Myers ex rel. Seventy Seven Energy Inc. v. Admin. Comm., Seventy Seven Energy, Inc., Case No. CIV-17-200-D

KATHLEEN J. MYERS, on behalf of theSeventy Seven Energy Inc. Retirement& Savings Plan and a classof similarly situated participants of the Plan, Plaintiff, v. ADMINISTRATIVE COMMITTEE, SEVENTY SEVEN ENERGY,INC. RETIREMENT & SAVINGS PLAN; et al., Defendants.

Case No. CIV-17-200-D

UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF OKLAHOMA

March 22, 2019

ORDER

Currently before the Court are the Committee Defendants' Motion to Dismiss Plaintiff's Amended Class Action Complaint [Doc. No. 45] and Defendant Principal Trust Company's Motion to Dismiss [Doc. No. 46],¹ filed pursuant to Fed. R. Civ. P. 12(b)(6). Both Motions are fully briefed.² Because the Motions raise overlapping issues, they are taken up together.

Factual and Procedural Background

Plaintiff Kathleen Myers brings suit under the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. § 1001 et seq., as a participant in the Seventy Seven Energy Inc. Retirement & Savings Plan (the "Plan"), to obtain equitable relief and damages to which the Plan and its participants allegedly are entitled due to Defendants' breaches of fiduciary duties. The Committee Defendants are alleged to be administrators and fiduciaries of the Plan, and Principal Trust Company ("Principal") serves as the trustee under a directed trust agreement of a trust that holds the Plan's assets. The Plan is a "defined contribution" or "individual account" plan as defined by ERISA, 29 U.S.C. § 1002(34), established by Seventy Seven Energy Inc. ("SSE") to provide retirement income for its employees.

SSE is a spinoff of Chesapeake Energy Corporation ("Chesapeake") formed on June 30, 2014, from a wholly-owned subsidiary, Chesapeake Oilfield Operating, L.L.C. The Plan was established on July 1, 2014, as a spinoff from the Chesapeake Energy Corporation Savings and Incentive Stock Bonus Plan, and initially was funded by a transfer of assets from the parent plan that included Chesapeake common stock. The Plan allows participants to defer a percentage of their employment income by making elective contributions (401(k) contributions), and allows SSE to match a percentage of participants' contributions and make discretionary contributions to an employee stock ownership plan ("ESOP") in the form of SSE common stock.

Plaintiff claims the Committee Defendants breached fiduciary duties to the Plan and its participants by: 1) "allowing the Plan to buy and hold Chesapeake stock in the ESOPbecause . . . Chesapeake stock was not a 'qualifying employer security'" so "inclusion of Chesapeake stock in the ESOP was a per se violation of ERISA" (Am. Compl. [Doc. No. 39] ¶ 108); 2) imprudently investing and maintaining the investment in Chesapeake stock because they "knew or should have known that Chesapeake was not, and had never been, a suitable and appropriate investment for the Plan" (id. ¶ 111); 3) "failing to diversify Plan investments" (id. ¶ 114); and 4) failing to provide adequate disclosures "concerning the Plan's investments in Chesapeake" (id. ¶ 116). Plaintiff claims Principal breached its fiduciary duties by allowing the alleged ERISA violation to occur and by imprudently permitting the Plan to own Chesapeake stock (id. ¶¶ 121-123).³ Plaintiff alleges "[t]he Plan should have divested itself of Chesapeake stock immediately following the spin-off" and Defendants' failure to divest caused "a substantial portion of the losses suffered" from a decline in value of the Chesapeake stock. Id. at ¶ 133.

After the original Complaint was served, the parties agreed on a case management schedule for identification and joinder of the proper defendants, amendment of Plaintiff's pleading, and briefing of responsive motions. In keeping with that schedule, Plaintiff filed the Amended Complaint, and Defendants filed the instant Motions challenging the sufficiency of Plaintiff's pleading to state a claim on which relief can be granted. Nodiscovery has been requested, and no motion to certify the proposed class of participants alleged in the Amended Complaint has been filed.

The Committee Defendants assert: 1) the decision to retain Chesapeake stock in the Plan is exempt from challenge because the stock is a "qualifying employer security" as defined by ERISA; 2) if not exempt from the diversification requirement, the Committee Defendants cannot be held liable for a failure to diversify because participants had many investment options and they decided whether to retain Chesapeake stock in their accounts; 3) Plaintiff's factual allegations are based on public information and fail to show a breach of the duty of prudent investment under Fifth Third Bancorp v. Dudenhoeffer, 134 S. Ct. 2459 (2014); and 4) the alleged facts do not show a breach of any duty of disclosure because no general duty of disclosure exists, no material misrepresentation is alleged, and no specific disclosure obligation under 29 C.F.R. § 2520.102-2 is implicated.

Principal contends its only duty as a directed trustee "was to follow the reasonable directions of the Committee Defendants so long as they were (1) in accordance with the Plan, and (2) not contrary to ERISA." See Principal's Mot. at 1, 7 (citing 29 U.S.C. § 1103(a)(1)). Principal asserts that Plaintiff's action against it must be dismissed because: 1) the factual allegations on which liability depends "are contradicted by the very documents Plaintiff cites in the Amended Complaint" (id. at 6); 2) the Chesapeake stock was a permissible investment under the Plan and the directed trust agreement, regardless whether it was a "qualifying employer security" (id. at 8-9); and 3) Plaintiff's contention that holding the Chesapeake stock in the ESOP component of the Plan violated ERISA "is meritless for at least four reasons," primarily because the notion "that any stockis 'held' in the ESOP component is misguided and wrong" and because "[i]t simply does not matter where any Plan investment is 'held' for purposes of ERISA" (id. at 9-10, 13). Finally, like the Committee Defendants, Principal argues that Plaintiff's claim for breach of the duty of prudence fails under the standard announced in Dudenhoeffer for investments in publicly traded stock based on publicly available information.

Standard of Decision

"To survive a motion to dismiss [under Rule 12(b)(6)], a complaint must contain sufficient factual matter, accepted as true, to 'state a claim to relief that is plausible on its face.'" Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007)). "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Id. "[W]here the well-pleaded facts do not permit the court to infer more than the possibility of misconduct, the complaint has alleged - but it has not 'show[n]' - 'that the pleader is entitled to relief.'" Id. at 679 (quoting Fed. R. Civ. P. 8(a)(2)). Thus, in assessing plausibility, a court must first disregard conclusory allegations and "next consider the factual allegations in [the] complaint to determine if they plausibly suggest an entitlement to relief." Id. at 681. The question to be decided is "whether the complaint sufficiently alleges facts supporting all the elements necessary to establish an entitlement to relief under the legal theory proposed." Lane v. Simon, 495 F.3d 1182, 1186 (10th Cir. 2007) (internal quotation omitted).

Ordinarily, "the sufficiency of a complaint must rest on its contents alone." Gee v. Pacheco, 627 F.3d 1178, 1186 (10th Cir. 2010). But there are several well-established exceptions: "(1) documents that the complaint incorporates by reference; (2) documents referred to in the complaint if the documents are central to the plaintiff's claim and the parties do not dispute the documents' authenticity, and (3) matters of which a court may take judicial notice." Id. (internal quotations and citations omitted) (quoting Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 322 (2007), and Jacobsen v. Deseret Book Co., 287 F.3d 936, 941 (10th Cir. 2002)); see Tal v. Hogan, 453 F.3d 1244, 1265 n.24 (10th Cir. 2006); see also Smith v. United States, 561 F.3d 1090, 1098 (10th Cir. 2009); Pace v. Swerdlow, 519 F.3d 1067, 1072 (10th Cir. 2008); Alvarado v. KOB-TV, L.L.C., 493 F.3d 1210, 1215 (10th Cir. 2007). Matters subject to judicial notice and appropriate for consideration under Rule 12(b)(6) include a court's "own files and records, as well as facts which are a matter of public record." See Tal, 453 F.3d at 1265 n.24.

In this case, Plaintiff does not attach any documents to her pleading, but she quotes from and cites extensively Plan-related documents, the directed trust agreement, and public records such as SEC filings. Consistent with the above-cited authorities, Defendants have submitted copies of the documents with their Motions. Because Plaintiff does not dispute the authenticity of these documents, the Court finds them to be appropriate for consideration. See GFF Corp. v. Assoc. Wholesale Grocers, Inc., 130 F.3d 1381, 1384-85 (10th Cir. 1997) ("[I]f a plaintiff does not incorporate by reference or attach a document to its complaint, but the document is referred to in the complaint and is central to the plaintiff's claim, a defendant may submit an indisputably authentic copy to the court to beconsidered on a motion to dismiss."); see also Brokers' Choice of Am., Inc. v. NBC Universal, Inc., 861 F.3d 1081, 1104 (10th Cir. 2017); Berneike v. CitiMortgage, Inc., 708 F.3d 1141, 1146 (10th Cir. 2013). Further, where Plaintiff misquotes or omits pertinent portions of the cited documents, the documents control. See GFF Corp., 130 F.3d at 1385 ("factual allegations that contradict . . . a properly considered document are not well-pleaded facts that the court must accept as true"); accord Farrell Cooper Mining Co. v. U.S. Dep't of Interior, 728 F.3d 1129, 1237 n.6 (10th Cir. 2...