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NELSON v. BRINSON PARTNERS

January 15, 2004.

JAMES NELSON, on behalf of himself and a class of persons similarly situated, Plaintiff,
v.
BRINSON PARTNERS, INC. and BP AMOCO SAVINGS PLAN, Defendants



The opinion of the court was delivered by: CHARLES KOCORAS, District Judge

MEMORANDUM OPINION

This matter comes before the court on Defendant Brinson Partners, Inc.'s ("Brinson") motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6). For the reasons set forth below, the motion is denied.

BACKGROUND

  Because this is a motion to dismiss, we accept all well pleaded facts and allegations in the complaint as true and construe all inferences in favor of the Plaintiff. Thompson v. Illinois Dep't of Prof'l Regulation, 300 F.3d 750, 753 (7th Cir. 2002).

  Plaintiff James Nelson ("Nelson") is a former employee of BP Amoco Corporation ("BP"). Nelson was and is a participant in the BP Amoco Savings Plan Page 2 (the "Plan"), a 40 J (k)-type retirement plan that is an "employee pension benefit plan" within the meaning of the Employment Retirement Income Security Act ("ERISA"), § 3(2)(A), 29 U.S.C. § 1002(2)(A). Defendant Brinson is a global investment advisory firm based in Chicago. At all times relevant to this lawsuit Brinson acted as the investment manager for the Plan's assets pursuant to an agreement between BP's predecessor and Brinson known as the Investment Manager Agreement ("IM A"). The TMA granted Brinson "full discretionary authority to manage the assets" of the Plan.

  As a BP employee participating in the Plan, Nelson had the opportunity to choose from over 200 investment options. Among those options was the Money Market Fund, the subject of this lawsuit, in which Nelson and other BP employees invested. The Money Market Fund was described in BP investment materials to Plan participants as a relatively safe investment option that sought to provide a short-term fixed income (also known as "money market") rate of return with a minimal risk of principal loss. Evidence of the Money Market Fund's conservative investment philosophy was that it held as its "benchmark" the rate of return for a 30-day U.S. Treasury Bill.

  Despite its low-risk objectives, Brinson chose some investments for the Money Market Fund that were riskier than those usually associated with traditional money market funds such as unrated and low-rated debt instruments. One such investment Page 3 occurred on October 11, 2001, when Brinson purchased for the Money Market Fund an unsecured $20 million share of Enron debt know as a "loan participation." This loan participation was a riskier and more complex investment than the commercial paper in which money market funds typically invest in that it was unrated by any credit rating agency and that it was not liquid, meaning that it would have to be held until the loan reached maturity unless it could be sold to another investor. Maturity would never materialize as the $20 million loan participation would quickly prove worthless as Enron soon defaulted on November 29, 2001, as part of its rapid plunge into bankruptcy. This loss represented two percent of the Money Market Fund's total assets, which was highly unusual as such funds rarely suffer losses. Soon thereafter BP discharged Brinson as investment manager of its Money Market Fund.

  Even though Enron's speedy downfall caught many in the financial community by surprise, Nelson contends that prior to Brinson's purchase of the Enron debt many warnings existed that should have alerted Brinson to its impropriety as an investment for the Money Market Fund. Nelson cites the following as "red flags" that should have dissuaded Brinson from investing in Enron: (1) The rampant insider selling at Enron that occurred in 2000 and early 2001; (2) the opaqueness of Enron's financial statements; (3) the unsatisfactorily-explained resignation of Enron President Jeffrey Skilling on August 15, 2001; (4) the increased price of an Enron credit protection Page 4 contract (a derivative instrument that provided insurance against an Enron default); and (5) the decline in Enron stock price over the course of 2001,

  Nelson also asserts Brinson should have sold the Enron loan participation (even though it would have meant selling at a significant loss) prior to Enron's loan default based on the following occurrences: (1) Enron's October 16, 2001, announcement of a quarterly loss, its first in four years, after taking $1 billion in charges for poorly performing businesses; (2) the SEC's October 22, 2001, announcement that it had initiated an investigation into Enron; (3) Enron CFO Andrew Fastow's indictment and subsequent resignation on October 24, 2001; and (4) the late October lowering of Enron's investment value by various finance firms.

  To support its assertion that Brinson's investment analyzation process was imprudent at the time the Enron loan participation was purchased, Nelson points to remedial measures that Brinson undertook in the wake of the Enron default. For instance, Brinson subsequently implemented "ratings screens" that sought to remove from its portfolio certain investments that could be prone to rapid devaluation.

  In addition, Nelson contends that for the entire period in question Brinson operated under an undisclosed conflict of interest, namely Brinson's parent company's close relationship with Enron. Brinson's parent company, UBS, owned millions of shares of Enron stock, was one of its largest creditors and served as one of its main Page 5 financial advisors. Nelson avers that by investing in Enron's debt, Brinson did not act solely in the interest of the beneficiaries of the Plan,

  Nelson filed the present lawsuit, on behalf of himself and other beneficiaries of the Plan, on September 12, 2003. Nelson's complaint alleges that Brinson violated various provisions of ERISA, particularly that Brinson breached its fiduciary duties of loyalty and care. Nelson seeks as restitution to the Plan the $20 million loss resulting from the Enron loan participation investment. Brinson now moves to dismiss the complaint pursuant to Federal Rule of Civil Procedure 12(b)(6).

  LEGAL STANDARD

  "The purpose of a motion to dismiss is to test the sufficiency of the complaint, not to decide the merits." Gibson v. City of Chicago, 910 F.2d 1510, 1520 (7th Cir. 1990) (quoting Triad Assocs., Inc. v. Chicago Hous. Auth., 892 F.2d 583, 586 (7th Cir. 1989)). A complaint need only specify "the bare minimum facts necessary to put the defendant on notice of the claim so that he can file an answer." Higgs v. Carver, 286 F.3d 437, 439 (7th Cir. 2002) (citing Beanstalk Group. Inc. v. AM General Corp., 283 F.3d 856, 863 (7th Cir. 2002)). Dismissal is proper only when "it appears beyond doubt that the plaintiff can prove no set of facts in support ...


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