Case: 12-10416       Document: 00512301479         Page: 1     Date Filed: 07/09/2013




           IN THE UNITED STATES COURT OF APPEALS
                    FOR THE FIFTH CIRCUIT  United States Court of Appeals
                                                    Fifth Circuit

                                                                            FILED
                                                                            July 9, 2013

                                       No. 12-10416                        Lyle W. Cayce
                                                                                Clerk

RANDY KOPP, Individually and on Behalf of All Others Similarly Situated,

                                                  Plaintiff - Appellant
v.

SCOTT W. KLEIN; DONALD B. REED; STEPHEN L. ROBERTSON;
THOMAS S. ROGERS; PAUL E. WEAVER; JOHN J. MUELLER; JERRY V.
ELLIOT; SAMUEL D. JONES; KATHERINE J. HARLESS; THE
EMPLOYEE BENEFITS COMMITTEE; GEORGIA SCAIFE; JOHN DOES 1-
20; WILLIAM GIST; STEVEN GABERICH; CLIFFORD WILSON; BILLY
MUNDY; ANDREW COTICCHIO; THE HUMAN RESOURCES
COMMITTEE; FRANK P. GATTO,

                                                  Defendants - Appellees



                   Appeal from the United States District Court
                        for the Northern District of Texas


Before JOLLY, GARZA, and OWEN, Circuit Judges.
EMILIO M. GARZA, Circuit Judge:
       Randy Kopp (“Kopp”), an employee of Idearc, Inc. (“Idearc”) and a
participant in the Idearc Management Plan (“Plan”),1 brought this Employee
Retirement Income Security Act (“ERISA”) class action against various members

       1
        The Idearc Savings Plan for Management Employees, the Idearc Savings and Security
Plan for New York and New England Associates, and the Idearc Savings and Security Plan
for Mid-Atlantic Associates all merged into the Plan, so we refer to the plans collectively as
the “Plan.”
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                                      No. 12-10416

of Idearc’s board of directors and Idearc’s officers, the Plan Benefits Committee,
and the Human Resources Committee (“Idearc Defendants”), representing all
current and former participants in the Plan for whose individual accounts the
Plan purchased or held shares of the Idearc Stock Fund (“Fund”) from November
21, 2006, through March 31, 2009 (the “Class Period”). The district court
dismissed Kopp’s complaint alleging various breaches of fiduciary duty under
Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim. We AFFIRM
the district court’s dismissal of all of Kopp’s claims.
                                             I
       Kopp filed a complaint alleging the Idearc Defendants breached their
fiduciary duties to the plan participants. The district court dismissed Kopp’s
original complaint without prejudice for failure to state a claim, but granted
Kopp’s motion to file an amended complaint. Kopp’s amended complaint claimed
seven bases for relief. Counts I and IV alleged the Idearc Defendants violated
a fiduciary duty by allowing plan participants to buy and hold Idearc stock when
it was no longer prudent to do so. Count II alleged the Idearc Defendants
violated    ERISA      fiduciary    duties       by   making     materially    inaccurate
representations and failing to disclose material information about the Fund.
Count V alleged the Idearc Defendants breached a fiduciary duty to appoint,
inform, and monitor the Benefits Committee and Members of the Benefits
Committee. Count VI alleged the Idearc Defendants breached co-fiduciary
duties. Counts III and VII alleged the Idearc Defendants breached fiduciary
duties to avoid divided loyalties and conflicts of interest.2
       The Plan is an Eligible Individual Account Plan (“EIAP”) under ERISA.
This action concerns the Fund, held as a retirement investment in the Plan.


       2
         Because we review here a decision granting Idearc’s motion to dismiss, we accept as
true all factual allegations contained in the amended complaint. See, e.g., Leatherman v.
Tarrant County Narcotics Intelligence and Coordination Unit, 

, 164 (1993).

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Participants could contribute to the Plan and direct their contributions to one or
more of the Plan’s investment options. The Plan Administrator and the Benefits
Committee were the fiduciaries of the Plan. The Plan documents included the
Summary Plan Descriptions and the Trust Agreement. The Plan specified that,
barring prohibition by ERISA § 406 or 407, Idearc stock would be an investment
option until it was “removed by plan amendment” and that the Company stock
fund “shall be invested principally in Company Shares.” The Plan documents
stated:
            The selection and timing of your investment choices are solely
      your responsibility and investment returns are not guaranteed by
      the Company. In other words, since you select how your account
      balance is invested among the available options , you are responsible
      for losses which are the direct and necessary result of your
      investment instructions.
(emphasis added).
      In November 2006 Verizon Communication, Inc. (“Verizon”) spun off its
directory operations in a tax-free distribution of stock in Idearc. Under a tax
sharing agreement between Verizon and Idearc, Idearc was precluded from
restructuring debt, issuing equity, merging with another company, or
consolidating or disposing of a significant portion of Idearc’s assets for a period
of two years after the tax-free exchange in order to retain the tax-free status of
the spin-off from Verizon.
      According to public documents and information gathered from confidential
witnesses, Kopp alleged because the Idearc Defendants wanted to preserve the
tax-free status of the spin-off, the Idearc Officer Defendants reported that Idearc
was generating sufficient cash flow and liquidity to manage its staggering debt,
even though they knew the volume of past due receivables had mushroomed and
Idearc had eliminated a great deal of collection staff, greatly decreasing its




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ability to collect from overdue accounts.3 Amended Complaint at ¶ 132, Fulmer
v. Klein, 3:09–CV–02354–N (N.D. Tex. Mar. 16, 2011) (hereinafter “Complaint”).
According to confidential witnesses, Idearc management continued to bill
customers that had already canceled their advertising, knowing that the
fictitious invoices were uncollectible, and recorded fictitious revenue by
generating false invoices to former, current, and non-existent customers. Id. ¶
152. Management “materially overstated net receivables, operating revenue,
cash flow, and net income by failing to adjust the provision for uncollectible
accounts receivable based upon its knowledge of the deterioration of the quality
of [Idearc’s] customers and the fictitious billing.” Id. ¶ 152(f). Prior to the Class
Period, Idearc required a credit check on all accounts generating more than $450
in fees. Id. ¶ 66. During the course of the Class Period, this minimum credit
threshold increased almost 100% to $850. Id. Aware that the bad debt levels
were rising, Defendant Harless, Idearc Executive Vice President, Treasurer, and
Benefits Committee Member, and Defendant Coticchio, Idearc Executive Vice
President, Chief Financial Officer, Treasurer, and Benefits Committee member,4
took affirmative measures to alter Idearc’s books to reflect a lower level of bad
debt receivables, including, in April 2007, instructing employees to move three
million dollars of doubtful accounts to accounts receivable. Id. ¶ 69. Because
Idearc’s tax-free status precluded debt restructuring, the Idearc Defendants
were aware Idearc had no financing flexibility and thus no means to deal with
its massive debt. Id. ¶ 134. By August 2007, the Idearc Defendants were aware
that “due to the rapidly increasing build-up of uncollectible receivables a


       3
         Kopp alleged that as a result of Defendant Coticchio eliminating outstanding
receivable collectors during the budget cut, uncollectible receivables increased from $80–$100
million in February 2007 to $250–270 million in July 2008. Complaint ¶ 52–53.
       4
        Defendant Coticchio held the position of Treasurer from the inception of the Class
Period until November 26, 2007.

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liquidity crisis (resulting in an inability to meet obligations as they came due)
was imminent.” Id. ¶ 162(g).
      Throughout the Class Period, the Idearc Defendants were aware that
Idearc’s bad debt expense was rapidly increasing. Id. ¶ 189. As of June 2008,
Idearc’s bad debt had “increased by $16 million, or 50.0%, compared to $32
million for the three months ended June 30, 2007.” Id. As of October 30, 2008,
Idearc announced further growth in its provision rate for bad debt, leading to a
stock price decline of 36%. Id. ¶ 196 . That month, Idearc faced a possible de-
listing from the NYSE for its low stock price over a 30-day period and resorted
to borrowing $247 million from a revolving credit facility. Id. ¶ 194–195. Idearc
began considering a reverse stock split or other options to maintain its listing.
Id. On November 17, 2008, Idearc closed the fund that allowed plan participants
to invest new money in Idearc stock. Id. ¶ 4. In December 2008 the Benefits
Committee voted to liquidate all holdings in Idearc stock, but subsequently
cancelled the scheduled liquidation. Id. ¶ 117.
      On March 12, 2009, after the two-year period following the Verizon spin-off
was complete, Idearc disclosed that it was in danger of defaulting on its loans.
Id. ¶ 203. In the event of default, the lenders could “declare the total secured
debt outstanding to be due and payable and upon acceleration, the Company’s
unsecured notes would also become due and payable.” Id. Idearc further
disclosed, “If the Company is unable to achieve a ‘pre-packaged,’ ‘pre-negotiated,’
or similar plan of reorganization, it would likely be necessary that the Company
file for reorganization under federal bankruptcy laws.” Id. Within two weeks,
Idearc filed for bankruptcy, rendering all Idearc stock in the Fund worthless. Id.
¶ 207.
      The district court dismissed the amended complaint with prejudice,
holding Counts I, II, and IV failed to state a claim under Federal Rule of Civil
Procedure 12(b)(6). The district court held Kopp’s other claims, Counts III, V,

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VI, and VII, were derivative and dismissed each count because Kopp failed to
allege any underlying breach of fiduciary duty. Kopp appeals the district court’s
order dismissing the amended complaint for failure to state a claim.
                                         II
      We review de novo a district court’s dismissal under Federal Rules of Civil
Procedure 12(b)(6), Atchafalaya Basinkeeper v. Chustz, 

, 357 (5th
Cir. 2012), construing all factual allegations in the light most favorable to the
plaintiffs, Spivey v. Robertson, 

, 774 (5th Cir. 1999).            For a
complaint to state a claim, the non-moving party must plead enough facts to
state a claim for relief that is plausible on its face, Chustz, 682 F.3d at 358, i.e.,
enough facts to raise a reasonable expectation that discovery will reveal evidence
of the claim or element. Bell Atl. Corp. v. Twombly, 

, 556 (2007).
“Factual allegations must be enough to raise a right to relief above the
speculative level on the assumption that all the allegations in the complaint are
true (even if doubtful in fact).” Id. at 555 (citations and footnotes omitted). “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.” Ashcroft v. Iqbal, 

, 678 (2009) (emphasis
added). We consider documents attached to a motion to dismiss that are
referred to in the plaintiff’s complaint and are central to the plaintiff’s claim.
Scanlan v. Tex. A&M Univ., 

, 536 (5th Cir. 2003). We may also
“consider the contents of relevant public disclosure documents which (1) are
required to be filed with the SEC, and (2) are actually filed with the SEC. Such
documents should be considered only for the purpose of determining what
statements the documents contain, not to prove the truth of the documents’
contents.” Lovelace v. Software Spectrum Inc., 

, 1018 (5th Cir.
1996).



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                                            III
      The question before us is narrow: did the amended complaint plead factual
matter that, if taken as true, states a claim for breach of fiduciary duty under
ERISA.
      An EIAP is a type of retirement savings plan governed by ERISA.
29 U.S.C. § 1107(d)(3)(A). ERISA defines an EIAP as “an individual account
plan which is (i) a profit-sharing, stock bonus, thrift, or savings plan; (ii) an
employee stock ownership plan; or (iii) a money purchase plan which was in
existence on September 2, 1974, and which on such date invested primarily in
qualifying employer securities.” Id. Because an EIAP is a defined “contribution
plan,” as opposed to a “defined benefit” plan, the participants are not entitled to
a particular level of benefits, but rather to whatever benefits their investments
yield.5 Hughes Aircraft Co. v. Jacobson, 

, 439 (1999). ERISA
requires every employee benefit plan, including EIAPs, to be “established and
maintained pursuant to a written instrument.” 29 U.S.C. § 1102(a)(1). The
written instrument must “provide for one or more named fiduciaries who jointly
or severally have authority to control and manage the operation and
administration of the plan.” Id.
      ERISA’s primary purpose is to protect beneficiaries of employee retirement
plans.    Pilot Life Ins. Co. v. Dedeaux, 

, 44 (1987) (citing


      5
             ERISA recognizes two basic types of retirement plans: “defined
             contribution plans” and “defined benefit plans.” Under ERISA,
             a defined contribution plan (also known as an “individual account
             plan”) is “a pension plan which provides for an individual account
             for each participant and for benefits based solely upon the
             amount contributed to the participant’s account, and any income,
             expenses, gains and losses.” 29 U.S.C. § 1002(34). . . . Any plan
             that does not meet the definition of defined contribution plan is
             a defined benefit plan. 29 U.S.C. § 1002(35).
Hirt v. Equitable Ret. Plan for Employees, Managers, & Agents, 

, 104 (2d Cir.
2008).

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29 U.S.C. § 1001). The statute accomplishes this purpose by imposing fiduciary
duties of prudence and loyalty on plan fiduciaries. In re Citigroup ERISA Litig.,

, 135 (2d Cir. 2011), cert. denied, 

 (2012). The duty of
prudence requires that fiduciaries act “with the care, skill, prudence, and
diligence under the circumstances then prevailing that a prudent man acting in
a like capacity and familiar with such matters would use in the conduct of an
enterprise of a like character and with like aims.” 29 U.S.C. § 1104(a)(1)(B).
The duty of loyalty requires fiduciaries to act “solely in the interest” of plan
participants and beneficiaries. 29 U.S.C. § 1104(a)(1).
      Section 1104(a)(1)(C) requires plan fiduciaries to act prudently by
diversifying the investments of the plan so as to minimize the risk of large
losses, unless under the circumstances it is clearly prudent not to do so.
Accordingly, plan investments in employer securities are generally limited to no
more than 10 percent of plan assets. 29 U.S.C. § 1107(a)(2).             However,
§ 1104(a)(2) expressly exempts EIAPs, like the plan at issue here, from the
obligation to diversify. Section 1104(a)(2) does not, however, exempt EIAP
fiduciaries from the first prong of the prudent man standard, which requires a
fiduciary to act with care, skill, prudence, and diligence in any investment the
fiduciary chooses. Donovan v. Cunningham, 

, 1467 (5th Cir. 1983);
Quan v. Computer Scis. Corp., 

, 878–79 (9th Cir. 2010). “Thus,
[EIAP] fiduciaries are required to act ‘prudently’ when determining whether or
not to invest, or continue to invest, ERISA plan assets in the plan participants’
employer’s stock. This is true, even though the duty of prudence [for fiduciaries
of EIAP plans] may be in ‘tension’ with Congress’s expressed preference for plan
investment in the employer’s stock.”         Quan, 623 F.3d at 878–79 (citing
Kirschbaum v. Reliant Energy, Inc., 

, 253 (5th Cir. 2008)); see also
Fink v. Nat’l Sav. & Trust Co., 

, 955–56 (D.C. Cir. 1985) (“The
investment decisions of a profit sharing plan’s fiduciary are subject to the closest

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scrutiny under the prudent person rule, in spite of the strong policy and
preference in favor of investment in employer stock.”) (internal quotation marks
omitted).
         ERISA permits employers to act both as trustees and fiduciaries of a plan.
         Under ERISA . . . a fiduciary may have financial interests adverse
         to beneficiaries. Employers, for example, can be ERISA fiduciaries
         and still take actions to the disadvantage of employee beneficiaries,
         when they act as employers (e.g., firing a beneficiary for reasons
         unrelated to the ERISA plan), or even as plan sponsors (e.g.,
         modifying the terms of a plan as allowed by ERISA to provide less
         generous benefits).
Pegram v. Herdrich, 

, 225 (2000). Importantly, however, fiduciaries
with two hats must only wear one hat at a time, and always wear the fiduciary
hat when making fiduciary decisions. Id. at 225–26. ERISA defines the scope
of the fiduciary role as follows:
         [A] person is a fiduciary with respect to a plan to the extent (i) he
         exercises any discretionary authority or discretionary control
         respecting management of such plan or exercises any authority or
         control respecting management or disposition of its assets . . . or (iii)
         he has any discretionary authority or discretionary responsibility in
         the administration of such plan.
29 U.S.C. § 1002(21)(A).
         Accordingly, ERISA does not hold plan fiduciaries of a “pension plan which
provides for individual accounts and permits a participant or beneficiary to
exercise control over the assets in his account,” like the Plan here, liable for
losses     which    result   from   a   participant’s    exercise   of   that   control.
29 U.S.C. § 1104(c)(1)(A)(ii). This is referred to as the “safe harbor” provision of
ERISA § 404(c). Because the safe harbor provision is an affirmative defense
that is not appropriate for consideration at the motion to dismiss stage where,
as here, the plaintiffs did not raise it in the complaint, we do not consider the
applicability of the safe harbor provision to Kopp’s claims. See Pfeil v. State St.


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Bank & Trust Co., 

, 599 (6th Cir.), cert. denied, 

(2012); Clark v. Amoco Prod. Co., 

, 970 (5th Cir. 1988) (reversing
district court’s grant of the motion to dismiss on the basis of affirmative defenses
where facts required to prove affirmative defenses not clearly pled in complaint).
We note, however, that the fact that plan participants exercise control over plan
assets does not automatically trigger the section 404(c) safe harbor. Pfeil, 671
F.3d at 599. The Department of Labor regulations governing the circumstances
under which a plan qualifies as a section 404(c) plan include over twenty-five
requirements that must be met before a fiduciary may invoke the section 404(c)
defense.     Id. (citing 29 C.F.R. § 2550.404c-1).6               Therefore, the potential
applicability of the safe harbor provision does not affect our analysis of Kopp’s
claims.
                                               A
       We turn first to consider whether the district court correctly dismissed
Counts I and IV of the amended complaint, claiming the Idearc Defendants
breached their fiduciary duties by allowing plan participants to buy and hold
Idearc stock when it was no longer prudent to do so. The district court dismissed
Counts I and IV on two separate and independent grounds. First, the district
court held the Idearc Defendants had no fiduciary duty to stop offering Idearc
stock as an investment option under the Plan because the Plan mandated the
Idearc Defendants invest in Idearc stock. Second, the district court held the


       6
          Even where the safe harbor provision does apply, the safe harbor defense does not
relieve fiduciaries of the responsibility to screen investments. Id.; Tibble v. Edison Int’l, Nos.
10-56406, 10-56415, 

, — F.3d — , at *9 (9th Cir. Mar. 21, 2013); Howell v.
Motorola, Inc., 

, 567 (7th Cir. 2011) cert. denied, 

 (2011) (“[W]e agree
with the position taken by the Secretary of Labor in her amicus curiae brief that the selection
of plan investment options and the decision to continue offering a particular investment
vehicle are acts to which fiduciary duties attach, and that the safe harbor is not available for
such acts.”); DiFelice v. U.S. Airways, Inc., 

, 418 n.3 (4th Cir. 2007) (“[T]his safe
harbor provision does not apply to a fiduciary’s decisions to select and maintain certain
investment options within a participant-driven 401(k) plan.”).

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amended complaint failed to allege sufficient facts to overcome the “presumption
of prudence” we adopted in Kirschbaum v. Reliant Energy Inc., 

, 254
(5th Cir. 2008). We hold that regardless of whether the Idearc Defendants had
discretion to cease permitting new Fund investments in Idearc stock or liquidate
Fund investments in Idearc stock, the “presumption of prudence” applies at the
motion to dismiss stage, and Kopp failed to allege sufficient facts to over come
the presumption. Accordingly, we do not reach the issue of whether the Idearc
Defendants had discretion under the Plan to stop offering Idearc stock as an
investment option or to liquidate Fund investments in Idearc stock.7
       A brief sketch of the origin of the “presumption of prudence” is in order.
Recognizing that Congress has chosen to encourage Plan investment in employer
stock, in Moench v. Robertson, the Third Circuit held the fiduciary of an ESOP
who invests in employer stock is entitled to a presumption that it acted
consistently with ERISA. 

, 569–571 (3d Cir. 1995). The Moench
court held that because ESOP fiduciaries, unlike other fiduciaries, are
presumptively required to invest in employer securities, their decision to invest
in those securities should not be reviewed de novo, like the decision to invest in
other securities. Id. Instead, the court held the decision to invest in employer
securities should be reviewed for abuse of discretion. Id.
       The plaintiff may attempt to rebut the presumption through evidence that
“owing to circumstances not known to the settlor and not anticipated by him the
making of such investment would defeat or substantially impair the
accomplishment of the purposes of the trust.” Id. (alteration omitted) (quoting


       7
         We likewise do not reach the issue of whether, if the Idearc Defendants had no
discretion to alter Fund investment in Idearc stock, because the dictates of ERISA trump plan
language, 29 U.S.C. § 1104(a)(1)(D), the Idearc Defendants had a fiduciary duty to disobey
Plan language. In Kirschbaum, we likewise did not resolve whether, where plan language
mandates investment in employer stock, a fiduciary can have a duty to stop offering employer
stock as an investment option. 526 F.3d at 253–54.

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RESTATEMENT (SECOND) OF TRUSTS § 227 cmt. g). To rebut the presumption, “the
plaintiff must show that the ERISA fiduciary could not have believed reasonably
that continued adherence to the ESOP’s direction was in keeping with the
settlor’s expectations of how a prudent trustee would operate.” Id. The Moench
court explained the rebuttal standard in detail:
            In considering whether the presumption that an ESOP
      fiduciary who has invested in employer securities has acted
      consistently with ERISA has been rebutted, courts should be
      cognizant that as the financial state of the company deteriorates,
      ESOP fiduciaries who double as directors of the corporation often
      begin to serve two masters. And the more uncertain the loyalties of
      the fiduciary, the less discretion it has to act. Indeed, “‘[w]hen a
      fiduciary has dual loyalties, the prudent person standard requires
      that he make a careful and impartial investigation of all investment
      decisions.’” Martin v. Feilen, 965 F.2d at 670 (citation omitted). As
      the Feilen court stated in the context of a closely held corporation:
            [T]his case graphically illustrates the risk of liability
            that ESOP fiduciaries bear when they act with dual
            loyalties without obtaining the impartial guidance of a
            disinterested outside advisor to the plan. Because the
            potential for disloyal self-dealing and the risk to the
            beneficiaries from undiversified investing are
            inherently great when insiders act for a closely held
            corporation’s ESOP, courts should look closely at
            whether fiduciaries investigated alternative actions
            and relied on outside advisors before implementing a
            challenged transaction.
      Id. at 670–71. And, if the fiduciary cannot show that he or she
      impartially investigated the options, courts should be willing to find
      an abuse of discretion.
Moench, 62 F.3d at 572.
      The Moench court then applied the presumption to the summary judgment
evidence offered by the plaintiffs. Id. The court held the plaintiffs’ evidence
showing that there was a precipitous decline in the price of the employer’s stock
and the Benefits Committee had knowledge of the impending collapse of the


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stock and its members’ own conflicted status may be sufficient to rebut the
presumption. Id. The summary judgment evidence suggested circumstances
had changed “to such an extent that the Committee properly could effectuate the
purposes of the trust only by deviating from the trust’s direction or by
contracting out investment decisions to an impartial outsider.” Id. The court
held, however, that the record was incomplete and remanded the matter to the
district court to allow further development of the record. Id.
      In Kirschbaum we elected to adopt the Moench presumption of prudence
when reviewing the plaintiffs’ summary judgment evidence of breach of fiduciary
duty for continuing to purchase employer shares in an EIAP Plan that was
invested almost entirely in the employer’s common stock. Kirschbaum, 526 F.3d
at 254.
      One cannot say that whenever plan fiduciaries are aware of
      circumstances that may impair the value of company stock, they
      have a fiduciary duty to depart from ESOP or EIAP plan provisions.
      Instead, there ought to be persuasive and analytically rigorous facts
      demonstrating that reasonable fiduciaries would have considered
      themselves bound to divest.
Id. at 256. We held that in contrast to the company-wide failure in Moench, the
plaintiffs’ evidence of round-trip trading and an initial 40% drop in stock value
was insufficient to rebut the presumption. Id. at 255–56 (“There is no indication
that REI’s viability as a going concern was ever threatened, nor that REI’s stock
was in danger of becoming essentially worthless. This is a far cry from the
downward spiral in Moench, and much less grave than facts other courts
routinely conclude are insufficient to rebut the Moench presumption.”). We
concluded, “Mere stock fluctuations, even those that trend downward
significantly, are insufficient to establish the requisite imprudence to rebut the
Moench presumption.” Id. (quoting Wright v. Or. Metallurgical Corp., 

, 1099 (9th Cir. 2004)). While we held the Moench presumption is a


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                                   No. 12-10416
“substantial shield,”we did “not hold that the Moench presumption applies only
in the case of investments in stock of a company that is about to collapse.” Id.
         Other circuits have also adopted the Moench presumption of prudence for
reviewing ESOP fiduciaries’ decisions to invest in employer stock. In Kuper v.
Iovenko, the Sixth Circuit applied the presumption of prudence in denying the
plaintiffs’ claim that the defendants breached their fiduciary duty by failing to
liquidate ESOP funds during a trust-to-trust transfer. 

, 1459–60
(6th Cir. 1995). Plaintiffs proffered evidence that the defendants were aware of
the company’s financial woes, but the defendants proffered evidence that several
investment advisors recommended holding employer stock during the period at
issue.    Id. at 1460.    The court held the plaintiffs failed to overcome the
presumption of prudence. Id. In Quan v. Computer Scis. Corp., the Ninth
Circuit adopted the Moench presumption of prudence in evaluating whether an
ESOP fiduciary can be held liable for failing to divest employer stock. 

, 883 (9th Cir. 2010). The Quan court applied an even more rigorous burden
for plaintiffs to meet than the Moench court did, holding “if there is room for
reasonable fiduciaries to disagree as to whether they are bound to divest from
company stock, the abuse of discretion standard protects a fiduciary’s choice not
to divest.” Id. at 882. “To overcome the presumption of prudent investment,
plaintiffs must therefore make allegations that clearly implicate the company’s
viability as an ongoing concern or show a precipitous decline in the employer’s
stock” and “that the company is on the brink of collapse or is undergoing serious
mismanagement.” Id. (internal quotation marks and alterations omitted). In
Quan the plaintiffs offered evidence that the fiduciaries were aware of tax
accounting issues and improper stock option granting practices, but presented
no evidence that it was unreasonable for the plaintiffs to believe the company
would not overcome these problems. Id. at 884. Accordingly, the court held
plaintiffs failed to rebut the presumption of prudence. Id.

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                                     No. 12-10416
         Moench, Kuper, Kirschbaum, and Quan all applied the presumption in the
context of a factual record. Moench, 62 F.3d at 559–60; Kuper, 66 F.3d at 1460;
Kirschbaum, 526 F.3d at 256; Quan, 623 F.3d at 874. Circuits that have
recognized a presumption of prudence have split as to the presumption’s
applicability to a motion to dismiss. For example, the Second Circuit held the
presumption applies at the motion to dismiss stage:
         [W]e reject plaintiffs’ argument that the Moench presumption
         should not apply at the pleading stage. The “presumption” is not an
         evidentiary presumption; it is a standard of review applied to a
         decision made by an ERISA fiduciary. Where 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.
Citigroup, 

 at 139; see White v. Marshall & Ilsley Corp., 

, 991 (7th Cir. 2013) (applying presumption of prudence at motion to dismiss
stage); Lanfear v. Home Depot, Inc., 

, 1281 (11th Cir. 2012) (same);
Edgar v. Avaya, Inc., 

, 349 (3d Cir. 2007) (same). The Sixth Circuit
held, however, that the presumption is inapplicable at the motion to dismiss
stage:
         Our holding [that the presumption of prudence does not apply at the
         motion to dismiss stage] derives from the plain language of Kuper
         itself where we explained that an ESOP plaintiff could rebut this
         presumption of reasonableness by showing that a prudent fiduciary
         acting under similar circumstances would have made a different
         investment decision. The presumption of reasonableness in Kuper
         was [thus] cast as an evidentiary presumption, and not a pleading
         requirement.
         ...
                Courts are required to accept the well-pleaded factual
         allegations of a complaint as true and determine whether those
         allegations state a plausible claim for relief. It follows that courts
         should not make factual determinations of their own or weigh
         evidence when considering a motion to dismiss. Precisely because
         the presumption of reasonableness is an evidentiary standard and
         concerns questions of fact, applying the presumption at the


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                                   No. 12-10416
      pleadings stage, and determining whether it was sufficiently
      rebutted, would be inconsistent with the Rule 12(b)(6) standard.
Pfeil, 671 F.3d at 592–93 (internal citations and quotation marks omitted).
Importantly, the Sixth Circuit distinguished its holding from Citigroup on the
grounds that the Second Circuit requires a higher rebuttal standard than the
Sixth Circuit to overcome the Moench presumption. Id. at 595–96. While the
Second Circuit requires plaintiffs to allege that the defendants knew or should
have known that the employer was in a dire situation, the Sixth Circuit requires
a plaintiff to prove only that “a prudent fiduciary acting under similar
circumstances would have made a different investment decision.” Id. at 595.
      We join the Second, Third, Seventh, and Eleventh Circuits in holding the
presumption of prudence applies at the motion to dismiss stage. Unlike the
Sixth Circuit, we adopted a Moench rebuttal standard akin to the rebuttal
standard adopted by the Second Circuit, requiring plaintiffs to show that the
defendants knew or should have known the viability of the company was
threatened or the employer’s stock was in danger of becoming worthless to rebut
the presumption of prudence. Kirschbaum, 526 F.3d at 254. Morever, Kopp’s
contention that applying the presumption to the motion to dismiss stage violates
the notice pleading requirements of Federal Rule of Civil Procedure 8 is
unavailing. Edgar, 503 F.3d at 349 (“[I]f a plaintiff does not plead all of the
essential elements of his or her legal claim, a district court is required to dismiss
the complaint pursuant to Rule 12(b)(6).”). There is no reason to permit a case
to proceed to discovery where the facts, even if proven true, would not establish
that defendants abused their discretion in failing to divest employer stock. Id.
       Accordingly, we must determine whether the facts Kopp alleged in the
amended complaint suffice to overcome the presumption of prudence. Under
Kirschbaum, if Kopp alleged facts that would show the Idearc Defendants knew
or should have known the viability of Idearc was threatened or Idearc’s stock


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                                  No. 12-10416
was in danger of becoming worthless, Kopp alleged sufficient facts to overcome
the presumption of prudence at the motion to dismiss stage. See Kirschbaum,
526 F.3d at 254–55. Complicating our inquiry is the fact that much of the
information Kopp alleges the Idearc Defendants were privy to that gave rise to
the duty to divest was non-public information provided by confidential witnesses.
“Fiduciaries may not trade for the benefit of plan participants based on material
information to which the general shareholding public has been denied access.”
Kirschbaum, 526 F.3d at 256; Quan, 623 F.3d at 883 n.8 (“[F]iduciaries are
under no obligation to violate securities laws in order to satisfy their ERISA
fiduciary duties.”); see Lanfear, 679 F.3d at 1284–85 (holding ERISA fiduciaries
do not have a duty to provide plan participants with nonpublic information
pertaining to specific investment options). Kopp’s allegation that the Idearc
Defendants had a duty, based on their knowledge of inside information, not only
to cease permitting investments in Idearc stock, but also to divest Idearc stock
is untenable under securities laws. A duty to divest employer stock, arising from
knowledge of inside information, might amount to a duty to violate securities
laws. White, 714 F.3d at 982, 992 (holding plan fiduciaries have no duty to
violate securities laws by trading on inside information). Kopp contends a
fiduciary may satisfy his or her disclosure requirements under ERISA and
securities laws by concurrently disseminating material information to all
shareholders: plan participants and non-employee shareholders. Of course,
“from a practical standpoint, compelling fiduciaries to sell off a plan’s holdings
of company stock may bring about precisely the result plaintiffs seek to avoid:
a drop in the stock price.” Kirschbaum, 526 F.3d at 256. Moreover, it is firmly
established under our precedents that ERISA does not place a general duty on
plan administrators to disclose all adverse inside information to the public. See
Kujanek v. Houston Poly Bag I, Ltd., 

, 488 (5th Cir. 2011) (limiting
the duty to instances where there are “material facts affecting the interest of the

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                                       No. 12-10416
beneficiary which the fiduciary knows the beneficiary does not know but needs
to know for his protection” (quoting Martinez v. Schlumberger, Ltd., 

, 412 (5th Cir. 2003))); Ehlmann v. Kaiser Found. Health Plan of Tex., 

, 556 (5th Cir. 2000) (holding the case law “do[es] not warrant the
wholesale judicial legislation of a broad duty to disclose that would apply
regardless of special circumstance or specific inquiry”). It is not the province of
the courts to create such a duty out of whole cloth. See Baker v. Kingsley, 

, 662 (7th Cir. 2004) (“[I]f we were to create a new fiduciary duty [to
disclose corporate well-being] we run the risk of disturbing the carefully
delineated corporate disclosure laws.”).8
       While individuals with access to inside information may not trade on that
information, ceasing making new investments in stock because of access to
inside information is not barred by insider trading laws. 17 C.F.R. § 240.10b–5;
see Chiarella v. United States, 

, 227 (1980). Therefore we proceed
to analyze Idearc’s duties separately.             First, considering both public and
nonpublic information known to the Idearc Defendants, we analyze whether the
Idearc Defendants had a duty to cease allowing Plan investments in Idearc
stock. Second, considering only public information, we analyze whether the
Idearc Defendants had a duty to liquidate Fund investments in Idearc stock.
       Considering both public and nonpublic information in the complaint, Kopp
alleged the Idearc Defendants knew or should have known that Idearc’s
declining customer base, loosened credit policies, growing uncollectible
receivables, and reduced account collection workforce were causing serious
financial difficulties for Idearc that the Idearc Defendants had no reason to
believe could be resolved in the foreseeable future. Idearc Defendants allegedly


       8
         We do not express an opinion as to whether the Idearc Defendants violated securities
laws. If there were violations of the securities laws, the remedy for those violations would be
under securities laws and not under ERISA.

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                                  No. 12-10416
knew or should have known of rising debts, especially bad debts, throughout the
class period. Kopp alleged that as of August 2007, the Idearc Defendants were
aware due to mounting uncollectible receivables Idearc faced an impending
liquidity crisis that would prevent Idearc from meeting its obligations as they
came due. Furthermore, Kopp alleged the Idearc Defendants were aware of the
strictures of the tax-free spin-off, which constrained restructuring options, and
thus knew they lacked the financing flexibility to deal with mounting debt.
Kopp also alleged the Idearc Defendants were aware that Idearc’s stock was
drastically overvalued due to purposeful misstatements in accounting
disclosures. For example, Kopp alleges the Idearc Defendants were aware
Idearc’s financial statements falsely recorded millions of dollars of uncollectible
receivables as collectible and recorded revenue the company generated from
fictitiously billing customers who already cancelled their accounts. By June of
2008, Idearc’s bad debt had doubled compared to its bad debt provision rate for
the same quarter in 2007. On October 30, 2008, Idearc announced that its
provision rate for bad debt reached 8.2%, and its stock price dropped 36%. Just
over two weeks later, on November 17, 2008, the Idearc Defendants, aware that
Idearc’s stock might be de-listed from the NYSE, disallowed new plan
investments in Idearc stock. Clearly Kopp alleged sufficient facts that if proven
would demonstrate the Idearc Defendants had reason to be concerned about
Idearc’s future financial performance.
      Nonetheless, the presumption of prudence protects the decisions of
fiduciaries to invest in employer stock unless the fiduciaries were aware that the
viability of the employer was threatened or the employer’s stock was in real
danger of becoming essentially worthless. Kirschbaum, 526 F.3d at 254–55.
Merely because fiduciaries were aware an employer was engaged in
unscrupulous conduct or facing financial difficulties does not alone suffice to
prove the fiduciaries were aware the employer was in a dire situation. See

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                                  No. 12-10416
Citigroup, 662 F.3d at 141. Fiduciaries’ decisions are not to be judged with the
benefit of hindsight, but from the facts known to them at the time. Id. Here,
while the facts Kopp pleaded suffice to show the Idearc Defendants were aware
Idearc faced serious financial difficulties, the facts, if proven, would not show
that the Idearc Defendants were aware Idearc’s stock was in danger of becoming
essentially worthless or Idearc’s viability as a company was threatened, at least
prior to the time the Idearc Defendants ceased offering Idearc stock as an
investment option under the Plan. Although Fund investments in Idearc stock
were eventually rendered worthless, at the time the Idearc Defendants ceased
permitting new investments in Idearc stock, the stock had only suffered a 36%
drop over the previous three months. While the percentage of the stock drop
does not alone determine whether the plaintiffs can overcome the presumption
of prudence, in Kirschbaum we held insider knowledge of illegal trades and a
40% drop in the employer’s stock price was insufficient to overcome the
presumption. Kirschbaum 526 F.3d at 255; see also Citigroup, 662 F.3d at 141
(50% drop insufficient to overcome presumption of prudence); Edgar, 503 F.3d
at 344 (25% drop insufficient to overcome presumption of prudence); Kuper, 66
F.3d at 1451 (80% drop insufficient to overcome presumption of prudence).
Therefore, even accounting for the Idearc Defendants’ knowledge of nonpublic
information, Kopp did not allege sufficient facts to overcome the presumption
that the Idearc Defendants acted prudently in their decision not to cease offering
Idearc stock as an investment option until November 17, 2008.
      Turning to the question of whether the Idearc Defendants had a duty to
liquidate the Fund’s holdings in Idearc stock, Kopp did not allege sufficient
public information to overcome the presumption that the Idearc Defendants
acted prudently by choosing not to liquidate Idearc stock.          Much of the
information Kopp relied on to show the Idearc Defendants were aware of threats
to Idearc’s viability is nonpublic information. For example, Kopp does not allege

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                                       No. 12-10416
the public was aware that Idearc had falsely recorded millions of dollars of
uncollectible accounts receivable as collectible or that Idearc recorded revenue
from fictitious invoices to current, former, and even nonexistent customers.
Moreover, Kopp alleges the Idearc Defendants did not disclose that Idearc had
eliminated a substantial portion of its collections staff or that Idearc had
loosened its credit policies to attract new customers who were more apt to
default on their payments. Because Idearc misrepresented its financial health
in financial disclosures, the public did not have a reason to be concerned that
Idearc’s stock would become essentially worthless. In the months following the
Idearc Defendants’ decision to stop offering Idearc stock as an investment option
under the Plan and prior to Idearc filing for bankruptcy, there is a near total
dearth of facts asserted in the complaint indicating the Idearc Defendants had
any reason to believe, based on public or nonpublic information that Idearc was
on the brink of collapse.9 As such, at least based on the public information
available during the Class Period, Kopp did not allege sufficient facts to
overcome the presumption that the Idearc Defendants acted prudently by
choosing not to liquidate Fund investments in Idearc stock.
       Therefore, dismissal of Counts I and IV was proper.
                                              B
       We proceed to consider whether the district court correctly dismissed
Kopp’s claim for inaccurate disclosures and nondisclosures (Count II). The
district court held the amended complaint did not state a claim for violating the
duty of candor by “omitting material information, making allegedly incorrect
statements about Idearc’s financial stability, or failing to correct these alleged
misstatements in the filings” because Idearc’s Summary Plan Description


       9
         While the March 12, 2009 fiduciary communication, released about three weeks prior
to the end of the Class Period, does raise the specter of bankruptcy, it is mentioned as one of
several refinancing options under consideration.

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                                  No. 12-10416
(“SPD”) did not incorporate Idearc’s public filings. The district court also held
Kopp did not show the Idearc Defendants had a duty to affirmatively disclose
company information or that the Idearc Defendants breached their fiduciary
duties through non-disclosure. The district court held Kopp did not allege
special circumstances or an inquiry by one of the Plan beneficiaries which would
give rise to an affirmative duty to disclose company information under ERISA.
      Kopp does not challenge the district court’s holding that the SPD did not
incorporate the public disclosures, but alleges this does not preclude a holding
that the Idearc Defendants are liable for nondisclosure. Kopp asserts ERISA’s
fiduciary duty of loyalty imposes on the Idearc Defendants obligations to disclose
information over and above the statute’s express disclosure requirements. Kopp
contends ERISA’s duty of loyalty and the common law of trusts impose an
obligation on the Idearc Defendants to disclose material facts affecting
beneficiaries.
      We have held a plan administrator violated ERISA’s duty of loyalty by
withholding information where the administrator withheld information about
the plan benefits or the plan participants’ rights under the plan when a plan
participant requested such information. Kujanek, 658 F.3d at 489. We have
explicitly refused, however, to judicially engraft onto ERISA’s duty of loyalty a
“broad duty to disclose that would apply regardless of special circumstance or
specific inquiry.” Ehlmann, 198 F.3d at 556. Moreover, we held in Kirschbaum
that there could be no duty to disclose non-public information for the benefit of
plan shareholders as this would violate securities laws. Kirschbaum, 526 F.3d
at 256 (“Fiduciaries may not trade for the benefit of plan participants based on
material information to which the general shareholding public has been denied
access.”).   Here Kopp alleged no special circumstance or specific inquiry
mandating the Idearc Defendants disclose non-public information to plan



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                                  No. 12-10416
participants. No general duty to disclose non-public information exists under
ERISA or under our precedents. Therefore, dismissal of Count II was proper.
                                        C
      Based on its dismissal of Kopp’s claims for breach of fiduciary duty for
investment in Idearc stock and for inaccurate disclosures and nondisclosures,
the district court dismissed each of Kopp’s remaining claims, Counts III, V, VI,
and VII, as derivative. The district court held to prevail on the derivative claims
the Idearc Defendants would have had to prevail on an underlying allegation of
breach of fiduciary duties.       Kopp contends the district court erred by
characterizing the remaining claims as derivative and thus erred by dismissing
these claims even if the investment and disclosure claims should be dismissed.
We proceed to analyze whether the district court erred by dismissing the
remaining claims as derivative.
                                         1
      Counts III and VII allege the Idearc Defendants breached their fiduciary
duty of loyalty by failing to avoid conflicts of interest while managing the Plan.
Specifically, Kopp alleges the Idearc Defendants’ personal wealth was
impermissibly tied to Idearc’s financial performance.
      “ERISA’s duty of loyalty is the highest known to the law.” Bussian v. RJR
Nabisco, Inc., 

, 294 (5th Cir. 2000) (internal quotation marks
omitted). ERISA § 404 requires fiduciaries to manage the plan for the exclusive
purpose of providing benefits to participants and their beneficiaries and
defraying reasonable expenses of administering the plan. 29 U.S.C. § 1104(a).
The Supreme Court described ERISA’s duty of loyalty as “[t]he most
fundamental duty owed by the trustee to the beneficiaries of the trust . . . . It is
the duty of a trustee to administer the trust solely in the interest of the
beneficiaries.” Pegram, 530 U.S. at 224 (citing 2A A. SCOTT & W. FRATCHER,
TRUSTS § 170, at 311 (4th ed. 1987)).

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                                       No. 12-10416
       Kopp correctly points out that some courts have held a complaint states
a claim for breach of the duty of loyalty where the compensation of defendant
fiduciaries was tied to the value of company stock or where fiduciaries traded on
their personal accounts with inside information they did not share with plan
participants. See, e.g., In re ADC Telcomms., Inc., ERISA Litig. No. MASTER
FILE, 03-2989 ADM/FLN, 

, at *8 (D. Minn. July 26, 2004); In
re Sears, Roebuck & Co. ERISA Litig., No. 02 C 8324, 

, at *5
(N.D. Ill. Mar. 3, 2004) (“Officers had an incentive to heavily invest the Plan’s
funds in Sears stock instead of properly informing Plan participants of material
negative information concerning the irregularities.”).
       Here Kopp does not allege the Idearc Defendants’ compensation was
impermissibly tied to the price of Idearc’s stock, but that their compensation was
impermissibly tied to Idearc’s financial performance. Kopp cites no provision of
ERISA or case that supports his contention that such a compensation scheme
violates ERISA’s duty to avoid conflicts of interest. Accordingly, dismissal of
Counts III and VII was proper.10
                                              2
       Count V alleges the Idearc Defendants breached their fiduciary duty to
appoint, inform, and monitor plan fiduciaries. Kopp alleges four breaches of
fiduciary duty under this count: (i) the Idearc Defendants failed to monitor the
Benefits Committee members to ensure they met their primary obligations; (ii)
the Idearc Defendants failed to provide crucial information about the threat of
Idearc’s viability to the Benefits Committee members to ensure they were
sufficiently well-informed to meet their primary fiduciary duties; (iii) seeing that


       10
          In the amended complaint Kopp also alleges the Idearc Defendants breached their
duty to avoid conflicts of interest by failing to timely hire independent fiduciaries who could
make independent judgments about Plan investments. Kopp waived this issue by failing to
adequately brief it on appeal. Sanders v. Unum Life Ins. Co. of Am., 

, 926 (5th
Cir. 2008).

                                              24
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                                   No. 12-10416
the Benefits Committee members did not seek counsel regarding Idearc’s
financial troubles, the Director Defendants and the HR Committee failed to
replace the Committee members; and (iv) the Idearc Defendants breached their
duty to appoint Benefits Committee members with the requisite knowledge or
background to oversee Plan investments.
      Because a claim for breach of fiduciary duty to appoint, inform, and
monitor plan fiduciaries is a derivative claim, In re Dell, Inc. ERISA Litig., 

, 695 (W.D. Tex. 2008) (“To be held responsible for a failure to
monitor or as a co-fiduciary, Plaintiffs must establish an underlying breach of
fiduciary duty.”); Edgar, 503 F.3d at 349 n.15, dismissal of Count V was proper.
                                         3
      Count VI alleges the Idearc Defendants breached a co-fiduciary duty. An
ERISA co-fiduciary liability arises when a fiduciary’s actions meets one of the
following criteria:
      (1) if he participates knowingly in, or knowingly undertakes to
      conceal, an act or omission of such other fiduciary, knowing such act
      or omission is a breach;
      (2) if, by his failure to comply with section 1104(a)(1) of this title in
      the administration of his specific responsibilities which give rise to
      his status as a fiduciary, he has enabled such other fiduciary to
      commit a breach; or
      (3) if he has knowledge of a breach by such other fiduciary, unless
      he makes reasonable efforts under the circumstances to remedy the
      breach.
29 U.S.C. § 1105(a). Count VI alleges each of the Idearc Defendants were aware
of breaches of fiduciary duty by other Defendants but failed to make efforts to
remedy those breaches.       Count VI further alleges the Idearc Defendants
concealed the breaches of their co-fiduciaries.
      Because this is a derivative claim, Izzarelli v. Rexene Prods. Co., 

, 1525 n.34 (5th Cir. 1994); In re Dell, Inc. ERISA Litig., 563 F. Supp. 2d at



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                                No. 12-10416
695, and there is no underlying breach of fiduciary duty, dismissal of Count VI
was proper.
                                      IV
      For these reasons, we AFFIRM the judgment of the district court.




                                      26