On August 31, 2009, Judge Sidney Stein of the United States District Court for the Southern District of New York dismissed entirely at the pleadings stage a consolidated putative class action against Citigroup, Inc. (“Citigroup”), its former CEO, Charles O. Prince, and numerous Citigroup directors, officers, employees and related entities in In re Citigroup ERISA Litigation, No. 1:07-cv-09790-SHS, 2009 WL 2762708 (S.D.N.Y. Aug. 31, 2009). The consolidated class action had been brought under the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), by current and former employees of Citigroup who participated in one of two Citigroup 401(k) plans. The complaint alleged that the defendants breached their fiduciary and co-fiduciary obligations principally by (1) allowing investment through the 401(k) plans in the sponsoring corporation’s stock when the price declined 52% from January 1, 2007 to January 15, 2008; (2) not providing complete and accurate information to the plans’ participants—particularly with respect to the sponsoring corporation’s subprime loan exposure; and (3) operating while under an alleged conflict of interest.
Judge Stein rejected each of plaintiffs’ claims in a 51-page opinion. He found that none of the defendants could have been acting as an ERISA fiduciary with respect to the plans’ investments in the sponsoring corporation’s stock because each of the plans “unequivocally required that Citigroup stock be offered as an investment option.” The court held that such plan provisions deprived any of the defendants from acting with the requisite control over the plans’ investments to be deemed to be a fiduciary under ERISA, and because ERISA expressly contemplates the holding of employer stock by certain plans, these plan provisions were consistent with ERISA. Further, the court rejected a view of liability that would have fiduciaries placed at risk every time they decided whether or not to override a plan’s terms. The court provided an alternative ground for its dismissal by applying the presumption of prudence attaching to retirement plans’ investment in the sponsoring employer’s stock as set forth in Moench v. Robertson, 62 F.3d 553 (3d Cir. 1995), and finding that the complaint failed to allege sufficient facts to overcome this presumption where plaintiffs alleged a pattern of “risky loan practices” and investments in mortgage-related securities, but did not provide any indication that the sponsoring corporation’s viability was threatened.The court also found that defendants were not required by ERISA to provide financial information to participants about the sponsoring corporation because ERISA does not require retirement plan fiduciaries to give investment advice. The court held that ERISA fiduciaries did not have to provide material, non-public information to plan participants. Finally, the court held that no conflict of interest could be established simply from the pleaded allegation that (1) compensation of individual defendants was tied to the performance of the sponsoring corporation’s stock and (2) certain individual defendants sold the sponsoring corporation’s stock during the putative class period. Other claims as to breach of co-fiduciary duties and alleged failure to monitor fiduciaries were also dismissed on the grounds that no underlying liability of any fiduciary was adequately pleaded.