GLADYS KESSLER, District Judge.
Plaintiffs William S. Harris, Reginald E. Howard, and Peter M. Thornton, Sr. are former employees of Waste Management Holdings, Inc. ("Old Waste") and participants in the Waste Management Profit Sharing and Savings Plan ("Old Waste Plan" or "Plan"). They bring this action on behalf of the Plan's approximately 30,000 participants under the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. §§ 1001 et seq., against Defendants,
This matter is now before the Court on the portions of Plaintiffs' Motion for Partial Summary Judgment that address Counts VI and VII against Defendants State Street Bank and Trust Company ("State Street") and Old Waste [Dkt. No. 435], and on State Street's Motion for Summary Judgment [Dkt. No. 442].
This action arises from Old Waste's announcement on February 24, 1998, that, prior to 1992 and continuing through the first three quarters of 1997, it had materially overstated its reported income by approximately $1.3 billion, and that it was therefore restating several of its financial statements for periods between 1991 and 1997. That announcement led to the filing of a securities class action in the United States District Court for the Northern District of Illinois, which settled on September 17, 1999 (the "Illinois Litigation").
Earlier, on July 15, 1999, the Illinois district court entered a Preliminary Approval Order approving a proposed settlement and provisionally certifying a class, for settlement purposes only, of all persons (other than Defendants and their affiliates) who had acquired Old Waste common stock between November 3, 1994, and February 24, 1998. See Fifth Amended Complaint ("FAC") ¶ 138 [Dkt. No. 408]. Pursuant to the Preliminary Approval Order, "a Notice of Pendency and Proposed Settlement of Class Action, dated July 20, 1999 (the `Illinois Class Notice'), was sent to [all] members of the [Illinois settlement class], including the Plan and its fiduciaries." Id. The Illinois Notice described the scope of the release that would be given by members of the Illinois settlement class in exchange for the settlement consideration, and advised class members of their right to object to or opt out of the proposed settlement by September 2, 1999. See id.
At the time of the Illinois settlement, State Street served as Trustee and Investment Manager for the New Waste Plan.
On April 1, 2002, Plaintiffs filed suit in this Court, alleging ten counts of ERISA violations pursuant to ERISA § 502(a)(2), codified as 29 U.S.C. § 1132(a)(2). Plaintiffs' claims were originally divided into three periods. First, Plaintiffs alleged five ERISA violations related to the Plan's purchase of inflated shares of Company Stock in the first claim period between January 1, 1990, and February 24, 1998 (Counts I-V, the "First Period Claims"). Second, Plaintiffs alleged four ERISA violations related to the release of claims by the Plan's fiduciaries in the Illinois Litigation in the second claim period between July 15, 1999, and December 1, 1999 (Counts VI-IX, the "Second Period Claims"). Third, Plaintiffs alleged one ERISA violation related to the release of claims by State Street in the Texas Litigation in the third claim period between February 7, 2002, and July 15, 2002 (Count X).
While there has been a significant amount of litigation regarding the various counts, the only counts relevant to the pending Motions are Counts VI and VII, which are also the only remaining counts specific to State Street.
Summary judgment may be granted "only if" the pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law. See Fed.R.Civ.P. 56(c), as amended Dec. 1, 2007; Arrington v. United States, 473 F.3d 329, 333 (D.C.Cir.2006). In other words, the moving party must satisfy two requirements: first, that there is no "genuine" factual dispute and, second, if there is, that it is "material" to the case. "A dispute over a material fact is `genuine' if `the evidence is such that a reasonable jury could return a verdict for the non-moving party.'" Arrington, 473 F.3d at 333 (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986)). A fact is "material" if it might affect the outcome of the case under the substantive governing law. Liberty Lobby, 477 U.S. at 248, 106 S.Ct. 2505.
As the Supreme Court stated in Celotex Corp. v. Catrett, "the plain language of Rule 56(c) mandates the entry of summary judgment, after adequate time for discovery and upon motion, against a party who fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial." 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). The Supreme Court has further explained,
Scott v. Harris, 550 U.S. 372, 380, 127 S.Ct. 1769, 167 L.Ed.2d 686 (2007) (quoting Liberty Lobby, 477 U.S. at 247-48, 106 S.Ct. 2505) (emphasis in original).
However, the Supreme Court has also consistently emphasized that "at the summary judgment stage, the judge's function is not ... to weigh the evidence and determine the truth of the matter, but to determine whether there is a genuine issue for trial." Liberty Lobby, 477 U.S. at 249, 106 S.Ct. 2505. In both Liberty Lobby and Reeves v. Sanderson Plumbing Products, Inc., 530 U.S. 133, 150, 120 S.Ct. 2097, 147 L.Ed.2d 105 (2000), the Supreme Court cautioned that "[c]redibility determinations, the weighing of the evidence, and the drawing of legitimate inferences from the facts, are jury functions, not those of a
In Count VI, Plaintiffs allege that State Street, in its capacity as Trustee and Investment Manager, breached its fiduciary duty to the New Waste Plan. FAC ¶¶ 205-09. Specifically, Plaintiffs claim that State Street failed to adequately review and investigate the claims in the Illinois litigation and appropriately consider whether Plaintiffs' ERISA claims in that case should have caused State Street to opt out of the settlement. Id. ¶ 207.
Plaintiffs now move for summary judgment on the ground that "under the undisputed facts and circumstances presented here, State Street's mere reading of the class notice [did not] satisf[y] State Street's duty to investigate and recover on the Plan's potential ERISA claims."
Under ERISA Section 404(a)(1), "a fiduciary shall discharge his [or her] duties with respect to a plan . . . with the care, prudence, and diligence under the circumstances then prevailing that a prudent [person] 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). As this Court has previously explained:
Harris v. Koenig, 602 F.Supp.2d 39, 54-55 (D.D.C.2009) ("Harris I").
Notably, however, Section 404 requires a fiduciary to act "with the care, prudence, and diligence" a prudent person would use "under the circumstances then prevailing." 29 U.S.C. § 1104(a)(1) (emphasis added). The question now before the Court is not whether State Street's conduct appears prudent as of this time, i.e. 2011, but whether State Street acted with the type of care and engaged in the type of investigation that would reasonably be expected of someone acting as a Trustee during the second half of 1999. See Chao v. Merino, 452 F.3d 174, 182 (2d Cir.2006) (a fiduciary's "actions are not to be judged `from the vantage point of hindsight'") (quoting Katsaros v. Cody, 744 F.2d 270, 279 (2d Cir.1984)); Henry v. Champlain Enters., Inc., 445 F.3d 610, 620 (2d Cir.2006) ("The focal point of our inquiry under ERISA is . . . whether [the fiduciary] acted with the prudence required of a fiduciary under the prevailing circumstances at the time of the transaction."); Bussian v. RJR Nabisco, Inc., 223 F.3d 286,
In support of their Motion, Plaintiffs point to a litany of shortcomings in State Street's process for dealing with the Illinois litigation. For example:
Pls.' Mot. 36-39. In essence, Plaintiffs contend that without undertaking some or all of these proposed actions, State Street breached its fiduciary duty under Section 404.
State Street responds that because it took into account relevant factors such as "the cost of enforcing the claim, the chance of success and the likelihood of collecting a judgment . . . State Street's handling of the Illinois settlement in 1999 was both sound and consistent with industry standards," notwithstanding any omissions identified by Plaintiffs. Def.'s Mot. 8-9 (citing Scott & Ascher, Trusts § 17.9 (5th Ed. 2007)).
State Street explains that "[f]ollowing its standard practice, State Street sent the notice of the Illinois settlement to the lawyers for its company stock group," who "were well aware of the laws and regulations applicable to company stock plans and followed developments in benefits litigations." Id. at 9. These attorneys considered the notice and determined that "the proposed settlement was the result of contested litigation and there were no reasonable concerns suggested by the notice with respect to issues such as the independence or qualifications of plaintiffs' counsel in the Illinois class actions." Id. at 10. Therefore, State Street did not object to the settlement and filed a claim for the Plan. Id.
In support of its position, State Street points to the statements of Plaintiffs' own experts who acknowledge that, in 1999, it was the standard practice of ERISA plans to accept securities class action settlements and file the appropriate claims. Plaintiffs' expert Alan D. Biller, who served as an independent consultant advising between 50 and 100 ERISA plans prior to 2000 regarding the filing of claims as part of securities class action settlements, stated that none of those plans opted out of a proposed settlement. Biller Dep., Jan. 21, 2011, Curto Decl., Ex. 13, at 170-81 [Dkt. No. 442-19]. Biller also admitted that he could not recall ever calculating the potential recovery for any plan under a proposed settlement and that "generally we didn't even try to estimate that." Id. at 179. Nor could Biller recall ever calculating the potential value of a carve-out for ERISA claims. Id. at 180.
Marcia Wagner, an ERISA compliance attorney retained by Plaintiffs to provide expert testimony, similarly was not aware of any ERISA plan that opted out of a settlement to pursue ERISA claims or that carved ERISA claims out of a settlement prior to 2000. Wagner Dep. Jan 27, 2011, Curto Decl., Ex. 14, at 47-48 [Dkt. No. 442-20]. She knew of no cases in which an ERISA plan trustee had "obtained substantial recoveries under alternative claims for relief under ERISA next door to a piece of securities litigation by 1999." Id. at 51-52.
Plaintiffs offer absolutely no countervailing evidence suggesting that a prudent person in State Street's position at the time of the settlement would have made greater efforts to pursue a carve-out of ERISA claims or otherwise opt out of the settlement. Instead, Plaintiffs identify twenty-eight decisions, opinion letters, amicus curiae briefs, and articles that they label as "pertinent legal precedent that predates September 1999." Pls.' Opp'n 21-27. Not a single one of these citations support Plaintiffs' position.
First, Plaintiffs offer fifteen cases which simply have nothing to do with ERISA litigation claims based on a drop in company stock price analogous to the ERISA claims that Plaintiffs argue deserved additional attention by State Street. Pls.' Opp'n 21-26. None suggest that an ERISA plan would be successful in opting out of a securities class action settlement and pursuing its own claims.
Second, Plaintiffs cite to two cases which do involve ERISA stock drop litigation. Pls.' Mot. 25. These cases stand for the well established principle, which does not support Plaintiffs' claims in this case, that "an ESOP fiduciary who invests the assets in employer stock is entitled to a presumption that it acted consistently with ERISA by virtue of that decision." Moench v. Robertson, 62 F.3d 553, 571 (3d Cir.1995); Kuper v. Iovenko, 66 F.3d 1447, 1459 (6th Cir.1995).
Third, Plaintiffs quote from a smattering of Department of Labor Advisory Opinion
Fourth, and finally, Plaintiffs cite to cases decided after 1999, which, once again, for the reasons given above, are not relevant to whether State Street's conduct was prudent at the time in question. Id. at 25-27.
Plaintiffs present no evidence whatsoever that there was any "history of success in ERISA `stock drop' litigation of the kind [P]laintiffs say State Street should have pursued" or that a prudent fiduciary would have taken the steps suggested by Plaintiffs. Def.'s Mot. 4. Instead, as discussed above, Plaintiffs have merely presented a long list of additional steps they believe State Street should or could have undertaken that may or may not have yielded a preferable settlement for the Plan. But "ERISA does not impose a duty to take any particular course of action," nor does it allow a fiduciary's "actions to be judged from the vantage point of hindsight." Merino, 452 F.3d at 182 (internal quotations omitted).
In short, Plaintiffs have submitted no evidence that a prudent person acting in a like capacity and familiar with such matters would have taken a different course of action under the conditions prevailing at that time. 29 U.S.C. § 1104(a)(1). Without any such evidence, Plaintiffs "fail[] to make a showing sufficient to establish the existence of an element essential to [their] case, and on which [they] will bear the burden of proof at trial." Celotex Corp., 477 U.S. at 322, 106 S.Ct. 2548. Therefore, Plaintiffs' Motion for Summary Judgment as to Count VI is
Both parties also seek summary judgment on Plaintiffs' claim that State Street engaged in a prohibited transaction under ERISA Section 406 by agreeing to a settlement in the Illinois Litigation that released the Plaintiffs' claims. Section 406 forbids a plan's fiduciary from "caus[ing] the plan to engage in a transaction, if he [or she] knows or should know that such transaction constitutes a direct or indirect. . . sale or exchange, or leasing, of any property between the plan and a party in interest." 29 U.S.C. § 1106(a)(1). The Section "categorically bar[s] certain transactions deemed likely to injure the pension
In concluding that Plaintiffs had adequately stated a claim and therefore denying State Street's Motion to Dismiss Count VII, this Court stated that "it is a prohibited exchange of property under ERISA Section 406 for State Street, a Plan fiduciary, to enter into the Illinois Securities Settlement on behalf of the New Waste Plan against Old Waste, the Plan sponsor and a party in interest, unless the transaction is exempted from the proscriptions of ERISA Section 406." Harris I, 602 F.Supp.2d at 56-57 (emphasis added).
As the Court also noted at that early point in the litigation, State Street's participation in the settlement might be exempted from the strictures of Section 406 by Prohibited Transaction Exemption ("PTE") 2003-39, 68 Fed.Reg. 75,632. Id. at 57. PTE 2003-39 "permits transactions engaged in by a plan, in connection with the settlement of litigation" and "affects all employee benefit plans, the participants and beneficiaries of such plans, and parties in interest with respect to those plans engaging in the described transactions." 68 Fed.Reg. 75,632. In order to qualify for the exemption, the settlement must be "reasonable in light of the plan's likelihood of full recovery, the risks and costs of litigation, and the value of claims foregone." Id. at 75,639. As the Department of Labor explained, this requirement demands that any exempted settlement "involve a prudent decision-making process, given the facts and circumstances of the particular situation." Id. at 75,636.
State Street devotes a great deal of its briefing to rearguing whether a settlement of the type in question is a prohibited transaction under ERISA Section 406, noting in particular that no other court has examined some of the issues implicated by that question.
Regardless of whether State Street's participation in the settlement is subject to Section 406, it is clear that, even assuming Section 406 does apply, PTE 2003-39 covers the release of claims included in the Illinois settlement. The language used by the Department of Labor demonstrates that exactly the same level of prudence is required to obtain an exemption under PTE 2003-39 as is required by the fiduciary duties outlined in ERISA Section 404. Compare id. at 75,636 (an exempted settlement "will always involve a prudent decision-making process, given the facts and circumstances of the particular situation."), with 29 U.S.C. § 1104(a)(1) ("a fiduciary shall discharge his [or her] duties with respect to a plan . . . with the care, prudence, and diligence under the circumstances then prevailing that a prudent [person] 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.").
Indeed, Plaintiffs' arguments attempting to demonstrate why State Street's conduct should not be covered by PTE 2003-39 are
For the reasons spelled out above, supra Part III.A, State Street's participation in the Illinois settlement involved what was at that time "a prudent decision-making process, given the facts and circumstances of the particular situation" and was "reasonable in light of the plan's likelihood of full recovery, the risks and costs of litigation, and the value of claims foregone." 68 Fed.Reg. 75,633, 75,639. Therefore, Plaintiffs' Motion for Summary Judgment as to Count VII is
68 Fed.Reg. 75,633.