The opinion of the court was delivered by: JOHN W. DARRAH, District Judge
MEMORANDUM OPINION AND ORDER
Plaintiff's, participants in a Sears Employee Retirement Income
Security Act of 1974 ("ERISA") plan, sued Defendants, Sears, Roebuck
& Co., Alan Lacy, Paul Liska, Thomas Bergmann, Greg Lee, and Glen
Richter, the Sears Board of Directors, unnamed members of the ERISA plan
Investment Committee, and the Investment Committee, for violations of
ERISA. Now before the Court is Defendants' Motion to Dismiss Plaintiffs'
Amended Complaint. For the following reasons, that motion is granted in
part and denied in part.
In reviewing a motion to dismiss, the court reviews all facts alleged
in the complaint and any reasonable inferences drawn therefrom in the
light most favorable to the plaintiff. See Marshall-Mosby v.
Corporate Receivables, Inc., 205 F.3d 323, 326 (7th Cir. 2000). A
plaintiff is not required to plead the facts or elements of a claim, with
the exceptions found in Federal Rule of Civil Procedure 9. See
Swierkiewicz v. Sorema, 534 U.S. 506, 511 (2002); Walker v.
Thompson, 288 F.3d 1005, 1007 (7th Cir. 2002). Dismissal is
warranted only if "it appears beyond a doubt that the plaintiff
can prove no set of facts in support of his claim which would
entitle him to relief." Conley v. Gibson, 355 U.S. 41,
45-46 (1957). The "suit should not be
dismissed if it is possible to hypothesize facts, consistent with
the complaint, that would make out a claim." Graehling v. Village of
Lombard, Ill., 58 F.3d 295, 297 (7th Cir. 1995).
Generally, matters outside the pleadings cannot be considered on a
motion to dismiss. See, e.g., Corman Derailment Serv., LLC v. Int'l
Union of Operating Eng'rs Local Union 750, 335 F.3d 643, 647 (7th
Cir. 2003). However, documents that a defendant attaches to a motion to
dismiss may be considered if they are referred to in the plaintiff's
complaint and are central to the plaintiff's claim. Albany Bank &
Trust Co. v. Exxon Mobil Corp., 310 F.3d 969, 971 (7th Cir. 2002).
The facts, for the purposes of this motion, are taken as true from
Plaintiffs' Complaint. Plaintiff's, Bill Kehr, Michael G. Cheperka,
Kenneth Hawkins, and Margaret Villano, are participants in a 401(k)
Savings Plan (the "Plan"). Defendant Sears, Roebuck, and Co. ("Sears")
sponsored and administered the Plan. Another Defendant, the Investment
Committee, had the authority to choose the type of investment options, a
particular investment style, and make other investment decisions with
respect to the Plan. Defendant Alan Lacy was, at all relevant times, the
Chief Executive Officer, President, and Chairman of the Board at Sears.
The Investment Committee distributed Summary Plan Descriptions and Plan
prospectuses to all Plan participants, pursuant to relevant federal
Defendants Paul Liska, Thomas Bergmann, Greg Lee, and Glen
Richter who, at all relevant times, were high-ranking Sears
executive officers, were members of the Investment Committee, along with
thirty unnamed fiduciary Defendants (collectively the "Committee
Defendants"). The named members of the Investment Committee had
substantial knowledge of
Sears' business plans, operations, finances, and access to internal
company reports and memoranda. These Defendants were also familiar with
Sears' accounting and financial practices.
Defendants Hall Adams, Jr., Brenda Barnes, James Cantalupo,
Donald Carry, W. James Farrell, Michael Miles, Hugh Price, Dorthy Terell,
and Raul Yzaguire were, at all relevant times, members of the
Sears Board of Directors (collectively the "Director Defendants"). The
Sears Board of Directors is the primary personification through which
Sears effectuated its Plan-related duties.
The Plan allows eligible employees to contribute to the Plan through
payroll deductions. Participants may then direct their investment into
one or more of several funds available under the Plan. One of the
available funds is the Company Stock Fund.
The Plan designates Sears as a named fiduciary, but only for the
non-investment operations of the Plan. The Plan delegates responsibility
for investment decisions to the Investment Committee, including those
related to the Sears Stock fund. The Board of Directors is given the
authority to appoint members to the Investment Committee. § 1.3.
The Plan also requires that a Company Stock Fund must exist, which is
"designed to invest exclusively in [Sears] Company Stock." Plan §
6.8. Sears is required to offer the Company Stock Fund as one of the
investment funds offered under the Plan. Plan § 6.1. Employer
matching contributions made in cash must be invested in the Company Stock
Fund, and Employer contributions made in Company Stock are held under the
Company Stock Fund.
The Employer contributions in the Company Stock Fund cannot be
transferred to any other investment except by the participating employee.
Plan § 6.3. However, to the extent that
the Plan requires matching participant contributions, a certain
portion of each Investment Fund, including the Company Stock Fund, may be
held in cash or cash equivalents, as considered appropriate by the
Investment Committee. Plan § 6.5.
Sears' Financial Statements
In financial reports filed with the Securities and Exchange Commission
("SEC"), Sears misrepresented its true financial health and
profitability. Specifically, in Sears' 2001 annual report, Sears stated
on SEC Form 10-K that its provisions for uncollectible accounts were
calculated to be $1.344 billion in 2001. Sears also represented that it
maintained an adequate allowance for its uncollectible accounts to
reflect losses inherent in the owned portfolio. Sears also filed numerous
press reports stating that the company was extremely profitable, revenue
was up, and earnings were expected to increase.
On May 7, 2002, Sears then filed its first quarter financial report on
SEC Form 10-Q. The report indicated that the provisions for uncollectible
accounts increased from $190 million to $371 million in the first
quarter. This change was the result of additional credit card receivable
balances recorded when Sears consolidated its securitization structure
for financial reporting purposes in the second quarter of 2001. Once
again, press reports issued by Sears projected substantial growth. Based
on all this information, and in spite of a general economic downturn
throughout the country, Sears stock reached $59.90 per share in the early
summer of 2002.
On August 9, 2002, Sears filed another quarterly Form 10-Q report with
the SEC. This report stated that Sears was making a conservative
accounting change in determining its uncollectible account allowances. In
October of 2002, Sears began to issue a series of reports stating that
the financial reports as originally reported for the first and second
quarters of 2002
were incorrect. Sears explained that it was amending its previous
reports, under interpretive guidance from the SEC. The provision for
uncollectible accounts were misstated and were required to be
significantly increased, while net operating income was significantly
reduced. Thereafter, Sears filed public statements attesting to similar
Sears also reported similar problems with its credit card division. On
October 4, 2002, Sears issued a press release stating that Defendant
Liska would take over the credit card division. On October 7, 2002, Sears
unexpectedly warned that its third quarter earnings would fall below
expectations because of a profit slowdown in its credit card division.
This forecast was true, and Sears' earnings went down significantly in
the third quarter of 2002. In reaction to all of Sears' announcements,
Sears stock price ...