. 20
at *8. 21
22
11

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Plaintiffs argue on appeal that the district court 1
erred by dismissing the CAC and the SCAC under Rule 12(b)(6) 2
because Plaintiffs plausibly alleged that: (1) the Benefit 3
Committee Defendants breached their fiduciary duty of 4
prudence by continuing to offer the LSF as an investment 5
option and by failing to sell Lehman stock invested in the 6
LSF; (2) the Benefit Committee Defendants breached their 7
fiduciary duty of disclosure by incorporating Lehman’s 8
allegedly inaccurate SEC filings into SPDs sent to plan- 9
participants; and (3) the Director Defendants breached their 10
fiduciary duties to monitor, appoint and inform the Benefit 11
Committee Defendants in their management of Lehman’s ERISA 12
Plan. 5
13
14
15
16
5 Plaintiffs do not raise any arguments on appeal
challenging the district court’s dismissal of Plaintiffs’ claims
for: (1) all defendants’ duty to avoid conflicts of interest; (2)
the Benefit Committee Defendants’ affirmative duty to disclose
information about Lehman’s financial condition to plan-
participants; (3) the Director Defendants’ duty to manage the
Plan prudently; and (4) the Director Defendants’ duty to disclose
information directly to plan-participants. Accordingly,
Plaintiffs have waived these claims. United States v. Babwah,
972 F.2d 30, 34-35 (2d Cir. 1992).
12

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Discussion 1
“We review de novo a district court’s dismissal under 2
Federal Rule of Civil Procedure 12(b)(6).” In re Citigroup 3
ERISA Litig., 662 F.3d 128, 135 (2d Cir. 2011). Although 4
“[w]e accept as true the facts alleged in the complaint[s],” 5
id., “[t]o survive a motion to dismiss, a complaint must 6
contain sufficient factual matter . . . to ‘state a claim to 7
relief that is plausible on its face,’” Ashcroft v. Iqbal, 8
556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. 9
Twombly, 550 U.S. 544, 570 (2007)). 10
I. Duty of Prudence 11
A. The Moench Presumption 12
Under ERISA, fiduciaries must discharge their duties 13
“with the care, skill, prudence, and diligence under the 14
circumstances then prevailing that a prudent man acting in a 15
like capacity and familiar with such matters would use in 16
the conduct of an enterprise of a like character and with 17
like aims.” 29 U.S.C. § 1104(a)(1)(B). Ordinarily, ERISA 18
fiduciaries must act prudently “by diversifying the 19
investments of the plan so as to minimize the risk of large 20
losses.” Id. § 1104(a)(1)(C). The primary purpose of an 21
ESOP, however, is investment in employer securities – and 22
13

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employer securities only. See Citigroup, 662 F.3d at 137. 1
This is facially inconsistent with ERISA’s requirement that 2
fiduciaries diversify plan-participants’ investments. 3
Although “Congress has encouraged ESOP creation by, for 4
example, exempting ESOPs from ERISA’s ‘prudence 5
requirement,’” it did so “‘[]only to the extent that it 6
requires diversification[].’” Id. (quoting Moench v. 7
Robertson, 62 F.3d 553, 568 (3d Cir. 1995)); 29 U.S.C. § 8
1104(a)(2). The possibility of a serious conflict is 9
apparent; an ERISA fiduciary of an ESOP can easily become 10
torn between the duties to “protect[] retirement assets and 11
encourag[e] investment in employer stock.” Citigroup, 662 12
F.3d at 138. 13
In Moench, the Third Circuit proposed a means of 14
resolving this potential dilemma: minimal judicial review 15
for challenges to a fiduciary’s management of an ESOP. See 16
62 F.3d at 571. The Third Circuit reasoned that an ESOP is 17
“simply a trust under which the trustee is directed to 18
invest the assets primarily in the stock of a single company 19
. . . a purpose explicitly approved and encouraged by 20
Congress.” Id. at 571. The court observed that trustees 21
are under a duty to “conform to the terms of the trust,” 22
14

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such that “[i]f the trust requires the fiduciary to invest 1
in a particular stock, the trustee must comply unless 2
compliance would be impossible or illegal.” Id. (internal 3
quotation marks and alteration omitted). As recently noted 4
by the Seventh Circuit, an ESOP fiduciary abuses its 5
discretion under Moench if the fiduciary permits investment 6
in employer stock when the fiduciary “‘could not have 7
[believed reasonably] that continued adherence to the ESOP’s 8
direction was in keeping with the settlor’s expectations of 9
how a prudent trustee would operate.’” White v. Marshall & 10
Ilsley Corp., 714 F.3d 980, 988 (7th Cir. 2013) (Hamilton, 11
J.) (quoting Moench, 62 F.3d at 571). 12
We recently adopted the Moench presumption in 13
Citigroup. 6 662 F.3d at 138. This Court specifically 14
rejected the argument that the Moench presumption should not 15
apply at the pleading stage. Id. at 139. Because we view 16
the presumption as a standard of review, rather than an 17
evidentiary presumption, “[w]here plaintiffs do not allege 18
facts sufficient to establish that a plan fiduciary has 19
6 This Court noted that, at the time, “[t]he Sixth, Fifth,
and Ninth Circuits ha[d] all adopted the Moench presumption.”
Citigroup, 662 F.3d at 138 (citing Kuper v. Iovenko, 66 F.3d 1447
(6th Cir. 1995); Kirschbaum v. Reliant Energy, Inc., 526 F.3d 243
(5th Cir. 2008); and Quan v. Computer Scis. Corp., 623 F.3d 870
(9th Cir. 2010)).
15

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abused his discretion, there is no reason not to grant a 1
motion to dismiss.” Id.; cf. Pfeil v. State Street Bank and 2
Trust Co., 671 F.3d 585, 592-93 (6th Cir. 2012). 3
Citigroup further endorsed the “‘guiding principle’” 4
discussed by the Ninth Circuit in Quan v. Computer Sciences 5
Corp., 623 F.3d 870 (9th Cir. 2010), that “judicial scrutiny 6
should increase with the degree of discretion a plan gives 7
its fiduciaries to invest.” Citigroup, 662 F.3d at 138 8
(quoting Quan, 623 F.3d at 883). “Thus a fiduciary’s 9
failure to divest from company stock is less likely to 10
constitute an abuse of discretion if the plan’s terms 11
require – rather than merely permit – investment in company 12
stock.” Id. Plans that do not give fiduciaries discretion 13
to divest from an ESOP are more heavily shielded from 14
searching judicial review. Accordingly, when an ERISA 15
fiduciary is torn between following the terms of a plan 16
requiring investment in employer stock and the provisions of 17
ERISA requiring prudent management, we will presume that the 18
fiduciary acted prudently unless the plaintiff-participant 19
pleads “facts sufficient to show that [fiduciaries] either 20
knew or should have known that [the employer] was in the 21
sort of dire situation that required them to override Plan 22
16

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terms in order to limit participants’ investments in 1
[employer] stock.” Id. at 141. 2
Moench applies here. Although we had not officially 3
adopted it at the time the district court dismissed either 4
of Plaintiffs’ complaints, the court presciently employed 5
this standard of review on both occasions. See Lehman I, 6
683 F. Supp. 2d at 301; Lehman II, 2011 WL 4632885, at *3-4. 7
Plaintiffs argue that the Moench presumption is inapplicable 8
(or, in the alternative, weak) because the Plan gives the 9
Benefit Committee discretion to “eliminate or curtail” 10
investments in the LSF. Appellants’ Br. at 21. Were this 11
the case, Plaintiffs would be correct that the Moench 12
presumption should apply in limited form. However, contrary 13
to Plaintiffs’ characterization, the Plan here does not 14
provide the Benefit Committee with discretion sufficient to 15
undermine the policies requiring application of the Moench 16
presumption. 17
The LSF must “at all times be invested exclusively in 18
Lehman Stock,” with the exception of minor cash reserves, 19
Joint App’x 430, and the Trust Fund “shall consist of the 20
Lehman Stock Fund,” among others, id. at 433 (emphasis 21
added). The Plan gives the Benefit Committee the right “to 22
17

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eliminate or curtail investments in Lehman Stock . . . if 1
and to the extent that the Committee determines that such 2
action is required in order to comply with the fiduciary 3
duties rules” of Section 404 of ERISA. Id. at 433 (emphasis 4
added). This does not equate to “discretion” to divest from 5
the LSF. See Taveras v. UBS AG, 708 F.3d 436, at 443-46 (2d 6
Cir. 2013) (distinguishing between plans’ differing levels 7
of discretion and finding a plan that offered fiduciaries “a 8
means by which to terminate the company’s fund as an 9
investment option if [they] so choose[]” was still covered 10
by Moench because plan language mandated offering the 11
company’s fund). The Plan here merely states the law: 12
Fiduciaries must comply with the applicable tenets of ERISA. 13
In Citigroup, we acknowledged “ERISA’s requirement that 14
fiduciaries follow plan terms only to the extent that they 15
are consistent with ERISA,” thus ensuring that even plans 16
affording zero discretion contain implicit legal limits. 17
See 662 F.3d at 139 (emphasis added). The limit here is 18
simply made explicit. The Moench presumption applies in 19
full force. 20
Before applying the Moench presumption in this case, we 21
first address two legal questions implicated by its 22
18

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application. First, can Plaintiffs claim that the Benefit 1
Committee Defendants knew or should have known that Lehman 2
stock was an imprudent investment based on material, 3
nonpublic information? Second, how specific must Plaintiffs 4
be with regard to when the Benefit Committee Defendants knew 5
or should have known that Lehman was in a “dire situation”? 6
1. Inside Information 7
Many of the facts that Plaintiffs allege gave rise to 8
the Benefit Committee Defendants’ awareness (or actionable 9
ignorance) of Lehman’s “dire situation,” were not public 10
during the class period. For example, Plaintiffs claim that 11
the Benefit Committee Defendants knew or should have known 12
about private conversations between Lehman’s Chief Executive 13
Officer, Defendant Richard S. Fuld, Jr. (“CEO Fuld”), and 14
Treasury Secretary Paulson. 15
Plaintiffs argue that the Benefit Committee Defendants 16
had a duty to investigate whether Lehman was in a dire 17
situation, and that any reasonable investigation would have 18
revealed material, nonpublic information sufficient to 19
confirm that Lehman was on the verge of collapse. 7 In its 20
7 Plaintiffs anticipate that the Benefit Committee
Defendants would have discovered material, nonpublic information
in part because Plaintiffs claim that the Director Defendants had
19

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amicus brief supporting Plaintiffs, the Secretary of Labor 1
(the “Secretary”) asserts that “a reasonable investigation 2
of Lehman’s financial health” would have revealed such 3
nonpublic information as Lehman’s use of improper accounting 4
methods and private conversations between CEO Fuld and the 5
government about selling Lehman or obtaining a capital 6
infusion. Amicus Br. at 25-26. According to the Secretary, 7
objectively prudent fiduciaries would have uncovered this 8
type of inside information and acted upon it. 8
9
Several other Circuits have confronted, and rejected, 10
similar arguments. Recently, in White, the Seventh Circuit 11
disposed of any contention that insiders should engage in 12
transactions based on material, nonpublic information, as 13
this “would violate federal securities laws.” 714 F.3d at 14
992. In Kirschbaum v. Reliant Energy, Inc., 526 F.3d 243, 15
256 (5th Cir. 2008), the Fifth Circuit confirmed that 16
“[f]iduciaries may not trade for the benefit of plan 17
a duty to provide it to them – a duty that we refuse to find on
these facts. See infra Part III.
8 Although the Secretary of Labor’s amicus brief implies
that the Benefit Committee Defendants should have divested the
LSF of Lehman stock, at oral argument, the attorney representing
the Department of Labor clarified the Secretary’s position as
solely that the Benefit Committee Defendants should have ceased
purchasing Lehman stock on behalf of participants who elected to
put their savings into the LSF during the class period.
20

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participants based on material information to which the 1
general shareholding public has been denied access,” and 2
that this served to “reenforce[] . . . the conclusion that 3
the Moench presumption cannot be lightly overcome.” 4
Likewise, in Quan, the Ninth Circuit noted that one reason 5
to adopt the Moench presumption is because its high burden 6
“gives fiduciaries a safe harbor from failing to use insider 7
information to divest from employer stock.” 623 F.3d at 8
881. “We do not construe an ERISA fiduciary’s duties of 9
loyalty and prudence to include violating the law to serve a 10
plan’s beneficiaries.” Id. at 882 n.8. 11
Fiduciaries are under no obligation to either seek out 9
12
or act upon inside information in the course of fulfilling 13
their duties under ERISA. The duty of a fiduciary to 14
prudently discharge his obligations “solely in the interest 15
of the participants and beneficiaries” should be read to end 16
with the words within the bounds of the law. 29 U.S.C. § 17
1104(a)(1)(B). The prudent man does not commit insider 18
trading. We recognize that, had the Benefit Committee 19
Defendants sought inside information that revealed the 20
9 This is not a case in which fiduciaries in charge of day-
to-day plan management already knew material, nonpublic
information by virtue of their corporate insider status.
21

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imprudence of continued investment in Lehman stock, 1
breaching the terms of the Plan by ceasing to offer the LSF 2
as an investment option would not run afoul of federal 3
securities laws given the absence of a purchase or sale of 4
stock. See, e.g., Harris v. Amgen, Inc., – F.3d –, No. 10- 5
56014, 2013 WL 2397404, at * 14 (9th Cir. June 4, 2013). 6
Consider, however, that if plan managers are obligated 7
to conduct an investigation into the financial condition of 8
a plan asset that extends to material, nonpublic 9
information, plan managers will face a dilemma if inside 10
information shows that continued investment is imprudent. 11
On the one hand, plan managers will be able to adhere to 12
their duty of prudence by limiting further investment in the 13
improvident asset without breaching securities laws. On the 14
other hand, plan managers will not be able to comply with 15
their duty of prudence by divesting the plan of its pre- 16
existing investment without risking liability for insider 17
trading. There is no happy solution to this quandary, and – 18
particularly when ERISA plans are managed internally – it is 19
a situation that is bound to occur. Given the conflicted 20
state of the law, there seems but one reasonable approach: 21
The duty of prudence must not be construed to include an 22
22

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obligation to affirmatively seek out material, nonpublic 1
information pertaining to plan investments. 2
2. Timing 3
In Lehman I, the district court dismissed Plaintiffs’ 4
claim against the Benefit Committee Defendants for breach of 5
the duty of prudence because Plaintiffs failed “to allege 6
facts that permit a determination of when Lehman’s financial 7
condition” reached the point of imminent corporate collapse. 8
683 F. Supp. 2d at 302. Although Plaintiffs specified a 9
moment of clarity in the SCAC – March 16, 2008, the sale 10
date for Bear Stearns – the district court was not persuaded 11
that Plaintiffs had alleged sufficient facts to explain “why 12
those circumstances alerted or ought to have alerted Lehman 13
that it would suffer the same fate” as Bear Stearns. Lehman 14
II, 2011 WL 4632885, at *5. 15
Plaintiffs argue that “[t]he district court’s 16
unprecedented requirement that a complaint must specify the 17
precise moment in time when a company faces imminent 18
collapse or other dire circumstances imposes an impossible 19
pleading burden on a plaintiff.” Appellants’ Br. at 41. 20
While such a requirement might well be unduly onerous, see 21
Pfeil, 671 F.3d at 596 n.3, the district court here did not 22
23

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reject Plaintiffs’ claims solely because Plaintiffs failed 1
either to allege any specific point in time (in the CAC) or 2
to allege the correct point in time (in the SCAC) when 3
Lehman stock became an imprudent investment. Instead, the 4
court concluded that Plaintiffs did not allege facts 5
sufficient to show that the Benefit Committee Defendants 6
knew or should have known that Lehman was in a dire 7
situation at any point within the class period. See Lehman 8
I, 683 F. Supp. 2d at 302-03; Lehman II, 2011 WL 4632885, at 9
*4-5. 10
In Lehman I, the district court noted that “[e]ven 11
assuming that the CAC sufficiently alleged that Lehman’s 12
collapse became imminent at some time materially before the 13
bankruptcy filing, it contains nothing to support the 14
inference that Ms. Uvino [the only Benefit Committee 15
Defendant] . . . knew or should have known that.” 683 F. 16
Supp 2d. at 302. In Lehman II, the district court 17
considered four allegations that Plaintiffs claimed 18
indicated the Benefit Committee Defendants’ necessary 19
knowledge. 2011 WL 4632885, at *3-5. Of these, two involve 20
events that took place after Bear Stearns collapsed, thus 21
indicating that the district court was open to considering 22
24

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the sufficiency of Plaintiffs’ allegations of imprudence 1
throughout the class period. Id. at *4-5. Like the 2
district court, we will consider Plaintiffs’ allegations 3
regarding what the Benefit Committee Defendants knew or 4
should have known throughout the entire class period. We do 5
not demand any particular timing specificity – only that the 6
facts alleged, if true, lead to the conclusion that 7
Defendants knew or should have known that the company was in 8
a dire situation at some time during the class period. 9
B. Applying the Moench Presumption 10
There is no “bright-line rule” regarding how much 11
evidence is necessary to rebut the Moench presumption. 12
Quan, 623 F.3d at 883. It is clear, however, that the 13
Moench presumption is very difficult to overcome – as it is 14
designed to be. See id.; see also White, 714 F.3d at 991- 15
93; Citigroup, 662 F.3d at 140-41. “[P]roof of the 16
employer’s impending collapse may not be required,” but mere 17
stock fluctuations are insufficient to show that fiduciaries 18
acted imprudently by adhering to the terms of an ESOP. Id. 19
at 140; see also Kirschbaum, 526 F.3d at 256 n. 12 (citing 20
cases featuring approximately 75% decreases in stock price 21
that did not include facts sufficient to overcome the Moench 22
25

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presumption). Whether a fiduciary knew or should have known 1
that the employer was in a “dire situation” is assessed 2
“based upon information available to the fiduciary at the 3
time of each investment decision and not ‘from the vantage 4
point of hindsight.’” Citigroup, 662 F.3d at 140 (citing 29 5
U.S.C. § 1104(a)(1)(B)). 6
Thus, the fact that Lehman ultimately declared 7
bankruptcy must not be allowed to influence our assessment 8
of whether the Benefit Committee Defendants acted prudently 9
during the class period. Armed with the information 10
available in the months preceding bankruptcy, the Benefit 11
Committee Defendants risked liability for action (violating 12
the terms of the ESOP by limiting Plaintiffs’ investment) or 13
inaction (remaining invested and exposing plan-participants 14
to what may have been unintended risk). See Summers v. 15
State Street Bank & Trust Co., 453 F.3d 404, 410 (7th Cir. 16
2006). Had the Benefit Committee Defendants 10 sold Lehman 17
stock immediately after Bear Stearns was sold, for example, 18
plan-participants might have protested and claimed that the 19
fiduciaries erroneously violated the terms of the Plan and 20
10 The Benefit Committee Defendants are fiduciaries for
purposes of Plaintiffs’ claims because they had “complete
authority and discretion to control and manage the operation and
administration of the Plan.” Joint App’x 436.
26

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deprived them of the subsequent increase in the value of 1
Lehman’s stock. Although Lehman’s share price exhibited a 2
downward trend overall during the spring and summer of 2008, 3
the daily price per share fluctuated widely. Immediately 4
after Bear Stearns was sold, on March 17, 2008, Lehman was 5
trading at $31.75 per share. Six weeks later, on April 28, 6
2008, Lehman’s stock price had risen to $47.52 – an 7
approximately 50% increase. 11
8
During the week before Lehman filed for bankruptcy, its 9
stock price fell steadily from $14.15 per share on Monday, 10
September 8, 2008, to $3.65 per share at the close of 11
business on Friday, September 12, 2008. But even then, in 12
Lehman’s final hours, the market arguably viewed the 158- 13
year-old company as a going concern by assigning it a 14
positive expected value. 12 “A [fiduciary] is not imprudent 15
11 As the Seventh Circuit observed in similar circumstances,
“[c]ourts can take judicial notice of public stock price
quotations without converting a motion to dismiss into one for
summary judgment.” White, 714 F.3d at 98 5.
12 We assume for these purposes that markets operate
efficiently. Any other assumption is incompatible with
developing a workable standard. See generally White, 714 F.3d at
992-93; see also Ronald J. Gilson & Reinier H. Kraakman, The
Mechanisms of Market Inefficiency, 70 VA. L. REV . 549 (1984); but
see Lynn A. Stout, The Mechanisms of Market Inefficiency: An
Introduction to the New Finance, 28 J. CORP . L. 635 (2003).
Although Plaintiffs did not raise the issue in either the
CAC, the SCAC or their briefs on appeal, we note two SEC Orders
from July 2008 that had the potential to affect market efficiency
27

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to assume that a major stock market . . . provides the best 1
estimate of the value of the stocks traded on it.” Id. at 2
408. We realize, of course, that it is not quite that 3
simple. While we do not believe that fiduciaries should be 4
forced to second-guess the market’s valuation of an 5
investment, we understand that (although it is empirically 6
impossible to quantify) ERISA plan-participants have 7
interests that are distinct from market investors 8
collectively – namely, greater risk-aversion. Congress, 9
too, recognized this when it enacted ERISA. See generally 10
29 U.S.C. § 1104(a). However, Congress explicitly allows 11
(some have said encourages) 13 fiduciaries to contract around 12
during the class period. See Emergency Order Pursuant to Section
12(k)(2) of the Securities Exchange Act of 1934 Taking Temporary
Action to Respond to Market Developments, Release No. 58166, July
15, 2008, available at
http://www.sec.gov/rules/other/2008/34-58166.pdf; see also
Amendment to Emergency Order Pursuant to Section 12(k)(2) of the
Securities Exchange Act of 1934 Taking Temporary Action to
Respond to Market Developments, Release No. 58190, July 18, 2008,
available at http://www.sec.gov/rules/other/2008/34-58190.pdf.
In July 2008, in order to “maintain fair and orderly securities
markets,” the SEC prohibited short selling securities of certain
large financial firms, including Lehman. Id. Because Plaintiffs
did not allege that the Benefit Committee Defendants knew or
should have known about the SEC Orders or the potential effect
they may have had on the market’s valuation of Lehman stock, we
do not consider the uncertain impact of this temporary
regulation.
13 “Congress favors ESOPs as a policy matter because they
provide a way for employers to align employee and management
interests.” White, 714 F.3d at 986 (citing Tax Reform Act of
28

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the basic core of prudent investing: diversification. Id. § 1
1104(a)(2). 2
Here, Plaintiffs have not rebutted the Moench 3
presumption because they fail to allege facts sufficient to 4
show that the Benefit Committee Defendants knew or should 5
have known that Lehman was in a “dire situation” based on 6
information that was publicly available during the class 7
period. First, we note that the forced sale of Bear Stearns 8
alone does not show that Lehman specifically was in serious 9
danger. In fact, given that Bear Stearns was (effectively) 10
bailed out by the government, 14 the events of March 16, 2008 11
could be construed to cut against Plaintiffs’ claims because 12
the Benefit Committee Defendants may have believed that 13
Lehman would be saved as well. 15 Likewise, the general 14
1976, Pub. L. No. 94-455, § 803(h), 90 Stat. 1520, 1590 (1976)).
Indeed, to preserve and encourage ESOPs, Congress exempted
fiduciaries of ESOPs from the duty to diversify and accordingly
limited the duty of prudence. 29 U.S.C. § 1104(a)(2).
14 The government orchestrated Bear Stearns’ sale to JPMorgan
Chase by providing JPMorgan Chase with a non-recourse loan
collateralized only by Bear Stearns’ assets, thus, in effect,
bailing out Bear Stearns.
15 Although the SCAC alleges that in or around July 2008,
“the government announced that it would not bail out other
failing financial institutions,” SCAC ¶ 337, it also claims that
on September 11, 2008, Lehman’s CEO, “Defendant Fuld[,] was asked
to resign from the board of the New York Federal Reserve, to
avoid the appearance of impropriety in case the government was
required to front any money to find Lehman a strategic partner,”
29

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climate for financial firms in 2008, the collective 1
information known (or knowable) to the Benefit Committee 2
Defendants by virtue of their positions at Lehman, the 3
investment consulting firm’s presentations, public articles 4
and reports, Lehman’s financial disclosures and Lehman’s 5
declining (but still positive) stock price do not counter 6
the presumption that these fiduciaries acted prudently by 7
remaining invested in Lehman stock. 8
Plaintiffs claim that the Benefit Committee Defendants 9
should have been aware of Lehman’s alleged high leverage 10
ratio, its broad exposure to the subprime mortgage market, 11
its inability to cover the extent of its potential losses 12
and its use of questionable accounting tactics (such as Repo 13
105) by virtue of their expertise and their positions at 14
Lehman. We agree with the district court that Plaintiffs’ 15
allegations are “conclusory,” Lehman II, 2011 WL 4632885, at 16
*3, and that, regardless, they merely show that the members 17
of the Benefit Committee would have possessed comparable 18
id. ¶ 382. However, Plaintiffs also allege that on September 12,
2008, the last trading day before Lehman declared bankruptcy,
Treasury Secretary Paulson leaked to the media that the
government would not aid Lehman’s survival. Id. ¶ 389. Based on
the SCAC, the government was not Lehman’s last hope, however, as
both CEO Fuld and representatives of the Federal Reserve
continued their efforts to negotiate a sale of Lehman over the
weekend of September 13-14, 2008. Id. ¶¶ 391-92, 395-96.
30

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knowledge to the market analysts and investors who helped 1
maintain Lehman’s substantial market capital even 2
immediately prior to the company’s bankruptcy. 3
Plaintiffs further allege that the Benefit Committee 4
Defendants knew or should have known that Lehman was an 5
imprudent investment because of presentations by an outside 6
consulting firm showing that the subprime mortgage market 7
was on the verge of collapse. The presentations to the 8
Benefit Committee Defendants, however, did not deal 9
specifically with the potential effects of a credit crunch 10
on Lehman. The majority of the investment consulting firm’s 11
analyses focused on comparing the degree of Lehman’s 12
downward spiral with the market-wide decline. Based on 13
Plaintiffs’ allegations, which we accept as true, the 14
Benefit Committee Defendants were not obligated, after 15
allegedly being told that Lehman was under-performing the 16
market, to breach the terms of the Plan by refusing to offer 17
the LSF or by divesting Lehman stock. 18
Plaintiffs argue that several published articles and 19
reports questioning Lehman’s viability should have alerted 20
the Benefit Committee Defendants to Lehman’s imprudence as 21
an investment. Even accepting the truth of Plaintiffs’ 22
31

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allegations, these types of statements in the financial 1
press do not give rise to a plausible assertion that the 2
Benefit Committee Defendants knew or should have known that 3
Lehman was in a “dire situation.” We agree with Plaintiffs 4
that Lehman’s increasingly frequent write-downs of losses 5
(and the media coverage thereof) should have given rise to 6
concern. However, we still cannot find that Plaintiffs 7
plausibly alleged that the Benefit Committee Defendants knew 8
or should have known that Lehman was an imprudent investment 9
given the mixed signals with which the fiduciaries grappled 10
throughout the class period. For example, Plaintiffs allege 11
in the SCAC that Lehman “materially overstated its liquidity 12
pool” when it “publicly announced that it[ ] was $41 13
billion” on September 10, 2008, just days before the company 14
filed for bankruptcy. SCAC ¶ 367. It seems that 15
Plaintiffs’ claims are improperly directed; the true objects 16
of Plaintiffs’ ire are the Lehman executives whom Plaintiffs 17
allege made material misstatements regarding the financial 18
health of the company – not the ERISA fiduciaries who relied 19
on them. 20
Still, Plaintiffs claim that even if these indicators 21
could not, standing alone, compel the Benefit Committee 22
32

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Defendants to “curtail or eliminate” the LSF, the facts 1
alleged should have incited these fiduciaries to conduct an 2
investigation that would have revealed the imprudence of 3
maintaining the investment in the LSF. But Plaintiffs 4
recognize that a failure to investigate, on its own, is 5
insufficient to state a claim for breach of the duty of 6
prudence, and that “plaintiffs must allege facts that, if 7
proved, would show that an ‘adequate investigation would 8
have revealed to a reasonable fiduciary that the investment 9
at issue was improvident.’” Citigroup, 662 F.3d at 141 10
(citing Kuper v. Iovenko, 66 F.3d 1447, 1460 (6th Cir. 11
1995)) (emphasis added). Here, any reasonable investigation 12
undertaken by the Benefit Committee Defendants would not 13
have revealed additional facts sufficient to compel the 14
fiduciaries to break the terms of the Plan because they 15
could not have based “prudent” investment choices on the 16
material, nonpublic information that Plaintiffs claim showed 17
that Lehman was failing. 18
We find that the sum of Plaintiffs’ plausible 19
allegations do not overcome the Moench presumption. Market 20
fluctuations and an above-water price immediately in advance 21
of bankruptcy would not have put a prudent investor on 22
33

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notice that Lehman had reached a “dire situation.” We 1
understand that the risk-tolerance of participants in an 2
ESOP may differ from the risk-tolerance of the market as a 3
whole, but single-stock portfolios are inherently risky. 16
4
We cannot penalize fiduciaries who allow plan-participants 5
to invest in Congressionally-encouraged ESOPs absent very 6
strong indications that fiduciaries knew or should have 7
known that participants no longer desired to remain 8
invested. 17
9
16 Curiously, research indicates that this is not the
public’s perception. See White, 714 F.3d at 993-94. However,
“[t]here is no doubt that it is highly risky for an individual
employee to invest heavily in the employer’s stock.” Id. (citing
numerous expert sources for proposition that single-stock
investments are exposed to greater risk than diversified
portfolios).
17 Plaintiffs’ reliance on several out-of-Circuit district
court cases is misplaced. See Appellants’ Br. at 31-34. The
facts alleged in In re YRC Worldwide, Inc. Erisa Litigation, No.
09-2593-JWL, 2010 WL 4386903 (D.Kan. 2010), for example, are
arguably more severe than those pled here; the district court
found the Moench presumption rebutted on the basis of, inter
alia, the company’s debt-for-equity exchange program that diluted
the value of existing shareholders’ shares by 95% by creating one
billion new shares. Id. at *6-7. Two of Plaintiffs’ cases did
not involve ERISA plans that required the availability of a
company stock fund. See Dann v. Lincoln Nat. Corp., 708 F. Supp.
2d 481, 489-90 (E.D.Pa. 2010) (applying the “intermediate abuse
of discretion standard as defined in Moench” but on the basis of
plans that merely “contemplate and expect that the [company]
Common Stock Fund is available as an investment option”); Carr v.
Int’l Game Tech., 770 F. Supp. 2d 1080, 1094 (D.Nev. 2011)
(finding that “Committee members were fiduciaries with the
discretion to remove [company] stock from the menu of investment
options” and that, even with the lower threshold, plaintiffs
failed to rebut the Moench presumption).
34

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II. Duty of Disclosure 1
Plaintiffs also claim that the Benefit Committee 2
Defendants breached their duties of disclosure under ERISA 3
by incorporating Lehman’s allegedly inaccurate SEC filings 4
into SPDs sent to plan-participants. According to 5
Plaintiffs, assessing the viability of their claim requires 6
answering three questions: (1) whether the Benefit Committee 7
Defendants were acting as fiduciaries when they incorporated 8
the SEC filings; (2) whether the SPDs were sent to plan- 9
participants during the class period; and (3) whether the 10
Benefit Committee Defendants knew these SEC filings 11
contained misleading information, and, if not, whether they 12
had an obligation to investigate the possibility based on 13
“‘warning’ signs.” Appellants’ Br. at 56. 14
Using Plaintiffs’ proposed framework, first, liability 15
under ERISA can “arise[] only from actions taken or duties 16
breached in the performance of ERISA obligations.” In re 17
WorldCom, Inc., 263 F. Supp. 2d 745, 760 (S.D.N.Y. 2003) 18
(finding that SPD incorporation of SEC filings was 19
“insufficient to transform those documents into a basis for 20
ERISA claims against their signatories” – the directors). 21
In its recent decision in Dudenhoefer v. Fifth Third 22
35

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Bancorp., 692 F.3d 410, 422-23 (6th Cir. 2012), the Sixth 1
Circuit addressed the previously unanswered “question of 2
whether the express incorporation of SEC filings into an 3
ERISA-mandated SPD is a fiduciary communication.” The court 4
answered this question in the affirmative because “selecting 5
the information to convey through the SPD is a fiduciary 6
activity.” Id. at 423. We agree. The Benefit Committee 7
Defendants in this case were acting as ERISA fiduciaries 8
when they incorporated Lehman’s SEC filings into the SPD 9
distributed to plan-participants. 10
Second, Plaintiffs argue that the district court erred 11
because, although the SEC filings were prepared before the 12
class period began, the SPDs were sent to plan-participants 13
during the class period. The SPDs of concern here were 14
issued on January 1, 2008; the class period began on March 15
16, 2008, as specified by the SCAC. Plaintiffs’ argument 16
depends on their claim that the SPDs were “sent to Plan 17
participants during the Class Period,” but Plaintiffs do not 18
plausibly allege this fact. Appellants’ Br. at 56 (emphasis 19
added). Still, as the district court recognized, “the 20
incorporation was forward-looking inasmuch as the SPD 21
purported to incorporate future SEC filings.” Lehman II, 22
36

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2011 WL 4632885, at *6. However, Plaintiffs must still 1
articulate a viable claim that the Benefit Committee 2
Defendants knew of false statements contained in (or yet to 3
be contained in) the SEC filings incorporated in (or yet to 4
be incorporated in) the SPDs. 5
Thus, third, “a fiduciary may be held liable for false 6
or misleading statements when ‘the fiduciary knows those 7
statements are false or lack a reasonable basis in fact.’” 8
Gearren v. The McGraw-Hill Cos., Inc., 660 F.3d 605, 611 (2d 9
Cir. 2011) (quoting Flanigan v. Gen. Elec. Co., 242 F.3d 78, 10
84 (2d Cir. 2001)). Here, Plaintiffs have not identified 11
any specific portions of Lehman’s SEC filings that the 12
Benefit Committee Defendants knew were false or misleading – 13
or that even are false or misleading. 18
14
Plaintiffs also argue that the Benefit Committee 15
Defendants had a duty to investigate the veracity of 16
Lehman’s SEC filings before incorporating them into the SPD 17
18 Plaintiffs do assert that “Lehman’s accounting treatment
for its Repo 105 transactions, and the total absence of any
disclosure about Repo 105 in . . . SEC filings . . . created a
false impression of Lehman’s business condition, violating
[Generally Accepted Accounting Principles].” SCAC ¶ 195.
Plaintiffs, do not, however, plead facts to show that the Benefit
Committee Defendants knew about Repo 105 or its allegedly
misleading omission from SEC filings incorporated into the SPD.
37

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because they were “undoubtedly privy to multiple ‘warning’ 1
signs” that these corporate documents were materially 2
misleading. Appellants’ Br. at 56-57. In Citigroup, we 3
held that Plaintiffs must “allege[] facts that, without the 4
benefit of hindsight” show that an investigation of the 5
accuracy of a company’s SEC filings was warranted. 662 F.3d 6
at 145. This Court observed that 7
requiring Plan fiduciaries to perform an 8
independent investigation of SEC filings 9
would increase the already-substantial 10
burden borne by ERISA fiduciaries and 11
would arguably contravene Congress’s 12
intent ‘to create a system that is [not] 13
so complex that administrative costs, or 14
litigation expenses, unduly discourage 15
employers from offering [ERISA] plans in 16
the first place.’ 17
18
Id. (quoting Conkright v. Frommert, 130 S.Ct. 1640, 1649 19
(2010)) (alterations in original). 20
Here, the publicly-known information available to the 21
Benefit Committee Defendants did not give rise to an 22
independent duty to investigate Lehman’s SEC filings prior 23
to incorporating their content into SPDs issued to plan- 24
participants. 25
III. Duties to Appoint, Monitor and Inform 26
Plaintiffs also appeal from the district court’s 27
dismissal of several related claims lodged against the 28
38

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Director Defendants. Specifically, Plaintiffs argue that 1
the Director Defendants, acting in a fiduciary capacity, 2
breached their duties under ERISA in four ways: (1) failing 3
to appoint qualified plan managers; (2) failing to replace 4
the Benefit Committee Defendants; (3) failing to monitor the 5
Benefit Committee Defendants; and (4) failing to provide the 6
Benefit Committee Defendants with “crucial information about 7
Lehman’s dire situation.” Appellants’ Br. at 48-49. 8
Initially, the Director Defendants contend that not all 9
of them are ERISA fiduciaries for purposes of Plaintiffs’ 10
claims because only the members of the Compensation 11
Committee were responsible for appointing and monitoring 12
plan managers. 19 Because we agree with the Director 13
Defendants’ argument that the district court properly 14
dismissed Plaintiffs’ claims as either inadequately pled or 15
derivative of the failed prudence claim, we decline to reach 16
the question of which particular Directors qualified as 17
ERISA fiduciaries. 18
19 ERISA authorizes fiduciaries to allocate their
responsibilities to other named fiduciaries pursuant to a plan’s
express provisions. 29 U.S.C. § 1105(c). However, the
allocating fiduciaries may still be liable if their decision to
delegate their responsibilities breached ERISA’s duty of prudence
under Section 404(a)(1). Id. § 1105(c)(2)(A).
39

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First, we affirm the district court’s dismissal of 1
Plaintiffs’ duty to appoint and duty to replace claims as 2
conclusory and unsupported. Second, we affirm the court’s 3
dismissal of Plaintiffs’ duty to monitor claim as derivative 4
of Plaintiffs’ failed duty of prudence claim. Plaintiffs 5
cannot maintain a claim for breach of the duty to monitor by 6
the Director Defendants absent an underlying breach of the 7
duties imposed under ERISA by the Benefit Committee 8
Defendants. 9
Third, we find that the district court also correctly 10
dismissed Plaintiffs’ claim for breach of the duty to inform 11
as derivative of Plaintiffs’ claims against the Benefit 12
Committee Defendants. But, even if we determined that 13
Plaintiffs adequately alleged that the Benefit Committee 14
Defendants had violated their duty of prudence, we would be 15
unlikely to conclude that the Director Defendants had a duty 16
to keep the plan managers apprised of material, nonpublic 17
information regarding the soundness of Lehman as an 18
investment. We have already declined to “create a duty to 19
provide participants with nonpublic information pertaining 20
to specific investment options.” Citigroup, 662 F.3d at 21
143; see also Lanfear v. Home Depot, Inc., 679 F.3d 1267, 22
40

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1284-86 (11th Cir. 2012). Since ERISA fiduciaries have no 1
duty to disclose inside information to plan-participants so 2
that participants may act on it, Plaintiffs’ argument that 3
the Benefit Committee Defendants should have been privy to 4
inside information so that they could act on it on behalf of 5
plan-participants is simply not persuasive. 6
7
Conclusion 8
Lehman’s demise was doubtless attributable to a number 9
of identifiable causes that become apparent through the lens 10
of hindsight. We conclude, however, that Plaintiffs have 11
not adequately pled that Lehman was in a dire situation that 12
the Plan fiduciaries could or should have recognized during 13
the class period. ERISA puts those fiduciaries in an 14
unfortunately difficult position – on the proverbial 15
“razor’s edge,” White, 714 F.3d at 990 – in attempting to 16
meet their fiduciary duty of prudence while simultaneously 17
offering an undiversified investment option to employees 18
trying to save for retirement. Plaintiffs have not 19
adequately alleged that Defendants fell off of that edge. 20
For the foregoing reasons, the orders of the district 21
court are hereby AFFIRMED. 22
41

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