Opinion
Civil Action No. 02-9049 CLASS ACTION.
October 12, 2004
MEMORANDUM
Presently before the Court are Defendants' Motions to Dismiss Plaintiffs' Second Amended Complaint, Plaintiffs' opposition thereto, and Defendants' replies to Plaintiffs' opposition. For the reasons set forth below, Defendants' motions are granted in part and denied in part.
Defendant Vanguard Fiduciary Trust Company ("Vanguard") filed its own motion to dismiss. All other Defendants filed a joint motion to dismiss. When appropriate, the Court will differentiate between the two motions to dismiss.
I. BACKGROUND
The background facts to this case have been discussed at length in the many briefs that the parties have submitted to the Court and in the Court's February 4, 2004 memorandum regarding Defendants' motions to dismiss the first amended complaint. Accordingly, the Court will not again recite the background. The background is incorporated in this memorandum by reference to the Court's February 4, 2004 memorandum.
In ruling on Defendants' motions to dismiss the first amended complaint, the Court dismissed Count I (Breach of Exclusive Purpose Requirement) and Count IV (Breach of Fiduciary Duty by Non-Fiduciaries) and declined to dismiss Counts II (Breach of Duty to Disclose Information) and Count III (Breach of Duty of Prudence). In the second amended complaint, Plaintiffs bring four counts that are identical to the first amended complaint.
II. STANDARD OF REVIEW
A motion to dismiss pursuant to Rule 12(b)(6) is granted where the plaintiff fails to state a claim upon which relief can be granted. Fed.R.Civ.P. 12(b)(6). This motion "may be granted only if, accepting all well-pleaded allegations in the complaint as true, and viewing them in the light most favorable to plaintiff, plaintiff is not entitled to relief." Maio v. Aetna, Inc., 221 F.3d 472, 482 (3d Cir. 2000). While the Court must accept all factual allegations in the complaint as true, it "need not accept as true `unsupported conclusions and unwarranted inferences.'" Doug Grant, Inc. v. Greate Bay Casino Corp., 232 F.3d 173, 183-84 (3d Cir. 2000), citing City of Pittsburgh v. West Penn Power Co., 147 F.3d 256, 263 n. 13 (3d Cir. 1998). In a 12(b)(6) motion, the defendant bears the burden of persuading the Court that no claim has been stated. Gould Electronics, Inc. v. United States, 220 F.3d 169, 178 (3d Cir. 2000).
III. DISCUSSION
A. Count I — Breach of Duty to Act for the Exclusive Purpose of the Plan Participants
In deciding Defendants' motions to dismiss Plaintiffs' first amended complaint, the Court dismissed this Count because "Defendant[s] . . . followed the plan terms and therefore provided the participants and beneficiaries with the benefits as directed by the plan . . ." (2/4/04 Mem. at 8.) In their second amended complaint, Plaintiffs add additional facts regarding their allegation that Defendants invested in the Norfolk Southern Stock Fund ("NS Stock Fund") to artificially inflate the stock price. (Second Am. Compl. ¶ 53-57.) Plaintiffs argue that based on these newly alleged facts, they have adequately stated a claim for breach of the exclusive purpose requirement under ERISA.
With regard to the exclusive purpose requirement, ERISA states, "a fiduciary shall discharge his duties with respect to a plan solely in the interest of the participants and beneficiaries and for the exclusive purpose of: (i) providing benefits to participants and their beneficiaries; and (ii) defraying reasonable expenses of administering the plan." 29 U.S.C. § 1104(a)(1). While ERISA provides that a fiduciary must act for the exclusive purpose of its participants, "ERISA does no more than protect the benefits which are due to an employee under a plan." Bennett v. Conrail Matched Savings Plan Administrative Committee, 168 F.3d 671, 677 (3d Cir. 1999). "ERISA does not confer substantive rights on employees; rather it ensures that they will receive those benefits that the employers have guaranteed to them." Id.; See also, Wright v. Oregon Metallurgical Corp., 360 F.3d 1090, 1100 (9th Cir. 2004) (holding that Plaintiffs failed to state a claim under the exclusive purpose requirement because Defendants complied with the plan's lawful terms and provided Plaintiffs with the benefits they were due to receive);Foltz v. U.S. News World Report, Inc., 865 F.2d 364, 373 (D.C. Cir. 1989) (stating that ERISA does not create an exclusive duty of maximizing pecuniary benefits).
In the instant case, there is no dispute that the Thoroughbred Retirement Investment Plan (the "Plan") required the employer's matching 401(k) contributions be invested in the NS Stock Fund. Furthermore, there is no dispute that the employer's matching contributions were invested in the NS Stock Fund. In fact, Plaintiffs allege that Defendants followed the exact terms of the Plan. However, Plaintiffs allege that in 1999 — four years after the Plan was established — Defendants developed a secret motive to continue following the Plan in an effort to artificially inflate the stock price during a time of poor financial performance. In a somewhat twisted argument, Plaintiffs contend that Defendants breached the exclusive purpose requirement by continuing to deliver the guaranteed benefits and by following the exact terms of the Plan, as they had done for four years prior to 1999 and as they have done in the years since 1999.
The Plan was established in 1995. (Second Am. Compl ¶ 26.)
Plaintiffs again fail to state a claim for breach of the exclusive purpose requirement. Plaintiffs do not make a single allegation that Defendants failed to follow the terms of the Plan, nor do Plaintiffs make a single allegation that they did not receive the benefits that were due to them under the Plan. In fact, Plaintiffs consistently allege that Defendants faithfully adhered to the terms of the Plan, and that they received every benefit that was due to them. Even if Plaintiffs' allegations are true, and certain Defendants had an interest in seeing the NS Stock Fund perform well, this does not create a cause of action under the exclusive purpose requirement. From the time the Plan was established in 1995 until the present, the Plan participants have received every benefit due to them, and Defendants have done nothing but follow the exact terms of the plan, including the year 1999. Accordingly, Plaintiffs have not stated a claim upon which relief can be granted, and Count I is dismissed as to all Defendants with prejudice.
Plaintiffs allege that in 1999, Defendants should have stopped following the Plan because NS Stock was no longer a good investment. This allegation, however, is consistent with a breach of duty of prudence cause of action, not a breach of the exclusive purpose requirement. Throughout their brief, Plaintiffs blur the distinction between these two causes of action.
B. Count II — Breach of Duty to Provide Information
In deciding Defendants' motions to dismiss Plaintiffs' first amended complaint, the Court did not dismiss this Count because "there may . . . under some reasonable interpretation of the allegations in the amended complaint, be some material information the fiduciaries should have provided that the Plaintiffs may prove." (2/4/04 Mem. at 11.) In the second amended complaint, Plaintiffs allege additional facts regarding the Conrail acquisition, the ensuing integration problems and the adverse financial impact caused by the acquisition. Based on these additional allegations, the Court finds no reason to change its prior ruling, as there might have been some information that should have been disclosed. The Court incorporates by reference its discussion on this Count from its February 4, 2004 memorandum, as the findings and rulings from that memorandum are unchanged and apply to Count II of the second amended complaint.
Defendants state that this cause of action "is derivative of the duty of prudence claim . . ." (Defs.' Br. at 27.) As discussed below, the Court also finds that the breach of duty of prudence claim cannot be dismissed.
C. Count III — Breach of Duty of Prudence
In deciding Defendants' motions to dismiss Plaintiffs' first amended complaint, the Court did not dismiss this Count, as Plaintiffs alleged "enough to survive a motion to dismiss." (2/4/04 Mem. at 15.) In the second amended complaint, Plaintiffs alleged additional facts regarding Defendants' motives for artificially inflating the Norfolk Southern stock price, the Conrail acquisition, the ensuing integration problems and the adverse financial impact caused by the acquisition. Although the Court finds this claim to be tenuous, the Court again will not dismiss this claim, as Plaintiffs have met the pleading standards. Additionally, in making this ruling, the Court again finds that it is premature to apply the Moench presumption. The Court incorporates by reference its discussion on this Count from its February 4, 2004 memorandum, as the findings and rulings from that memorandum are unchanged and apply to Count III of the second amended complaint.
D. Count IV — Breach of Fiduciary Duty by Non-Fiduciaries
Plaintiffs bring this cause of action under "Section 502(a)(3) of ERISA, as set forth in Harris Trust Savings Bank v. Salomon Smith Barney, Inc., 530 U.S. 238, 239 (2000)." (Second Am. Compl. ¶ 83.)
In deciding Defendants' motions to dismiss Plaintiffs' first amended complaint, the Court dismissed this claim because Plaintiffs "fail to allege any prohibited transaction engaged in by Norfolk Southern or its Officers and Directors, as outlined in ERISA's section 1106(a)." (2/4/04 Mem. at 15-16.) In the second amended complaint, Plaintiffs include this same Count but do not allege any additional facts regarding a prohibited transaction. As Defendants correctly note, "Count IV remains in the Second Amended Complaint . . . [and] is identical in every respect to that asserted in the Amended Complaint and should be dismissed for the reasons articulated in the Court's February 4, 2004 decision." (Defs.' Br. at 4.) Additionally, Plaintiffs seem to concede that this Count should be dismissed, as they do not address it in their opposition to Defendants' motion to dismiss. Accordingly, this Count is dismissed as to all Defendants with prejudice, and the Court incorporates by reference its discussion on this Count from its February 4, 2004 memorandum, as the findings and rulings from that memorandum are unchanged and apply to Count IV of the second amended complaint.
E. Claims Against Defendant Vanguard Fiduciary Trust Company
Plaintiffs bring all four Counts against all Defendants, without differentiating between any of the Defendants. As mentioned previously, Vanguard filed a separate motion to dismiss.
Vanguard filed its own motion to dismiss, arguing, among other things, that it is an independent directed trustee and, therefore, cannot be held liable for breach of fiduciary duties. While Vanguard's arguments are persuasive, the Court finds that further factual development is needed regarding Vanguard's role with the Plan, and Plaintiffs have alleged enough to survive a motion dismiss. Furthermore, pursuant to notice pleading standards, Plaintiffs have alleged enough regarding co-fiduciary liability to survive this motion to dismiss. Accordingly, Counts II and III will not be dismissed with regard to Vanguard. As discussed previously, Counts I and IV are dismissed with prejudice with regard to all Defendants.
ERISA states that a fiduciary can be held liable for another fiduciary's breach of fiduciary duty: "1) if he participates knowingly in, or knowingly undertakes to conceal, an act or omission of such other fiduciary, knowing such act or omission is a breach; 2) if, by his failure to comply with section 1104(a)(1) of this title in the administration of his specific responsibilities which give rise to his status as a fiduciary, he has enabled such other fiduciary to commit a breach; or 3) if he has knowledge of a breach by such other fiduciary, unless he makes reasonable efforts under the circumstances to remedy the breach." 29 U.S.C. § 1105(a).
IV. CONCLUSION
For the foregoing reasons, Defendants' motions to dismiss are granted with regard to Counts I and IV, and those Counts are dismissed with prejudice with regard to all Defendants. With regard to Counts II and III, Defendants' motions are denied.
An appropriate Order follows.
ORDER
AND NOW, this 12th day of October, 2004, upon consideration of Defendants' Motions to Dismiss (Docket Nos. 31 32), Plaintiffs' opposition thereto (Docket No. 36) and Defendants' replies (Docket Nos. 37 38), it is hereby ORDERED that Defendants' motions are DENIED with regard to Counts II and III and GRANTED with regard to Counts I and IV, and those Counts are dismissed with prejudice with respect to all Defendants.