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STEINMAN v. HICKS

March 24, 2003

VERN STEINMAN, FLOYD SINCLAIR, AND RON EICKELSCHULTE, ON BEHALF OF THEMSELVES AND THOSE SIMILARLY SITUATED, PLAINTIFFS,
v.
TERESA HICKS, FRANK CIASTKO, CHARLES ARCHER, DOUGLAS SCHMALZ, MAUREEN AUSURA, DAVID SMITH, AND THE MOORMAN PROFIT SHARING PLAN, DEFENDANTS.



The opinion of the court was delivered by: Richard Mills, Senior District Judge.

OPINION

Under the circumstances, did Defendants breach their fiduciary duty under ERISA to Plaintiffs in continuing to invest 65% of the Moorman Profit Sharing Plan's assets in Archer-Daniels-Midland common stock after the termination of the Plan?

No.

Summary judgment for Defendants.

I. BACKGROUND

On December 30, 1997, the Archer-Daniels-Midland Company ("ADM") acquired the Moorman Manufacturing Company ("MMC") by merging MMC with a wholly-owned subsidiary of ADM. One year later, the wholly-owned subsidiary merged into ADM. ADM's acquisition of MMC was structured as a stock-for-stock, tax-free reorganization. Specifically, ADM acquired all outstanding shares of MMC's common stock and, in exchange, provided each MMC shareholder with a designated number of shares of ADM common stock. By acquiring complete ownership of MMC, ADM became the employer of MMC's employees and the sponsor of MMC's employee benefit plans.

At the time ADM acquired MMC, MMC sponsored the MMC Employees Profit Sharing Plan ("the MMC Plan"). One of the purposes of the MMC Plan was to allow MMC's employees to acquire an ownership interest in MMC. The MMC Plan had two component parts. The first part of the MMC Plan had a 401(k) component which allowed participants to defer a portion of their wages to the MMC Plan. The second part of the MMC Plan had a profit sharing component whereby MMC would make additional discretionary contributions to accounts of eligible participants after the close of each year.

According to the terms of the MMC Plan, profit sharing contributions were made by MMC to the accounts of qualified employees based primarily on the employees' years of service. An employee was not entitled to receive the amounts contributed to his profit sharing account unless he terminated his employment with MMC, was fired, retired, died, or unless the MMC Plan was terminated.*fn1

Immediately prior to the acquisition, approximately 65% of the profit sharing portion of the MMC Plan's assets were invested in MMC stock. Therefore, after the acquisition, approximately 65% of the profit sharing portion of the MMC Plan's assets were invested in and converted to ADM stock,*fn2 The remaining portion of the MMC Plan's assets were invested in two mutual funds: the MainStay Equity Index Fund and the Vanguard Bond Index Intermediate Fund. At the time of the stock exchange, the price of ADM common stock was $21.20 per share.

Furthermore, at the time of the stock exchange, ADM sponsored its own retirement plans for its employees including a 401(k) plan and an Employee Stock Ownership Plan ("ESOP"). Shortly after the merger of the plans, ADM amended its retirement plans to permit the former MMC employees to begin participating in the ADM benefit plans. In addition, ADM "froze" the MMC Plan which meant that, although it continued to exist, no new employees could become participants in and no additional contributions could be made to the MMC Plan. ADM assigned the responsibility for administering the "frozen" MMC Plan to its Benefit Plans' Committee ("the ADM Plans' Committee").*fn3

The ADM Plans' Committee then had to determine what to do with the "frozen" MMC Plan. As for the 401(k) component of the MMC Plan, the ADM Plans' Committee directed that those accounts be transferred and converted to the ADM 401(k) plan. The MMC Plan's participants had no say or choice in the decision regarding what to do with their 401(k) accounts.

As for the MMC Plan's profit sharing component, the ADM Plans' Committee decided to terminate the MMC Plan and, as part of the winding-up process and making final distributions to the participants, to allow the participants to determine what should be done with their accounts. Essentially, a participant could choose from one of three options. First, a participant could elect to "rollover" his MMC Plan profit sharing account to the ADM ESOP (i.e., ADM's equivalent profit sharing plan) or to an Individual Retirement Account ("IRA"). Second, a participant could take a distribution of his account in the form of ADM stock. Third, a participant could take a distribution from his account in the form of cash.

On January 7, 1998, the ADM Plans' Committee notified all of the MMC Plan's participants that the MMC Plan would be terminated within twelve months. In addition, the ADM Plans' Committee sent a package of material to each participant informing the participant of the three options regarding his account along with a form to complete and return advising the ADM Plans' Committee of the participant's election. By formal resolution dated February 19, 1998, the ADM Plans' Committee terminated the MMC Plan effective April 1, 1998.

On August 13, 1998, the ADM Plans' Committee notified the MMC Plan's participants that it would not begin distributing the MMC Plan's assets to the participants according to their elections until it received a determination letter from the Internal Revenue Service ("IRS") confirming that the MMC Plan's termination would not adversely affect the MMC Plan's tax-qualified status. On March 25, 1999, the IRS issued a determination letter which concluded that the MMC Plan was tax-qualified. On April 1, 1999, the ADM Plans' Committee notified the MMC Plan's participants that the IRS had issued a favorable determination letter. In June 1999, the ADM Plans' Committee distributed the MMC Plan's assets to the MMC Plan's participants pursuant to their elections. Roughly 52% of the MMC Plan's participants elected to receive their distribution in the form of ADM stock, either by rolling it over into the ADM ESOP (40%) or as a stock distribution directly or to an IRA (12%).*fn4

Between December 31, 1997, and June 1999, the price of ADM's stock declined from a high of approximately $23.00 per share in February 1998 to $15.56 per share when the MMC Plan's assets were finally distributed in June 1999. In fact, on December 31, 1997, the value of the MMC Plan's assets was approximately $155.2 million, and, by the time that the ADM Plans' Committee distributed the MMC Plan's assets to its participants in June 1999, the value of its assets had dropped to approximately $114 million.

As a result of this decline in the value of their MMC Plan's profit sharing accounts, certain MMC Plan participants filed an administrative claim with the ADM Plans' Committee on December 13, 1999, claiming that they were not paid all of the benefits to which they were entitled under the MMC Plan. Specifically, these participants contended that they were owed an additional $1.2 million in "principal loss" which represented the difference in the value of the ADM common stock held in their MMC Plan's profit sharing accounts on January 1, 1998 (i.e., $21.20 per share) and the value of the ADM common stock held in their accounts on June 15, 1999 (i.e., $15.56 per share). In other words, the participants claimed that the ADM Plans' Committee's breach of its fiduciary duty to them (which was imposed upon the ADM Plans' Committee by the Employee Retirement Income Security Act ("ERISA") 29 U.S.C. § 1001 et seq.) cost them a loss of $6.00 per share on the value of the ADM common stock held in their MMC Plan's profit sharing accounts.

On June 6, 2000, the ADM Plans' Committee denied the participants' administrative claim. On September 29, 2000, the ADM Plans' Committee denied the participants' administrative appeal.

That same day, ADM, the ADM Plans' Committee, and the ADM Plans' Committee's individual members filed a declaratory judgment action in this Court, pursuant to 28 U.S.C. § 2201 et seq., seeking a declaration from the Court that it owed no further obligation or duty under ERISA to the MMC Plan's participants. On November 20, 2000, the MMC Plan's participants filed a class action counterclaim against ADM, the ADM Plans' Committee, and the ADM Plans' Committee's members.

On January 3, 2002, the parties entered into a stipulation, which was approved by the Court, whereby ADM, the ADM Plans' Committee, and the ADM Plans' Committee's members agreed to voluntarily dismiss their declaratory judgment action against the MMC Plan's participants, and the MMC Plan's participants agreed to voluntarily dismiss their class action counterclaim. Furthermore, the parties agreed to a re-alignment of the parties whereby the declaratory judgment Plaintiffs became the Defendants and the class action Defendants became the Plaintiffs. Finally, the parties and the Court agreed that Plaintiffs should be certified as a class, pursuant to Federal Rule of Civil Procedure 23, and that Plaintiffs would maintain this case as a cause of action against Defendants for an alleged breach of their fiduciary duties under ERISA.*fn5

The parties have now filed cross-motions for summary judgment pursuant to Federal Rule of Civil Procedure 56.

II. ARGUMENTS

Plaintiffs argue that they are entitled to summary judgment because Defendants breached the fiduciary duty which Defendants owed to them pursuant to ERISA. Specifically, Plaintiffs assert that Defendants violated their fiduciary duty in that Defendants failed to protect them from losses which they incurred as a result of a massive, short-term decline in the MMC Plan's assets. As a result of this breach, Plaintiffs contend that the Court should order Defendants to repay the losses sustained by them as a result of the decline in the ...


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