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Coulter v. Morgan Stanley & Co.

United States Court of Appeals, Second Circuit

May 29, 2014

G. KENNETH COULTER, JOHN SIEFKEN, GREGORY MAJOR, MICHAEL CHIEKO, ELI MOND, JOHN SUDOLSKY, on behalf of themselves and all others similarly situated, CAROLYN EGAN, on behalf of herself and all others similarly situated, CELESTE MARTINEZ, on behalf of herself and all others similarly situated, Plaintiffs-Appellants, ELENA RAMOS, ALVIN SAINI, Plaintiffs,
v.
MORGAN STANLEY & CO. INCORPORATED, MORGAN STANLEY, THE INVESTMENT COMMITTEE OF THE MORGAN STANLEY 401(K) PLAN, THE MORGAN STANLEY GLOBAL DIRECTOR OF HUMAN RESOURCES, JOHN J. MACK, KAREN JAMESLEY, WALID A. CHAMMAH, CHARLES CHASIN, JAMES P. GORMAN, ELLYN A. McCOLGAN, MICHAEL J. PETRICK, MICHAEL RANKOWITZ, MICHAEL T. CUNNINGHAM, R. BRADFORD EVANS, KIRSTEN FELDMAN, EDMUND C. PUCKHABER, WILLIAM B. SMITH, JOHN DOES DEFENDANTS 1-10, THOMAS C. SCHNEIDER, RICHARD PORTOGALLO, NEIL A. SHEAR, CORDELL G. SPENCER, CAITLIN LONG, ZOE CRUZ, JOHN DOE, 1-30, JOHN DOES 1-10, UNKNOWN MEMBERS OF THE MANAGEMENT DEFENDANTS, JOHN DOES 11-20, UNKNOWN MEMBERS OF THE INVESTMENT COMMITTEE, JOHN DOES 21-30, UNKNOWN MEMBERS OF THE PLAN ADMINISTRATOR DEFENDANTS, Defendants-Appellees, ROY J. BOSTOCK, ERSKINE B. BOWLES, ROBERT C. KIDDER, DONALD T. NICOLAISEN, CHARLES H. NOSKI, HUTHAM S. OLAYAN, CHARLES E. PHILLIPS, JR., LAURA D. TYSON, KLAUS ZUMWINKEL, O. GRIFFITH SEXTON, Defendants.[*]

Argued March 28, 2014.

Page 362

[Copyrighted Material Omitted]

Page 363

Appeal from two March 28, 2013 orders in related cases by the United States District Court for the Southern District of New York (Deborah A. Batts, Judge). In these related cases, Plaintiffs-Appellants allege various violations of the Employee Retirement Income Security Act of 1974 (" ERISA" ), 29 U.S.C. § 1001, et seq. The district court granted Defendants-Appellees' Rule 12(b)(6) motions to dismiss on the basis that the Moench presumption of fiduciary prudence applies to Defendants-Appellees' conduct and that Plaintiffs-Appellants fail to rebut this presumption. Although we make no judgment as to this finding, we conclude that the challenged conduct did not trigger fiduciary liability under ERISA, and therefore AFFIRM the district court's dismissals on this alternative basis.

MICHAEL JAFFE, Wolf Haldenstein Adler Freeman & Herz LLP, New York, N.Y. (Mark C. Rifkin, Wolf Haldenstein Adler Freeman & Herz LLP, New York, NY; Sanford P. Dumain, Lori G. Feldman, Arvind Khurana, Milberg LLP, New York, NY; Robert I. Harwood, James G. Flynn, Tanya Korkhov, Harwood Feffer LLP, New York, NY; Thomas J. McKenna, Gainey & McKenna, New York, NY; Jeffrey Abraham, Abraham, Fruchter & Twersky, LLP, New York, NY; Milo Silberstein, Dealy Silberstein & Braverman, LLP, New York, NY, on the brief), for Plaintiffs-Appellants.

ROBERT F. WISE, JR. (Charles S. Duggan, Elyse Jones Cowgill, Andrew Ditchfield, on the brief), Davis Polk & Wardwell LLP, New York, NY, for Defendants-Appellees.

Before: WESLEY, CARNEY, Circuit Judges, RAKOFF, District Judge.[**]

OPINION

Page 364

Per Curiam:

Appeal from two March 28, 2013 orders in related cases by the United States District Court for the Southern District of New York (Deborah A. Batts, Judge ). In these related cases, Plaintiffs-Appellants (" Plaintiffs" ) allege violations of the Employee Retirement Income Security Act of 1974 (" ERISA" ), 29 U.S.C. § 1001, et seq . The district court, in finding that the Moench presumption of prudence applies to Defendants-Appellees' conduct and that Plaintiffs fail to rebut this presumption, granted Defendants-Appellees' Rule 12(b)(6) motions to dismiss. Although we make no ruling as to this finding, we conclude that the challenged conduct did not trigger fiduciary liability under ERISA and therefore AFFIRM the district court's dismissals on this alternative ground.

BACKGROUND

Plaintiffs comprise a class of individuals who participated in the Morgan Stanley 401(k) Plan and the Morgan Stanley Employee Stock Ownership Plan (collectively, the " Plans" ). The Plans are " defined contributions plan[s]" or " individual account plan[s]" within the meaning of ERISA § 3(34), 29 U.S.C. § 1002(34), and were designed to provide eligible Morgan Stanley employees with a source of retirement income through tax-deferred participant contributions and matching employer contributions.[1] In January 2007 and January 2008, Morgan Stanley elected, pursuant to its express authority under the Plans, to make its employer contributions to the Plans in the form of Morgan Stanley stock (" Company Stock" ) instead of cash.

Between December 14, 2007 and February 6, 2008, after Morgan Stanley's stock price plunged in conjunction with the broader economic downturn,[2] Plaintiffs filed five complaints related to the Plans. See In re Morgan Stanley ERISA Litig., 696 F.Supp.2d 345, 349-50 (S.D.N.Y. 2009). The actions sought to recover for ...


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