The opinion of the court was delivered by: SAMUEL DER-YEGHIAYAN, District Judge
This matter is before the court on Defendants' Motion to Dismiss the
complaint pursuant to Federal Rule of Civil Procedure 12(b)(6). The
motion was filed by Defendants Household International ("Household"), the
Administrative and Investment Committee of the Plan and its members Edgar
A. Ancona, Mary E. Bilbrey, Michael Carlson, Colin P. Kelly and David A.
Schoenholz and William F. Aldinger ("Aldinger"), the Chief Executive
Officer and Chairman of Household. For the reasons stated below, the
motion is granted in part and denied in part.
Plaintiff's Michael Cokenour ("Cokenour") and Arthur Ray Herrington,
Jr. ("Herrington") were employees of Defendant Household and participants
in the Household Tax Reduction Investment Plan ("Plan"), a tax-qualified
This action is brought by Plaintiff's on behalf of "all participants in
the Plan and their beneficiaries, excluding the Defendants, for whose
accounts the fiduciaries of the Plan made or maintained investments in
Household stock through the Household Stock Fund between July 23, 2001
and the present."
Defendant Household is a holding company with three heads: (1)
consumer, which includes consumer lending, mortgage services, retail
services and auto finance businesses; (2) credit card, which includes
domestic Visa and MasterCard businesses; and (3) international, which
includes operations in the United Kingdom and Canada. Household is the
sponsor of the Plan at issue. Next, the complaint names as defendants,
the Administrative and Investment Committee of the Plan ("Committee") and
its members Edgar A. Ancona, Mary E. Bilbrey, Michael Carlson, Colin P.
Kelly and David A. Schoenholz (collectively, the "Committee Defendants")
and Aldinger, the Chief Executive Officer and Chairman of Household.
The Plan is an "employee pension benefit plan" within the meaning of
the Employee Retirement Income Security Act of 1974 ("ERISA") §
3(2)(A), 29 U.S.C. § 1002(2)(A), an "eligible individual account
plan," within the meaning of ERISA § 407(d)(3), 29 U.S.C. § 1107(d)(3),
and a "qualified cash or deferred arrangement" within the meaning of the
Internal Revenue Code ("I.R.C.") § 401(k), 26 U.S.C. § 401(k).
The Plan is maintained to "enable eligible employees of the Company to
acquire Company Stock and to accumulate funds for then future security
by electing to make income deferral contributions and by sharing in
Company contributions to
the Plan." Plan art. 1.2. "The Plan also constitutes an
employee stock ownership plan that is designed to invest primarily in
Company Stock and that is intended to meet the applicable requirements of
Sections 401(a), 409, and 4975(e)(7) of the [Internal Revenue] Code and
Section 407(d)(6) of ERISA.'Id.
With the Plan in place, eligible Household employees are allowed to
contribute to the Plan through deductions from their paychecks. The
participating employees may direct the investment of their contributions
to one or more of several available Plan funds. These investment options
are mostly diversified mutual funds, but participating employees who
desire to invest in Company Stock may do so through an investment option
designed for that purpose, the Household International, Inc. Common Stock
Fund (the "Household Stock Fund"). The Plan requires Household to match
the participating employee's contributions at specified percentages by
making contributions to the participating employees' accounts in the
Household Stock Fund. These matching contributions can be made either in
Household common stock or cash. Planart. 11.1. The matching contributions
are primarily invested in Household Stock, "except for the short term
investment of cash." Trust Agreement art. 9.
In October 2002, Household paid $484 million to settle widespread
charges of suspect lending practices. This settlement, described as "the
largest consumer settlement in history," resulted in a $525 million
charge to Household's earnings. As a result, Household allegedly engaged
in improper accounting practices and restated its earnings for at least
an eight year period, spanning 1994-2002. The
complaint further alleges that this caused an
overstatement of pre-tax income by approximately $610 million in
defendant Household's favor. On March 18, 2003, things worsened for
Household as they consented to an S.E.C. issued Order Instituting Cease
and Desist Proceedings, Making Findings and Imposing Cease-and-Desist
Order pursuant to Section 21C of the Securities Exchange Act of 1934,
relating to Household's account re-aging practices and disclosures. This
Order found, in relevant part, that Household restructured a far higher
volume of delinquent loans than its peer lenders, and implemented a
policy of automatically restructuring delinquent loans, often without
contacting the borrower. The Order thus held that Household failed to
accurately disclose its restructuring policies, and the disclosures made
were nevertheless materially misleading.
While defendant Household was engaged in this questionable behavior,
the fiduciaries of the Plan continued to offer the Household Stock Fund
as a 401(k) retirement investment to participating employees. These Plan
fiduciaries never withdrew the Household Stock Fund as an option, nor did
they choose to make the Household matching contributions in cash rather
than Stock, nor did they provide the participating employees with the
truth concerning the artificially inflated value of defendant Household
Stock and the risks associated with continuing to have more than 60% of
the Plan's assets invested in said Stock. As a result of these acts or
omissions by the Plan fiduciaries, the Plan, with thousands of
participating employees, experienced a loss in the hundreds of millions
of dollars once defendant's Household's questionable practices were
The Plaintiff's filed a four count class action complaint against the
above-named defendants. Count I alleges the Committee Defendants failed
to prudently manage the Plan assets by continuing to offer Household
Stock as a retirement investment when they knew it was imprudent. Count
II alleges the Committee Defendants failed to provide complete and
accurate information to Plan participants concerning their retirement
investment in Household Stock. Count III alleges that Household and
defendant C.E.O. Aldinger failed to properly monitor the Committee
Defendants, including by failing to provide them with crucial information
regarding the value of Household Stock. Count IV alleges that Household
breached its duty to manage Plan assets by continuing to provide the
Household matching contributions in Household Stock rather than cash.
Defendants responded to each of the four counts by filing a motion to
dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6).
In ruling on a motion to dismiss, the court must draw all reasonable
inferences that favor the plaintiff, construe the allegations of the
complaint in the light most favorable to the plaintiff, and accept as
true all well-pleaded facts and allegations in the complaint.
Thompson v. Illinois Dep't of Prof'l Regulation, 300 F.3d 750,
753 (7th Cir. 2002); Perkins v. Silverstein, 939 F.2d 463, 466
(7th Cir. 1991). The allegations of a complaint should not be dismissed
for a failure to state a claim "unless it appears beyond 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). Nonetheless, in
order to withstand a motion to dismiss, a complaint must allege the
"operative facts" upon which each claim is based. Kyle v. Morton High
School, 144 F.3d 448, 444-45 (7th Cir. 1998); Lucien v.
Preiner, 967 F.2d 1166, 1168 (7th Cir. 1992). The plaintiff need not
allege all of the facts involved in the claim and can plead conclusions.
Higgs v. Carter, 286 F.3d 437, 439 (7th Cir. 2002);
Kyle, 144 F.3d at 455. However, any conclusions pled must
"provide the defendant with at least minimal notice of the claim,"
Id. and the plaintiff cannot satisfy federal pleading
requirements merely "by attaching bare legal conclusions to narrated
facts which fail to outline the bases of [his] claim." Perkins,
939 F.2d at 466-67
Defendants first argue that none of the Defendants are fiduciaries and
thus they cannot have breached a fiduciary duty. Plaintiff's correctly
point out that every ERISA plan requires a named fiduciary and that even
persons not named as fiduciaries can be considered functional
fiduciaries. 29 U.S.C. § 1102(a)(1) & (2); 29 U.S.C. § 1002(21)(A).
Also, the definition of fiduciary under ERISA shows that
this issue is not as clear cut an issue as Defendants would have this
court believe. Section 3(21) of ERISA states the following:
Except as otherwise provided in subparagraph (B),
a person is a fiduciary with respect to a plan 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, (ii) he renders investment advice for
a fee or other compensation, direct or indirect,
with respect to any moneys or other property of
such plan, or has any authority or responsibility
to do so, or (iii) he has any discretionary
authority or discretionary responsibility in the
administration of such plan. Such term includes
any person designated under section 1105(c)(1)(B)
of this title.
29 U.S.C. § 1002. Plaintiff's allege that the Committee Defendants
were named fiduciaries and were responsible for monitoring the
investments of the Plan and Plaintiff's have made other allegations of
involvement with the Plan in a position of trust. We agree with
Plaintiff's that the allegations do not conclusively show that the
Defendants were not fiduciaries with respect to the monitoring of ...