United States District Court, N.D. Ohio, Western Division
G. CARR SR. U.S. DISTRICT JUDGE.
a breach-of-fiduciary-duty and putative class-action case
arising under the Employee Retirement Income Security Act
(ERISA), 29 U.S.C. § 1001, et seq.
2011, Marathon Petroleum spun off from its parent company,
Marathon Oil. When Marathon Petroleum established its
employee-retirement plan, the defendants - plan administrator
Rodney Nichols, the plan's investment committee, and
members of that committee - allegedly placed $88 million in
plan assets into a fund holding only Marathon Oil common
stock. Participants could then hold the stock or sell it and
invest the proceeds in a different fund, but they could not
purchase additional Marathon Oil stock.
time of the plan's creation, Marathon Oil stock traded at
$33.28 per share. (Doc. 1 at ¶54). Within months of the
spin-off, shares had dropped below $20; by mid-June, 2017,
Marathon Oil's stock was worth less than $13 per share.
Jefferey Yates, a former Marathon Petroleum employee and plan
participant, brought this suit in June, 2017, on behalf of
himself, the Marathon Petroleum Thrift Plan, and all
similarly situated plan participants. He raises essentially
three claims for breaches of the defendants' fiduciary
duties and a claim of co-fiduciary liability.
plaintiff alleges that defendants breached their duty to
offer only prudent investments by allowing participants to
hold Marathon Oil stock, which Yates characterizes as
plaintiff claims that defendants failed to conduct an
adequate investigation before permitting participants to hold
Marathon Oil stock. According to plaintiff, defendants
authorized this investment option because they: 1) wanted to
“mirror” the investment options in Marathon
Oil's employee-retirement plan; and 2) wrongly assumed
that the stock was an “employer security, ” 29
U.S.C. § 1107(d)(1), that was exempt from the duty to
diversify plan assets.
plaintiff alleges that defendants breached their duty to
diversify the plan's assets by placing $88 million, or
6.5% of the plan's total assets, into a fund holding only
Marathon Oil stock.
is proper under 28 U.S.C. § 1331.
is the defendants' motion to dismiss under Fed.R.Civ.P.
12(b)(6). (Doc. 18). For the following reasons, I grant the
motion to dismiss with prejudice.
the spin-off, Marathon Oil engaged in “upstream”
and “downstream” energy operations: the former
entailed oil-and-gas exploration and production, and the
latter refining, marketing, and transportation. (Doc. 18-1 at
4). On June 30, 2011, Marathon Petroleum separated from
Marathon Oil. It assumed responsibility for the downstream
operations, and Marathon Oil managed the upstream operations.
(Doc. 1 at ¶8; Doc. 18-1 at 4).
Petroleum established its employee-benefit plan on July 1,
plan is a defined-contribution, 401(k) plan that is open to
“all employees of Marathon Petroleum that meet certain
eligibility requirements.” (Doc. 1 at ¶20; Doc.
18-2 at 56-57).
had the option of investing in four “tiers” of
funds. Tier 1 included twenty-one index or mutual funds; Tier
2 included 12 “lifecycle” funds aimed at
participants' varying retirement dates; Tier 3 offered
thousands of mutual-fund options through Fidelity Brokerage;
and Tier 4 included the common stock of both Marathon
Petroleum and Marathon Oil. (Doc. 18-2 at 56-57).
plan authorized defendants to “add, modify, or delete
any investment option as they may deem appropriate” and
to do so at any time. (Id. at 20; Doc. 1 at
plaintiff alleges, defendants exercised essentially no
independent judgment when they selected the plan's
investment options. (Doc. 1 at ¶¶3, 34). Rather,
defendants decided simply to “mirror” the
investment options that Marathon Oil had offered to its
employees. (Id. at ¶3). The two plans'
investment options thus overlapped entirely, with the
exception that only participants in Marathon Petroleum's
plan could purchase Marathon Petroleum stock. (Id.
Marathon Oil Stock
the spin-off, many Marathon Oil employees became employees of
Marathon Petroleum. And many of those employees, by virtue of
their participation in Marathon Oil's employee-retirement
plan, owned Marathon Oil stock.
when defendants established the plan, they permitted
participants who held Marathon Oil stock to retain that stock
or sell it and move the proceeds to a different investment
option. But the defendants also designated the
Marathon Oil stock fund as a “frozen” investment
option, meaning that participants could not purchase
additional Marathon Oil stock. (Doc. 18-2 at 19-20, 57).
beginning of the class period (July 1, 2011, see
Doc. 1 at ¶74), the plan held $88 million of Marathon
Oil stock. As already noted, this amounted to roughly 6.5% of
the plan's $1.5 billion in assets. According to
plaintiff, the Marathon Oil stock “represented the
third largest investment in the plan.” (Id. at
Oil “is in the oil and gas industry, a very volatile,
high-risk sector of the economy subject to frequent
boom-and-bust cycles.” (Id. at ¶4).
to plaintiff, Marathon Oil has admitted that “its stock
price and earnings are highly dependent on the prices of
liquid hydrocarbons (oil) and natural gas, which
‘fluctuate widely, ' ‘have been volatile,
' and ‘may continue to be volatile.'”
(Id. at ¶47). Plaintiff alleges that, during
the class period, “Marathon Oil stock experienced
precisely the volatility and poor performance that might be
expected” of a single-stock investment within a
volatile sector of the economy. (Id. at ¶48).
examples, plaintiff notes that, in mid-2014, “Marathon
Oil's price per share declined by over 30%.”
(Id. at ¶56). Contemporaneous market
information also indicated that “energy prices would
remain low in the future - warning signs that the Defendants
should have recognized would cause the price of Marathon Oil
stock to drop further.” (Id.). Finally, a
series of market forecasts from December, 2014, through
December, 2015, predicted “high uncertainty in the
price of oil” and a likelihood of lower oil prices.
(Id. at ¶58).
these reasons, plaintiff maintains, “there should have
been heightened cause for concern” when it came to
holding the Marathon Oil stock. (Id. at ¶46).
Nevertheless, defendants permitted participants to retain or
invest in Marathon Oil stock and took no steps to divest,
even after the negative market conditions emerged in late
2014 and the stock's price plummeted in 2015.
to plaintiff, the defendants' alleged breaches of their
fiduciary caused the plan and its participants to lose
roughly $58 million. (Id. at ¶54).
complaint must contain a “short and plain statement of
the claim showing the pleader is entitled to relief.”
survive a motion to dismiss under Rule 12(b)(6), the
complaint “must contain sufficient factual matter,
accepted as true, to state a claim that is plausible on its
face.” Ashcroft v. Iqbal, 556 U.S. 662, 678
(2009). “A claim has facial plausibility when the
plaintiff pleads factual content that allows the court to
draw the reasonable inference that the defendant is liable
for the misconduct alleged.” Id.