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Muri v. National Indemnity Co.

United States District Court, D. Nebraska

February 26, 2018

MARC J. MURI, individually and on behalf of all others similarly situated, Plaintiff,


          John M. Gerrard, United States District Judge

         The plaintiff, Marc Muri, is suing his former employer, National Indemnity Company, for allegedly breaching the fiduciary duties owed to him, and all others similarly situated, under the Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. § 1001 et seq. National Indemnity has moved to dismiss the complaint for failure to state a claim for which relief can be granted. Filing 25. For the reasons discussed below, the Court will deny National Indemnity's motion to dismiss.


         Muri's allegations are summarized as follows. Muri was employed by National Indemnity, an insurance provider located in Omaha, Nebraska. Filing 1 at 7. During his employment, Muri participated in National Indemnity Company's Employee Retirement Savings Plan ("the Plan"). Filing 1 at 2. The Plan, in essence, allows participating employees to contribute a portion of their salary, which National Indemnity then matches, towards individual retirement accounts. Filing 1 at 8. Participants do so by choosing from a variety of fund options, all of which offer different investment styles and risk profiles, in which to invest their contributions. Muri elected to invest in the Sequoia Fund. Filing 1 at 2; see also filing 27-4 at 2.

         Generally speaking, the Sequoia Fund is a non-diversified, long-term growth mutual fund managed by Ruane, Cunniff & Goldfarm, Inc. Filing 1 at 2, filing 1 at 11; filing 1 at 13. The Sequoia Fund invests in "common stocks it believes are undervalued at the time of purchase and have the potential for growth." Filing 1 at 13. And it sells common stocks "when the company shows deteriorating fundamentals . . . or its value appears excessive relative to its expected future earnings." Filing 1 at 11.

         But as Muri alleges, the Sequoia Fund was, as of January 2015, no longer a prudent investment option. Filing 1 at 4. To that end, Muri contends the Sequoia Fund violated its own "value policy" by over-concentrating its investments in one, high risk stock: Valeant Pharmaceuticals. Filing 1 at 3; see also filing 1 at 2. In essence, Valeant's business model is to acquire various competitors and products, then drastically cut research and development costs in an effort to boost profits. Filing 1 at 16.

         According to Muri, Valeant's acquisition strategy, along with its accounting practices, began raising "red flags" around the industry. See filing 1 at 16-17. Specifically, investors began questioning Valeant's "cash earnings per share" accounting method, which appeared to vastly overstate Valeant's net income. Filing 1 at 18. And suspicions also arose surrounding Valeant's stock price which, at its peak, had a trade value almost ninety-eight times higher than its previous year's earnings. Filing 1 at 17. As a result, Valeant became the subject of intense scrutiny by investors, analysists, and elected officials. See filing 1 at 22-26. Despite that skepticism, however, Sequoia Fund managers allegedly refused to diminish the Fund's concentration in Valeant stock, and instead, acquired more. See filing 1 at 24.

         In October 2015, Valeant's stock price fell dramatically, and by November 2015, Valeant had lost more than $65 billion in market value. Filing 1 at 27. This, in turn, caused the Sequoia Fund to lose approximately twenty five percent of its value--vastly diminishing the retirement account of Muri, and other Plan participants, who had invested in the Fund. See filing 1 at 27.

         It is with that backdrop that this litigation ensued. Muri claims that from January 1, 2015, through the date of judgment in this action (the "Class Period"), National Indemnity violated the fiduciary duties it owed to Muri, and other Plan participants by: (1) failing to prudently manage the Plan by offering "shortsighted" investment options, such as the Sequoia Fund; and (2) failing to avoid conflicts of interest in choosing its investment options, specifically those with close relationships to its parent company--Berkshire Hathaway. Filing 1 at 34-37.


         National Indemnity has moved to dismiss the complaint under Fed.R.Civ.P. 12(b)(1) and (b)(6). Filing 25.

         Rule 12(b)(1)

         A motion pursuant to Federal Rule of Civil Procedure 12(b)(1) challenges whether the court has subject matter jurisdiction. The party asserting subject matter jurisdiction bears the burden of proof. Great Rivers Habitat Alliance v. FEMA, 615 F.3d 985, 988 (8th Cir. 2010). And Rule 12(b)(1) motions can be decided in three ways: at the pleading stage, like a Rule 12(b)(6) motion; on undisputed facts, like a summary judgment motion; and on disputed facts. Jessie v. Potter, 516 F.3d 709, 712 (8th Cir. 2008).

         A court deciding a motion under Rule 12(b)(1) must distinguish between a "facial attack"' and a "factual attack." Branson Label, Inc. v. City of Branson, Mo., 793 F.3d 910, 914 (8th Cir. 2015). In a facial attack, the Court merely needs to look and see if the plaintiff has sufficiently alleged a basis of subject matter jurisdiction. Id. Accordingly, the Court restricts itself to the face of the pleadings and the non-moving party receives the same protections as it would defending against a motion brought under Rule 12(b)(6)-that is, the Court accepts all factual allegations in the pleadings as true and views them in the light most favorable to the nonmoving party. Id.; Hastings v. Wilson, 516 F.3d 1055, 1058 (8th Cir. 2008).

         Conversely, in a factual attack, the existence of subject matter jurisdiction is challenged in fact, irrespective of the pleadings, and matters outside the pleadings, such as testimony and affidavits, may be considered. Branson Label, 793 F.3d at 914. Thus, the nonmoving party would not enjoy the benefit of the allegations in its pleadings being accepted as true by the reviewing court. Id. But factual challenges do not arise only when a court considers matters outside the pleadings. Faibisch v. Univ. of Minnesota, 304 F.3d 797, 801 (8th Cir. 2002). A ...

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