ERISA Misrepresentation and Nondisclosure Claims: Securities Litigation Under the Guise of ERISA?

their application of twombly, however, has been when the defendant received more 140. in re dynegy, 309 f. supp. 2d at 884-85. should provide a remedy when such behavior is arguably both a violation of erisa and of the control respecting management or disposition of the assets, (ii) he mistakes in previous fiduciary communication when information later prudent fiduciary would have acted otherwise. erisa's duty of 1639, 1640 (2004). a. procedural differences from non-fiduciary communications.236 misrepresentation that is actionable under the securities laws need not around the circuits as to whether failure to comply with mandatory periodic-disclosure system."). 536 hofstra labor & employment law journal [vol. 26:497 between the erisa lawsuit and the securities class action. part iii exchange act and to rule 10b-5 exposure.161 statement was a fiduciary to the plan; (ii) the false or misleading choice to provide such information must provide all pieces of information necessary to paint the full goal "as well as an intended approach for reaching it, [the corporation] 220. see discussion supra part ii.a.2. whereas recovery under the securities law is limited to actual to a plan is a highly fact intensive inquiry.41 exists and if so, under what circumstances it applies.98 policy to reality, 49 emory l. j. 1, 11 (2000) (discussing 401(k) plans). 510 hofstra labor & employment law journal [vol. 26:497 that render investment in the company stock imprudent where the "[t]he sets of potentially responsible parties" may intersect is only of duty. while no comprehensive resolution of these issues seems give participants the opportunity to manage their retirement savings by e. medill, the individual responsibility model of retirement plans today: conforming erisa 219. id. at 292. itself before acting on the discovered information, overstepping its role with scienter as required by a rule 10b-5 action earnings); see also starkman v. marathon oil co., 772 f.2d 231, 241 (6th cir. 1985), (holding that that the plaintiffs are entitled to relief). see, e.g., in re dynegy, inc. erisa litig., 309 f. supp. 2d fiduciaries cannot have a duty to prevent losses to a plan by concealing a when it was previously however, erisa but may also wear a corporate hat exclusive benefit rule, 55 u. chi. l. rev. 1105, 1112 (1988). ret. program, unisys, 47 f.3d 498, 505 (2d cir. 1995)). iii. the question of duty second, fiduciaries are required to act "solely in [plaintiff's] claim are similar to fraud allegations, i.e. that [defendants] provided false and thus, neither fiduciaries nor participants can trade while in consequences if actual or perceived risk of fiduciary liability deters for instance, in oran v. stafford,165 409(a) makes a fiduciary who breaches his fiduciary responsibilities 500 hofstra labor & employment law journal [vol. 26:497 114. id. � 1022(a); see also difelice v. u.s. airways, inc., 397 f. supp. 2d 758, 768 (e.d. va. disclose such information may resolve these questions in favor of requirements on erisa fiduciaries. in contrast, courts are willing to 2009] erisa misrepresentation and nondisclosure claims 535 498 hofstra labor & employment law journal [vol. 26:497 14. see generally id. at 455 (discussing the differences of defined contribution plans); colleen 63. id. at 347. predictability invites legislative or regulatory action.261 sec filings are actionable only if the fiduciary decides to speak by erisa litigation69 (s.d.n.y. 1995). plan or benefits thereunder to satisfy the varity standard.220 101. see id. (alleging that defendants breached their duty when they failed to disclose material 534 hofstra labor & employment law journal [vol. 26:497 65. see graden v. conexant sys., inc., 574 f. supp. 2d 456, 465 (d.n.j. 2008). 451, 453-54 (2004) (discussing the rise of the defined contribution plan). accurate and comprehensive to reasonably appraise such participants and 246. id. at *1. relying on material misrepresentations or nondisclosure would have shortening the disclosure deadline, but generally confining these events trading on such information qualifies as a "deceptive device" under 1988) (quoting sommers drug stores co. employee profit sharing trust v. corrigan enters., inc., 51. id. personal or economic benefit.206 spd thereby adopted the misleading statement in sec filings and had an 2. only named and functional fiduciaries may be liable under erisa as to update. in gallagher v. abbott laboratories,195 158. see generally james cox et al., securities regulation: cases & materials, 562- incorporation by reference to survive the motion to dismiss level, the supreme for a discussion of the procedural requirements of the pslra, see michael a. perino, enron's some information 520 hofstra labor & employment law journal [vol. 26:497 fiduciary duty by not obtaining and acting on "inside" information.249 the supreme court has recently held in bell atlantic corporation v. a plan sponsor could also be subject to liability for insider trading benefits, such as a desire to enhance one's reputation, are sufficient.207 erisa's diversification requirement, however, does not apply information later reveals that the communication was false when 131. see id. at 1228; see also in re polaroid erisa litig., 362 f. supp. 2d 461, 477-79 and securities nondisclosure claims make it difficult, if not impossible, found a duty of disclosure to the extent necessary for plan participants to immaterial under the securities law, an immaterial misrepresentation the circumstances then prevailing that a prudent man acting in a like may be material, such as that that is, likely to be important to the would only force compliance with the securities laws disclosed.63 financial status.118 to disclose information to participants beyond erisa's express measure recovery under rule 10b-5: a restitution alternative to tort damages, 37 vand. l. rev. erroneous statements made by third parties, courts generally hold that 2007, in securities litigation & enforcement institute 2007, at 57, 108 (pli corp. law & rule 9(b) if allegations of fiduciary breach involve fraud.53 stage, satisfying its "plausibility" standard is significantly less matthew j. renaud & omar r. akbar, what's up on stock-drops? moench revisited, 39 j. information.247 safeguards of the pslra and deploy the tools of discovery to uncover standards of fiduciary conduct.258 participants. the plan sponsor would be held liable only when it passed take appropriate steps to prevent it). in fifth third stock and therefore could not make informed decisions than the burden to show scienter required to prevail in a securities rule investment in the company would not be wise, but without stating why, if that would reveal non- designated the employer stock fund as an employee stock ownership statements]."186 recovery for breach of fiduciary duty under section 502(a)(2) if the examination of the cases reveals an emerging standard: absent a buying or selling of shares by plan while in possession of material, nonpublic information); see also duties. the court dismissed a claim against a 401(k) erisa claim for misrepresentations and nondisclosures that would not constitute a securities law or misleading statement under erisa depends on whether the fiduciary representation.199 fiduciaries on notice of the securities violation have a heightened duty to duty to correct applies when a company makes a material statement that, 141. id. at 890; see also shirk v. fifth third bancorp, no. 05-cv-49, 2007 wl 1100429, at under erisa, fiduciaries must correct a duty to update about merger negotiations that would cause the practice, course handbook series no. b-1620). necessary to make the statements, in the light of the circumstances under honored the employee's entitlement, which includes an entitlement to disseminated it should be liable for his breach of duty. otherwise, a plaintiff's lost profits are not 38. 15 u.s.c. � 78t(a) (2006). company has "place[d] its imprimatur, expressly or impliedly, on the not involve any fiduciary discretion and therefore, does not give rise to 201. see u.s. v. o'hagan, 521 u.s. 642, 651-52 (1997) ("classical" insider trading occurs reasoned that, even though similar, "[the] erisa matter and the fiduciary in a manner reasonably calculated to influence plan defendants had "creat[ed] an inaccurate impression of the future prospects of the company"); in re 12. see daniel fischel & john h. lagbein, erisa's fundamental contradiction: the as the enron239 2358-60 (1976); see also donovan v. cunningham, 716 f.2d 1455, 1464 (5th cir. 1983) (explaining condition."221 duty only to special circumstances where the information would have an 194. see id. at 810 (quoting tsc indus., inc. v. northway, inc., 426 u.s. 438, 448 (1976) materiality of a piece of information is a necessity but, standing alone, is disclosure obligations under erisa, or purport to qualify in any way the a the subsidiary's financial health to statements it made about future subsequent to the trading only when the selective disclosure was when an erisa fiduciary communicates with plan participants in a disclosure under the banner of rule 10b-5"197 107. amended brief of the secretary of labor, elaine l. chao, as amicus curiae in support "updated."194 communication was sufficiently related to benefits decisions to be 223. see discussion infra part iii.a.2. for instance, the u.s. forward-looking statements about company policy--such as the other. this article concludes that the substantial overlap and potential 5 claims: damages would be measured by the difference between the entertain claims that erisa fiduciaries have a heightened duty of incorporated subsidiary and intentionally misled its employees to think renders investment advice for a fee or other compensation, direct or 203. see selective disclosure and insider trading, exchange act release nos. 33-7881, 34- enron's negative financial picture, to profit from fraudulently inflated plan sponsors and fiduciaries? whereas employees, like other investors, the court found that the stakes are high: the resolution of these issues implicates the 251. id. at *5, *8. law, information is material if there is "a substantial likelihood that [its] when the company encouraged plan participants to review the filings that the communications have become misleading because a change in tex. 2003). introduction requirements. erisa also allows plaintiffs to proceed with discovery who has access to non-public information must either disclose such nondisclosures, will not be dismissed on the ground that there was no disclosed (regulation fd).159 6. pub. l. no. 104-67, 109 stat. 737 (1995) (codified in scattered sections of 15 u.s.c.). 163. prospective information, 8 fed. sec. l. rep. (cch) 62,841-42 (apr. 23, 2008). overpriced in the market and hence a bad deal." id. at 704. fraud or mistake shall be stated with particularity."). see, e.g., concha v. london, 62 f.3d 1493, course is under serious consideration.148 not actionable under rule 10b-5 for remaining silent when disclosure the first requirement is that the terms of second, the set of defendants failing to disclose to plan participants that the company was in a administrator cannot influence buying or selling of shares by plan while in possession of material, there is no duty to correct statements by others unless the company has those statements must be linked to statements about plan although the necessary type of benefit ("erisa") alleging that plan between accounts without a purchase or sale of a security, even if the courts disagree as to whether there is a duty to update previously manner calculated to influence plan participants' benefits decisions. information regarding enron's financial situation). disclosure items gives rise to rule 10b-5 fraud-based liability and if so, 518 hofstra labor & employment law journal [vol. 26:497 the with erisa's high fiduciary standards and with the disclosure goals of 107-16 � 662(a), 115 stat. 38, 142 (2001) (amending i.r.c. � 404(k)(2)(a) (2000)) (allowing misleading). under what circumstances.259 fiduciary breach.57 under the securities hull v. policy mgmt. sys. corp., no. civ.a.3:00-778-17, 2001 wl 1836286, at *7-8 (d.s.c. feb. or tax or other legal issues affecting participant plan elections."152 defendants breached their fiduciary duties by failing to disclose to plan the market would have adjusted immediately and the plan would have of secretary of labor, elaine l. chao as amicus curiae supporting plaintiffs-appellants, at 10, 42. see 29 u.s.c. � 1002(21)(a) (2006). securities litigation reform act of 19956 preventing a corporate insider from . . . tak[ing] unfair advantage of . . invites future reliance and operates as a continuing representation of its the basis of the information."210 material misstatements or by a co-fiduciary if he knowingly participated in, tried to conceal an act 152. stabile, supra note 7, at 400 (citing in re unysis corp., 242 f.3d 497, 501 (3d cir. 2001) this duty, however, is limited losses."24 fiduciary communication.134 disclose exists). indirect, with respect to any moneys or other property of such plan, or broadwing erisa litig., 252 f.r.d. 369, 379 (s.d. ohio 2006) (settled for $11 million, oct. securities laws. such duty, however, is better analyzed as a subset of the material nonpublic information necessary to appreciate the true risk of duty, 9 u. pa. j. lab. & emp. l. 831, 876 (2007) (arguing that the erisa fiduciary duty to disclose knows it. such feigned opinions are properly deemed untrue statements on the fiduciary liability.133 favorable or unfavorable--on the registrant's financial condition or omissions in a form 8-k, however, remain subject to section 10(b) and different.5 i. erisa fiduciary duties 135. 309 f. supp. 2d 861 (s.d. tex. 2004). already in existence regarding patient enrollments, even if misstatements upon request, a regulation issued under this chapter"). congress has by statute and related regulation, created detailed rules sforza, 326 f.3d 107, 111 (2d cir. 2003)). not the equivalent of a section 10(b) violation as a matter of law because 105. select cases that have settled for many millions include: in re delphi corp. sec., disclose adverse non-public information regarding the company's value 2006); in re cms energy erisa litig., 312 f. supp. 2d 898 (e.d. mich. 2004) (settled for $28 some courts have stated that if a fiduciary makes or disseminates a provisions. aggressive discovery strategy, are less likely to obtain a large settlement fraud would be akin to holding that fiduciaries have no duty to act when sufficiently relevant to plan benefits decisions--a fiduciary discretionary (2004)). 1. bringing an erisa lawsuit may provide a remedy to plaintiffs who 530 hofstra labor & employment law journal [vol. 26:497 plan participants alleged that plan sponsors breached their require that the information be made or disseminated by an erisa erisa also affords significant substantive advantages over disclosed information if new developments make it untrue or materially to give rise to liability current state of the company and do not operate as a continuing misleading statements in question were contained in an employee plaintiffs have argued that plan fiduciaries had a duty to disclose to them this reasoning, statements in sec filings that have been incorporated in the spd, or into the spd, or whether dissemination is required to give rise to makes, adopts or disseminates the false or misleading statement in a substantial assistance to another person in violation of a provision of this chapter, or of any rule or developments make an earlier communication or representation false or fiduciary duty under erisa."). disclosure fiduciary duty is further aggravated because the question of curtailment of the right of action to avoid "the danger of vexatious securities law violation, an erisa fiduciary cannot breach his duties by statements of opinion may also be actionable under the antifraud 113. id. � 1024(b)(1). similarly, the district court in cokenour v. household unimportant to the total mix of information available to the market. wholly attributable to the availability of the 401(k) plan.15 an erisa fiduciary can also be held liable for a breach committed requirements of erisa and the securities laws would put erisa 2008). million, june 2006). and "have financial interests that are adverse to the interests of the financial and legal stability of plan sponsors and fiduciaries facing require fiduciaries to disclose this type of information to plan participants, fiduciaries who make the erisa contemplates two basic types of pension arrangements: corp., 313 f. supp. 2d 1361, 1366 n.4 (n.d. ga. 2004) (finding that heightened pleadings were not 221. varity corp. v. howe, 516 u.s. 489, 505 (1996). 74 f.3d 420, 442 (3d cir. 1996)) (internal quotations omitted). to a party who will be trading on the information, such as a 401(k) plan d. form 8-k violation of the securities laws. truthfully" once they decided to speak on the issue of the spd, and even though "erisa does not fiduciary, it may be taken more seriously by plan participants who-- discretionary authority or discretionary responsibility in the separate coordination and separate trial.217 misleading plan participants, regardless of whether the fiduciary's chance in a company's cigarette pricing strategy). 147. see, e.g., id. at 520 (an employer is not liable for breach of fiduciary duty under erisa if the second circuit recognized the possibility of liability for failure to of changes depends on the nature of inquiries and activities of the fiduciary). twombly to a dispute regarding a covenant not to compete); lindsay v. yates, 498 f.3d 434, 440 some issues have settled. the supreme court has made clear that when misrepresentations is varity corp. v. howe.121 [them] are substantially certain to hold"). the give rise to erisa liability if it is not fiduciary in nature. explicitly provides for acquisition and holding of stock issued by the plan sponsor. id. � 1107(d)(3). 157. see id. at 1644 (citing baron v. smith, 285 f. supp. 2d 96, 103 (d. mass. 2003)). operations.163 (2008). securities disclosure architecture stands on the foundational stone that of these cases have settled for millions of dollars,105 accordingly, a desire to confer a benefit on employees or avoid a breach violation "does not do violence on congress' securities law goals," but questioning whether erisa control over the committee members."); in re providian fin. corp. erisa litig., no. c01-05027 and the procedural advantages provided by erisa, plaintiffs' lawyers 502 hofstra labor & employment law journal [vol. 26:497 the court held that when a company announces a when erisa was the court further added that "a (2008) (citing james a. wooten, the employee retirement income security act of 1974: a even though a clear standard has not been articulated yet, a careful fiduciary to the plan; (ii) the false or misleading statement was the third circuit held that a 97. see generally edward e. bintz, fiduciary responsibility under erisa: is there ever a 2009] erisa misrepresentation and nondisclosure claims 529 gulf sulphur co., 401 f.2d 833, 862 (2d cir. 1968) (en banc)); eisenstadt v. centel corp., 113 f.3d imprudence in allowing continued investment in employer stock. see generally craig c. martin, erisa litig., 2008 wl 5063086 (2d cir. 2008) (settled for $100 million, sept. 2006); in re 49. 15 u.s.c. � 78 u-4(b)(2) (2006). 83. osofsky v. zipf, 645 f.2d 107, 114 (2d cir.1981). financial security of a large part of the country's aging population,260 consideration."190 uneven because the court did not specify whether this standard applies securities litigation under the guise lawsuit may provide a remedy to those plaintiffs who could not tipper receives consideration or benefit in exchange for information). nature. truthfully and completely even if those communications are not required should remain accurate and non-misleading throughout the availability of the plan, thus finding a 303(a), possibly because of its forward-looking nature or its heightened not be grounded on a securities law violation. conversely, a plan fiduciaries, rely more heavily on their recommendations. thus, a benefits based on variables such as age, length of service, and final level."55 sec, (ii) a duty to speak truthfully and completely, (iii) a duty to correct, standard. could arguably be required disclosure under 10b-5 would be consistent 124. id. at 506. in blue chip stamps v. manor drug stores,31 in order to avoid insider-trading liability, a fiduciary 2009] erisa misrepresentation and nondisclosure claims 511 may obtain relief even though other participants are uninjured.92 wl 2374989, at *8-9 (d.n.j. aug. 15, 2007) (defendants "were required to speak fully and made by non-fiduciaries, even if those statements are made in securities directives, to monitor, to diversify, and to act loyally. erisa fiduciary now the predominant structure of retirement coverage in the 70. id. at *41-42. corporate capacity. the difficulty of defining the contours of an erisa retirement income security act of 19742 erisa plaintiffs must plead factual allegations establishing each then make stock purchase and retention decisions based on this the supreme court has defined 127. see id. the duty to speak truthfully and completely also encompasses a participants of material non-public business or financial developments plan administrator must file each year with the secretary.117 216. robert rachal, howard shapiro & nicole eichberger, fiduciary duties regarding 401(k) available to the u.s. attorney, the sec, and plaintiffs in a separate substantive differences between the erisa and the securities the participants were provided information about the true risks of statements in sec filings are per se fiduciary communications or discussing some significant procedural differences between erisa and securities law liability); securities laws and by erisa. for instance, in worldcom, plan however, even if the circuit recognizes a duty to update, it would be influence plan participants' benefits decisions. however, at least one district court has held 122. id. at 493-94. northway, inc., 426 u.s. 438, 449 (1976)). operations for the year.115 no authority to scoop the political branches and adopt continuous communication was false or misleading but still endorsed, adopted, or 126. id. that a company does not act as a fiduciary "simply because it made source of financing.189 few circuit courts have recognized such duty in limited circumstances inconsistent results. at the motion to dismiss level, some courts have required solely by � 243.100 shall be deemed to be a violation of rule 10b-5 . . . under the favor of erisa plaintiffs. because the fiduciary's conduct must be financing and the names and addresses of the people who exercise benefits in order to be actionable under erisa.222 disclose the information is "no," the question would be whether plan the information for the purpose of obtaining, directly or indirectly, some first, erisa stipulates that a fiduciary must silent about a material fact that a reasonable plan participant would need 39. id. � 78t(e) (explaining that an aidor or abettor is "any person that knowingly provides participants could not appreciate the true risks presented by investments co. v. penn. mut. life ins. co., 698 f.2d 320, 326 (cal. 1983) ("[l]ying is inconsistent with the erisa's duty to correct is limited to fiduciary communications damages."60 beneficiary, or plan fiduciary commence the civil action.35 liability would 189. id. at 262, 267; see also shaw v. digital equip. corp., 82 f.3d 1194, 1219 n.33 (1st cir. varity's requirement that there be a link between the false or misleading laws.257 this conflict between the two actions warrants substantive clarification and controversial suits are generally derivative or companion cases to found that the duty not to mislead is not breached if subsequent section discusses the most significant procedural and remedial rule 10b-5 liability.174 investigate before speaking, to speak truthfully, and to correct statements 16. employee benefits sec. admin., u.s. dep't of labor, a look at 401(k) plan fees however, because circumstances have changed to an extent that participants are acting duties beyond erisa's explicit requirements,102 the court reasoned, consistent with varity, that such the secretary has shareholders to approve a going-private transaction because the offer a more difficult duty question arises when the fiduciary remains upon the filing of a motion to dismiss by a defendant in a securities erisa fiduciary breach is less burdensome than satisfying the elements notice of fraudulent concealment of information of erisa remedies available to erisa plaintiffs. 3. fiduciaries have a heightened duty of disclosurewhen on notice of there are several procedural and remedial differences that make it 2009] erisa misrepresentation and nondisclosure claims 505 179. see backman v. polaroid corp., 910 f.2d 10, 16 (1st cir. 1990) (quoting sec v. texas the securities laws impose a duty to correct material misstatements 195. 269 f.3d 806 (7th cir. 2001). the court reasoned that a violation of item 303 is 169. sarbanes-oxley act of 2002, pub. l. no. 107-204, 116 stat. 745 (codified as amended in the court's conclusion that "the legal issue whether dissemination is required to give rise to fiduciary liability. discovery, unless the plaintiff will suffer undue prejudice or a loss of unbeknown to the fiduciary, is false or misleading when made. as most courts agree that "erisa does not have heightened pleading upon an intended merger."83 securities fraud class actions arising out of the same alleged (aug. 29, 2008). material information that they know the plan participants do not know, but need to know, to protect their professed opinion.183 plan but have no duty to disclose financial and business information but an issuer may have no duty to disclose it [third party's statements]."230 update when time warner hyped strategic alliances as a source of debt breach of fiduciary duty authorized by section 409 of erisa.85 authority to prosecute individuals who aid and abet violators of the 1934 of confusion and inconsistencies in the case law on whether such duty securities standard private right of action for alleged violations of item 303(a) of regulation inside information concerning company stock to any "holder of the 2009] erisa misrepresentation and nondisclosure claims 501 thus, a plaintiff claiming not to have sold or not to have 286, 294-95 (2000); martinez v. schlumberger, ltd., 338 f.3d 407, 412-13 (5th cir. 2003)). public statements of the company that have been disseminated by plan and not as an independent disclosure duty under erisa's fiduciary company in sec filings or corporate communications about the health of action filings and preventing "fishing expeditions"--should not prevent as a result of special tax preferences for when the company chooses to remain silent.160 reasonable investor,158 selective disclosure would not "protect any lawful 1986) ("scienter may be established by proof of knowing or intentional practices to deceive, similarly, a heightened duty of disclosure on erisa fiduciaries statement sufficiently related to a benefits decision, he is under a duty to "extreme impact" on plan beneficiaries.243 courts agree that materially misleading public statements the difficult question is securities exchange act."). fiduciary duties, inter alia, by failing to disclose complete and accurate . uninformed . . . stockholders.'"202 benefits "so that its intended communication about the security of recklessly disregarded the likelihood that the person would engage in insider trading and failed to plan.'"125 communications are actionable under erisa, the standard of materiality therefore, post-larue, claims filed under section 502(a)(2), by plan through the backdoor, a new set of disclosure obligations under the guise require employers "to keep plan participants abreast of the plan sponsor's financial security."); procedural harmonization to prevent plaintiffs' lawyers from using 210. 17 c.f.r. � 243.100(b)(1)(iv) (2008). 128. 388 f. supp. 2d 1207 (d. kan. 2004). underlying the legal analysis seems to be: who should bear the risk of fiduciary capacity, it has a duty to speak truthfully and completely.120 distinctions between the securities fraud and erisa cases" warrant both information regarding fifth third stock when the company was decisions.232 standing to sue under the securities laws as a result of the purchase or statement of facts that merely creates a suspicion of a legally cognizable right of action is risks of investment in company stock in its public filings); in re cms energy erisa litig., 312 f. company solely to employees who will be trading on the information, standing to sue under erisa but not under rule 10b-5. however, 39 j. marshall l. rev. 637, 657 (2006). [t]heir duties under erisa and securities law co-exist."). section 21d(e) of the pslra82 33,7881 and 34,43154, 2000 sec lexis 1672 at *79-86 (aug. 15, 2000). other courts have limited such accuracy. for instance, in in re time warner securities litigation,188 198. id. at 808 (internal citations omitted). concealing its financial problems likely in violation of the securities provisions if they are objectively false. in virginia bankshares, inc. v. and that public policy demanded liability under [exchange act] [s]ection 13(a) or 15(d)."176 even though erisa does not require employers to offer such plans, for $47 million); in re allegheny energy, inc., sec., litig., 259 f. supp. 2d 1368 (jud. district on reasonably likely to occur, unless management determines that even if 55. id. at 555. the pslra also makes clear that a plaintiff in a rule 10b-5 case increase the amount of information against defendants or to pursue an teamsters health & welfare fund, 12 f.3d 1299, 1300 (3d cir. 1993)). are being threatened by corporate misconduct, including violations of the was false or misleading when made; and, (iv) a reasonable plan 1 (2006), available at http://www.dol.gov/ebsa/publications/401k_employee.html. administered in accordance with high standards of loyalty and prudence and that the conduct of 506 hofstra labor & employment law journal [vol. 26:497 laws would not require such disclosure.245 enacted, the predominant pension structure offered by united states information makes public statements materially misleading, courts 32. id. at 730-31 (citing birnbaum v. newport steel corp., 193 f.2d 461, 463 (2d cir. 1952)). by erisa.99 "scienter" as a "cogent and compelling" inference of an intent to deceive 2009] erisa misrepresentation and nondisclosure claims 531 losses, plan participants have filed lawsuits under the employee ambiguities of two complex bodies of federal law have reached however, if the same statement is endorsed or disseminated by a plan disclosure is at the heart of federal securities laws.156 138. id. at 890. 59. see saritha komatireddy tice, a "plausible" explanation of pleading standards: bell information not required to be disclosed by the securities laws but 130. id. at 1228. rejected this argument, reasoning that, while full having significantly altered the `total mix' of information made part iv examines whether securities and erisa misrepresentation and intent to deceive, manipulate, or defraud,227 in contrast, a lack of intent to deceive does not insulate 165. 226 f.3d 275 (3d cir. 2000). defined benefit and defined contribution plans.11 saving plans were heavily invested in the stock of their employers have reasonable investigation) that the communication was false or any, to which erisa's fiduciary standards encompass a fiduciary duty imminent in the federal courts, the pressing need for clarity and by an erisa fiduciary must be true representations at the time they are made, but such does not "[a] claim is actionable for allegedly not disclosing negative information documents to plaintiffs in parallel erisa or derivative suits.73 tests for securities fraud.167 capable persons from serving as erisa fiduciaries. the cost of these in in re in contrast, the court in in re honeywell international 4. duty to update and/or to warn material events affecting the value of company stock when the securities political history 279 (2004)). investment in company stock as opposed to other securities, and that this instead, the court found a fiduciary breach because the fiduciaries not disseminated the information, they would not have the court rejected 2. a heightened disclosure duty on erisa fiduciaries on may be different, and a fiduciary breach need not constitute fraud or be a conflict arises 2009] erisa misrepresentation and nondisclosure claims 513 allen-bradley corp., 244 f.3d 819, 826-27 (11th cir. 2001) (discussing precedent saying a *12-13 (s.d. ohio apr. 10, 2007) (alleged misrepresentations made in sec filings established an who have obtained confidential information by reason of their position snags wasn't a breach; other erisa claims survive, 8 pension & benefits daily (bna) 168 (quoting in re enron corp. sec., derivative & erisa litig., 284 f. supp. 2d 511, 544 (s.d. tex. 2009] erisa misrepresentation and nondisclosure claims 517 any defrauding party may be held liable under rule 10b-5.37 procedural harmonization at the pleading stage to expose groundless events,"171 153. sweeney v. kroger co., 773 f. supp. 1266, 1269 (e.d. mo. 1991); see also cokenour v. 1. mandatory disclosure obligations 29. larue v. dewolff, boberg & assocs., inc., no. 06-856, slip op. at 5 n.4 (u.s. feb. 20, the extent that it exercises or retains any of the functions listed in the respecting management of such plan or exercises any authority or if a material false or misleading statement is both a corporate and a other extreme, when "fraudulent acts threaten to impair and diminish the violation of the securities laws. however, when erisa plaintiffs have 62. id. at 346. connection with implicit or explicit advice to plan participants about the fiduciary fails to take steps to protect the assets of the plan.155 healthcare compare corp. securities litigation,184 (discussing possible affirmative duty to correct plaintiffs' mistaken belief that they were entitled to discovery safeguards of the failure to correct claims, the inevitable intersection between the erisa information.238 courts, however, have struggled to determine whether a with erisa's minimum funding standards.116 at the time made, it believed to be true, but as revealed by subsequently disseminates to plan participants a non-fiduciary statement that, imposing a duty on erisa fiduciaries to ("pslra")? fiduciary duty. first, under erisa section 502(a)(2), the secretary of hecker v. deere, no. 07-3605, 08-1224 (7th cir. oct. 22, 2007) [hereinafter "amicus brief"]. fiduciaries have a duty to speak when on notice that the company is purchased a security lacks standing to sue under rule 10b-5. differences that make an erisa cause of action more likely to survive a because such action would violate insider-trading laws.205 profit.80 erisa allows parties to "obtain discovery regarding any matter, not (dismissing erisa fiduciary claims against plan sponsor ( through a rule 12(b)(6) motion) because 2. duty to speak truthfully and completely financial condition," especially when disclosures "would simply have 106. see jo-el j. meyer, gm, employees reach $37.5m settlement to end erisa fiduciary 144. see varity corp. v. howe, 516 u.s. 489, 503, 505 (1996) (defendant, as employer and affirmative disclosure duty, however, has generally been found in cases fiduciaries have no duty to disclose financial and business information twombly ought to apply in cases "where massive discovery is likely to create unacceptable instances illegal) courses of action; (1) obtain "inside" information and reporting and disclosure requirements.97 made regarding the status employee benefits); see also schied v. dynergy, inc., 309 f. supp. 2d courts are not explicitly articulating it, analytically the initial inquiry defendants fearing potentially massive discovery and litigations costs. although some courts have refused to create affirmative disclosure 278 f. supp. 2d 853, 866 (e.d. mich. 2003) ("while some of the allegations in support of personally liable "to make good to such plan any losses to the plan fiduciary is on notice that the participants need such information to by exploiting the legal uncertainty surrounding the question of duty fiduciaries on notice that silence might be harmful have a duty to make the case law suggests that a duty to correct can only arise if (i) the although because courts are very reluctant to find a disclosed statement erisa was enacted to "assure the equitable character" and committed in private securities litigation,"48 186. see, e.g., elkind v. liggett & myers inc., 635 f.2d 156, 163 (2d cir. 1980). 1. a false or misleading statement is actionable under 512 hofstra labor & employment law journal [vol. 26:497 that their benefits would remain secured if they transferred to the new company to exceed the amount of debt allowed under its previously section 10(b)(5) establishes specific measurements for damages.77 seen their account balances substantially depleted.1 have assumed the risk of a normal downswing of the business cycle, more real-time disclosure of corporate events. section 409 of sox beyond statutory obligations, unless on notice that the assets of the plan for the majority, justice rehnquist reasoned that the language of section and for instance, a statement may be deemed "puffery" for purposes of publicly traded companies was the defined benefit plan, which investors with better and faster disclosure of important corporate invested in employer stock.19 142. no. 03-1214(drd), 2004 u.s. dist. lexis 21585 (d.n.j. sept. 14, 2004). the fiduciaries would be deemed fiduciary communications for purposes of 84. see, e.g., three crown ltd. p'ship v. salomon bros., inc., 906 f. supp. 876, 890 decision--the company was on notice that silence could be harmful and release nos. 33,7881, 34,43154, 2000 s.e.c. lexis 1672 at *79-85 (aug. 15, 2000) (plan 108. see hecker v. deere, 496 f. supp. 2d 967, 974, 977 (w.d. wis. 2007). going to be produced to the erisa plaintiffs). securities action in new york are not identical [to] necessarily require fiduciary cannot "rely on the regulatory requirements to satisfy its 123. id. at 503. to determine the disclosure duties of erisa fiduciaries, if any, without a rail corp., 108 f. supp. 2d 403, 412 (e.d. pa. 1999)). loss when the value of the company stock plummets, plan participants or 3. this article does not address the issue of whether erisa fiduciaries are liable for plaintiffs need only have suffered losses that or omission by another fiduciary, or enabled another fiduciary to commit misrepresentations is not sufficient to prove loss causation because the the breach.46 affirmative duty to inform or warn participants "where a fiduciary has regulation fd ("fair disclosure") prohibits selective disclosure of securities law violation or delaying compliance with the securities laws. united states is the defined contribution plan,13 obligations."109 directors had objective evidence before them that was inconsistent with capacity because a reasonable employee "could have thought that varity based on an allegation of non-compliance with regulation s-k"). manner calculated to be understood by the average plan participant" and under the securities laws. 4. securities plaintiffs must allege loss causation, whereas erisa and only if: (i) the person who made or disseminated the particular a mere allegation the stock made by non-fiduciaries via securities filings.138 2004) (noting that "[a]lthough plaintiffs plainly had a right to expect that tyco international would fiduciary who knew or should have known that a corporate an account during his or her employment.14 knew that the subsequent filings contained material should have known (through reasonable investigation) that the 60. 15 u.s.c. � 78u-4(b)(4) (2006). accordingly, must be analyzed solely as a subset of the more controversial duty to fraud or is otherwise violating the securities laws. the question deceive or defraud, but may be liable under erisa if a reasonably 109 stat. 737, 74-49 (codified as amended 15 u.s.c. � 78u-4 (1995)) (adding sec. exch. act � sustained the same loss it incurred following the announcement.66 other courts have imposed an history of erisa suggests that congress intended to incorporate into insufficient"); eckert v. titan tire corp., 514 f.3d 801, 806 (8th cir. 2008) ("while a complaint . . . who is also an erisa fiduciary communicates information about the incorporating new categories of events that trigger 8-k filings and the securities laws. as previously noted, there is an open question the standard for liability in an erisa lawsuit is significantly lower pleading standard will apply in civil cases is "a question that the future will answer"). fiduciary duty to disclose?, 54 u. pitt. l. rev. 979, 981 (1993). erisa fiduciary is on notice that "silence might be harmful" when it provided only health (d. md. 2004) (lifting stay where documents had been produced to government agencies and were issuer has a duty to update depends on whether the company's initial statement contained an disclosed under the securities laws, (ii) whether the fiduciary would 68. graden, 574 f. supp. at 465; see also meyer, supra note 67, at 168. 207. see phillip j. stevens, litigation release no. 12813, 48 sec docket 739 (mar. 19, 1991). third, erisa fiduciaries must investing their retirement savings in company stock.101 to the merits than a securities action based on the same allegations of 18. see economic growth & tax relief reconciliation act of 2001 (egtrra), pub. l. no. the case law suggests that a duty to correct arises under erisa when 44. in re elec. data sys. corp. erisa litig., 305 f. supp. 2d 658, 665 (e.d. tex. 2004) are not made in a fiduciary capacity, even though from a plan 155. id. pol'y 279, 285 (2005). allow securities plaintiffs to bypass the ("sox"), there may be a trend towards requiring others may be deemed functional fiduciaries based on the substantive general fiduciary duty to act when on notice that plan assets are at risk of 4. duty to disclose or abstain whereas some communications may be deemed of erisa? statements about its expected financial condition or because `an ordinary may invite greater reliance by plan participants if the statement is made, 75. id. at 305; see also in re royal ahold n.v. sec., & erisa litig., 220 f.r.d. 246, 252 2009] erisa misrepresentation and nondisclosure claims 507 136. id. at 890. information that the company is entitled to keep silent. a careful 235. see in re worldcom, inc. erisa litig., 263 f. supp. 2d at 767 (citing united state v. 27. in re enron corp. sec., derivative & erisa litig., 284 f. supp. 2d 511, 550 (s.d. tex. provide definitions regarding damages, hence the need to address in this article the procedural, allow plaintiffs to proceed with claims that would not otherwise support he reasoned that imposing such duty nonpublic information bearing some relation to the plan sponsor's hypothesis, had the company publicly released the information earlier, the secretary of labor has taken the view that: "erisa's duties of 245. see, e.g., id. even if not required, when a corporation chooses to speak with the 82. private securities litigation reform act of 1995 (plsra), pub. l. no. 104-67, � 21d(e), disclosure system. nonetheless, to the extent that the law remains 2009] erisa misrepresentation and nondisclosure claims 521 beneficiary of a defined-contribution account who suffered a loss 21d(e)(1)). experience, expertise, and inside access, will conceal information in whereas the duty to correct may be derived sponsors curtail or stop providing their employees with retirement of the shares at the time of the sale.79 however, may be adequate for failure to disclose financial and business 45. 29 u.s.c. � 1002(21)(a). management sys. corp.,246 having disseminated false or misleading material information 524 hofstra labor & employment law journal [vol. 26:497 even though section 409 is "intended to provide 2. employee retirement income security act (erisa) of 1974, 29 u.s.c. �� 1001�1461 192. id. at 318. wide litigation, if only one participant suffers a significant loss due to a which they are made, not misleading.179 participants the fees paid by the plan and revenue sharing payments.108 misrepresentations to plan participants.129 corporate communications and fiduciary communications--whether participants whose individual retirement plans have been depleted or disclosure claims? transfer a proposed erisa fiduciary breach class action against macy's obligations to correct the misstatements of others made to the market.231 nondisclosure allegations raise more interesting intersections with relief."87 stock by erisa fiduciaries and plans that acquire material nonpublic plan's administrative committee members who were sued for failing to being misappropriated, depleted, or diminished by corporate misconduct, of their case, proceed to discovery, and obtain a favorable settlement. 1. duty to disclose information required by the sec also bishop v. lucent techs., inc., 520 f.3d 516, 519 (6th cir. 2008) ("a complaint containing a facts alleged."51 participants, even if not entitled to the information as a matter of does not need detailed factual allegations, a plaintiff's obligations to provide the `grounds' of his erisa to evade the protections that the federal securities laws provide "[f]actual allegations must be enough to raise a right to relief above the speculative level . . ."); see 911 (nov. 8, 1961) (adopting the `disclose or abstain' principle). even though the securities and information . . . made material misrepresentations . . . [and] conveyed inaccurate information . . . ."). any fiduciary duty to disclose truthful information on their own chiarella restatement, 70 cal. l. rev. 1, 4-7 (1982). that at the time made, the company believed to be true, but as revealed calculated to influence a benefits decision. for instance, the court in in established that "firms are entitled to keep silent (about good news as various sections of 15 u.s.c. (2002)). 1996) (finding that, although there may be some circumstances where a company is subject to a participants, but may, under some circumstances, also require fiduciaries the increase in the number of defined contribution plans is almost defendant acted with [scienter]."49 there is a duty to disclose "projections and asset appraisals . . . only if the predictions underlying other courts, relying on fiduciary duties by failing to disclose information that is required to be otherwise recover under the securities laws. breaches that impair the value of plan assets in a participant's individual there is one potential gray area blurring the distinction between sec filings are fiduciary in nature. such claims may be resolved under intersects only incidentally because only named and functional 185. id. at 282 ("a duty to correct [arises] by alleging facts sufficient to demonstrate that this is so even if the disclosed statement is not qualified 1503 (9th cir. 1995) (holding that rule 9(b) is inapplicable "in cases in which the complaint alleges (iv) a limited duty to update (in some circuits), (v) a duty to disclose or manipulate, or defraud.")). obligations to correct the misstatements of others made to the market,140 courts have generally dismissed claims that plan fiduciaries failed 149. stabile, supra note 7, at 399 (citing harte v. bethlehem steel corp., 214 f.3d 446, 452 professor mark poerio for his helpful comments, and jennifer locke davitt for excellent research administrators are not required to inform all [p]lan participants and 37. securities exchange act of 1934, 17 c.f.r. � 240.10b-5 (2008). see also martin & fine, requirements to avoid the risks of litigation. misrepresentations and nondisclosures.4 argued that they were entitled to company information beyond the b. scope of remedies be the sole federal remedy for an erisa fiduciary misrepresentation of the value of public congress contemporaneously with the passage of [section] 10(b) . . . are by their terms expressly 69. in re honeywell int'l erisa litig., no. 03-1214 (drd), 2004 u.s. dist. lexis 21585 in the case of a defined benefit pension plan, securities action may allow plaintiffs to circumvent the discovery allegation of `scienter' intent to deceive, manipulate, or defraud"); alpern v. utilicorp united inc., requirement of rule 10b-5 `entitle[ment] to relief' requires more than labels and conclusions." (quoting twombly, 550 u.s. at clear reference to whether there was a duty to disclose the information misrepresentation and nondisclosure claims. procedurally, erisa may to speak in a way that is not a clear misrepresentation of the truth, or 234. id. (citing in re time warner, inc. sec. litig., 9 f.3d 259, 268 (2d cir. 1993)). settlement pressures"); victaulic co. v. tieman, 499 f.3d 227, 234 (3d cir. 2007) (applying remembering objective falsity, insights, vol. 15, no. 9, sept. 2001, at 16. heavy investment in company stock,18 242. see harzewski v. guidant corp., 489 f.3d 799, 807 (7th cir. 2007). some relation to the plan sponsor's financial condition"). some courts have allowed a theory of and current basis."170 "precarious financial situation" following a merger.67 may be actionable under rule 10b-5 but only if the opinion is the uncertainty comes to fruition, it will not have a material effect-- in addition, an issuer should be able to defeat any duty securities class action. first, some erisa plaintiffs would not have re pac. gateway exch., inc. sec. litig., no. c-00-1211pjh, 2002 u.s. dist. lexis 8014, at *41 deemed fiduciary under varity; (iii) the fiduciary discovers or should exclusively for employees' benefit,26 it is well established that a material misrepresentation in a 117. 29 u.s.c. � 1024(b)(4). the court reasoned that the plaintiffs sought to impose a [undisclosed information] was certain and reliable, not merely a tentative estimate"). 2009] erisa misrepresentation and nondisclosure claims 515 the third circuit found stated the creation of a duty to update was the province of the sec or establish the type of fraud that is actionable under rule 10b-5. but the 225. edgar v. avaya, inc., 503 f.3d 340, 350 (3d cir. 2007) (quoting unisys sav. plan litig., examination of the case law suggests that when the securities laws do issuer's securities, under circumstances in which it is reasonably thus far, most such limited duty recover out-of-pocket monetary "actual damages."76 duties by knowingly misrepresenting the security of the transferred discovered information actually was not. for instance, in in re also important to misrepresentation and nondisclosure claims is � 2520.103-5(c). misleading.180 2009] erisa misrepresentation and nondisclosure claims 509 disclosure . . . would have been viewed by the reasonable investor as a "failure to make such second circuit has allowed "benefit of the bargain" damages under rule 13. see generally edward a. zelinsky, the defined contribution paradigm, 114 yale l.j. to the acquisition or holding of employer stock once a plan or portion of remedy inured to an individual or an individual account and not to "the thus, if private disclosure items give rise to rule 10b-5 exposure.178 230. elkind v. liggett & myers, inc., 635 f.2d 156, 163 (2d cir. 1980). thus, a complaint will survive a motion to dismiss "only if 168. see in re campbell soup co. secs. litig., 145 f. supp. 2d 574, 591 (d.n.j. 2001) reveals that the communication was false when made. 10. see varity corp. v. howe, 516 u.s. 489, 496 (1996) (citing h.r. rep. no. 93-533, at 3-5, may be harmful, so as to trigger disclosure obligations.104 56. see, e.g., iqbal v. hasty, 490 f.3d 143, 157 (2d cir. 2007) (noting that at the very least, only arises "if there was some particular reason that the fiduciary should participants to invest more heavily in the company stock.130 the courts accepting a duty to update have been careful to distinguish limited to purchasers or sellers of securities"). recently held in rogers v. baxter international inc.,91 disclosure items. courts have generally refused to find a duty to 2009] erisa misrepresentation and nondisclosure claims 527 imposes the highest standard of conduct known to the law of was required.162 237. see generally langevoort, supra note 156, at 1640. even if the disclosure is not specifically requested or otherwise mandated 5. craig c. martin & elizabeth l. fine, erisa stock drop cases: an evolving standard, 38 statement was sufficiently related to the plan or benefits thereunder to be that a plaintiff "paid artificially inflated prices" as a result of the distinct questions have generally been framed or analyzed as one-- "the statements were made in good faith and the statements indicated the employer's actual intent at stated a claim for failure to inform because defendant fiduciaries misled participants in 401(k) about entitled) to the information under the securities laws as shareholders of disseminate such information in a manner reasonably calculated to 197. id. at 809. motion to dismiss, and thus more likely to settle at a high value or to get the statement is a fiduciary with respect to the plan. thus, the fact that even though section 28(a) of the securities exchange act81 within erisa's fiduciary duties is an affirmative duty to disclose in dura pharmaceuticals, inc. v. broudo,61 this protect their assets. on the one hand, courts have made clear that "plan made.139 disclosure."240 breach claims, pension & benefits daily (bna) (jan. 18, 2008) (quoting motion for approval of courts, however, have disagreed as to whether false or misleading possibility of accounting fraud or other material information about the there was a substantial likelihood that it would have misled a reasonable thus, breaches of fiduciary duty under erisa, and does not allege fraud or mistake"); hill v. bellsouth varity decision noted, a company does not act as an erisa fiduciary 87. id. � 1132(a)(3)(b). "summary plan description" ("spd") to plan participants within ninety 231. in re dynegy, inc. erisa litig., 309 f. supp. 2d 861, 884-85 (s.d. tex. 2004). the settlement). pslra gives the securities and exchange commission ("sec") authority and particular function exercised vis-�-vis a plan.42 of fiduciary conduct.20 accidental.212 dismissed claims that the defendants violated erisa fiduciary duties by truthful information to plan participants, including the information contained in sec filings. . . . nonpublic information). would effectively mandate continuous reporting and that "judges have financial interests of the plan participants and beneficiaries."241 the rule 10b-5 cause of action is implied, neither section 10(b) nor discovery rules established in federal rule civil procedure 26(b)-- thus, erisa plaintiffs need only show that they suffered benefits was rendered materially misleading."126 financing while also considering an equity offering as an alternative speak when the fiduciary is on notice that silence might be harmful. 793 f.2d 1456, 1468 (5th cir. 1986)). includes 1% or 99% of the total assets in the plan"96 by subsequently discovered information actually was not. as to requirements, but is subject to the notice pleading standard of [federal to take on a responsibility to update a statement.200 evidence.71 appreciate the risks of investing in company stock and make informed the plan administrator must communicate these terms in the form of a under which circumstances, if any, the fiduciary is on notice that silence information to plan participants. 81. 15 u.s.c. � 78bb(a). duty under securities laws is muddled with complexities that may be not surprisingly, courts faced with the intersections and for instance, in in re honeywell int'l erisa litigation,142 the difficult issue arises when an erisa fiduciary adopts or fiduciaries in the untenable position of determining what information many 401(k) plans have participants a summary annual report ("sar") within seven months of beneficiaries of their rights and obligations under the plan."114 145. varity, 516 u.s. at 506. 90. id. at 8. larue, a participant in dewolff's 401(k) plan, instructed the administrator and a "combined and brought before one judge for coordinated or consolidated 202. id. at 652 (quoting chiarella v. united states, 445 u.s. 222, 228-29 (1980)). 150. watson v. deaconess waltham hosp., 298 f.3d 102, 114-15 (1st cir. 2002). a lawsuit actionable under erisa and securities law, and there is a considerable amount may come under an obligation to disclose other approaches to reaching guarantees a pension benefit determined by using a formula that adjusts however, the general "consensus is that the numerous therefore, even if the scale of a case is insufficient to give rise to plan 1094, 1100 (8th cir. 1989) (explaining that the eight circuit follows the majority rule that result of greater plan expenses and higher insurance premiums, plan exercises any discretionary authority or discretionary control investing in company stock so that they could make an informed or to the heightened pleading standard of authorizes the sec to require public companies to disclose material 162. see, e.g., donald c. langevoort, insider trading and the fiduciary principle: a post- thus, erisa plaintiffs are more likely to avoid an early stage dismissal generally can only recover actual damages, whereas "[section] 502(a)(2) defendant . . . caused the loss for which the plaintiff seeks to recover "shall have the burden of proving that the act or omission of the unless it has: (i) a duty to disclose the information as required by the of fact. fiduciary must provide complete and accurate information to participants when they request it). or to cause to trade while in the possession of material, non-public governing the plan.21 because of lack of sophistication or a greater belief in the competence of under section 502(a)(2) must "inure . . . to the benefit of the plan as a whole"). heavy plan investments in employer securities, including context dependence, optimistic bias, might impact the value of the company's common stock."153 236. see id. at 757. plan already holds based upon confidential non-public information 528 hofstra labor & employment law journal [vol. 26:497 rule of civil procedure] 8,"52 (2000). committed with scienter as required by a rule 10b-5 action. thus, a supp. 2d 898, 916 (e.d. mich. 2004) (duty to inform exists when defendants provided misleading correct mistakes in previous disclosure documents or statements. the liable for fraud, the first issue addressed by a court considering an c. management discussion and analysis statements must be true when made.146 the full pleading requirement for scienter in securities litigation indicates that those requirements were intended to be the exclusive 10b-5 is limited to actual purchasers or sellers of securities.32 193. see san leandro emergency med. group profit sharing plan v. phillip morris cos., 75 erisa exists when one is fulfilling certain statutorily defined functions) (citing siskind v. sperry this article provided an overview of the procedural, remedial, and fiduciaries would have no duty to correct corporate communications that as a tipper if it provided material nonpublic information to the plan or its as previously established, both erisa and the securities laws this implicit analysis provides the appropriate standard: erisa material information when the fiduciary is on notice that silence might similarly, in weiner v. quaker oats co.,191 with particularity facts giving rise to a strong inference that the the spd must be comprehensive in favor of the erisa plaintiffs. for instance, in shirk v. fifth third identifies the most significant procedural and remedial differences the stock of their employer.17 on the basis of material nonpublic information known to one party of the 86. id. � 1109(a). 191. 129 f.3d 310 (3d cir. 1997). plaintiffs have to meet a less stringent pleading standard for fault than defendants are not required "to continuously gather and disclose nonpublic information bearing 5. the erisa lawsuit is not only subject to financing strategy in time warner or the capitalization policy in losses that "could be linked" to nondisclosures or misrepresentation by a could amount to securities fraud have decided motions to dismiss in plaintiffs claim an entitlement to non-public company information 228. see, e.g., alpern, 84 f.3d at 1534 (citing van dyke v. coburn enters., inc., 873 f.2d generally have found a contemporaneous duty to disclose to the extent has not been precisely defined, the sec takes the position that intangible 10b-5 but only "where misrepresentation is made in the tender offer and erisa fiduciaries to inform is "not only a negative duty not to misinform, but also an affirmative 183. id. at 1088, 1090, 1094-95, 1098; see william o. fisher, opinions and predictions: the court noted, however, that had the mandatory disclosure items, there is a duty to speak truthfully and higher standard of care on erisa fiduciaries with respect to plan 173. id. at 1499-1501. have (sometimes) exerted unwarranted settlement pressures on breach of any fiduciary duty, but is enforceable only by the sec"213 199. see langevoort, supra note 156, 1668 (citing in re burlington coat factory sec. litig., liability under section 10(b) and rule 10b-5, in addition to the potential the 21. 29 u.s.c. � 1104(a)(1)(d). 40. mulder v. pcs health sys., inc., 216 f.r.d. 307, 313 (d.n.j. 2003) (citing in re unisys 92. id. at 705. baxter involved plaintiffs alleging that plan fiduciaries breached the duty of *9 (d.s.c. feb. 9, 2001). courts are generally unwilling to impose independent disclosure on notice that plan assets are being misappropriated. the result would these courts, however, have also struggled to determine directing contributions among numerous investment alternatives.16 a fiduciary speaks in a fiduciary capacity, it has a duty to speak communication made or adopted by an erisa fiduciary has a sufficient benefits)). a. erisa duty of disclosure incidental.47 longer accurate. 20. see, e.g., in re worldcom, inc. erisa litig., 263 f. supp. 2d 745, 757 (2003). include information about the plan's governance that is "sufficiently the company. if the answer is "definitely yes," then the issue is whether erisa misrepresentation and nondisclosure claims: 103. see, e.g., harzewski v. guidant corp., 489 f.3d 799, 805-06 (7th cir. 2007) (discussing regardless of whether its concealment actually gives rise to fraud-based 50. tellabs, inc. v. makor issues & rights, ltd., no. 06-484, slip op. at 30 (u.s. june 21, has the right to remain silent. several fiduciary duty questions arise out the fiduciary may be subject to a cease-and-desist order, judicial recently intervened as amicus curiae in support of plaintiffs appealing to post-enron era: are some shareholders more equal than others?, 8 n.y.u. j. legis. & pub. the development of erisa's core principles of fiduciary conduct from the common law of trusts). place or maintain monies in a particular fund."225 for instance, in in re sprint corp. erisa litigation,128 94. larue, no. 06-856, slip op. at 5 n.4. complaint "contain[ed] no factual allegations which support a claim that corning had de facto against abusive litigation. a fiduciary from liability: "a fiduciary breaches its duties by materially "whatever would have been [in his individual account] had the plan or to reach the merits of the case. the pslra, enacted by congress to curb the "abusive practices could be linked to a fiduciary breach (n.d. cal. may 3, 2002) (holding that "no private right of action [exists] in a [section] 10(b) case (implicitly finding that there was no general duty to disclose merger talks, but concluding that valuable guidance from the conception through the completion of this article. i am also thankful to participants' benefits decisions; and that the fiduciary knows or should disclosure, courts have generally refused to find that there is a fraud- immediate market internalization of any announcement by [the courts have increasingly been required to consider the extent, if 159. see id. at 599-600. 22. id. � 1104(a)(1)(a)(i). 111. see generally 29 u.s.c. �� 1021-1031 (2006). apply to the plan administrator, the plan sponsor, or to any director, to 109. id. at 974. well as bad news) unless positive law creates a duty to disclose."198 does not give rise to rule 10b-5 liability.214 know that the information was false or misleading when made.224 available."226 disclosure may not have prevented the losses incurred by the plan on due date of the company's next periodic report.175 recovery to individual defined contribution pension plan accounts, 56 buff. l. rev. 315, 326 the claim for failure to plead loss causation: "due to the almost 76. see securities and exchange act of 1934 � 28a, 15 u.s.c. � 78bb(a) (2006). 211. id. � 243.100(a)(1). 166. id. at 287 ("neither the language of the regulation nor the sec's interpretative releases 125. id. at 505 (citation omitted). in addition to the spd, the plan administrator must give bancorp,252 proxy solicitation materials as to the consideration to be forthcoming fiduciary wrongdoing, whereas the securities plaintiffs must allege loss action, the pslra provides that there will be an automatic stay in writing 555)); wilson v. kimberly-clark corp., no. 07-60289, 2007 wl 3251684, at *2 (5th cir. nov. 5, the confusion in the case law arises mainly because these three plan participants have no lawful right, before anyone else is informed of prudence by allowing participants to invest in company stock "despite knowing that [the stock] was and failing to divest the plan of company stock in light of such public corporate information"); mark casciari & ian morrison, should the securities exchange act with erisa's policies and objectives."44 misrepresentations.143 in varity, the company defrauded investors who satisfy the elements of rule 10b-5 may 259. see discussion supra part ii.b.1. the changes in the financial or operational condition of the issuer on a "rapid 190. time warner, 9 f.3d at 268. attributable to a pension plan fiduciary's alleged imprudent investment 115. 29 u.s.c. � 1024(b)(3). 2009] erisa misrepresentation and nondisclosure claims 523 as a result of recent corporate scandals and dramatic market capacity as plan administrator,"123 statements it made about future benefits. the supreme court, however, implicit representation that the company would update investors or not). that allegations claiming a violation of item 303 could support valid conclusion s-k does not exist.166 allegedly concealing its financial problems.253 participants, beneficiaries or fiduciaries to recover "appropriate equitable 17. see generally susan j. stabile, another look at 401(k) plan investments in employer misrepresentation actionable through the securities laws may not be duty to correct mistakes in previous fiduciary communications when the supreme court made clear, however, the pleading requirements for scienter in securities litigation. fourth, other courts have reasoned that false or misleading statements in 217. id. whether investors are entitled to rely on the completeness of required 47. rogers v. baxter int'l inc., 521 f.3d 702, 705 (7th cir. 2008). causes of action that intersect incidentally: only fiduciary including to claims of erisa filings that had been incorporated into the spd became actionable only courts faced with allegations of nondisclosures that amount or 71. see 15 u.s.c. � 78u-4(b)(3)(b) (2006). judge easterbrook financial soundness of retirement and other benefit plans.8 119. amicus brief, supra note 107, at 20. 229. krohn v. huron mem'l hosp., 173 f.3d 542, 547 (6th cir. 1999). strategically, filing an erisa lawsuit in addition to the "place[d] its imprimatur, expressly or impliedly, on the [third party's 164. see langevoort, supra note 156, at 1651, 1653. the sar must also include a statement regarding the plan's compliance however, to extraordinary and out-of-the-course of business developments.172 205. see 29 u.s.c. � 78u-1(a)(1) (2006) (providing civil penalty for a person who directly or required by item 303 of regulation s-k, adequately alleged a securities law violation") (citing in re b. failure to disclose claims 209. see id. at 659-60; selective disclosure and insider trading, exchange act release nos. 497 item 303(a) of regulation s-k requires issuers to disclose known the supreme court held that varity was acting in its fiduciary statement and a fiduciary decision to disseminate the information in a generally, the sponsoring company's stock is one of many investment 5. duty to disclose publicly information selectively disclosed information about the company and a fiduciary discretionary decision to erisa plaintiffs who claim to have remained invested in company stock the court plan ("eiap"), including esops and 401(k) plans.25 (quoting krohn v. huron mem'l hosp., 173 f.3d 542, 548 (6th cir. 1999)). participant in making an adequately informed decision about whether to employer stock?, 39 j. marshall l. rev. 637 (2006) ("erisa does not provide an additional 2009] erisa misrepresentation and nondisclosure claims 519 not be consistent with erisa's stated mission of establishing high under the court's reasoning in varity, communications by the participant would rely on the statements in making benefits-related had spun off a number of its non-profitable divisions to a separately thus, to the extent that the law is unclear, a plan 2003) (citing pegram v. herdich, 530 u.s. 211, 225 (2000); bussian v. rjr nabisco, inc., 223 f.3d j. marshall l. rev. 889, 889-90 (2005). assumed an independent duty to investigate and correct statements about of the following scenarios: (i) whether the fiduciary would violate his of fiduciary duty claim may also be sufficient to establish tipping proximately caused the plaintiff's economic loss."62 a statement is material in the erisa benefits-related context "if 91. 521 f.3d 702 (7th cir. 2008). 504 hofstra labor & employment law journal [vol. 26:497 84 f.3d 1525, 1534 (8th cir. 1986) (citing harris v. union elec. co., 787 f.2d 355, 362 (8th cir. 43154, 2000 sec lexis 1672 at *79-86 (aug. 15, 2000) (plan administrator cannot influence 53. fed. r. civ. p. 9(b) ("in all averments of fraud or mistake, the circumstances constituting 98. see id. (noting that no clear framework has emerged regarding whether a fiduciary duty to upon information or representations about the company that are no company.122 and that it breached its fiduciary 154. canale v. yegen, 782 f. supp. 963, 969 (d.n.j. 1992). decision, 35 pension & benefits daily (bna) 865 (april 15, 2008) (quoting statement by 213. dana m. muir & cindy a. schipani, new standards of director loyalty and care in the 260. see fiduciary requirements for disclosure in participant-directed individual account finding of fiduciary breach turns on whether the fiduciary knew or these duties include the duty to act prudently, to follow 133. see in re tyco int'l, ltd. multidistrict litig., 2004 wl 2903889, at *6 (d.n.h. dec. 2, and esop investments in employer stock, in erisa litigation 783, 790 (jayne e. zanglein & nonetheless, even if twombly raises the level of scrutiny at the pleading causation. fifth, an erisa lawsuit is not subject to the discovery that there is no duty to correct under the securities laws unless the derived from the contributions made by or on behalf of an employee to under section 502(a)(2) is the same whether [the participant's] account authority over the plan. in addition, the sdp must be "written in a 146. see swinney v. gmc, 46 f.3d 512, 520 (6th cir. 1995) (explaining that statements made scholastic corp. sec. litig., 252 f.3d 63, 70-75 (2d cir. 2001)). erisa 226. basic inc. v. levinson, 485 u.s. 224, 231-32 (1988) (quoting tsc indus., inc. v. the intended purpose of the discovery stay--minimizing frivolous class 79. id. at 155. recklessness.228 declined to grant a motion to dismiss, but noted was a "fair price" and a "high value," was objectively false because the 2009] erisa misrepresentation and nondisclosure claims 525 plaintiffs allege that misrepresentations in corporate communications or breach his duties by failing to disclose material information about the where the securities laws would not require such disclosure erisa. the judicial consensus seems to be that mere incorporation of claims under rule 10b-5.168 foreseeable that the person will purchase or sell the issuer's securities on history of the employee retirement income security act of 1974, s. doc. no. 93-406, at public disclosure may be made strongly rejected the district court's reasoning that "[w]here as here fiduciary breach, he may bring a lawsuit to recover lost profits--that is, the time.") (citing barnes v. lacy, 927 f.2d 539, 544 (11th cir. 1991)). 88. mass. mut. life ins. co. v. russell,, announced policy of an appropriate debt-equity ratio.192 the duty of care, diligence, and loyalty imposed by a fiduciary duty); glaziers & glassworkers salary.12 2003)). prudence may be breached by mere inaction. held that misrepresentations in sec supra note 5, at 892. duty of loyalty owed by all fiduciaries."). disclose materials under erisa . . . extends only to a defined set of documents."). the law remains open ended in regard to recovery. for instance, the to know to protect his interest in the plan. the question of whether part i of erisa establishes a comprehensive set of reporting and to all civil actions58 fiduciaries may be held responsible under erisa. third, erisa liability.208 who are often corporate insiders, have a duty to operate the plan 254. id. at *14. twombly outside the antitrust context,56 fiduciary communication, correction would be mandated by the securities laws). filings.141 502(a)(2) encompasses appropriate claims for `lost profits.'"94 securities litigation because a reasonable investor would find it 256. id. 99. see varity corp. v. howe, 516 u.s. 489, 506 (1996) (quoting peoria union stock yards insurance information in response to plaintiff's request that defendant continue all of decedent's and, as a result, larue's individual account plan was depleted by approximately $150,000.00. see 11. erisa � 3 (34)-(35). controversial issue is whether a fiduciary has a duty to warn participants administration of such plan.45 73. sherrie r. shavett, plaintiffs' vision of securities litigation: trends/strategies in 2005- second, erisa section 502(a)(3) authorizes suits by statements or omissions were made negligently or intentionally."229 federal rule of civil procedure 8(a)--a pleading must contain "a short corporation does not commit fraud by standing on its rights under a periodic-disclosure system."); these plans [of erisa] encompasses appropriate claims for `lost profits.'"29 promised to update the participants on certain matters.151 erisa, however, does not impose affirmative disclosure (s.d. ala. 1988). a plan is designated as a participant-directed eligible individual account stock already held, disclosure would have prevented the plan from the most difficult and interesting issues arise when erisa sale requirement of rule 10b-5.28 abstain, or (vi) a duty to disclose publicly information selective erisa plaintiffs need only plead that their loss could be linked to a 63 (4th ed. 2004). 41. see lockheed corp. v. spink, 517 u.s. 882, 890 (1996) (noting that fiduciary status under another part of [erisa.]"); varity, 516 u.s. at 531-32 (thomas, j., dissenting) (erisa does not foreclose changes to the plan offerings in the future as circumstances evolve). litigation on two fronts, and the scarce judicial resources of the federal 218. shanehchian v. macy's inc., 251 f.r.d. 287, 289, 292 (s.d. ohio 2008). 180. see, e.g., panter v. marshall field & co., 646 f.2d 271, 293 (7th cir. 1981) (finding that it mobile, ala-pensacola fla. bldg. & constr. trades council v. daugherty, 684 f. supp. 270, 277 the interest of plan participants and beneficiaries," for the "exclusive 261. see, e.g., id. 148. mcauley v. ibm corp. inc., 165 f.3d 1038, 1046 (6th cir. 1999) (holding that spds with respect to the plan.40 information about soundness of company stock). 240. id. at 565. loss occurs only when the stock price falls as a result of the truth being retirement plans governed by erisa) (citations omitted). labor, a participant, beneficiary, or fiduciary may sue to seek relief for a household int'l inc., no. 02c7921, 2004 wl 725973, at *8 (n.d. ill. mar. 31, 2004) (noting that 10(b) compelled such a result33 directly or indirectly, controls any person liable."38 duties are not limited by the statute's express provisions: the legislative in addition, the does company knowingly connected materially misleading statements about beneficiaries of every corporate event, especially contingent events, that 187. see, e.g., gallagher v. abbott labs., 269 f.3d 806, 808-10 (7th cir. 2001) (stating that fiduciary principles and the law of trusts, have found that encompassed were sued for the same actions under both statutes, they may not be in this sense, the 116. see 29 c.f.r. � 2520.104b-10 (2008). erisa's minimum funding standards apply to governing annual reports (forms 5500) and summary plan descriptions legislative aftermath: some reflections on the deterrence aspects of the sarbanes-oxley act of where the nature of the statement is such that it explicitly or implicitly worldcom, inc. securities master file litigation,74 even though the sec has explicitly required such which provides benefits under the guise of erisa? if so, should they be allowed to proceed in over the years, the two other questions are more difficult to answer and, at the disclosure in the periodic report will subject a company to potential the requirement that fiduciaries speak truthfully means that their 244. see, e.g., hull v. policy mgmt. sys. corp., no. civ.a.3:00-778-17, 2001 wl 1836286, at in addition, the safe harbor extends only until the 121. id. at 489. construing [item 303] suggest that it was intended to establish a private cause of action); see also in a great number of erisa company is engaging in misbehavior that could amount to securities corp. retiree med. benefit erisa litig., 57 f.3d 1255, 1265 (3d cir.1995); bunnion v. consol. duty to update written statements if the fiduciary knows or should know however, even prudence and loyalty not only forbid fiduciaries from misleading plan damages, the scope of remedies under erisa is broader than under rule than the seller's actual loss, damages are the amount of the defendant's enron corp. sec., derivative & erisa litig., 284 f. supp. 2d 511, 559 (s.d. tex. 2003)). discharge their duties "with the care, skill, prudence, and diligence under document filed with the sec leads to liability under section 18 of the elec. data sys. corp. erisa litig., 305 f. supp. 2d 658, 672-73, 682 (e.d. tex. 2004) (plaintiff 114 f.3d 1410, 1431 (3d cir. 1997)). without the ability to engage in discovery, plaintiffs face a fiduciaries should be subject to effective oversight on behalf of plan participants and beneficiaries." previous statements not misleading.131 this expansive concept may 2009] erisa misrepresentation and nondisclosure claims 503 information to the public or abstain from trading.204 private securities litigation reform act 252. no.05-cv-49, 2007 wl 1100429 (s.d. ohio apr. 10, 2007). 3. duty to correct employers to deduct dividends paid on esop shares when those dividends are, at election of standing on the company's right to remain silent under a periodic a company would have a duty to correct upon discovering information 1. see susan j. stabile, enron, global crossing and beyond: implications for workers, 76 in addition to the duties of loyalty and prudence, fiduciaries are 514 hofstra labor & employment law journal [vol. 26:497 privileged, that is relevant to the claim or defense of any party."72 ne. utils., 315 f. supp. 2d 212, 250-51 (d. conn. 2004) (noting that the duty to inform participants such act of incorporation as required by erisa section 404(c)132 reason to know of a particular beneficiary's need for information" and liability existed where a corporation chose to speak untruthfully); sec v. texas gulf sulphur co., 137. id. at 889-90. and plain statement of the claim showing that the pleader is entitled to describing a participant's and beneficiary's rights and obligations under 215. see generally muir & schipani, supra note 213, at 285 (citing 17 c.f.r. � 243.100(a) burdensome than the stringent pleading requirements of the pslra. 110. amicus brief, supra note 107, at 20 (internal quotations omitted). incidentally;7 erisa fiduciary breach claim is whether each defendant is a fiduciary regarding financial and business operations that the company has not 80. id. a reasonable person would deem the inference of scienter cogent and at on the same underlying misrepresentations or nondisclosures as a and value of the plan's investment,"154 227. see 17 c.f.r. � 240.10b-5 (2008). see also ernst & ernst v. hochfelder, 425 u.s. 185, courts confronted with the difficult task of reconciling two different lines 36. see mark casciari & ian morrison, should the securities exchange act be the sole 2009] erisa misrepresentation and nondisclosure claims 537 employees' future benefits.124 necessary to protect the assets of the plan. purpose" of providing benefits to them.22 newsletter that was disseminated with the intent to recommend plan in many respects, this standard would put the [c]ommittee in the shareholders of the company. it is clear that neither the courts, the less stringent discovery rules but may also actionable in the first instance"). denied a motion to dismiss claims that defendants had made material that defendants have no duty to "continuously gather and disclose 10b-5 action. scienter is generally defined as a mental state embracing resulting from each such breach, and to restore to such plan any profits "inside" information; (2) make the disclosures of "inside" information 1. duty to speak truthfully and completely to disclose to reconcile their duties towards shareholders and plan 9, 2001) (finding no duty to provide inside information to the plan). materiality standard.164 plan ("esop")--a defined contribution plan designed to be primarily securities, 35 j. marshall l. rev. 539, 547-52 (2002) (offering several explanations for such had a duty to disclose to the extent necessary to correct or make the erisa fiduciary misrepresentation and securities fraud are distinct court held that a plaintiff must allege in his complaint loss causation-- accelerated the demise of the household stock held by the fund. their be harmful.103 required because fraud was not alleged in the breach of fiduciary duties). but see rankin v. rots, have discovered (through prudent investigation) that the communication to actual purchasers or sellers, whereas erisa may offer redress to plan (s.d.n.y. 2005) (holding that plaintiff stated a claim for failure to inform by alleging that the least as compelling as any opposing inference one could draw from the larue v. dewolff, boberg & assocs., 450 f.3d 570, 572 (4th cir. 2006), vacated 128 s. ct. 1020 bound by the duty of diversification "so as to minimize the risk of large thus, neither the as the enforcement action, or a civil penalty.215 2003); fed. r. civ. p. 8(a) (requiring a "short and plain statement" of the relevant elements showing value of what the seller received for the shares and the fair market value benefits instead of mitigating risk by exercising more caution. developing and controversial law."100 206. see dirks v. sec, 463 u.s. 646, 659, 662 (1983). whether a particular individual or entity is a fiduciary with respect days of becoming covered.113 false or misleading statement may not be deemed material enough to recoverable in rule 10b-5 actions.84 higher cost in identifying specific misleading statements and omissions, could be read to require fiduciaries with insider obligations "to advise the employees that further weiner--from forward-looking statements about the ordinary course of 738, 746 (7th cir. 1997). invest more heavily in company stock.36 erisa plaintiffs who would (arguably) be entitled to the information timely file a form 8-k for seven items.173 stage facts sufficient "to raise a right to relief above the speculative even though the holding was stated in very general terms, whether traditional securities suits. first, the securities laws offer protection only could not otherwise recover as a result of the `purchase or sale' established the fiduciary nature of a communication, a showing of 134. see in re worldcom, inc. erisa litig., 263 f. supp. 2d 745, 766 (s.d.n.y. 2003) the insider-trading prohibition applies to sales of an employer's less burdensome to proceed with an erisa fiduciary breach claim based derivative & "erisa" litig. 2008 wl 5111908 (e.d. mich. dec. 4, 2008) (erisa claim settled pleading requirement under rule 9(b) will not be imposed where the claim is for a breach of to recover for their securities laws not to make any material misrepresentations; they also had a duty to disseminate from the general duty not to mislead or misrepresent, the duty to update 7. see, e.g., shelby d. green, to disclose or not to disclose? that is the question for the footnote 4 of the opinion, where justice stevens notes that "[section] 248. id. at *9. or at least severe 243. see hill v. bellsouth corp., 313 f. supp. 2d 1361, 1369 (n.d. ga. 2004) (quoting in re information.203 business matters, such as pricing strategies,193 claims under exchange act section 10(b) and rule 10b-5 for a failure to whereas any individual who violates rule 10b-5 can be held 214. see id.; see also 17 c.f.r. � 243.102 (2008) ("no failure to make a public disclosure partly because the duty to inform when the trustee knows that silence might be harmful.") (quoting bixler v. cent. pa. 184. 75 f.3d 276 (7th cir. 1996). questions regarding a company's duty arise when the company chooses of erisa fiduciary duties.244 endorsed or disseminated by a plan fiduciary. have known that his failure to convey information would be harmful."150 "simply because it made statements about its expected financial discharge all duties in accordance with the documents and instruments plans, 73 fed. reg. 43,014 (proposed july 23, 2008) (to be codified at 29 c.f.r. pt. 2550) (noting 74. 234 f. supp. 2d 301 (s.d.n.y. 2002). participants the materiality tests under sk-303 differs greatly from the materiality ii. erisa & securities litigation misleading statements about the financial health of its subsidiary to out of heavy employee investment in company stock: erisa fiduciaries, "[w]e do not have a system of continuous disclosure . . . . rule 10b-5 condemns only fraud, and a suitability of investing in company stock.127 208. see generally dirks, 463 u.s. at 664 (finding there may be an inference of liability if the crb, 29 e.b.c. 1567, 1567 (n.d. cal. nov. 14, 2002) (dismissing complaint because "participants 196. id. at 809-10. ("[a] corporation does not commit fraud by standing on its rights under a "actionable" basis for plaintiffs claiming that defendants failed to provide "complete and accurate misrepresentation when it became aware of the falsity"234 company makes a historical statement that was accurate when made, it has no duty to update it to disclose information that participants need to protect their interests, the question arises: are these lawsuits securities litigation even though material misrepresentation as to misrepresentation claims, once the erisa plaintiffs have dismissed claims that earlier disclosure of nonpublic information would a (likely) securities law violation that threatens the assets of the 241. id. decision,256 panelist bob eccles of o'melveny & myers, washington, d.c.). "a [regulation fd] violation requires neither scienter nor correction would have been consistent with erisa.235 861, 867 (s.d. tex. 2004) ("erisa does not have heightened pleading requirements."). or accompanied by an appraisal, prediction or estimate that is materially of a security.30 85. 29 u.s.c. � 1132(a)(2). f.3d 801, 810-11 (2d cir. 1996) (refusing to impose a duty to update with respect to a sudden in response to the recent corporate scandals and the adoption of the 48. h.r. rep. no. 104-369, at 31 (1995), reprinted in 1995 u.s.c.c.a.n. 730, 730. business decision turn[ed] out to have an adverse impact on the untenable position of choosing one of three unacceptable (and in some misleading information, the gravamen of [plaintiff's] claim is grounded in erisa. the heightened 11-13 (1973)); subcomm. on labor of the comm. on labor & pub. welfare, legislative securities law may not allow section 10(b) claims where plans transfer specifically reserved the question of "whether erisa fiduciaries have other courts have found such duty to exist only if the fiduciary has plaintiffs need only satisfy the more flexible pleading requirements of deemed fiduciary and to trigger a duty to speak truthfully and thus to would resolve rule 10b-5 ambiguities on the duty to disclose question in communication was false or misleading when made. thus, if defendants statements in sec filings are per se fiduciary by reason of incorporation participants "allege[d] that worldcom's sec filings contained material person who made or disseminated the particular statement was a 156. donald langevoort, the muddled duty to disclose under rule 10b-5, 57 vand. l. rev. remedial, and substantive differences between the erisa and the thus is on notice that silence would be harmful.149 the court 54. 550 u.s. 544 (2007). the court was faced with allegations that the company was 1993); barker v. am. mobil power corp., 64 f.3d 1397, 1403 (9th cir. 1995)); see also hamilton v. 35. employee retirement income security act (erisa) of 1974 � 502(a), 29 u.s.c. � these courts have generally 200. see in re burlington coat factory sec. litig., 114 f.3d at 1432 (stating that whether the in contrast, other courts have emphatically rejected a duty to misrepresentations regarding worldcom's financial condition."233 holding that section 502(a)(2) "authorize[s] recovery for fiduciary on the other hand, erisa only requires that a participant, in contrast, erisa civil actions are subject to the full set of participants, paid to esop and then reinvested in employer stock). fiduciary capacity--that is, the statement is sufficiently related to the international, inc.250 governing disclosure requirements, it would be inappropriate to ignore there is a pressing need to clarify the legal standards and to effect fiduciary of the plan to make certain changes to his 401(k) plan. his instructions were not followed 238. see supra part ii.b.5; see also selective disclosure and insider trading, exchange act 4. see id. at 605. plan administrator, could be liable for a breach of fiduciary duty when deceptive statements were 25. id. � 1107(b)(2)(b). an eiap is a profit sharing, stock bonus, thrift or savings plan that the absence of the procedural safeguards imposed by the private disclosure was made on purpose.211 was communicating with them both in its capacity as employer and its (noting that a duty to update about ordinary business matters would "bury shareholders in an 224. see discussion infra part iii.a.2. fiduciary requirement under the securities laws, actionability of a false rule 10b-5 prohibits fraud in connection with the purchase or sale oxley act of 2002 release nos. 33-8400, 34-49424, 82 sec docket 1480 (june 7, 2004). not intend to supplement erisa's reporting and disclosure scheme "by a far away provision in duty as fiduciaries was to prevent such losses."251 options, however plan participants choose to invest overwhelmingly in 8. employee retirement income security act (erisa) of 1974 � 2, 29 u.s.c. � 1001(a) strike suits may ultimately be borne by employees themselves if, as a and in determining their materiality. plaintiffs' lawyers, unable to although the concept of fiduciary is expansive, a the close of each plan year that summarizes the plan's financial lifetime health plans); krohn v. huron mem'l hosp., 173 f.3d 542, 548, 552 (6th cir. 1999) previously noted, courts disagree as to whether false or misleading atlantic corp. v. twombly, 127 s. ct. 1955, 31 harv. j.l. & pub. pol'y 827, 830 (2008). plan covered by erisa must have at least one named fiduciary but avalanche of trivial information")). thus, a more 239. in re enron corp. sec., derivative & erisa litig., 284 f. supp. 2d 511 (s.d. tex. 2003). 9. see, e.g., flanigan v. gen. elec. co., 242 f.3d 78, 86 (2d cir. 2001) (quoting donovan v. 21585, at *29 (d.n.j. sept. 14, 2004). 516 hofstra labor & employment law journal [vol. 26:497 172. id. at 1489-90. 167. oran, 226 f.3d at 288 (quoting alfus v. pyramid tech. corp., 764 f. supp. 598, 608 these sarbanes oxley act169 investigate before speaking.137 33. id. at 735-36 ("the principal express nonderivative private civil remedies, created by the goal when those approaches are under active and serious disclosure when on notice that the company is engaging in corporate trends and uncertainties (except for merger negotiations) that are (d.n.j. sept. 14, 2004). defined benefit pension plans and money purchase pension plans. see 29 u.s.c. � 1081. the securities laws. this article distinguished between claims that b. disclosure duties under the securities laws regarding investments in the plan."254 employers who choose to do so must abide by erisa's strict standards 176. id. public disclosure. if the answer to whether the company is required to relief."64 picture of the company's financial health."). 143. id. at *29; see also in re schering-plough corp. erisa litig., no. 03-1204(ksh), 2007 2007). 118. see 29 u.s.c. � 1023(a)(1)(b); 29 u.s.c. � 1023(b); 29 c.f.r. � 2520.103-1(b); 29 c.f.r. 174. id. at 1482. thus, courts have generally duty to update, no such duty exists for "cautiously optimistic comments that would not be 181. see, e.g., panter, 64 f.2d at 293; starkman, 772 f.2d at 241. resolved differently from court to court.237 532 hofstra labor & employment law journal [vol. 26:497 decisions vis-�-vis their investments.242 information). under the securities laws rather than erisa"). and substantive rules governing the two actions are substantially 30. see 17 c.f.r. � 240.10b-5. even if discovery has been stayed in the companion securities case. 212. id. � 243.100(a)(2). * macleod dixon llp, associate. georgetown university law center, j.d. 2008; university of and augment them using the general power to define fiduciary satisfying erisa's explicit disclosure obligations, however, does fiduciary authority and responsibility.10 local 252 annuity fund v. newbridge sec., inc., 93 f.3d 1171, 1180 (3d cir. 1996) (the duty of 151. see bins v. exxon co. u.s.a., 220 f.3d 1042, 1053-54 (9th cir. 2000); see also broga v. safeguards of the pslra. finally, plaintiffs in a securities fraud action 1934 act also creates "control person" liability for "[e]very person who, whereas this reasoning may hold true for misrepresentation and when the information would probably give rise to rule 10b-5 liability that need not be the u.s. twombly54 2009] erisa misrepresentation and nondisclosure claims 499 24. id. � 1104(a)(1)(c). indirectly controls a person who engages in insider trading, where the controlling person knew or fiduciary under varity; (iii) the fiduciary knows or should know (through by the issuer is always actionable under rule 10b-5, the difficult liable under rule 10b-5 if they lacked the required intent to manipulate, varity involved a company knowingly connecting materially susan j. stabile, i believed my employer and didn't sell my company stock: is there an erisa and, in any case, likely causing the stock price to drop; or (3) breach its act.39 3. erisa's pleading standard for fault is less stringent than the concerning investment in fifth third stock, such that the plan's 160. langevoort, supra note 156, at 1640. (n.d. cal. 1991)). 23. id. � 1104(a)(1)(b). litigation."34 loss to the entire plan.93 erisa's fiduciary standards encompass a duty to disclose is an "area of seems to be whether plan participants are entitled (or likely to be st. john's l. rev. 815, 824-27 (2002). whether the fiduciary would be required to selectively disclose the 2. the erisa standard of materiality may be lower than the "that the defendant's misrepresentation (or other fraudulent conduct) 178. langevoort, supra note 156, at 1647-48. their interests"). the supreme court revisited this interpretation of under this reasoning, a statement of opinion defendant], no loss to plaintiff could be linked to the alleged deceptive--in other words, it is objectively wrong and the speaker article presents a brief overview of erisa fiduciary duties. part ii plan as a whole."88 multidistrict litig. apr. 14, 2003) (settled for $4 million, dec. 2006); in re aol time warner inc. and uncertain."106 erisa only if it is a fiduciary communication is not clear-cut, in theory the company either has a duty to disclose or (3d cir. 2000); bixler v. cent. pa. teamsters health & welfare fund, 12 f.3d 1292, 1300 (3d cir. 120. see varity corp. v. howe, 516 u.s. 489, 506 (1996). ames v. am. nat'l can co., 170 f.3d 751, 759 (7th cir. 1999) ("[t]he affirmative obligation to of fraud under rule 10b-5. more complex issues arise when erisa federal remedy for an erisa fiduciary misrepresentation of the value of public employer stock?, annual report must contain detailed information concerning the plan's general fiduciary obligations of prudence and loyalty."119 qualifies as a fiduciary, a concept "to be construed liberally, consistent refrain from making material misstatements in its sec filings, that expectation must be enforced 77. see generally ana morales olazabal, analyst and broker-dealer liability under 10(b) the sec also adopted a limited safe harbor from public and private [a] person is a fiduciary with respect to a plan to the extent: (i) he 473 u.s. 134, 140 (1985) (holding that recovery 139. see in re honeywell int'l erisa litig., no. 03-1214(drd), 2004 u.s. dist. lexis erisa lawsuits are based on the same underlying facts, the procedural 2. duty to correct capacity and familiar with such matters would use . . . ."23 supreme court in affiliated ute citizens of utah v. united states,78 222. id. whether plan participants have a superior right to information than other wrongdoing or exert settlement pressures. several courts applying erisa fiduciary standards have found a inconsistent with the disclosed statement.181 3. a fiduciary breach need not constitute fraud or be committed companion securities actions where defendants have already produced initiative, or in response to employee inquiries."145 each employee benefit plan be set forth in a written plan document.112 disclosure requirements.111 with that corporation." . . . that relationship . . . "gives rise to a duty to 93. see jo-el j. mayer, litigation `floodgates' will not be opened by court's larue court accepted plaintiff's theory that plan fiduciaries that distributed the very narrow in scope because most corporate statements speak to the plan."86 recklessness satisfies the scienter requirement)). 10b-5. erisa provides two main avenues for relief for a breach of department of labor, nor the sec would allow plan fiduciaries to trade 4. both erisa and the securities laws impose a duty to correct but 31. 421 u.s. 723 (1975). has noted that "[n]othing in the text of the act or the regulations of such fiduciary which have been made through the use of assets of the they have not assumed the risk that plan sponsors or fiduciaries with that over 60 million employees have almost $2.3 trillion invested into participant-directed courts have adopted a liberal view of who "concerning plan terms and requirements, matters of plan administration, faced factual allegations against fiduciaries who were on notice that the 522 hofstra labor & employment law journal [vol. 26:497 thus, if a corporate insider loyalty, and pressure). downturns, many employees whose company-sponsored retirement 67. graden, 574 f. supp. at 465; see also jo-el meyer, court finds nondisclosure of merger some courts, however, have 96. larue, no. 06-856, slip op. at 4. 249. id. at *9. 26. id. � 1001. 2005). proceedings."216 trade but not the other.201 bierwirth, 680 f.2d 263, 272 n.8 (2d cir. 1982)); kuper v. iovenko, 66 f.3d 1447, 1453 (6th cir. sec filings into the spd is not a fiduciary act.223 about the suitability of investing in the company stock.3 2002, 76 st. john's l. rev. 671, 689-94 (2002). claims at the point of minimum expenditure of time and money. a the plan--which includes information such as the plan's sources of 247. see id. at *3, *9. north carolina-chapel hill, b.a. 2005. i am thankful to professor donald langevoort for his general that it fails to put defendants on notice of allegations against them"). the court noted that the materially misleading.147 have lumped their various claims into [an] undifferentiated mass and allege [a] cause of action so that the defendant's fiduciary status,43 relying on larue, judge easterbrook of the seventh circuit 161. id. at 1653. the court concluded that to update claim by disclaiming in plain and clear language its intention prudent management."95 or misrepresentations in forms 10-k or 10-q and other mandatory information to plan participants, including false information contained in sec filings."); see also to a new york federal court where two securities lawsuits were pending not a sufficient condition to require its disclosure.157 for instance, in hull v. policy supreme court held that standing to sue in private actions under rule 193 (1976) ("damages will [not] lie under [section] 10(b) and rule 10b-5 in the absence of any 112. id. � 1102(a)(1). until recently, the supreme court applied its precedent to bar 100. see in re enron corp. sec., derivative & erisa litig., 284 f. supp. 2d 511, 555 (s.d. stock prices or to avoid financial loss by selling early before public disclose [or to abstain from trading] because of the `necessity of securities action side by side. following this introduction, part i of this have prevented or minimized losses because, under the efficient market rely on the statements in making benefits-related decisions.144 (holding that "a publisher's failure to disclose trends in declining sales and increasing returns, as a securities class action because of the pslra's heightened pleading for instance, the district court in graden v. conexant systems, inc., standard of actionability is more stringent than the securities law benefits, even if plaintiff did not specifically mention a particular item, such as life insurance) articles 1132(a)(3) (2000). the seventh circuit the lower court's dismissal of allegations that susan j. stabile eds., 2008). sandberg,182 177. langevoort, supra note 156, at 1640; basic inc. v. levinson, 485 u.s. 224, 229 (1988) or update them about financial and business developments if moreover, some courts have been willing to lift the discovery stay in when company insiders buy or sell their company's stock while in possession of material, nonpublic 57. see pugh v. tribune co., 521 f.3d 686, 699 (7th cir. 2008) (quoting twombly that even though erisa does not impose affirmative disclosure 15. regina l. readling, rethinking "the plan": why erisa section 502(a)(2) should allow sufficiently related to the plan or benefits thereunder to be deemed higher nine-month earnings and not also to disclose an internal projection for a year-end decline in 182. 501 u.s. 1083 (1991). rankin v. rots, 278 f. supp. 2d 853, 876-77 (e.d. mich. 2003) ("defendants had a duty under participant, full public disclosure is required simultaneously if the unclear, erisa fiduciaries cannot rely on satisfying statutory disclosure reasoning that anything incorporated into the spd may be deemed a 861, 890 (s.d. tex. 2004) (duty to initiate disclosures arises when fiduciaries have "knowledge of 95. harzewski v. guidant corp., 489 f.3d 799, 805 (7th cir. 2007). was not a material omission for the management of a target company to report to stockholders 52. in re enron corp. sec., derivative & erisa litig., 284 f. supp. 2d 511, 652 (s.d. tex. depreciated by fiduciary breach arising out of misrepresentations or the sec has interpreted this invitation narrowly by the court held that district court for the southern district of ohio recently declined to statutory definition of `fiduciary': 64. fed. r. civ. p. 8(a). duty to disclose exists under erisa and that plaintiffs have stated a fiduciaries made misrepresentations or failed to disclose information every employee benefits the seminal supreme court case spurring causes of action for fiduciary based upon subsequent events). wrongdoing."68 in erisa's reporting and disclosure provisions."107 232. see generally supra parts ii.a.2, ii.a.3. account."90 [section] 10(b), . . . because "a relationship of trust and confidence to participants were made without management's knowledge.185 401 f.2d 833, 857-65 (2d cir. 1968) (en banc). impose a duty not to mislead or misrepresent. whereas there is no nexus to the plan or benefits thereunder to be deemed fiduciary in (2000). court held that "worldcom had a duty . . . to correct any prior material has any authority or responsibility to do so, or (iii) he has any nondisclosure claims overlap, complement, or are in conflict with each 2007). participants rely on misrepresentations or nondisclosures in deciding to based on the same misrepresentations and nondisclosures.218 89. no. 06-856, slip op. (u.s. feb. 20, 2008). marshall l. rev. 605 (2006) (discussing imprudent investment claims). remedy" for misrepresentations or nondisclosures); martin & fine, supra note 5, at 912-13 (briefly motion to dismiss level, probably a practical impossibility. although misleading when made; and, (iv) a reasonable plan participant would the company or its stock would not be actionable unless given in discusses disclosure duties under erisa and the securities laws, and beneficiaries but in the best interest of the company."27 43. see, e.g., crowley v. corning, inc., 234 f. supp. 2d 222, 228 (w.d.n.y. 2002) 19. 29 u.s.c. � 1107(d)(6)(a) (2000). in contrast, in order to survive a motion to dismiss, erisa erisa action.75 and that such erisa the core principles of trust law to define the general scope of transfer" even though such transfer would promote judicial economy.219 securities laws, are nonetheless in a relationship of trust such that 170. sarbanes oxley act of 2002 � 409, 15 u.s.c. � 78m(1). or the level of factual detail that it requires.59 171. additional form 8-k disclosure requirements and acceleration of filing date, sarbanes- provide that information to plan participants even if it would force its section 502(a)(2) in larue v. dewolff, boberg & associates inc.,89 the supreme court held that directors' recommendation to disclosures to plan participants and to the investing public to the extent actionable under erisa unless the particular individual or entity making holding that fiduciaries can stand still while on notice that the 175. id. at 1500. (or '34 act) remedy for me?, 34 conn. l. rev. 385, 423-24 (2004) (arguing that recognizing an n.6 (6th cir. 2007) (discussing twombly as applied to a cancelled contract). revealed to the public at large but that the fiduciary has acquired in its failure to effect procedural harmonization may have unintended possession of material, nonpublic information.209 of plaintiffs-appellants at 10, hecker v. deere, no. 06-c-719-s (w.d. wis. mar. 19, 2008); brief fiduciary liability. absent additional facts, most courts have found that the question arises whether fiduciaries would have a duty to update although the "duty to disclose" question under the securities laws participant is entitled to receive a copy of the full annual report that the outlined the traditional "out-of-pocket" theory for damages in rule 10b- company was not disclosing material information (arguably or likely) in statements made by third parties such as analysts, courts generally hold participant's perspective, fiduciary statements may be indistinguishable (an antitrust case), that a plaintiff must allege at the pleading or defraud.50 132. 29 u.s.c. � 1104(c) (2006). 250. no. 02c7921, 2004 wl 725973 (n.d. ill. mar. 31, 2004). 104. see palen v. kmart corp., 2000 wl 658115 *3 (6th cir. may 9, 2000) (concluding that an (finding an affirmative duty to disclose where plaintiff made specific inquiry regarding disability 508 hofstra labor & employment law journal [vol. 26:497 rule 10b-5 prohibits corporate insiders from trading company stock 233. see in re worldcom, inc. erisa litig., 263 f. supp. 2d 745, 767 (s.d.n.y. 2003). 255. id. not require disclosure of adverse business and financial information, thus, bringing an erisa misleading. whereas some circuits have rejected a duty to update,187 acquiring additional company stock at an inflated price.70 34. id. at 740. 204. see in re cady, roberts & co., exchange act release nos. 6668, 34-6668, 40 sec 907, "aris[ing] out of a common nucleus of operative fact[s]," may be requirements of the securities laws, courts have been reluctant to impose, under varity, there must be link between the false or misleading 129. id. at 1229. intention of influencing investors, whether in public statements or sec requires plaintiffs to "state affirmative duty to correct subsequent sec disclosures to the extent they fiduciaries.9 and allegations that fiduciaries have a duty to disclose non-public judged pre-ante, imposing a duty to disclose material information that a breach of duty may lie where the participants.110 [exists] between the shareholders of a corporation and those insiders a corollary of the duty not to mislead or misrepresent is the duty to disclosure obligations" even if it has not otherwise misled fiduciary acting in a fiduciary capacity.65 showing of erisa fiduciary breach based on a misrepresentation need 2009] erisa misrepresentation and nondisclosure claims 533 see also stransky v. cummins engine co., 51 f.3d 1329, 1332 n.3 (7th cir. 1995) (holding that if a 3. duty to update 188. 9 f.3d 259 (2d cir. 1993). engaging in corporate fraud or is otherwise violating the securities laws, erisa plan nor the erisa fiduciary can sell the employer stock that the thus, if a selective disclosure is made 78. 406 u.s. 128 (1972). 526 hofstra labor & employment law journal [vol. 26:497 participants who were defrauded or misled into holding their securities. standard of care would be illegal and unreasonable.248 carefully.136 58. see twombly, 550 u.s. at 596 (stevens, j., dissenting) (noting that whether the new 349, 355 (1984). for biased stock recommendations, 1 n.y.u. j. l. & bus. 1, 76 (2004); robert b. thompson, the the securities plaintiffs from having access to documents already made 72. fed. r. civ. p. 26(b)(3). 257. id. at *4. based duty to disclose "known trends and uncertainties" under item to disclose adverse non-public information of business and financial duty to correct any misleading information and to update any information that has become disseminating the statements to plan participants in a manner reasonably company that does not give rise to rule 10b-5 liability, and if so, (iii) 61. 544 u.s. 336 (2005). 1. an affirmative duty to disclose non-public information beyond the help. re dynegy, inc. erisa litigation135 court noted: "[l]ike any other investor, ("erisa fiduciaries, however, cannot in violation of their fiduciary obligations disseminate false however, the 28. securities exchange act of 1934, 17 c.f.r. � 240.10b-5 (2008). thus far, several federal courts and circuits have applied although not explicitly disagreeing with this holding, the secretary claim for a breach of that duty."255 258. "in enacting those provisions, congress concluded that employee benefit plans should be 538 hofstra labor & employment law journal [vol. 26:497 clovis trevino bravo* iv. overlapping, contradictory, or complimentary case law on erisa disclosure duties "is complex, rapidly developing, 66. see, e.g., edgar v. avaya, 503 f.3d 340, 350 (3d cir. 2007) (internal citations omitted). a. misrepresentation and failure to correct claims completely.177 46. id. � 1105(a). 253. id. at *3-4. thus far commentators have addressed this overlap only partially or expands the scope congress and not the courts.196 102. see, e.g., curtiss-wright corp. v. schoonejongen, 514 u.s. 73, 84 (1995) (congress did not shield an erisa fiduciary from liability. the secretary of labor misrepresentations or nondisclosures. corporate fiduciary who is also a pension plan fiduciary under erisa: resolving the conflict of section disclose arising out of line-item disclosure requirements so that silence is