United States District Court, E.D. Pennsylvania
MATTHEW B. HARMON and SUSAN H. CLARKE, on behalf of the FMC Corporation Savings and Investment Plan, themselves, and a class consisting of similarly situated participants of the Plan, Plaintiffs,
FMC CORPORATION, et al., Defendants.
Harmon and Susan Clarke sued FMC Corporation and several
associated entities and individuals on behalf of themselves
and other FMC employees. They claim Defendants breached their
fiduciary duties under the Employee Retirement Income
Security Act (ERISA) by offering imprudent and undiversified
investment options as part of an employer-sponsored
retirement plan. Defendants filed a motion to dismiss.
Because the Complaint fails to state a claim, the Court
grants the motion.
offers its employees access to a 401(k) defined contribution
retirement plan (the “Plan”). (Am. Compl.
¶¶ 4, 38.) Participants in the Plan set up an
individual account, make contributions, and allocate their
assets as they see fit, selecting from a range of investment
options. (Mem. of Law in Supp. of Defs.' Mot. to Dismiss
[Defs.' Mem.] at 4.) The Plan offers over thirty
investment options for participants to choose from, selected
by FMC Plan administrators. (See Compl. ¶ 64.)
The options include FMC stock as well as a number of mutual
funds with a range of risk and diversification profiles.
(See Id. ¶ 40.) The primary Plan offering at
issue in this case is the Sequoia Fund, which both Plaintiffs
claim to have held during the relevant period. (See
Id. ¶¶ 15-16.)
Sequoia Fund was included in the Plan as one of five
“long-term growth funds.” (Id. ¶
64.) It is a self-described “non-diversified”
mutual fund. (Id. ¶ 67.) Throughout the time
period at issue, the Sequoia Fund invested heavily in Valeant
Pharmaceuticals stock. For a time, the Valeant investment
generated substantial growth for the Sequoia Fund and,
accordingly, the Plaintiffs. Valeant's stock price rose
by more than 80 percent through the first half of 2015.
(Pls.' Mem. in Opp. to Defs.' Mot. to Dismiss
[Pls.' Resp.] at 4.) As a result of this growth, coupled
with additional stock purchases by the Sequoia Fund in
October 2015, Valeant's position in the Sequoia
Fund's portfolio grew from 14 percent in 2012 to 32
percent in 2015. (Id.; Am. Compl. ¶ 89.)
turned out, however, Valeant's apparent success was not
long-lived. Questions about Valeant's accounting
practices and drug pricing caused the company's share
prices to plummet in late 2015. (Am. Compl. ¶¶ 73,
112.) In early 2016, Valeant announced that it was under
investigation by the Securities and Exchange Commission
(“SEC”). (Id. ¶ 93.)
poor performance eventually led the Sequoia Fund to sell its
shares in Valeant. In May 2016, when Valeant's stock
price had dropped by nearly 90 percent in less than a year,
the Sequoia Fund announced that it had sold half of its
holdings in the company. (Id. ¶ 95.) By
mid-June, the Sequoia Fund completely divested of its Valeant
shares. (Id. ¶ 99.) By this time, according to
Plaintiffs, the Sequoia Fund's high concentration in
Valeant stock had caused the Sequoia Fund to underperform the
S&P 500 Index “by 6.14 percent in 2014, 8.68
percent in 2015, and 15.17 percent during the period from
January 1 to June 15, 2016.” (Id. ¶ 98.)
As a result, Plaintiffs allege that the Plan and, therefore,
the participants with holdings in the Sequoia Fund, lost
millions of dollars. (Id. ¶ 154.)
to Plaintiffs, these losses were preventable. They claim that
Defendants should have removed the Sequoia Fund from the Plan
before it became heavily concentrated in Valeant and
Valeant's decline caused losses for the Sequoia Fund.
(See Id. ¶ 127.) By failing to do so,
Plaintiffs argue, Defendants breached their fiduciary duty to
monitor Plan investments and remove risky investment options.
claim that there were a number of red flags about
Valeant's business practices and the Sequoia Fund's
concentration in Valeant stock, beginning as far back as
2014, which should have prompted Defendants to rethink the
inclusion of the Sequoia Fund in the Plan. (Pls.' Resp.
at 4-8.) All of the warning signs Plaintiffs point to were in
the public record. For instance, the Sequoia Fund disclosed
its high concentration in Valeant and noted shareholders'
concerns about the company in SEC filings and its annual
report in 2015. (Am. Compl. ¶¶ 85, 94.) And in late
2015, a news article reported that two Sequoia Fund directors
left as, according to Plaintiffs, “the Fund's
Valeant position mushroomed and losses mounted.”
(Id. ¶ 91.)
also point to criticisms of Valeant lodged by a handful of
well-known investors and commentators between 2014 and 2016.
(See Id. ¶¶ 101-07.) Some of these
investors took issue with Valeant's accounting methods
and suggested that it was a “house of cards” and
a “trust me story.” (Id. ¶¶
103, 105) In addition, Plaintiffs note multiple news articles
from late 2015 and 2016 questioning Valeant's business
and accounting practices. (Id. ¶¶ 113-15,
claim that Defendants “ignored or did not notice”
these warning signs about Valeant and the Sequoia Fund.
(Id. ¶ 127.) They therefore allege that
Defendants breached their duty under ERISA to monitor Plan
investments and remove imprudent ones. (Id.)
also point to a number of procedural steps Defendants had in
place to monitor the Plan's investments, and argue that
these procedures should have alerted them to the risks of the
Sequoia Fund. For instance, in June 2015, members of
FMC's Pension Investment Subcommittee met with
representatives of Ruane, Cunniff & Goldfarb, Inc., the
investment firm that managed the Sequoia Fund, to discuss the
Sequoia Fund. (Id. ¶¶ 69-70.) Defendants
also sought advice regarding the Plan's investments from
Aon Hewitt, a consulting firm. (Id. ¶ 108.) In
November 2015, that firm issued a review of the Plan in which
it observed that the Sequoia Fund was “[e]xtremely
concentrated, ” with “strong” long-term
performance but “vulnerab[ility] to bouts of volatility
due to lack of diversification.” (Id.
¶¶ 108-09.) FMC Plan administrators did not remove
the Sequoia Fund at this time.
Pension Investment Subcommittee met again with Ruane Cunniff
in March 2016 to discuss the Sequoia Fund's performance.
(Id. ¶ 116.) The Committee determined not to
take immediate action but to “continue to closely
monitor the situation.” (Id.)
after Aon Hewitt “proposed replacing the Sequoia
Fund” with a different investment option in June 2016,
the Committee decided to remove the Sequoia Fund.
(Id. ¶¶ 119-122.) The Committee planned to
make the switch ...