United States Court of Appeals, District of Columbia Circuit
Donna Marie Coburn, on behalf of herself and all others similarly situated, Appellant
Evercore Trust Company, N.A., Appellee
October 13, 2016
from the United States District Court for the District of
Columbia (No. 1:15-cv-00049)
W. Overs, Jr. argued the cause for the appellant. Robert I.
Harwood was with him on brief. Daniel M. Cohen entered an
Jonathan D. Hacker argued the cause for the appellee. Meaghan
VerGow was with him on brief. Jeffrey W. Kilduff entered an
Before: Henderson and Rogers, Circuit Judges, and Edwards,
Senior Circuit Judge.
LeCraft Henderson, Circuit Judge:
M. Coburn, on behalf of herself and all others similarly
situated, appeals the district court's dismissal of her
complaint against Evercore Trust Company, N.A. (Evercore)
pursuant to the Employee Retirement Income Security Act of
1974 (ERISA) §§ 409, 502(a)(2)-(3), 29 U.S.C.
§§ 1109(a), 1132(a)(2)-(3). Coburn, a former J.C.
Penney employee and investor in a J.C. Penney employee stock
ownership plan (ESOP) managed by Evercore, claims that
Evercore breached its fiduciary duties of prudence and
loyalty when it failed to take preventative action as the
value of J.C. Penney common stock tumbled between 2012 and
2013, thereby causing significant losses. Despite clear
factual similarities, Coburn argues that the pleading
requirements outlined in Fifth Third Bancorp v.
Dudenhoeffer, U.S., 134 S.Ct. 2459 (2014), are
inapplicable to her allegations because she challenges
Evercore's failure to appreciate the riskiness of J.C.
Penney stock rather than Evercore's valuation of its
price. We disagree and therefore affirm the district
Coburn was employed by J.C. Penney, the large retailer
offered its employees the opportunity to "save for their
retirement" by investing in the J.C. Penney Savings
Profit-Sharing and Stock Ownership Plan (the Plan). Its
defined contribution plan was an "employee pension
benefit plan" within the meaning of ERISA §
3(2)(A), 29 U.S.C. § 1002(2)(A), and an eligible
individual account plan within the meaning of ERISA §
407(d)(3), 29 U.S.C. § 1107(d)(3). Once an employee
opted into the Plan, she could allocate her contribution
among a variety of investment options. One of the options was
the Penney Stock Fund, an ESOP that consisted largely of J.C.
Penney common stock. This was the option Coburn selected.
December 17, 2009, Evercore became the designated fiduciary
and investment manager of the Penney Stock Fund. In this
role, Evercore had the authority to restrict or limit the
ability of Plan participants to purchase or hold J.C. Penney
stock, including the power to "eliminate the [Penney
Stock Fund] as an investment option under the Plan and to
sell or otherwise dispose of all of the Company Stock held in
the [Penney Stock Fund]." Evercore did not manage any
other investment option available through the Plan.
2011, J.C. Penney attempted to reconceptualize its brand and
hired former Apple, Inc. executive Ron Johnson as its chief
executive officer. Distancing himself from J.C. Penney's
historic reliance on sales, coupons and rebates to boost
sales, Johnson implemented a more straightforward pricing
scheme, reasoning that a "fair and square" pricing
policy would attract shoppers. Johnson also reworked both the
Company logo and the traditional layout of its stores in an
effort to modernize. Taken as a whole, Johnson sought to
bring J.C. Penney up to speed with the fads and fashions of
2012, simplifying the business model in order to lower
expenses and increase gross profit margins. This strategy
proved to be less than successful.
Penney's 2012 first quarter earnings report showed a $163
million loss, or a $0.75 loss per share. Johnson's poor
start was only the beginning, as the next twenty-one
months-from the end of 2012's first quarter to the end of
2013's fourth quarter-saw J.C. Penney's stock price
fall from $36.72 to $5.92 per share. As market analysts
became increasingly bearish regarding its stock, J.C. Penney
cancelled dividends for only the second time since 2006. The
disastrous performance led Johnson to a telling realization:
the abandoned coupons "were a drug" that
"really drove traffic." Johnson's tenure ended
in April 2013.
the entire period that the value of J.C. Penney common stock
dipped ever lower, Evercore stood resolute. Despite its
authority to eliminate the Penney Stock Fund as an investment
option in the Plan and its ability to sell shares currently
in the Fund, Evercore exercised neither option. The shares in
the Penney Stock Fund that Coburn and other investors owned
took the full force of the hit. In 2015, Coburn sued on
behalf of herself and all others similarly situated, alleging
that Evercore was liable for $300 million in losses to the
Plan for having breached its fiduciary duty under ERISA
§§ 409, 502(a)(2)-(3), 29 U.S.C. §§
February 17, 2016, the district court granted Evercore's
motion to dismiss the complaint for failure to state a claim.
Primarily relying on the United States Supreme Court's
opinion in Dudenhoeffer, the district court held
that Coburn's allegations that Evercore should have
recognized from publicly available information alone that
continued investment in J.C. Penney common stock was
"imprudent" were generally implausible absent
"special circumstances" affecting the market.
Because Coburn failed to plead special circumstances-indeed,
Coburn expressly disclaimed any need to plead them-the
district court held that Coburn's complaint could not
survive Evercore's Rule 12(b)(6) challenge. The district
court also rejected Coburn's alternative argument that,
pursuant to Tibble v. Edison International, U.S.,
135 S.Ct. 1823 (2015), Evercore violated its fiduciary
"duty to monitor" investments and remove imprudent
ones. The court reasoned that Tibble did not affect
the Dudenhoeffer holding and thus could not save
Coburn's complaint. Coburn timely filed her notice of
review de novo the dismissal of a complaint for failure to
state a claim. Taylor v. Reilly, 685 F.3d 1110, 1113
(D.C. Cir. 2012). The familiar pair of Iqbal and
Twombly guide the analysis of a Rule 12(b)(6) motion
to dismiss. Ashcroft v. Iqbal, 556 U.S. 662 (2009);
Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007).
Under that precedent, a complaint must "state a claim to
relief that is plausible on its face." Iqbal,
556 U.S. at 678 (internal quotation marks omitted) (quoting
Twombly, 550 U.S. at 570). That is, the complaint
must include factual allegations that, when taken as true,
rise above a "speculative level." Twombly,
550 U.S. at 555. It is "a plaintiff's obligation to
provide the grounds of his entitle[ment] to relief [with]
more than labels and conclusions, and a formulaic recitation
of the elements of a cause of action will not do."
Id. (first alteration in original) (internal
quotation marks omitted).
Dudenhoeffer, the Supreme Court further refined
pleading requirements regarding "allegations that a
fiduciary should have recognized from publicly available
information alone that the market was over- or undervaluing
the stock." See Dudenhoeffer, 134 S.Ct. at
2471; accord In re Lehman Bros. Sec. & ERISA
Litig., 113 F.Supp.3d 745, 755 (S.D.N.Y. 2015) (noting
that Dudenhoeffer "appears to have raised the
bar for plaintiffs seeking to bring a claim based on a breach
of the duty of prudence" (internal quotation marks
omitted) (emphasis removed)), aff'd sub nom. Rinehart
v. Lehman Bros. Holdings Inc., 817 F.3d 56, 66 (2d Cir.
2016). In Dudenhoeffer, a putative class of
employees brought a claim against fiduciaries who oversaw an
ESOP, alleging that they had violated the duties of loyalty
and prudence imposed by ERISA §§ 409, 502(a)(2), 29
U.S.C. §§ 1109, 1132(a)(2). Dudenhoeffer,
134 S.Ct. at 2464. Specifically, the Dudenhoeffer
plaintiffs alleged that the fiduciaries "knew or should
have known that [the employer company's] stock was
overvalued and excessively risky, " in part because
"publicly available information such as newspaper
articles provided early warning signs" of the
company's financial troubles. See id. The
Dudenhoeffer fiduciaries, however, "continued
to hold and buy" the company's stocks, a move that
ultimately "eliminated a large part of the retirement
savings that the participants had invested in the ESOP."
Supreme Court affirmed the district court's dismissal of
the complaint, holding that "where a stock is publicly
traded, allegations that a fiduciary should have recognized
from publicly available information alone that the market was
over-or undervaluing the stock are implausible as a general
rule, at least in the absence of special circumstances."
Id. at 2471. Driving the Dudenhoeffer
opinion was the recognition that "investors . . . have
little hope of outperforming the market in the long run based
solely on their analysis of publicly available information,
and accordingly they rely on the security's market price
as an unbiased assessment of the security's value in
light of all public information." Id. at 2471
(internal quotation marks omitted) (quoting Halliburton
Co. v. Erica P. John Fund, Inc., ___ U.S. ___, 134 S.Ct.
2398, 2411 (2014)). Dudenhoeffer was thus grounded
in the efficient capital market theory-the "theory that
security prices reflect all available information."
Yesha Yadav, How Algorithmic Trading Undermines
Efficiency in Capital Markets, 68 Vand. L. Rev. 1607,
1632 (2015) (citing Eugene F. Fama, Efficient Capital
Markets: A Review of Theory and Empirical Work, 25 J.
Fin. 383, 384 (1970)); Appellee's Br. 11-12. Indeed,
according to the efficient capital market theory, a security
price in an efficient market "represents the
market's most accurate estimate of the value of a
particular security based on its riskiness and the future net
income flows that investors holding that security are likely
to receive." Yadav, supra at 1633; accord
Basic Inc. v. Levinson, 485 U.S. 224, 246 (1988)
("[T]he market price of shares traded on well-developed
markets reflects all publicly available information . . .
."). "Where efficient markets exist, traders cannot
profit by using existing information available in the market,
since this news should already be reflected in securities
prices." Yadav, supra ...