A putative class of participants in and beneficiaries of the Idearc Retirement Plan brought claims for breach of loylaty and imprudence in the management and administration of the plan – a “defined contribution” or “individual account” plan, allowing participants to contribute to the plan and invest their contributions in a variety of pre-selected investment options, including Idearc stock.

The plaintiffs allege that the plan fiduciaries breached their duty of prudence by allowing participants to continue to invest in Idearc stock despite public information about the company’s financial instability, as well as Defendants’ allegedly fraudulent activities. In addition, plaintiff contends that Defendants breached their “procedural” duty of prudence by failing to even consider taking action in response to the long-maturing deterioration of the financial condition of Idearc. Plaintiffs also allege that Defendants breached their duty of loyalty by pursuing a pattern of behavior that benefitted Idearc and Defendants, to the detriment of employees.

The District Court dismissed the third amended complaint on a Rule 12(b)(6) Motion, and the U.S. Fifth Circuit affirmed.

“In Fifth Third Bancorp v. Dudenhoeffer, the Supreme Court provided guidance for courts evaluating this type of duty-of-prudence claim based on public information: 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. This rule is rooted in the efficient market hypothesis, which assumes that the market price of a security incorporates relevant public information such that investors have little hope of outperforming the market in the long run based solely on their analysis of publicly available information. Thus, as a general rule, a fiduciary usually is not imprudent to assume that a major stock market…provides the best estimate of the value of the stocks traded on it that is available to him….

The plaintiffs argued on appeal that “the Defendants knew that it was inappropriate to rely on the market price of Idearc stock because their own fraudulent activities had caused the public markets to overvalue Idearc stock. But the alleged fraud is by definition not public information, and Kopp does not address how this insider information would affect the reliability of the market price as an unbiased assessment of the security’s value in light of all public information. As such, it is not the type of ‘special circumstance’ contemplated by the Supreme Court. Yet Dudenhoeffer provides a separate mechanism for evaluating claims based on nonpublic information, and we decline to redundantly label the possession of nonpublic information a special circumstance. In the district court, Kopp did urge a duty-of-prudence claim based on nonpublic information, but he has not pressed that argument on appeal. Thus, the district court properly dismissed Kopp’s substantive duty-of-prudence claim in light of Dudenhoeffer.

“In Tibble v. Edison International, the Supreme Court held that ERISA fiduciaries have a continuing duty of some kind to monitor investments and remove imprudent ones. Kopp argues that — apart from any substantive imprudence — the Defendants breached their ‘procedural’ duty of prudence by failing to meet and discuss a possible course of action regarding the Plan’s investment in Idearc stock. Specifically, he claims that while Defendants may have had a range of possible options available to them, if their choice among those options flowed from a lethargic failure to consider the possibility of changing course, it amounts to a breach of the duty of prudence. Kopp’s argument overlooks the fact that even if the Defendants’ actions were procedurally imprudent, a fiduciary is liable only for losses to the plan resulting from that breach. Tibble does not change this analysis. Thus, Kopp’s duty-of-prudence claim cannot rest solely on the Defendants’ procedural failings. Instead, Kopp must allege facts to support the conclusion that the Defendants would have acted differently had they engaged in proper monitoring — and that an alternative course of action could have prevented the Plan’s losses. Put another way, Kopp must allege that the Defendants’ supposed procedural failings led to the Plan’s losses. He does not do so here. Because Kopp has not plausibly alleged an alternative action that the Defendants would have taken if they had considered the possibility of a response to the rapidly increasing instability of Idearc, we affirm the dismissal of his duty-of-prudence claim.”


Kopp v. Klein, No.16-11590, 2018 WL 3149151 (5th Cir. June 27, 2018).