The opinion of the court was delivered by: NORDBERG
JOHN A. NORDBERG, UNITED STATES DISTRICT JUDGE
Defendants have moved to dismiss Count I of this complaint for failure to state a claim, Fed. R. Civ. P. 12(b)(6), and the remaining counts for lack of pendent jurisdiction, Fed. R. Civ. P. 12(b)(1). See United Mine Workers v. Gibbs, 383 U.S. 715, 16 L. Ed. 2d 218, 86 S. Ct. 1130 (1966). The Secretary of Labor, having taken interest in the questions posed by the motion to dismiss, has filed a brief as amicus curiae, opposing the motion. For the following reasons, this Court denies the defendants' motion.
When ruling on a motion to dismiss for failure to state a claim, a court must accept as true all well-pleaded factual allegations in the complaint and must draw all reasonable inferences in the light most favorable to the plaintiffs. Powe v. City of Chicago, 664 F.2d 639, 642 (7th Cir. 1981). A complaint should not be dismissed for failure to state a claim unless it is beyond doubt that the plaintiffs could prove no set of facts that would entitle them to relief. Conley v. Gibson, 355 U.S. 41, 45-46, 2 L. Ed. 2d 80, 78 S. Ct. 99 (1957). Accordingly, the facts of this case, as alleged in the complaint, are as follows.
The Company is a Delaware corporation with its principal place of business in the Northern District of Illinois. Plaintiff was a participant, see ERISA § 3(7), 29 U.S.C. § 1002(7), in the Company Employee Stock Ownership Plan ("the Plan"), an ERISA-regulated entity which controlled approximately ninety percent of the Company's shares during the time relevant to this dispute. As a result of a leveraged buy-out of the Company in December 1985, plaintiff became chief executive officer
and co-managed the Company with defendants DeForest P. Davis, Jr.; Charles E. Fausel; Stephen C. Mitchell; and Donald S. Hitchcock ("the Davis Group"), who with plaintiff comprised the Board of Directors. Each member of the Board of Directors also acted as a trustee of the Company Employee Stock Ownership Trust ("the Trust"), which controlled the Plan.
Plaintiff's employment contract provided that he could be fired with or without cause by a unanimous vote of the directors other than himself. However, if he were fired without cause, the Company was liable for severance benefits. On April 17, 1987, the Davis Group, without notice to plaintiff or a meeting of the Board,
voted the shares controlled by the Plan to reconstitute the Board. They informed plaintiff that he was not reelected to the Board, was removed as a trustee, and was terminated as an employee. Davis was named to replace plaintiff as CEO.
The plaintiff alleges in Count I that by voting shares of the Company stock to reconstitute the Board of Directors, the Davis Group acted as fiduciaries, as defined by ERISA, and further breached their fiduciary duties by acting to further their own interests, rather than those of the Plan participants.
None of the parties has cited authority directly dealing with the question whether the voting of plan-owned shares constitutes the exercise of fiduciary powers. Indeed, the Secretary has represented it to be a question of first impression. The Court thus begins its analysis by parsing the provisions of ERISA.
To begin with, § 3(21)(A) defines a person as a fiduciary "to the extent (i) he exercises any discretionary authority or discretionary control respecting management of such plan or exercises any authority or control respecting management or disposition of its assets." 29 U.S.C. § 1002(21)(A)(i).
As the use of the disjunctive "or" to connect the terms "management" and "disposition" makes plain, disposition of Plan assets is not necessary in order for the fiduciary duty to arise. The exercise of authority or control over management of the assets will suffice. Furthermore, as the Secretary suggests, the statute's use of the term "management" cannot logically be limited to the "investment" of Plan assets, contrary to the defendants' suggestion. Plaintiff argues, and the Court agrees, that the ...