In re GlaxoSmithKline ERISA Litig.

• Court: Court of Appeals for the Second Circuit
• Decided: September 4, 2012
• Docket: 11-2289-cv
• Status: Unpublished

Opinion

11-2289-cv In re GlaxoSmithKline ERISA Litig.

UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT

SUMMARY ORDER

RULINGS BY SUMMARY ORDER DO NOT HAVE PRECEDENTIAL EFFECT. CITATION TO A SUMMARY ORDER FILED ON OR AFTER JANUARY 1, 2007, IS PERMITTED AND IS GOVERNED BY FEDERAL RULE OF APPELLATE PROCEDURE 32.1 AND THIS COURT’S LOCAL RULE 32.1.1. WHEN CITING A SUMMARY ORDER IN A DOCUMENT FILED WITH THIS COURT, A PARTY MUST CITE EITHER THE FEDERAL APPENDIX OR AN ELECTRONIC DATABASE (WITH THE NOTATION “SUMMARY ORDER”). A PARTY CITING A SUMMARY ORDER MUST SERVE A COPY OF IT ON ANY PARTY NOT REPRESENTED BY COUNSEL.

At a stated term of the United States Court of Appeals for the Second Circuit, held at the Daniel Patrick Moynihan United States Courthouse, 500 Pearl Street, in the City of New York, on the 4th day of September, two thousand twelve.

PRESENT: REENA RAGGI, GERARD E. LYNCH, DENNY CHIN, Circuit Judges.

--------------------------------------------------------------- IN RE: GLAXOSMITHKLINE ERISA LITIG. --------------------------------------------------------------- CHARLES J. GUM, on Behalf of Himself and a Class of Persons Similarly Situated, MARILYN S. HAYES, Plaintiffs-Appellants,

v. No. 11-2289-cv

GLAXOSMITHKLINE RETIREMENT SAVINGS PLAN COMMITTEE, ANDREW WITTY, JEAN-PIERRE GARNIER, JULIAN HESLOP, MONCEF SLAOUI, CHRISTOPHER VIEHBACHER, CHRISTOPHER GENT, ROY ANDERSON, STEPHANIE BURNS, LAWRENCE CULP, CRISPIN DAVIS, DERYCK MAUGHAN, JAMES MURDOCH, DANIEL PODOLSKY, IAN PROSSER, RONALDO SCHMITZ, TOM DE SWAAN, ROBERT WILSON, MICHELLE KILLIAN, JUDITH M. LYNCH, GLAXOSMITHKLINE LLC, DAVID DOWNES, ROGER EMERSON, MICHAEL CORRIGAN, ELEANOR BARGER, EILEEN C. LEAHY, MICHAEL J. SMITHWICK, SARAH-JANE CHILVER-STAINER, MORIA BECKWITH, PHILIP DRIVER, CHARLES KELLY, WILLIAM SHULBY, STEPHEN BURR, BILL MILLS, NANCY MARSH, DAVID J. JONES, FABRICE ENDERLIN, CATHRYN CAMPBELL, JAN FENTON, ANN KUHNEN, STEPHEN ETHRIDGE, WILLIAM MOSHER, IAN CARDWELL, DIANA CONRAD, BEVERLY E. MORGAN, STUART HEBPURN, DOES, 1-50, Defendants-Appellees,

GLAXOSMITHKLINE PLC, DOES, 1–30, Defendants. ---------------------------------------------------------------

APPEARING FOR APPELLANTS: EDWIN J. MILLS (Michael J. Klein, on the brief), Stull, Stull & Brody, New York, New York; Joseph Daley, Samuel H. Rudman, Mark S. Reich, Robbins Geller Rudman & Dowd LLP, San Diego, California & Melville, New York.

APPEARING FOR APPELLEES: BRIAN T. ORTELERE (Jeremy P. Blumenfeld, Melissa D. Hill, Christopher J. Boran, on the brief), Morgan, Lewis & Bockius LLP, New York, New York & Chicago, Illinois.

Appeal from a judgment of the United States District Court for the Southern District

of New York (Alvin K. Hellerstein, Judge).

UPON DUE CONSIDERATION, IT IS HEREBY ORDERED, ADJUDGED, AND

DECREED that the judgment entered on May 11, 2011, is AFFIRMED.

2 Plaintiffs, suing on behalf of a putative class of GlaxoSmithKline (“GSK”) employees

who invested in two company retirement savings plans (“Plans”),1 appeal from the dismissal

of their claims under § 502(a)(2) of the Employee Retirement Income Security Act of 1974

(“ERISA”), see 29 U.S.C. § 1132(a)(2). Plaintiffs charge defendants with breaching

fiduciary duties of prudence and loyalty with respect to the Plans’ offering of an investment

option in GSK common stock (“GSK Stock Fund” or “Fund”) during the period May 8,

2007, through November 9, 2010.

We review the challenged dismissal de novo, construing the complaint’s allegations

and drawing all reasonable inferences therefrom in plaintiffs’ favor. See Fait v. Regions Fin.

Corp., 655 F.3d 105, 109 (2d Cir. 2011). We also review de novo the district court’s

conclusions of law regarding duties owed by defendants to plaintiffs under ERISA and the

terms of the Plans. See LoPresti v. Terwilliger, 126 F.3d 34, 39 (2d Cir. 1997). We assume

the parties’ familiarity with the facts and record of prior proceedings, which we reference

only as necessary to explain our decision to affirm.

1 Commonly referred to as “401(k)” plans for their tax-preferred status, the Plans are defined-contribution retirement savings plans each meeting the definition of an Eligible Individual Account Plan under ERISA, see 29 U.S.C. § 1107(d)(3)(A). Because the parties agree that the governing Plan documents are identical in all material respects for purposes of the instant appeal, we refer to the Plans interchangeably. 3 1. Breach of Duty of Prudence

In dismissing plaintiffs’ prudence claim, see 29 U.S.C. § 1104(a)(1)(B), the district

court concluded that the Plans afforded defendants “no fiduciary discretion with regard to”

offering the GSK Stock Fund, Hr’g Tr. 28, J.A. 499. As a consequence, it ruled that “there

is no ability to charge a breach of fiduciary obligation, and we never get into the issues of

prudence and imprudence.” Id. Our recent decision in In re Citigroup ERISA Litigation, 662

F.3d 128 (2d Cir. 2011), decided after the district court entered the challenged judgment,

indicates that the law is not quite that absolute. There, we rejected the argument that the

conduct of ERISA fiduciaries in continuing to offer or in failing to divest employer stock is

“beyond our power to review.” Id. at 139. We explained that ERISA fiduciaries who offer

employer stock as an investment should be afforded a presumption of prudence, under which

courts review such conduct for “abuse of discretion.” Id. at 138. Mindful that a plan

fiduciary is to discharge his duties “in accordance with the documents and instruments

governing the plan insofar as” ERISA requires, 29 U.S.C. § 1104(a)(1)(D), we observed that

“a fiduciary’s failure to divest from company stock is less likely to constitute an abuse of

discretion if the plan’s terms require—rather than merely permit—investment in company

stock,” In re Citigroup ERISA Litig., 662 F.3d at 138 (noting that judicial scrutiny correlates

inversely with “degree of discretion a plan gives its fiduciaries”).

Two principles emerge from our holding in In re Citigroup: (1) a court must look to

“the very terms of the plan itself” to assess whether those “terms requir[e] or strongly favor[]

4 investment in employer stock,” id. at 139–40; and (2) if the plan is properly so construed,

“only circumstances placing the employer in a ‘dire situation’ that was objectively

unforeseeable by the settlor could require fiduciaries to override plan terms,” id. at 140

(quoting Edgar v. Avaya, Inc., 503 F.3d 340, 348 (3d Cir. 2007)); accord Gearren v.

McGraw-Hill Cos., 660 F.3d 605, 610 (2d Cir. 2011) (per curiam).

Plaintiffs urge us to vacate the dismissal of their complaint and remand the case so

that the district court may analyze these questions. We decline this invitation. Determining

whether a complaint states a claim “is a task well within an appellate court’s core

competency.” Ashcroft v. Iqbal, 556 U.S. 662, 674 (2009); see Bell Atl. Corp. v. Twombly,

550 U.S. 544, 557 (2007). Further, we may “affirm on any basis for which there is a record

sufficient to permit conclusions of law, including grounds upon which the district court did

not rely.” Bertin v. United States, 478 F.3d 489, 491 (2d Cir. 2007) (internal quotation marks

omitted). Finally, “[w]here plaintiffs do not allege facts sufficient to establish that a plan

fiduciary has abused his discretion, there is no reason not to grant a motion to dismiss.” In

re Citigroup ERISA Litig., 662 F.3d at 139–40 (calling presumption of prudence a

“substantial shield” against liability (internal quotation marks omitted)). Under the

circumstances of this case, in which we can readily discern that the complaint must be

dismissed, it would be highly inefficient to remand the case to the district court, after which

its predictable decision to dismiss would occasion a further appeal to this court.

5 Although plaintiffs assert that the Plans afford fiduciaries unfettered discretion

regarding whether to offer the GSK Stock Fund as an investment option for voluntary

employee contributions, the terms of the Plans, at a minimum, strongly favor that the Fund

be offered to employees. Notably, the Plans denominate the Fund as the default investment

where employees fail to select another investment option for certain employer-funded

contributions. See 2007 Summary Plan Description at 6, J.A. 304 (stating that contributions

equaling 2% of employee’s eligible pay will “automatically be invested in the GSK Stock

Fund” absent contrary direction by employee); 2009 GSK Retirement Savings Plan § 3.5,

J.A. 178. Thus, we cannot say that the plans at issue in this case, which mandate investment

of some portion of the company’s contribution to employee retirement accounts in GSK

stock as a default option, less “strongly favor[]” investment in company stock than did the

Citigroup plans. See In re Citigroup ERISA Litig., 662 F.3d at 133–34. Further, the Plans

here presuppose a GSK Stock Fund option in sections governing withdrawals, exchange

offers, and reinvestment of dividends. Were fiduciaries permitted to withdraw the GSK

Stock Fund without restriction, as plaintiffs urge, these references to the Fund in the Plans

would render the relevant provisions confusing if not incoherent.

Because the Plans’ terms strongly favor an investment option in employer stock,

plaintiffs must plausibly plead that GSK faced a “dire situation” to state a claim that Plan

fiduciaries abused their discretion in continuing to offer the GSK Stock Fund as an

investment and in failing to liquidate GSK stock already held. See id. at 140. While “proof

6 of the employer’s impending collapse” is not required, “mere stock fluctuations, even those

that trend downhill significantly, are insufficient to establish the requisite imprudence.” Id.

(internal quotation marks and brackets omitted). Here, plaintiffs allege that, over the class

period, GSK suffered problems with the manufacturing, marketing, safety, and efficacy of

its flagship pharmaceuticals, leading to criminal prosecutions, civil settlements, fines, and

a 30% drop in share value. The presumption of prudence does not require GSK, its

employees, or its stock to have performed optimally; the sole inquiry is how the alleged

negative events affected the suitability of GSK stock as a long-term retirement investment

for employees. While the precise point at which poor performance and corporate concerns

equate with dire circumstances may not always be easy to identify, our precedent instructs

that far worse prospects than those alleged here are necessary to state an ERISA prudence

claim against the charged fiduciaries. See Gearran v. McGraw-Hill Cos., 660 F.3d at 609

(holding 64% price decline owing to public awareness that ratings agency “provided inflated

ratings to financial products linked to the subprime-mortgage market” insufficient to

overcome presumption of fiduciary prudence); In re Citigroup ERISA Litig., 662 F.3d at 141

(holding 50% price decline attributable to losses incurred on subprime-related investments

insufficient to overcome presumption); see also Fisher v. JP Morgan Chase & Co., 469 F.

App’x 57, 59 (2d Cir. 2012) (summary order) (holding 55% price decline insufficient to

overcome presumption where company remained “viable” and stock “retained significant

value,” having “rebounded to $25 per share”). Indeed, that conclusion is only reinforced

7 here, where GSK’s share price has since rebounded, the company possesses a market

capitalization exceeding $100 billion, and it paid dividends continuously throughout the

allegedly “dire” period.

Given the long-term horizon of retirement investing, the complaint does not state a

plausible claim that GSK fiduciaries abused their discretion by offering the Fund for

employee contributions under the circumstances alleged. Further, plaintiffs concede that they

possess no additional allegations with which to augment their complaint on remand.

Accordingly, we affirm dismissal of plaintiff’s prudence claim.

2. Breach of Duty of Loyalty in Communication

The district court properly dismissed plaintiff’s second claim alleging negligent

misrepresentations and omissions by Plan fiduciaries in violation of their duty of loyalty

under ERISA. See 29 U.S.C. § 1104(a)(1). The SEC filings and Dimensions newsletters

cited by plaintiffs were not made by GSK “in its capacity as plan administrator” and thus are

not actionable as misstatements under ERISA. Varity Corp. v. Howe, 516 U.S. 489, 501

(1996). To the extent certain of these communications mention retirement benefits, such

statements are not “closely linked” to others “concerning the viability of the corporation.”

Id. at 505.

Nor does the fact that Summary Plan Descriptions (“SPDs”) incorporate certain of

GSK’s public SEC filings give rise to ERISA liability absent allegations supporting the

inference that individual Plan administrators made “intentional or knowing

8 misstatements . . . by incorporating SEC filings into the SPDs.” Gearren v. McGraw-Hill

Cos., 660 F.3d at 611. The SPDs were prepared by GSK’s Benefits Committee, allegedly

consisting of Human Resources and Information Technology employees. Plaintiffs’

generalized allegation that these defendants “should have known of the material

misrepresentations and omissions . . . filed with the SEC,” Compl. ¶ 112, does not state a

plausible claim for breach of the duty of loyalty under ERISA. See In re Citigroup ERISA

Litig., 662 F.3d at 145 (“[W]e decline to hold that the Plan fiduciaries were required to

perform an independent investigation of SEC filings before incorporating them into the

SPDs.”).

3. Conclusion

We have considered plaintiffs’ other arguments and conclude that they are without

merit. For the reasons stated, the judgment of the district court is AFFIRMED.

FOR THE COURT: CATHERINE O’HAGAN WOLFE, Clerk of Court