The Ninth Circuit recently affirmed the dismissal of an ERISA employer-stock drop putative class action, holding that the plaintiff’s failure to identify specific, viable alternative actions that plan fiduciaries should have taken instead of the challenged actions was fatal to her claim. In so holding, the Ninth Circuit joined the Second, Fifth, Sixth, and Eighth Circuits, which require a plaintiff to articulate in the complaint the specific actions that the defendants should have taken rather than those that allegedly caused the plaintiff’s damages.

The plaintiff alleged that two executives of the plan sponsor who were fiduciaries of the company’s employee stock ownership plan (ESOP) breached their duty of prudence by failing to disclose to shareholders the company’s difficulties in managing a retired nuclear generating station. The plaintiff alleged that, as a result, employees retained “artificially inflated” company stock and that once the company disclosed its problems with the nuclear generation station, the price of the stock declined causing employees to lose millions of dollars in retirement savings.

The Ninth Circuit applied the pleading standard first espoused by the Supreme Court in Fifth Third Bancorp v. Dudenhoeffer, holding that the plaintiff’s “recitation of generic economic principles, without more, is not enough to plead a duty-of-prudence violation.” The court held that the plaintiff failed to articulate the alternative actions so clearly beneficial that a prudent fiduciary could not conclude it would be more likely to harm the Plan than to help it and instead relied on unspecified “generic economic principles,” including “key metrics reflecting the underlying risk and volatility” of the company’s stock, to support her claim. The court distinguished the Second Circuit’s decision in Jander v. Ret. Plans Comm. of IBM by holding that while a district court may consider “allegations reciting general economic principles,” those general allegations are insufficient without more to support a prudence claim. Accordingly, the court concluded the plaintiff failed to satisfy the Dudenhoeffer standard and affirmed the dismissal of her complaint.

The case is Wilson v. Craver, No. 18-56139 (9th Cir. Apr. 19, 2021)