The opinion of the court was delivered by: CHARLES KOCORAS, District Judge
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
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
(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.
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
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
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
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
financial advisors. Nelson avers that by investing in Enron's debt,
Brinson did not act solely in the interest of the beneficiaries of the
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).
"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 ...