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Coburn v. Evercore Trust Co., N.A.

United States District Court, District of Columbia

February 17, 2016

DONNA MARIE COBURN, on behalf of herself and all others similarly situated, Plaintiff,


REGGIE B. WALTON United States District Judge

The complaint in this putative class action alleges that the defendant, Evercore Trust Company, N.A., in its capacity as the plan fiduciary of an employee stock ownership plan governed by the Employment Retirement Income Security Act (“ERISA”), breached its duty of prudence by failing to prevent plan participants, such as the plaintiff, from purchasing or holding J.C. Penney Corporation, Inc. (“J.C. Penney” or “Company”) stock in their retirement plans once it allegedly became clear that J.C. Penney’s transformation strategy was doomed to fail. Complaint (“Compl.”) ¶¶ 1-9. Currently pending before the Court is Defendant Evercore Trust Company, N.A.’s Motion To Dismiss (“Def.’s Mot.”), ECF No. 14, which seeks dismissal of the complaint under Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim upon which relief can be granted. See Def.’s Mot. Upon consideration of the parties’ submissions, the Court concludes that it must grant the defendant’s motion to dismiss the complaint.[1]


The plaintiff, Donna Marie Coburn, is a former employee of J.C. Penney, a retail department store, who purchased and held J.C. Penney common stock in her retirement account through the J.C. Penney Savings Profit-Sharing and Stock Ownership Plan (the “Plan”) during the class period.[2] Compl. ¶¶ 13, 15, 17, 24. The defendant is the Plan’s designated fiduciary and investment manager under a 2009 trust agreement between J.C. Penney and the defendant. Compl. ¶¶ 6, 21; Def.’s Mem., Exhibit (“Ex.”) 3 ¶ 1 (“[J.C. Penney] hereby appoints [the defendant] as the named fiduciary and investment manager for the assets of the Plan . . . .”). The plaintiff contends, and the defendant does not dispute, that the Plan is an “employee pension benefit plan” and an individual account plan governed by the ERISA. See Compl. ¶ 15; Def.’s Mem. at 2; see also 29 U.S.C. §§ 1002(2)(A), 1107(d)(3) (2012). The Plan is intended to qualify as an employee stock ownership plan, or “ESOP, ” under Section 401(k) of the Internal Revenue Code, and to hold J.C. Penney common stock as a “permanent feature” of the Plan. Def. Mem., Ex. 3 ¶¶ 1, 2. As of January 2012, the Plan held approximately $515 million in J.C. Penney stock, which represented more than 14% of the Plan’s assets. Compl. ¶ 19.

Following the installation of its new chief executive, Ron Johnson (“Johnson”), J.C. Penney, in January 2012, initiated a transformation plan spearheaded by Johnson and intended to improve the Company’s performance following the 2008 financial downturn. Id. ¶¶ 4, 25-29, 34-37. Johnson’s transformation plan included eliminating J.C. Penney’s use of “sales, coupons, and rebates” in favor of “a new ‘Fair and Square Pricing’ policy where three and only three prices would be offered: (1) the ‘everyday’ price; (2) a month-long ‘value’ price; and (3) a ‘best’ price offered on the first and third Fridays of every month.” Id. ¶ 36. In addition, the transformation plan would change the physical appearance of J.C. Penney stores by implementing a “store within a store” layout to replace the “traditional organization of confusing and seemingly endless racks found in [J.C. Penney] department stores, ” changing the selection of brands offered in the stores, and updating the Company’s logo. Id. ¶ 37.

On May 15, 2012, J.C. Penney released its first quarter 2012 financial results, reporting a loss of $163 million, id. ¶ 39, which resulted in the Company’s chief operating officer admitting: “We did not realize how deep some of the customers were into [coupons], ” id. ¶ 40. Johnson also stated that the discontinued coupons “were a drug” that “really drove traffic.” Id. J.C. Penney also “cancel[ed] its dividend” for only the second time since 2006. Id. ¶ 41. Following this announcement, the Company’s performance continued to decline, with double-digit percentage reductions in revenue every quarter from the beginning of 2012 to the middle of 2013. Id. ¶¶ 44-45. In January 2013, Johnson stated in a Businessweek magazine article that the “core [J.C. Penney] customer . . . was much more dependent and enjoyed coupons more than [he] understood.” Id. ¶ 50. The Company’s negative performance was chronicled in public regulatory filings and news articles, and was discussed by market analysts. See id. ¶¶ 45-49 (detailing revenue results reported in the Company’s quarterly and annual reports, and providing examples of analyst downgrades of J.C. Penney stock). Johnson was terminated in April 2013. See id. ¶ 49. J.C. Penney’s stock price dropped from $36.72 at the end of the first quarter of 2012 to $17.26 a year later, and its stock closed 2013 at $5.92. Id. ¶¶ 45, 47.

The plaintiff contends that because the failure of J.C. Penney’s transformation strategy was evident from publicly available information, “Evercore knew that continued investment in [the Company’s] stock was imprudent under its fiduciary obligations imposed by ERISA.” Id. ¶ 42; see also id. ¶ 46 (“Even looking to the Company’s stock price . . ., the grim truth was crystal clear no later than the beginning of the Class Period and became more disturbing with every quarter.”); id. ¶ 51 (“Despite the red flags . . ., Evercore Trust did nothing to protect the assets of the Plan and the interest of its participants and beneficiaries . . . .”). Based on these allegations, the plaintiff claims that the defendant is liable for losses to the Plan under Sections 409 and 502 of the ERISA, 29 U.S.C. §§ 1109(a), 1132(a)(3). Id. ¶ 10.


For a complaint to survive a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6), the allegations in the complaint must state a facially plausible claim for recovery. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009); Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). The court, which is required to assume that all well-pleaded allegations in the complaint are true, must find that the complaint is sufficient to “raise a right to relief above the speculative level.” Twombly, 550 U.S. at 555; see Iqbal, 556 U.S. at 678 (“To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’”) (quoting Twombly, 550 U.S. at 570)). “The plausibility standard is not akin to a probability requirement, but it asks for more than a sheer possibility that a defendant has acted unlawfully.” Iqbal, 556 U.S. at 678 (quotation marks omitted). Legal conclusions masquerading as factual allegations are not enough to survive a motion to dismiss. Browning v. Clinton, 292 F.3d 235, 242 (D.C. Cir. 2002). Although the court must, in general, limit its review to the allegations in the complaint, it may consider “documents upon which the complaint necessarily relies even if the document is produced not by the plaintiff in the complaint but by the defendant in a motion to dismiss.” Ward v. D.C. Dep’t of Youth Rehabilitation Servs., 788 F.Supp.2d 117, 119 (D.D.C. 2011) (quoting Hinton v. Corr. Corp. of Am., 624 F.Supp.2d 45, 46 (D.D.C. 2009) (internal quotation marks omitted)).


The plaintiff asserts that the defendant, despite publicly available information demonstrating the “shockingly bad” state of J.C. Penney’s revenues and floundering revitalization plans, breached its fiduciary duty by (1) failing to monitor the propriety of continuing to offer J.C. Penney stock as an investment option for the Plan and (2) failing take any action to “[s]top[] Plan participants from continued investment in Company stock” or liquidate the Plan’s holdings of the Company’s stock. Compl. ¶¶ 39, 52-54. The defendant responds that the allegations in the complaint, based entirely on the defendant’s knowledge of and alleged failure to act upon publicly available information, are insufficient to state a claim for breach of the duty of prudence under the Supreme Court’s decision in Fifth Third Bancorp v. Dudenhoeffer, __U.S. __, 134 S.Ct. 2459 (2014). Upon consideration of Dudenhoeffer and its application to the plaintiff’s allegations, the Court concludes that the complaint fails to state a plausible claim for relief.

A. The Application of the Dudenhoeffer Pleading Standard

Dudenhoeffer, like this case, involved an ESOP that held stock of Fifth Third Bancorp (“Fifth Third”). __U.S. at __, 134 S.Ct. at 2464. The plaintiffs there, former employees of Fifth Third and participants in the ESOP, claimed that the defendants violated their duty of prudence by failing to shield plan participants from Fifth Third stock despite publicly available information indicating that the subprime mortgage market, in which Fifth Third had a significant financial stake, was on the brink of collapse. Id. Dudenhoeffer announced two seminal holdings applicable to ESOPs such as the Fifth Third retirement plan at issue in that case.[3] Critical to the resolution of the issue before the Court in this case was the Supreme Court’s 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., __U.S. at __, 134 S.Ct. at 2471 (emphasis added). In reaching this conclusion, the Court explained that “[m]any investors take the view that ‘they 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. (quoting Halliburton Co. v. Erica P. John Fund, __U.S. __, __, 134 S.Ct. 2398, 2411 (2014), and Amgen Inc. v. Conn. Retirement Plans & Trust Funds, __U.S. __, __, 133 S.Ct. 1184, 1192 (2013)). Because “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, ’” id. (quoting Summers v. State Street Bank & Trust Co., 453 F.3d 404, 408 (7th Cir. 2006) (ellipsis omitted)), a plaintiff must “point[] to a special circumstance affecting the reliability of the market price as ‘an unbiased assessment of the security’s value in light of all public information’ that would make reliance on the market’s valuation imprudent, ” id., __U.S. at __, 134 S.Ct. at 2472 (quoting Halliburton, __U.S. at __, 134 S.Ct. at 2411, and Amgen, __U.S. at __, 133 S.Ct. at 1192).

The defendant argues that Dudenhoeffer is indistinguishable from this case and that the Supreme Court’s holding therefore requires dismissal of the complaint. Def.’s Mem. at 6. The plaintiff, in opposition, asserts that because her complaint is devoid of any allegation that J.C. Penney stock was “artificially inflated, ” Dudenhoeffer’s holding is inapplicable to ...

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