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UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF WISCONSIN
LINDA WHITE, on Behalf of Herself
and a Class of Persons Similarly Situated,
Plaintiff,
v.                                                                                       Case No.   10-CV-311
MARSHALL & ILSLEY CORPORATION,
M&I RETIREMENT INVESTMENT COMMITTEE,
PAUL RENARD, DENNIS R. SALENTINE,
JOHNS DOES 1-10, and DENNIS J. KUESTER,
JON F. CHAIT, TED KELLNER, DREW BAUER,
KATHERINE LYALL, JOHN MELLOWES, and
RETIREMENT COMMITTEE OF THE M&I
RETIREMENT PROGRAM,
Defendants.
CHARLENE L. ROUNDTREE, on Behalf of Herself
and a Class of Persons Similarly Situated,
Plaintiff,
v.                                                                                       Case No. 10-CV-377
MARSHALL & ILSLEY CORPORATION,
M&I RETIREMENT INVESTMENT COMMITTEE,
PAUL J. RENARD, DENNIS R. SALENTINE,
JOHNS DOES 1-10, and DENNIS J. KUESTER,
Defendant.
ORDER
This is a putative class action pursuant to the Employee Retirement Income
Security Act of  1974,  29 U.S.C.  §1001 et seq.  (“ERISA”) by participants  in an
employer's 401(k) plan against the fiduciaries of the plan.   Plaintiffs’ consolidated




complaint alleges breaches of prudence, loyalty, and other fiduciary duties stemming
from defendants’ management of the M&I Retirement Program and other plans.
This  matter  is  before  the  Court  on  defendants’  motion  to  dismiss  plaintiffs’
consolidated complaint pursuant to Fed.R.Civ.P. 12(b)(6). (Docket #19).   For the
reasons set forth below, defendants' motion to dismiss will be granted.
BACKGROUND1
This  case  involves  a  defined  contribution                                                            401   (k)  plan  called  the  M&I
Retirement Program (“Plan” or “M&I Plan”) offered by Marshall & Ilsley Corporation
(“M&I”) to its employees.   M&I is a financial services company headquartered in
Milwaukee, Wisconsin.   During the course of the most recent global financial crisis,
M&I’s stock experienced a steep decline.   It is this decline in the value of M&I stock
and the resulting losses to the Plan that are central to the current dispute.
Plaintiffs are two former participants in the M&I Plan and have brought this
action  on  behalf of the  M&I Plan  and  all of its  participants  and  beneficiaries.2
Defendants are fiduciaries of the Plan, consisting of M&I, the Plan’s Investment
1
The facts in this section are taken predominantly from the consolidated complaint and
accepted as true for purposes of resolving this motion. The court also has taken judicial notice of
filings that the defendants have attached to their motion that are referred to in plaintiffs’ complaint
and central to plaintiffs’ claims, such as ERISA plans and Summary Plan Descriptions, as well as
matters of public record, such as SEC filings and stock prices. See Hecker v. Deere & Co., 556
F.3d 575, 582 (7th Cir. 2009); Tierney v. Vahle, 304 F.3d 734, 738 (7th Cir. 2002).
2
Plaintiffs’ consolidated complaint also states claims against defendants on behalf of other
401(k) plans sponsored by M&I, including: (1) the North Star Financial 401(k) Plan; (2) the Missouri
State Bank and Trust Retirement Savings Plan; and (3) the NYCE Corporation/Employees Tax
Deferred Savings Plan. However, plaintiffs refer to these other plans only in passing.  As such, and
for purposes of this Order, the court’s discussion will focus solely on the M&I Plan.
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Committee and its members, the Committee of the M&I Retirement Program and its
members, and Dennis Kuester, M&I’s former Chairman and Chief Executive Officer.
Plaintiffs allege that from November 10, 2006, to April 21, 2010 (the “Class Period”),
the Plan offered the M&I Company Stock Fund (the “Fund” or “M&I Stock Fund”), an
Employee Stock Ownership Plan (“ESOP”) that invests exclusively in M&I stock.
Plaintiffs allege that throughout the Class Period, the defendants offered the M&I
Stock Fund as an investment option for the Plan and continued to invest assets of
the Plan in the Fund and Fund assets in M&I common stock when they knew or
should have known it was imprudent to do so.   Plaintiffs also allege that during the
Class Period, the fiduciaries failed to provide complete and accurate information to
the  Plan  participants  regarding  M&I’s  financial  condition  and  the  prudence  of
investing in M&I common stock, thereby depriving participants of the opportunity to
make informed investment choices about their retirement savings options.  Plaintiffs
also  state  a  third  claim  against  M&I  and  defendant  Kuester,  arguing  these
defendants failed to properly appoint, monitor, and inform the other fiduciaries of the
Plan.
The following are certain noteworthy aspects of the Plan.   Participants in the
M&I Plan could contribute up to 50% of their salaries to their individual investment
accounts. M&I agreed to make a matching contribution of 50%, up to a maximum of
6% of the participant’s compensation, following one year of service.   The Plan’s
Investment Committee was responsible for selecting the investment options that
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would be offered to participants.   The M&I Plan gave participants full discretion to
allocate  and  reallocate  their  voluntary  contributions  among  twenty-two  diverse
investment options, one of which was the M&I Stock Fund.  As earlier noted, the M&I
Stock Fund is an ESOP that invests exclusively in M&I Stock.  Participants were not
permitted to invest any more than 30% of their Plan assets in the M&I Stock Fund.
In other words, they were forced to diversify.   M&I’s matching contributions were
automatically invested in the M&I Stock Fund.
While the Investment Committee had the discretion to determine most of the
investment options that would be offered to participants, under the Plan's governing
document, the M&I Stock Fund was a mandatory investment offering designed to
“align the interests of Plan Participants with [M&I].” (Potter Decl. Ex. 2 at 13 [M&I
Retirement Program § 16.02(f)]) (Docket #20-3).  However, no Plan participant was
ever required to invest in the  M&I Stock Fund.  3  Not only was the Investment
Committee required to offer the M&I Stock Fund as an investment option, but M&I,
as  the  Plan’s  drafter, also made  clear that no  Plan  fiduciary would  have  “any
authority or ability to cause the M&I Fund to be invested in anything but M&I stock.”
Id.   Indeed, the Plan provided in pertinent part:
. it is possible that M&I’s business and the value of the M&I Fund
could decline significantly (even to the point where Marshall & Ilsley
Corporation’s ongoing viability comes into question) . . . Marshall &
Ilsley Corporation believes that, should it suffer reversals of fortune, the
3
While no Plan participant was ever required to invest in the Fund, it should be noted that
M&I’s matching contributions were fully invested in the M&I Stock Fund, no matter what fund a
participant chose as an investment option.
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alignment of the interests of Plan Participants and Marshall & Ilsley
Corporation may be the very thing which will enable Marshall & Ilsley
Corporation to again prosper.  In sum, Marshall & Ilsley Corporation, as
settlor of the Plan and Trust, hereby declares that it is its intent and
command that there can be no change in circumstances or event (no
matter how dire) which would allow the Committee or any other Plan
fiduciary to shift investment of the M&I Fund into investments other than
M&I stock[.]
Id. With these facts in mind, the court now turns to the substance of the plaintiffs’
claims.
STANDARD OF REVIEW
A motion to dismiss under Fed. R. Civ. P. 12(b)(6) challenges the sufficiency
of the plaintiff’s complaint by asserting that the claimant failed to state a claim upon
which relief may be granted. See Fed. R. Civ. P. 12(b)(6).   To survive a motion to
dismiss under Rule  12(b)(6), claimant’s complaint must allege facts sufficient to
“state a claim for relief that is plausible on its face.”   Justice v. Town of Cicero, 557
F.3d  768,  771  (7th Cir. 2009) (quoting Ashcroft v. Iqbal, 129 S. Ct. 1937, 1949
(2009)).   Pleaders must “plead factual content that allows the court to draw the
reasonable inference that the defendant is liable for the misconduct alleged.”  Iqbal,
1129 S. Ct. at 1940.   However, the court construes the complaint in the light most
favorable to the claimant, accepts as true all well-pleaded facts alleged, and draws
all possible inferences in the claimant’s favor.   Tamayo v. Blagojevich, 526 F.3d
1074,                                                                                        1081  (7th  Cir.   2008).    Yet,  the  court  need  not  accept  as  true   “legal
conclusions.” Ashcroft v. Iqbal, 129 S.Ct. 1937, 1949 (2009).   Indeed, “[a] ruling
concerning the legal sufficiency of the complaint is an appropriate determination to
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make in response to a motion to dismiss.” Sanner v. Board of Trade of City of
Chicago, 62 F.3d 918, 924 (7th Cir. 1995) (citing Gomez v. Illinois State Board of
Education, 811 F.2d 1030, 1039 (7th Cir. 1987)).  Moreover, “a defendant should not
be forced to undergo costly discovery unless the complaint contains enough detail,
factual  or  argumentative,  to  indicate  that  the  plaintiff  has  a  substantial  case.”
Bissessur v. Indiana Univ. Bd. of Trustees,  581 F.3d  599,  602  (7th Cir.  2009)
(quoting Iqbal, 129 S.Ct. at 1949).   In addition, “threadbare recitals of the elements
of a cause of action, supported by mere conclusory statements, do not suffice.” Id.
DISCUSSION
Defendants assert that plaintiffs have failed to state a claim upon which relief
may  be  granted  in  Counts  I and  II. The  complaint alleges  three  principal and
somewhat overlapping claims. The first contends that the defendants violated § 404
of ERISA, 29 U.S.C. § 1104, by failing to prudently and loyally manage assets held
by the Plan. The second alleges that the defendants violated § 404 of ERISA, 29
U.S.C.  §  1104  by  failing  to  provide  complete  and  accurate  information  to  the
participants in the Plan. The third alleges that defendants M&I and Kuester failed to
properly  appoint, monitor,  and  inform  the  other  fiduciaries  of  the  Plan.  Lastly,
plaintiffs also state claims for co-fiduciary breach.
I.                                                                                             Imprudent Management of Assets Claim
The plaintiffs’ first claim is that all the defendants breached their fiduciary
duties by offering the M&I Stock Fund as one of the Plan’s investment options and
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by continuing to invest Plan assets in the Fund and Fund assets in M&I common
stock when they knew or should have known, in light of the company’s financial
circumstances, that it was imprudent to do so.
As fiduciaries, defendants were required to take steps to protect the Plan from
investments that had become imprudent. Armstrong v. LaSalle Bank Nat'l Ass'n, 446
F.3d 728, 734 (7th Cir. 2006).   Section  404 of ERISA imposes a “prudent man”
standard of care on plan fiduciaries. Fiduciaries discharge their obligations to plan
participants  by  acting                                                                   “with  the  care,  skill,  prudence,  and  diligence  under  the
circumstances then prevailing that a prudent man acting in a like capacity and
familiar with  such  matters  would  use  in  the  conduct of an  enterprise  of a  like
character and  with like aims[.]”                                                          29  U.S.C.  §  1104(a)(1)(B).    Section  404 also
imposes  a  duty  to  diversify  investments,                                              29  U.S.C.  §  1104(a)(1)(C),  but  the
defendants were exempt from this obligation because the Plan required that an
available investment option be a fund consisting of entirely M&I stock - the M&I
Stock Fund. 29 U.S.C. § 1104(a)(2). Yet, even when a plan requires an employer to
offer  its  own  stock  as  an  investment  option  for  employees,  and  despite  the
exemption from  diversification for such plans, there are still situations in which
ERISA’s duty of prudence could require diversification of an ESOP's holdings. Pugh
v. Tribune Co., 521 F.3d 686, 701 (7th Cir. 2008); Summers v. State St. Bank &
Trust Co., 453 F.3d 404, 410 (7th Cir. 2006); see Steinman v. Hicks, 352 F.3d 1101
(7th Cir. 2003).
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A.                                                                                                       The Presumption of Prudence
In the ESOP context, courts apply a presumption of prudence (known as the
Moench presumption) where the Plan requires the fiduciary to invest in company
stock. Howell v. Motorola, Inc., 633 F.3d 552, 568 (7th Cir. 2011); Summers v. State
Bank & Trust Co., 453 F.3d at; Moench v. Robertson, 62 F.3d 553, 571-72 (3d Cir.
4
1995).                                                                                                   The Moench presumption’s purpose is to prevent a fiduciary from the
predicament of choosing between violating the plan agreement or violating the
fiduciary’s duty of prudence. Moench, 62 F.3d at 568-69.   A plaintiff may overcome
the presumption only in limited situations, by showing that a prudent fiduciary “could
not have reasonably believed that the plan's drafters would have intended under the
circumstances that he continue to comply with the ESOP's direction that he invest
exclusively in employer securities.” Pugh v. Tribune Co., 521 F.3d at 701 (quoting
4
Plaintiffs appear to argue that the presumption does not apply in this case because the
fiduciaries exercised no discretion.  They premise this argument on the fact that the Plan required
the fiduciaries to offer the M&I Stock Fund as an investment option.   They further argue that the
plan  drafters’  statement  of  intent  in                                                               §  16.02(f)  is  essentially  a  per  se  prohibition  against
diversification of an ESOP, and thus, the fiduciaries exercised no discretion with respect to this
Plan function as well. However, accepting that the fiduciaries had no discretion to eliminate the
Fund from among the investment options offered to Plan participants and no discretion to divest
the Fund of M&I stock, would mean the court might be obliged to dismiss plaintiffs’ breach of
fiduciary duty claims because the defendants were arguably not acting as fiduciaries.  Whether an
individual was “acting as a fiduciary” depends on whether the individual had discretion over the plan
function in question. See 29 U.S.C. § 1002(21)(A); Pegram v. Herdrich, 530 U.S. 211, 225-26
(2000). Therefore, under plaintiffs’ theory, defendants had no discretion whatsoever to eliminate
M&I stock as an investment option or to divest M&I stock from the Fund, and so defendants were
not acting as fiduciaries, Pegram, 530 U.S. at 226, to the extent that they maintained M&I stock as
an investment option and continued investment of the Fund in M&I stock. As such, not only would
the presumption of prudence not apply, but plaintiffs' breach of fiduciary duty claims would also fail
to state a claim upon which relief can be granted. However, because the Seventh Circuit has
indicated that the duty of prudence may become a duty to diversify in some contexts, see Steinman
v. Hicks, 352 F.3d at 1106, the court will apply the presumption in this case.
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Summers,  453 F.3d at  410).    A  plaintiff must demonstrate more than that the
employer’s stock did not perform well or that investment in company stock entailed
a high degree of risk. Howell v. Motorola, Inc., 633 F.3d at 568-69 (citing Wright v.
Oregon Metallurgical Corp.,  360 F.3d  1090,  1099  (9th Cir.  2004)  (“[m]ere stock
fluctuations, even those that trend down significantly, are insufficient to establish the
requisite imprudence . . .”)).
In this case, the parties disagree over what exactly is required before a
fiduciary of an ESOP can disregard the plan’s terms and divest the company stock.
Plaintiffs contend that although Moench set out an example of impending collapse,
less is required.  The Seventh Circuit has not specified a bright-line standard, though
it  has  made  clear  that  impending  collapse  would  be  sufficient.  See  Howell  v.
Motorola, Inc., 633 F.3d at 569. Furthermore, the Seventh Circuit has provided some
examples of what circumstances, outside of impending collapse, might require a
prudent  fiduciary  to  divest  company  stock.  See  Steinman,  352  F.3d  at  1106.5
5
In Steinman, the court hypothesized that there may be some circumstances where, even
if the fiduciary did not foresee the company’s “impending collapse,” the fiduciary might still be
required, in the interest of the participants, either to diversify the plan’s stockholdings or to
exchange the company stock for some other less risky investment. 352 F.2d at 1106.   The court
gave the following example: if the “ESOP was [the employees'] principal retirement asset...and was
entirely  invested  in  the  stock  of  their  employer...,  and  their  employer  was  bought  in  a
stock-for-stock deal-so that all the assets of the ESOP became stock in the acquirer by a company
that had a much higher debt-equity ratio than their (former) employer and as a result its stock price
was much more volatile and its bankruptcy risk greater.” Id. Additionally, the court in Summers
described the point at which fiduciaries would be required to divest company stock as “the point
at which an increase in the riskiness of the assets, had it been foreseen, would have induced the
creators of the ESOP either to have not created it at all or to have required at least partial
diversification.” 453 F.3d at 410. Thus, the court recognizes that there may be other circumstances,
outside of a company’s impending collapse, that may overcome the presumption.   However, it is
clear that a situation creating extreme risk for the company and the plan participants is necessary.
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However,  this  is  not  a  case  in  which  the  Fund  was  the  employees’  principal
retirement asset.  Indeed, the existence of twenty-one other investment options and
the fact that participants could invest no more than 30% of their Plan assets in the
M&I Stock Fund offers assurance that the Plan was adequately diversified and “no
participant’s retirement portfolio could be held hostage to [M&I]’s fortunes.” Howell
v. Motorola, Inc., 633 F.3d at 569. Thus, to overcome the presumption in this case,
the plaintiffs’ complaint must demonstrate either an excessive risk of impending
collapse or some other equivalent dire circumstances.
While  the  presumption  serves  as  a  substantial  shield  on  its  own,  the
defendants argue that the evidence needed to rebut the presumption in this case is
even more substantial than it might otherwise be because the plaintiffs’ burden
“varies directly with the strength of a plan’s requirement that fiduciaries invest in
employer stock.” Quan v. Computer Sciences Corp., 623 F.3d 870, 883 (9th Cir.
2010).   Here, the drafters not only required that the M&I Stock Fund be offered and
that it exclusively invest in M&I common stock, but the drafters’ intent, as expressed
in                                                                                        §16.02(f) of the Plan, indicated that “there can be no change in circumstances or
event (no matter how dire) which would allow the [fiduciaries] to shift investment of
the M&I fund into investments other than M&I stock.” This articulation of intent
becomes  quite clever when considering the Moench presumption may only be
overcome by inquiring into what the plan drafters intended. See Pugh v. Tribune Co.,
521 F.3d at 701 (quoting Summers, 453 F.3d at 410) (holding that to overcome the
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presumption a plaintiff must demonstrate that a prudent fiduciary “could not have
reasonably  believed  that  the  plan's  drafters  would  have  intended  under  the
circumstances that he continue to comply with the ESOP's direction that he invest
exclusively  in  employer  securities.”)                                                      (emphasis  added).  Thus,  according  to
defendants’ logic, because the plan drafters envisioned no set of circumstances
which would justify divesting the Fund of M&I stock, a prudent fiduciary could always
reasonably  believe,  even  when  faced  with  dire  financial  circumstances  or  the
threatened viability of M&I, that the plan’s drafters would have intended that the
fiduciary continue to comply with the ESOP’s requirement to exclusively invest in
employer  securities.    As  such, plaintiffs’ burden  to  overcome  the  presumption
becomes exceedingly difficult - if not impossible.
The court is hesitant to subscribe to the defendants’ theory described above
- at least at this juncture in the proceedings - because provisions such as § 16.02(f),
if used to heighten the presumption of prudence, may serve as a loophole through
which fiduciaries could escape the duty of prudence altogether.   The only support
for  this  theory  cited  by  defendants  is  a  case  from  the  Ninth  Circuit,  Quan  v.
Computer  Sciences  Corp.,  623  F.3d  at  883.    Thus,  the  case  is  not  directly
authoritative, and indeed, it discusses the presumption and the amount of evidence
needed to overcome it in the summary judgment context, not at the motion to
dismiss stage. Id.   Furthermore, in that case, the court was not faced with the type
of provision at issue here - a provision clearly indicating that the drafters’ intention
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was for the fiduciaries to maintain investment of M&I stock even in the face of the
company’s imminent downfall.  Id.  Thus, without further authoritative guidance, the
court declines to adopt the defendant’s theory.   In any event, this determination
makes little difference in the case at hand, as the court has concluded that plaintiffs’
allegations are not sufficient to meet their already substantial burden under the
presumption of prudence.
B.                                                                                          Plaintiffs’ Allegations Fail to Overcome the Presumption
The defendants argue that, apart from the conclusory allegation that M&I’s
financial  circumstances  were                                                              “dire,”  the  complaint  alleges  no  facts  plausibly
suggesting that M&I’s viability as a going concern was threatened or any other
exceptional facts that are sufficient to overcome the presumption.   The defendants
further contend that the complaint merely recites, with the benefit of hindsight, the
decline in M&I’s financial ratings and stock price during the recent financial crisis. In
short, the defendants assert that plaintiffs fail to state a claim because the mere
allegation of a stock price decline, even a substantial one, does not prove that M&I
stock was an imprudent investment and, more importantly, does not rebut the
Moench presumption for purposes of the motion to dismiss.   On the other hand,
plaintiffs argue their allegations are sufficient because they detail how and why each
defendant knew or should have known that investment in the Fund was imprudent.
To support their assertion that defendants knew or should have known that
investment in  the  M&I Stock  Fund  during  the  Class  Period  was  an  imprudent
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decision, the plaintiffs’ consolidated complaint details the allegedly excessively risky
business practices of M&I. According to plaintiffs, M&I has been a traditionally risk-
averse Wisconsin bank, but strayed “from its core competencies into riskier regions,”
through its acquisitions in 2005 and 2006 of subsidiary banks in Florida and Arizona,
which gave M&I a “significant presence” in these markets. (Compl. ¶¶ 76, 78, 95,
103, 139, 143).   Plaintiffs allege that the acquired Florida and Arizona banks held
residential and commercial real estate loans in their respective markets.                  (Compl.
¶¶ 76, 78, 84, 95-96, 139, 143). Plaintiffs further allege that these acquisitions led
to M&I’s making of “risky loans” and impaired M&I’s reputation for “solid loans.”
(Compl. ¶¶ 139, 143).
Furthermore, the complaint alleges that, despite M&I’s loan-loss provisions
that grew by approximately 40% (from $13 million to $18 million in the fourth quarter
of                                                                                         2005),  coupled  with  a                                                     17%  increase  in  non-performing  assets  -  allegedly
attributable  to  weakness  in  both  commercial  and  residential  real  estate           -  the
company continued with its expansion into these purportedly riskier markets. (Compl.
¶ 77). Plaintiffs next allege that these Florida and Arizona loans eventually resulted
in “significant net loss and credit-quality deteriorations,” repeated debt and equity
downgrades, and  “serious concerns” about  “capital levels” and  “ever-increasing
reserves.”                                                                                 (Compl.  ¶¶  138-39).    The  complaint  then  alleges  that  despite  the
company publicly stressing that it would not need to raise capital or cut its dividends
(Compl. ¶ 93), M&I eventually took both such actions during the Class Period, cutting
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its dividend to 1 cent per share from 32 cents per share and raising $1.7 billion from
the government through the Troubled Asset Relief Program, or TARP, and $775
million in private equity. (Compl. ¶¶ 105, 107, 126, 166).   Plaintiffs also allege that
the company faced six consecutive quarterly losses, lasting until the end of the Class
Period (Compl. ¶ 135), and that asset quality continued to deteriorate to the point
where non-performing loans exceeded 5%, a level labeled by some analysts as toxic
and threatening to a company’s survival. (Compl. ¶¶ 98-99, 105, 107, 111, 118,
121).   Moreover, the complaint asserts that, because of these risks and problems,
6
the company stock price declined during the Class Period by 89%                                  (Compl. ¶ 138)
and returns for investing in the Fund were  -59.24%,  -44.53%, and  -24.03%  in
calendar years 2009, 2008, and 2007 respectively. (Compl. ¶ 74).   Plaintiffs assert
that  these  problems  created                                                                   “dire  financial  circumstances”  such  that  heavy
investment  of  retirement  savings  in  company  stock  would  inevitably  result  in
significant  losses  to  the  Plans  and  participants.  (Compl.  ¶                              139).    Accordingly,
plaintiffs allege that the Fund was an imprudent investment and a prudent fiduciary
would have made a different investment decision. (Compl. ¶ 143).
While the alleged facts paint a picture of a historically risk-averse company
that engaged in an aggressive business strategy only to have that strategy perform
poorly and its reputation for having a high-quality loan portfolio undermined, the
6
Defendants  contest  this  calculation,  arguing  that  plaintiffs  exaggerated  the  decline.
Defendants assert that the decline was 54% during the class period. (Defs.’ Br. in Supp. Mot.
Dismiss at 14 n. 4).
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complaint does not plausibly suggest that M&I’s “viability of a going concern” was
ever threatened or that the company's “stock was in danger of becoming essentially
worthless.” See Kirschbaum v. Reliant Energy, Inc., 526 F.3d  243, 255 (5th Cir.
2008). Nor does the complaint allege other facts sufficient to rebut the Moench
presumption if proven.   Admittedly, M&I’s losses were substantial  - it faced six
quarterly losses during the Class Period. And, M&I’s aggressive expansion into
states dogged by the housing slump certainly caused the company’s stock price to
plummet and increased the company’s non-performing loans to a particularly high
level. However, the only allegation that even hints at the threatened viability of M&I
is the allegation concerning the company’s non-performing loans as mentioned in
a Bloomberg News report. The report noted that M&I was among 150 banks that
owned non-performing loans that equaled 5% or more of the lender’s holdings and
that this was a level that “former regulators say can wipe out a bank’s equity and
threaten its survival.” (Compl. ¶ 121). It is significant to note that this news report
does  not state that M&I’s survival was threatened, but merely that it owned a
percentage of non-performing loans that had the potential to threaten its survival.
In any event, this is the only allegation in the extensive consolidated complaint that
even comes close to suggesting that M&I was on the verge of collapse.
On the other hand, the majority of plaintiffs’ allegations concerning analysts’
downgrades of M&I stock demonstrate that the company stock was not worthless
and that M&I was not facing an impending collapse. For example, several of the
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analysts  cited  in  the  consolidated  complaint  rated  M&I  at  “neutral”  or  “market
perform” during the Class Period. (Compl. ¶¶ 85, 97, 114, 136).   Additionally, the
complaint alleges that on July 3, 2008, Fitch Ratings downgraded M&I’s Individual
rating to  “B” and its short-term Issuer Default Rating  (“IDR”) to  “F1."   However,
according to http://www.fitchratings.com, “B” means “[a] strong bank. There are no
major concerns regarding the bank.” (last visited June 21, 2011). Furthermore, the
“F1" rating means “[h]ighest short-term credit quality.” http://www.fitchratings.com
(last visited June 21, 2011).   Furthermore, while Fitch Ratings put M&I on “Rating
Watch  Negative,”  the  report  also  noted  that                                           “the  negative  watch  reflects  the
continued uncertainty in [M&I’s construction and land development loan portfolio] as
well as increased potential for problems in other portfolios as the economy worsens.
If problems intensify or if the company does not return to profitability in the near
term, further rating actions could occur.” (Compl. ¶ 95). Thus, these ratings are not
as severe as the plaintiffs portray them to be.  Likewise, the complaint refers to M&I’s
IDR rating in April of 2009 being lowered to BBB+, but again, that rating does not
suggest that M&I’s survival was threatened. Indeed, a BBB+ rating applies to banks
with                                                                                        “good  credit  quality                                        .  expectations  for  default  risk  are  currently  low.”
http://www.fitchratings.com                                                                                                        (last  visited  June   21,                                                          2011).    Therefore,  while  the
company’s risky lending practices depressed both M&I’s stock prices and its ratings,
the plaintiffs’ complaint actually demonstrates that the stock was not worthless nor
was the company on the brink of collapse. Accordingly, the court finds that the
-16-




plaintiffs have not alleged facts that, if proven, would rebut the Moench presumption
and, thus, the  plaintiffs’ breach of fiduciary duty claim  in  this  respect must be
dismissed.
II.                                                                                         Failure to Disclose/Misrepresentation Claims
Plaintiffs have also claimed that defendants breached their duties of loyalty
and prudence by failing to provide complete and accurate information regarding
M&I’s  true  financial  condition  and  future  outlook.                                    (Compl.                                        ¶¶  74,   139,   152).
Specifically, plaintiffs assert that the fiduciary communications sent to the Plan
participants  “did not adequately explain the risk and return profile of the Fund.”
(Compl.  ¶  139).    Plaintiffs  further contend that defendants  “fostered a positive
attitude toward M&I’s stock.” (Compl. ¶ 152).  Additionally, plaintiffs assert that M&I’s
SEC filings, as incorporated into the Plan’s Summary Plan Description, “negligently
omitted  to  disclose  material  information  concerning  the  company’s  business,
operations, regulatory  compliance  and  prospects” including  that:                        (1)  M&I  had
strayed far from its core competencies into riskier regions and made risky loans in
an attempt to increase profits; (2) M&I was experiencing significant net loss and
credit-quality deteriorations;  (3) there were serious undisclosed concerns about
M&I’s capital levels and seemingly ever-increasing reserves during the Class Period;
(4) the Company lacked a reasonable basis for its positive statements about its
lending, business, operations, and earnings prospects; and (5) the Company’s long-
developed reputation for making solid loans suffered significantly as a result of M&I’s
-17-




imprudent lending practices. (Compl. ¶ 139).  As a result of these misrepresentations
and omissions, plaintiffs contend M&I’s common stock became artificially inflated
and  participants  in  the  plan  could  not  appreciate  the  true  risks  presented  by
investment  in  company  stock  and,  thus,  could  not  make  informed  decisions
regarding their investments in the Plan. (Compl. ¶¶ 74, 152).
In the Seventh Circuit, a breach of fiduciary duty exists only if fiduciaries
“mislead plan participants or misrepresent the terms or administration of a plan.”
Vallone v. CNA Financial Corp., 375 F.3d 623, 640-641 (7th Cir. 2004) (quoting
Anweiler v. American Elec. Power Serv. Corp., 3 F.3d 986, 991 (7th Cir. 1993)).  Not
all mistakes or omissions in conveying information constitute a breach of fiduciary
duty. Id. However, material facts affecting the interests of plan participants and
beneficiaries must be disclosed. Tegtmeir v. Midwest Operating Engineers Pension
Trust Fund, 390 F.3d 1040, 1047 (7th Cir. 2004).   A violation of ERISA’s disclosure
requirement requires evidence of either “an intentionally misleading statement, or a
material omission where the fiduciary’s silence can be construed as misleading.
Howell v. Motorola, Inc., 633 F.3d at 571 (citing Hecker v. Deere & Co., 556 F.3d at
585). The Seventh Circuit does not recognize merely negligent misrepresentations
or omissions as a violation of ERISA.   Id.; Vallone, 375 F.3d at 640 (“[W ]hile there
is a duty to provide accurate information under ERISA, negligence in fulfilling that
duty is not actionable.”); Patten v. N. Trust Co., 2010 WL 894050, at *10 (N.D.Ill.
Mar. 9, 2010) (“[n]egligent omission . . . is not actionable”). The fiduciary “must have
-18-




set out to disadvantage or deceive its employees ... in order for a breach of fiduciary
duty to be made out.” Vallone, 375 F.3d at 640. While a fiduciary’s negligence in
misleading plan participants or misrepresenting the terms or administration of a plan
is  not  actionable  itself,                                                              “the  failure  to  take  reasonable  steps  to  head  off  such
misrepresentations [and omissions] can be actionable.’” Howell v. Motorola, Inc., 633
F.3d at 571-72 (quoting Kenseth v. Dean Health Plan, Inc., 610 F.3d 452, 470-71
(7th Cir. 2010)).
Plaintiffs’  complaint  is  hardly  a  model  of  clarity  with  respect  to  its
misrepresentation/omission claims. Indeed, it is difficult to ascertain which of its
allegations refer to misrepresentations and which refer to omissions.  What is clear,
however, is that all of plaintiffs’ claims in this respect fail for one obvious reason:
plaintiffs  have  not  plausibly  alleged  that  the  defendants  made  intentional
misrepresentations or omitted to disclose material information with the purpose of
misleading the Plan participants.  Indeed, the complaint actually alleges the opposite
- that is, the fiduciaries negligently misrepresented and failed to disclose material
information.  For instance, the complaint claims that defendants “should have known
of the material misrepresentations and omissions  .  .  .”  (Compl.  ¶  141), not that
defendants deliberately made misrepresentations or omissions with the intent to
-19-




deceive.  7  Because  plaintiffs  have  not  plausibly  alleged  facts  suggesting  any
misrepresentation  or  omission  was  intentional  or  deliberately  misleading,  the
plaintiffs’ claims for breach of fiduciary duty for failure to provide complete and
accurate information to the Plan participants must be dismissed.
A.                                                                                                     Misrepresentation Claims
Plaintiffs’ negligent misrepresentation theory also fails for the further reason
that the complaint merely sets forth conclusory allegations that do not state a claim
for relief. For example, plaintiffs’ overarching allegations of misrepresentation are
that defendants failed  “to provide complete and accurate information regarding
[M&I]’s true financial condition,” and failed to convey accurate information regarding
M&I’s “future outlook.” (Compl. ¶ 152). Yet, the complaint neglects to identify any
language that is materially misleading.   A detailed review of the complaint and
plaintiffs’ allegations reveals only  three statements about M&I’s actual performance
or future   outlook that are criticized by plaintiffs.
First, plaintiffs claim that M&I’s January  16,  2007 report of its profits was
somehow misleading or false because “these profits were largely illusory and, in fact,
began to show cause for concern.” (Compl. ¶ 79).   Plaintiffs attempt to support this
allegation by claiming that in the same quarter M&I also posted increases in non-
7
Moreover,  plaintiffs  spend  much  of  their  response  brief  arguing  that  a  negligent
misrepresentation is actionable, (Pls.’ Resp. Br. at 15-16). And, plaintiffs clarify their omission
claims stating explicitly that M&I’s SEC filings, as incorporated in the Plan’s Summary Plan
Description,  “negligently  omitted  to  disclose  material  information  concerning  the  company’s
business, operations, regulatory compliance, and prospects. (Pls.’ Resp. Br. at 18).
-20-




performing loans and increases in its loan-loss provisions.  (Compl.  ¶  79).   Yet,
simply because M&I posted increases in non-performing loans and increased its
loan-loss provisions does not render M&I’s profit report misleading. Indeed, by
posting  these  increases, M&I was  being  anything  but misleading. Accordingly,
plaintiffs’ assertion that M&I’s profit report was illusory is itself illusory and, thus,
plaintiffs have failed to state a claim in this respect.
Next, plaintiffs’ allegations of misrepresentation regarding M&I’s July 2008
report  of  a                                                                               “strong  capital  position”  are  similarly  without  merit.   (Compl.  ¶  93).
According to plaintiffs, in July 2008, M&I’s CEO stated “[w]e are disappointed with
a loss in the second quarter . . .                                                          [but] fortunate that our strong capital position
allows us to increase our reserves without cutting our dividend or engaging in a
dilutive capital raising transaction.”  (Compl. ¶  93). Plaintiffs then allege that this
statement about M&I’s “strong capital position” was illusory because the company
would need to slash dividends and raise capital in the future. (Compl. ¶ 93).   While
it may be true that M&I ultimately slashed dividends and raised capital, this by no
means suggests that, at the time the statement was made, M&I’s CEO did not
reasonably believe that such action would be unnecessary.   Plaintiffs’ allegation in
this respect is nothing more than a hindsight view of M&I’s prior statements.   The
plaintiffs  may  not  support  their  allegations  in  this  way  and,  therefore,  their
misrepresentation claim based on this statement fails to state a claim.
-21-




Lastly, the only specific statement found in plaintiffs’ complaint relating to the
company’s “future outlook” is a July 16, 2008 statement by M&I’s CFO that “[w]e feel
very confident that we’ll return to profitability in the third quarter and the fourth
quarter.” (Compl. ¶ 98). The only support plaintiff offers to suggest this statement
was misleading was that “in reality, the company had not done nearly enough to
account for its bad debt and the company’s chances of near-term profitability were
practically  non-existent.”                                                                   (Compl.  ¶  99).  Yet,  this  supporting  allegation  is  both
conclusory and predicated on a hindsight review of developments that occurred
months later, after the bottom fell out of the subprime mortgage market. Moreover,
the CFO’s statement was not made in a fiduciary capacity. First, the CFO is not an
alleged fiduciary of the Plan and, even if he was, he made the statement during a
quarterly earnings call that was neither directed at Plan participants nor incorporated
by reference into Plan documents. (Compl. ¶ 98). Accordingly, it cannot be the basis
for an ERISA claim. See In re General Growth Properties, Inc., 2010 WL 1840245
(N.D.Ill.  May                                                                                6,                                                               2010)   (dismissing  misrepresentation  claim  and  finding  that
conference calls “expressing optimism and confidence in the Company’s financial
situation” were in no way connected to plan benefits).
In  their  response  brief,  plaintiffs  also  appear  to  make  two  further
misrepresentation claims that are nowhere to be found in the complaint.   First, they
assert that the Summary Plan Description (“SPD”) misled participants about the
defendants’  fiduciary  duties  with  respect  to  the  Fund.  (Pls.’  Resp.  Br.  at  20).
-22-




Specifically, the plaintiffs contend it was misleading for the SPD to represent that
defendants were responsible for all Plan assets when the defendants are now
attempting  to  avoid  their  duties  with  regard  to  the  M&I  Stock  Fund  through
§ 16.02(f)’s “exculpatory language.” (Id.). First, the court has clarified that, while
defendants may have been exempt from the duty to diversify the Fund, their fiduciary
duty of prudence still applied and may have required, in certain circumstances, that
the fiduciaries divest the M&I stock. To the extent plaintiffs are arguing that the SPD
language was inaccurate because it did not also tell participants that the Fund was
a required investment option, the court finds that the plaintiffs have not alleged how
this  omission  was  misleading  or  material.  Furthermore,  even  if  such  a
misrepresentation or omission could be said to be intentionally misleading, the
plaintiffs have not shown any causal connection between the misrepresentation and
the losses to the Plan. As such, this new claim must also be dismissed. Second,
plaintiffs contend that the M&I Stock Fund goal set out in the SPD - to achieve “long
term growth through dividends and share price appreciation” - was not achievable
and unrealistic during the Class Period. (Pls.’ Resp. Br. at 19-20). Again, plaintiffs
have not alleged that this statement was intentionally misleading, and the fact that
the statement was a Fund goal - rather than a guarantee - for long-term growth, not
short-term growth, belies the plausibility of plaintiffs’ claim. Accordingly, the court
finds that this claim must also be dismissed.
-23-




B.                                                                                                         Omission Claims
Additionally, plaintiffs  assert that the  defendants breached  their fiduciary
duties because M&I’s SEC filings, as incorporated into the Plan’s SPD, omitted to
disclose  the  following  information:                                                                     “(1)  M&I  had  strayed  far  from  its  core
competencies  into  riskier  regions  and  M&I  made  risky  loans  in  an  attempt  to
increase profits;  (2) M&I was experiencing significant net loss and credit-quality
deteriorations;  (3) there were serious undisclosed concerns about M&I’s capital
levels and seemingly ever-increasing reserves during the Class Period;  (4) the
Company lacked a reasonable basis for its positive statements about its lending,
business,  operations,  and  earnings  prospects;  and                                                     (5)  the  company’s  long-
developed reputation for making solid loans suffered significantly as a result of M&I’s
imprudent lending practices.” (Compl. ¶  139).8   Initially, the court notes that the
fourth  claim  appears  to  be  less  of  an  omission  claim  and  more  of  a
misrepresentation claim as it refers to statements being made for which M&I lacked
a reasonable basis.   Yet, no matter how the allegation is construed, the plaintiffs
have  failed  to  point  to  any  specific  statement  lacking  a  reasonable  basis.
Furthermore, the claim  is entirely conclusory.    Plaintiffs’ fifth omission claim  is
equally problematic.  Plaintiffs have not identified what about M&I’s reputation should
have  been  disclosed  or  how  the  defendant  company’s  reputation  -  which  is
8
While  plaintiffs’  complaint  lacks  clarity  concerning  which  of  its  allegations  refer  to
misrepresentations and which refer to omissions, plaintiffs have attempted to clarify their disclosure
allegations in their response brief.  The plaintiffs have noted that these five allegations refer to the
defendants’ alleged omissions. (Pls.’ Resp. Br. at 18).
-24-




determined by public opinion  - could be concealed. As such, the claim is both
nonsensical and conclusory.
Next, plaintiffs’ first omission claim is also deficient for several reasons.  First,
the alleged omission relates to business decisions of M&I. While fiduciaries have a
duty to disclose material information, Mondry v. American Family Mut. Ins. Co., 557
F.3d 781, 807 (7th Cir. 2009), there is no support for the view that Plan fiduciaries
were required to provide information about M&I’s business decisions in real time to
plaintiffs during the Class Period. See Howell v. Motorola, Inc., 633 F.3d at 572
(finding Plan fiduciaries were not “required to provide all information about Motorola's
business decisions in real time to Plan participants; and the fact that the [subject
business deal] was a bad business decision” was not enough to make the omission
of information a violation of ERISA).  Thus, simply because M&I’s business strategy
of expanding into the Florida and Arizona commercial and residential real estate
markets turned out to be a mistake, does not mean M&I was either required to
disclose this information or that the omission of such information was a violation of
ERISA. Additionally, as noted by defendants, plaintiffs’ claim confuses disclosure of
facts with disclosure of pejorative characterizations about those facts. For example,
plaintiffs allege that M&I did not adequately explain that it had “strayed far from its
core competencies into riskier regions.”  Yet, while M&I may not have used the same
descriptive language as plaintiffs used in their consolidated complaint, M&I disclosed
the facts underlying this claim. First, M&I disclosed in every quarter during the Class
-25-




Period  that its                                                                          “overall  strategy  is  to  drive  earnings  per share  growth  by:   (1)
expanding banking operations not only in Wisconsin but also into faster growing
regions beyond Wisconsin.”  (See e.g. Potter Decl. Ex.  10  [June  30,  2006 M&I
Quarterly Report SEC Form 10-Q at 27]) (Docket #21-2).   M&I also noted that its
primary lending areas included Arizona and that the “vast majority of assets acquired
from Gold Banc are in entirely new markets” including Florida.  (See Potter Decl. Ex.
11 [ Sept. 30, 2006 M&I Quarterly Report SEC Form 10-Q at 49]) (Docket #21-3).
Accordingly, plaintiffs’ claim  that the fiduciaries should have revealed M&I had
expanded into riskier regions and had made risky loans is deficient as the facts to
which plaintiffs’ refer, wrapped up in their pejorative terms, were disclosed. The
same holds true for several of the plaintiffs’ other allegations concerning omissions
of the defendants.  For example, though M&I never stated it had “serious concerns”
about its capital levels and reserves, the company disclosed information relating to
its capital levels and reserves in every quarterly and annual report during the Class
Period. (See generally Potter Decl. Exs. 8, 14-16).   In sum, plaintiffs cannot state a
claim for breach of fiduciary duty based on nondisclosure by placing a negative gloss
on information that was already disclosed.
Furthermore, plaintiffs’ overarching omission claim, under which the specific
allegations discussed above fall, is that the defendants failed to adequately explain
the risk and return profile of the Fund.                                                  (Compl. ¶ 139).   However, defendants were
not required to generally share specific information about investments offered by the
-26-




Plan.  See Brieger v. Tellabs, Inc., 629 F.Supp.2d 848, 866 (N.D.Ill. 2009); Lingis v.
Motorola Inc., 649 F.Supp.2d 861, 866 (N.D.Ill. 2009) (“[W ]hile Defendants may have
had some obligation to disclose Plan-specific information to beneficiaries, they were
under no duty to generally share additional information about any of the various
investments  .  .  . offered by the Plan.”).  “Creating a standard that requires Plan
fiduciaries to continuously gather and disclose nonpublic information bearing some
relation to the plan sponsor's financial condition would extend  [  ] the statutory
language  [of ERISA] beyond  [its] plain meaning.” Lingis,  649 F.Supp.2d at  866
(internal quotations  omitted);  See  also  Patten  v.  The  Northern  Trust Co.,  703
F.Supp.2d 799 (N.D.Ill. 2010); In re Citigroup Erisa Litig., No. 07-CV-9790, 2009 WL
2762708, at *22 (S.D.N.Y. Aug.31, 2009) (“ [I]t is quite another matter to suggest that
a  fiduciary  must  volunteer  financial  information  about  companies  in  which
participants may invest. That would transform fiduciaries into investment advisors,
and [ ] fiduciaries do not have a duty to give investment advice or to opine on the
stock's condition.”) (internal citations and quotations omitted).
Indeed,  courts  in  this  Circuit  have  consistently  expressed  concern  that
broadening the scope of a fiduciary’s affirmative obligation to disclose material
information in this way may run afoul of insider trading laws. For example, the court
in Howell v. Motorola, Inc. explained:
Perhaps the defendants in this litigation did have inside information, but
could they use it for plaintiffs' benefit? Plaintiffs' position seems to be
that                                                                                      [plan  fiduciaries]  are  obligated  to  adopt  a  policy  under  which
employees invest in a stock during periods of good news for the issuer
-27-




but not during periods of bad news. The implication is that someone
else (which is to say, investors at large) must bear the loss when bad
news is announced, because the [plan participants] will have bailed out.
Corporate  insiders  cannot  trade  on  their  own  behalf using  private
information, good or bad.
633 F.3d at 572 (quoting Rogers v. Baxter International, Inc. 521 F.3d 702, 706 (7th
Cir. 2008)). Thus, it would appear that Plan fiduciaries do not have a clear affirmative
duty to inform plan participants about nonpublic corporate developments that might
affect the value of employer stock.  As such, all of plaintiffs’ omissions claims fail for
this additional reason.
III.                                                                                         Breach of the Duty to Properly Appoint, Monitor, and Inform and Co-
Fiduciary Breach.
The consolidated complaint also alleges co-fiduciary liability.  A fiduciary may
be liable for another's breach only if he:   (1) participates knowingly in, or undertakes
knowingly to conceal, an act or omission that he knows is a breach; (2) fails to follow
his fiduciary duties, thereby enabling another fiduciary to commit a breach; or (3) has
knowledge of the breach committed by another fiduciary and makes no reasonable
efforts  to  remedy  that  breach.                                                           29  U.S.C.  §  1105(a).    However,  this  claim  is
predicated on the existence of underlying breaches of fiduciary duty.  The court has
already held that plaintiffs have failed to state a claim for relief based on breach of
fiduciary duty and, therefore, plaintiffs cannot state a claim for co-fiduciary breach.
Accordingly,  these  claims  will  also  be  dismissed.  Lastly,  in  Count  II  of  the
consolidated complaint, plaintiffs contend that M&I and individual defendant Kuester
breached their duty to monitor other fiduciaries of the Plan and to provide them with
-28-




accurate information. However, this claim is also predicated on the existence of
underlying breaches of fiduciary duty that are meritless.    As such, the court is
compelled to dismiss these claims as well. See, e.g., Pugh, 521 F.3d at 702.
Finally, the consolidated complaint will be dismissed with prejudice. Though
leave to amend should ordinarily be freely given when justice so requires, Fed. R.
Civ. P. 15(a)(2), dismissal with prejudice remains within the discretion of the district
court. See James Cape & Sons Co. v. PCC Const. Co., 453 F.3d 396, 401 (7th Cir.
2006).  While plaintiffs requested leave to amend the pleadings in the event the court
granted defendants’ motion to dismiss, the plaintiffs have failed to propose any
amendment, let alone one that would rectify the deficiencies of the consolidated
complaint.   Furthermore, the court concludes that an amended complaint would
suffer  the  same  fatal  flaws  as  the  consolidated  complaint  and,  therefore,  the
interests of justice do not require allowing plaintiffs the option of amending their
pleadings. Garcia v. City of Chicago, 24 F.3d 966, 970 (7th Cir. 1994) (allowing a
claim to be dismissed with prejudice if repleading would be futile). Additionally
supporting the court’s decision to dismiss with prejudice is the fact that this is a
consolidated action in which the initial individual complaints were folded into one
consolidated complaint.   Thus, plaintiffs have had more than ample opportunity to
construct a complaint that states a claim.   Given the discretion of the court in this
matter, the court’s conclusion that amendment of the pleadings would be entirely
futile, and the reasonable opportunity that plaintiffs were afforded to craft a complaint
-29-




that stated a claim under ERISA, the court finds the wiser exercise of its discretion
would be to dismiss with prejudice.
Accordingly,
IT  IS  ORDERED  that  defendants’  Motion  to  Dismiss  the  Consolidated
Complaint (Docket #19) be and the same is hereby GRANTED;
IT  IS  FURTHER  ORDERED  that  the  plaintiffs’  Consolidated  Complaint
(Docket #14) be and the same is hereby DISMISSED with prejudice; and
IT IS FURTHER ORDERED that defendants’ Motion to Strike Jury Demand
(Docket #24) be and the same is hereby DENIED as moot.
The Clerk is directed to enter judgment accordingly.
Dated at Milwaukee, Wisconsin, this 21st day of June, 2011.
BY THE COURT:
J.P. Stadtmueller
U.S. District Judge
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