United States District Court, N.D. Illinois
March 30, 2004.
KELLEY, et al. Plaintiffs
HOUSEHOLD INT'L., INC., et al. Defendants
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
I. Fiduciary Duty
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 the
investments and providing a company match. Defendants' arguments in this
regard are premature at this juncture. See Pappas v. Buck
Consultants, Inc., 923 F.2d 531
, 538 (7th Cir. 1991)(indicating that
the determination of whether an individual is a fiduciary involves
II. Imprudent Investment of Plan Assets (Count I)
In Count I of the complaint Plaintiff's allege that the Committee
Defendants failed to prudently manage the Plan assets by their continuous
offer of Household Stock as a retirement investment and continuing to
invest matching contributions in Household Stock, notwithstanding that
they knew or should have known such investment was imprudent.
A. Whether Plaintiff's State a Claim
Defendants take issue with the conclusory nature of Plaintiff's'
allegations in Count I. Pursuant to Federal Rule of Civil Procedure 8(a)
a complaint must contain "a short and plain statement of the claim
showing that the pleader is entitled to relief." The notice pleading
standard is admittedly liberal, requiring only that notice of the claim
be given rather than detailed facts underlying the claim. Leatherman
v. Tarrant County Narcotics Intelligence & Coordination Unit,
507 U.S. 163, 168 (1993).
Plaintiff's allege that the Committee Defendants "knew or should have
known" that investing in Household Stock was imprudent. (Comp. 53).
Plaintiff's also allege that the Committee defendants were "key"
Household employees or officers, appointed by Household's CEO, who
exercised their Plan-related behavior hi the course and scope of their
employment with Household. (Comp. 38, 41, 42, 47). Defendants contend
that the allegations are too vague and do not provide them with notice of
the claim against them. Defendants indicate that Plaintiff's were
required to explain how the alleged key employees knew that the
investments were imprudent and when they acquired the knowledge.
Defendants also argue that Plaintiff's were required to explain in more
detail the alleged improper conduct of the key employees. We disagree.
While a more detailed complaint would have been beneficial for
Defendants' understanding of the charges against them and for the court
to understand the charges alleged by Plaintiff's, Plaintiff's have met
pleading requirements under the notice pleading standard.
Plaintiff's are not required to allege all of the facts for their claim
or allege facts to support each element of their claim. Higgs,
286 F.3d at 439; Kyle, 144 F.3d at 455; see also Sanjuan v.
American Ed. of Psychiatry and Neurology, Inc., 40 F.3d 247, 251
(7th Cir. 1994)(indicating that under current notice pleading standard
in federal courts a plaintiff "need to plead facts that, if true,
establish each element of a `cause of action,'" that "[a]t this stage
the plaintiff receives the benefit of imagination, so long as the
hypotheses are consistent with the complaint," and that "[m]atching
facts against legal elements comes later").
Plaintiff's have indicated that the managing employees in question were
key employees and that they managed to acquire the knowledge that
Household was guilty of predatory lending practices and misstatements.
Plaintiff's contend that because the Committee members knew of the
practices that the investments made were imprudent. This is sufficient to
state a claim. Defendants' assertions that Plaintiff's have not explained
exactly what each Defendant did wrong, how they acquired the information,
and how they improperly used the information are premature at this
juncture. Defendants improperly seek to require the same type of detail
in regards to Count I required under Federal Rule of Civil Procedure 9(b)
for fraud claims. See Uni*Quality, Inc. v. Infotronx, Inc.,
974 F.2d 918, 923 (7" Cir. 1992)(explaining that the Rule 9(b) particularity
requirement requires a plaintiff to plead the "`who, what, when, and
where' of the alleged fraud."). Plaintiff's' allegations are sufficient
to withstand a motion to dismiss under the notice pleading
B. Discretion of Committee to Alter Investments
Defendants also claim that Count I cannot state a claim because even if
the alleged key employees were aware of the Household practices, the
Committee members had no discretion under the Plan to choose not to
invest in Household stock. Defendants' argument in this regard is
unconvincing. No section in ERISA would be read to require fiduciaries to
make investments for a plan if the fiduciary has information that shows
that the investment is a poor one. Plaintiffs correctly point out that
ERISA states explicitly that fiduciaries are required to act "in
accordance with the documents and instruments governing the plan insofar
as such documents and instruments are consistent with the provisions of
this subchapter and subchapter III of this chapter." 29 U.S.C.A. §
1104(a)(1)(D). A fiduciary is required to discharge his or her duties
"with the care, skill, prudence, and diligence under the circumstances
then prevailing that a prudent man acting in a like capacity and familiar
with such matters would use in the conduct of an enterprise of a like
character and with like aims. . . ." 29 U.S.C.A. §
1104(a)(1)(B). Thus the Committee Defendants cannot hide behind the
provisions of the Plan. See Central States, Southeast and Southwest
Areas Pension Fund v. Central Transport, Inc., 472 U.S. 559, 568
(1985)(stating that "trust documents cannot excuse trustees from their
duties under ERISA, and that trust documents must generally be construed
in light of ERISA's policies").
C. Failure to Take Illegal Actions
Defendants also assert that Count I fails to state a claim because even
if the Committee Defendants knew of the alleged unlawful practices by
Household, Defendant Committee Defendants were prohibited under federal
securities law from trading based upon non-public information. Plaintiffs
argue that at a minimum the Committee Defendants could have notified the
appropriate regulatory agencies of the misstatements by Household,
refrained from further investment in Household stocks, or made a public
announcement regarding Household's conduct. We are not convinced that
such actions could be required of the Committee Defendants. Had the
Committee Defendants done either of the first two alternatives it is
possible that the ultimate result would be that the public would learn of
or suspect the improper conduct by Household which would generally be the
same result as the third alternative. It is possible that had the
Committee Defendants followed the suggested conduct they would simply
have accelerated the demise of the Household stock held by the fund.
Their duty as fiduciaries was to prevent such losses. However, it is not
conclusive from the facts before us whether or not the Committee
Defendants had viable alternatives that they could have taken. At this
stage of the proceedings it is not the burden of Plaintiffs to address
all of the potential counter-arguments by Defendants in the complaint. We
find that Defendants' arguments on this issue are premature and deny the
motion to dismiss Count I to the extent that it contains a claim of
imprudent management of the Plan assets. Conley, 355 U.S. at
45-46 (stating that 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.").
III. Breach of Duty of Loyalty (Count I)
Defendants also argue that we should dismiss the breach of loyalty
claim in Count I. Plaintiffs contend that the Committee Defendants had a
conflict of interest because they were both on the Committee and were
employees of Household. Section 408(c)(3) of ERISA states that "[n]othing
in section 1106 of this title shall be construed to prohibit any
fiduciary from . . . serving as a fiduciary in addition to being an
officer, employee, agent, or other representative of a party in
interest." 29 U.S.C.A. § 1108(c)(3). Defendants cite Cuddington
v. Northern Indiana Public Service Co., for the proposition that
"[j]ust because the Pension Committee is dominated by [the employer's]
employees does not automatically mean that a conflict exists." 33 F.3d 813,
816 (7th Cir. 1994). However, such an argument only encourages this
court to proceed to the next steps of litigation to assess the evidence
and decide if there is sufficient evidence that a conflict exists.
Plaintiffs do allege that the compensation of the Committee Defendants
was tied into the Household stock price and the Plan investment in the
stock and thus we think that it would be premature to dismiss the breach
of loyalty claim based upon a conflict of interest at this juncture.
IV. Misrepresentation Claim (Count II)
In count II, Plaintiffs allege that the Committee Defendants failed to
provide complete and accurate information to Plan participants concerning
their retirement investment in Household Stock.
A. Applicability of Rule 9(b)
Defendants first argue that Federal Rule of Civil Procedure 9(b) is
applicable to Count II because Count II is essentially a fraud claim, or
should be treated as one for purposes of this motion and that Plaintiffs
have not met the pleading requirements under Rule 9(b). While the notice
pleading standard is generally applied in the federal courts, "[i]n all
averments of fraud or mistake, the circumstances constituting fraud or
mistake shall be stated with particularity," Fed.R.Civ.P. 9(b), which
is accomplished if the plaintiff identifies "the identity of the person
making the misrepresentation, the time, place, and content of the
misrepresentation, and the method by which the misrepresentation was
communicated to the plaintiff. "Bankers Trust Co. v. Old Republic
Ins. Co., 959 F.2d 677, 683 (7th Cir. 1992)(quoting Sears v.
Likens, 912 F.2d 889, 893 (7th Cir. 1990)).Rule 9(b) has been termed
an exception to the otherwise liberal pleading requirements set forth in
Rule 8. Payton v. Rush-Presbyterian-St. Luke's Medical Ctr.,
184 F.3d 623, 627 (7th Cir. 1999). The justification for a stricter standard
of pleading stems from the reality that fraud claims can cause harm to
At first blush, Count II contains no allegations of fraud, however a
closer examination of the complaint leads us to conclude that Rule 9(b)
is applicable to Count II. The core of the parties' arguments on this
point stem from how they characterize the alleged misrepresentations in
Count n. Defendants argue that the in alleged misrepresentations at issue
are allegations concerning intentional wrongdoing and in response
Plaintiffs argue that at most they allege negligent conduct and therefore
Rule 9(b) does not operate. Both sides cite Adamczyk v. Lever Bros.
Co. in which that court held that Rule 9(b) does not apply to
negligent misrepresentation claims, but does apply to claims of knowing
misrepresentation. 991 F. Supp. 931, 939 (N.D. Ill. 1997).
Plaintiffs allege that the Committee Defendants made misrepresentations
because their compensation was connected to Household's stock price, and
the Plan's investment supported the stock. (Comp. 111, 112). We agree
with Defendants that the allegations in the complaint clearly allege
intentional misrepresentations and that Rule 9(b) is applicable.
Plaintiffs have not met the heightened pleading requirements under
Rule 9(b) and therefore we grant the motion to dismiss Count II to the extent
that it alleges intentional misrepresentation.
V. Omission to Disclose Non-Public Information (Count II)
Defendants argue in support of dismissal of Count II that, apart from
misrepresentations alleged in the complaint, the
plaintiff's fail to state a claim with respect to the alleged omission to
disclose nonpublic information. Plaintiffs argue in response that
defendants are improperly characterizing Count II and that defendants had
a duty to provide information to the Plan Participants, and the
defendants breached that duty.
Count II states; "Employees never received any information from the
Company or any other plan fiduciary that indicated that the Company's
stock was not a prudent investment." (Compl. 107, 131). Defendants argue
that this allegation, which forms the basis for Plaintiffs' omissions
claim, is an attempt to broaden the disclosure requirements far beyond
what is required by ERISA § 404, into "a continuous gathering and
disclosure of all material nonpublic information about a plan sponsors
financial condition . . ." (Def. Reply Brf. at 26). Plaintiffs, for
their part, defend this allegedly sweeping disclosure duty by correctly
noting a series of cases which held that fiduciaries have a duty to speak
when silence would hurt a beneficiary. See, e.g., Franklin v. First
Union Corp., 84 F. Supp. 720, 735 (E.D. Va. 2000) (fiduciary had "a
duty to notify the plaintiff's of the changes in the investment funds in
such a manner as to prevent any misinformation to and misleading of the
plaintiff's. . .").
The issue, in its simplest form, thus becomes to what extent
plaintiff's can push ERISA § 4O4's duty of disclosure provisions
beyond its explicit terms, given the facts alleged in this case, to state
a claim with respect to the alleged omission to disclose non-public
information. The United States Supreme Court has yet to
address this question. Varity Corp. v. Howe,
516 U.S. 489, 506 (1996) ("we need not reach the question whether ERISA
fiduciaries have any fiduciary duty to disclose truthful information on
their own initiative, or in response to employee inquiries"). To resolve
the issue, both parties have debated the applicability of a recent Fifth
Circuit case dealing with the general issue at hand. Ehlman v. Kaiser
Foundation Health Plan of Texas, 198 F.3d 552 (5th Cir. 2000).
The Seventh Circuit has not allowed claims for fiduciary breach based
on passive behavior, "unless a fiduciary fails to give a beneficiary
material information regarding a plan and the fiduciary's silence is
misleading."Chojnacki v. Georgia-Pacific Corp., 108 F.3d 810,
817 (7th Cir. 1997). It is apparent from the face of the complaint that
the allegations regarding the omission to disclose nonpublic information
encompasses such "passive behavior."
All of the cases cited by Plaintiffs involved a specific alleged
failure to disclose a concrete piece of information, and how that
specific failure as to that specific piece of information states a cause
of action in light of Varity Corp. See, e.g., McDonald v. Provident
Indemnity Life Ins. Co., 60 F.3d 234 (5th Cir. 1995) (failure to
disclose a new rate schedule); Glaziers & Glassworkers Union
Local No. 252 Annuity Fund v. Newbridge Sec. Inc., 93 F.3d 1171 (3d
Cir. 1996) (failure to disclose details regarding the investment
advisor); Bins v. Exxon Co. U.S.A., 189 f.3d 929 (failure to
disclose change in lump sum retirement incentive). These cases are
distinguishable because even they do not go as far as plaintiff's are
hoping to extend defendants duty to disclose information. More
importantly, the Chojnacki
decision from our Court of Appeals, would seem to
restrain this extension of this breach of fiduciary duty based upon
"passive behavior." See Chojnacki, 108 F.3d at 817.
The disclosure standard urged by Plaintiffs in this case is too broad
as it would require defendants to contiguously gather and disclose
nonpublic information bearing some relation to the plan sponsor's
financial condition. Such a burdensome and unprecedented level of
disclosure has not been approved by the Seventh Circuit and for this
court to permit such would be to extending the statutory language beyond
their plain meaning. Our authority to interpret ERISA's fiduciary
provisions is not absolute, but is limited by the text of the statute. In
this instance, plaintiff's proposed duty is not found in the text of the
statutes or the cases. We also note that as indicated above, that a
public disclosure of the wrongdoing or a notification of others that
might leak the information to the public would have caused the stock
price to fall and the losses would result to the Plan regardless.
Therefore, we grant the motion to dismiss Count II to the extent it is
based on the alleged omission to disclose nonpublic information.
VI. Failure to Monitor and Provide Accurate Information (Count
In count III of the complaint, Plaintiffs allege that Household and Mr.
Aldinger breached fiduciary duties under ERIS A by failing to monitor the
Committee Defendants and to provide them with information. Defendants
assert that Household had no fiduciary responsibility
with respect to the alleged acts or omissions of the Committee
Defendants. Secondly, defendants argue that the claim should also be
dismissed as Plaintiffs fail to allege any facts showing that Mr.
Aldinger or Household breached any duty they might have had to monitor
the Committee Defendants. Defendants final argument in support of
dismissal states that plaintiff's fail to state a claim against Household
or Mr. Aldinger based on their alleged failure to divulge nonpublic
information to the Committee Defendants.
At this stage in the opinion, we have held that at this juncture the
claims remain against the Committee Defendants except for the claim based
on the alleged failure to disclose non-public information and the
intentional misrepresentation claim. Defendants acknowledge that Aldinger
had the authority under the plan to appoint and remove Committee members.
Defendants argue that Aldinger and Household properly monitored the
Committee Defendants and argue that the facts alleged do not show that
Aldinger and Household failed to act in a reasonable manner. Such an
argument includes a factual determination and is premature at this
Defendants also argue that Aldinger and Household were not fiduciaries.
However, the fact that individuals authorized to monitor administrators
of a retirement plan and had "only limited fiduciary responsibilities
does not mean that they had no responsibilities whatever." Leigh v.
Engle, 727 F.2d 113, 135 (7th Cir. 1984). The individuals charged
with such monitoring are "fiduciaries responsible for selecting and
retaining their close business associates as plan administrators . . .
[and cannot] abdicate their duties under ERISA merely
through the device of giving their lieutenants primary responsibility for
the day to day management of the trust." At the very least a finding that
neither Aldinger or Household were fiduciaries is premature at this
stage. Therefore, we deny the motion to dismiss Count III to the extent
that it alleges a claim based upon Aldinger's and Household's fiduciary
duty to monitor the Committee Defendants.
Plaintiffs also allege in Count III that Aldinger and Household failed
to disclose non-public information to the Committee Defendants. For the
reasons stated above in regards to the similar issue in Count II we grant
the motion to dismiss. We also note that Plaintiffs have not shown that
ERISA or the plan placed any such duty on the shoulders of Aldinger or
VII. Breach of Duty to Manage Plan Assets-Matching Contributions
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 argue that this claim should
be dismissed because Household had no discretion to depart from making
the match in Company Stock, and that in the absence of such discretion no
fiduciary duty could be breached.
As indicated above, a plan fiduciary is not required to follow the plan
requirements if the result would be detrimental to the plan. 29 U.S.C.A.
§ 1104(a)(1)(D); 29 U.S.C.A. § 1104(a)(1)(B). Thus, neither
Household nor the
Committee Defendants can hide behind the provisions of
Plaintiffs assert that Household breached its duty of prudence to Plan
participants by continuing to make matching contributions in Household
stock. In accordance with our conclusions above, we are not certain that
this would be a viable alternative for Household to avoid loss to the
Plan. Such actions could have created suspicion and caused the stock
price to fall. However, such a determination is premature at this
juncture. Defendants argue that even if Household gave matching cash
contributions from Household, the Plan required the Committee Defendants
to use the cash contributions to purchase Household stock. However, as
indicated above once the Committee Defendants had the cash contributions
from Household, they were not necessarily obligated to follow the Plan
guidelines if such actions would be detrimental to the Plan. Therefore we
deny the motion to dismiss Count IV to the extent that it alleges a
breach of a duty of prudence against Household in regards to matching
contributions with Household stock.
VIII. Co-Fiduciary Liability (Count I)
Defendants argue that we should dismiss Count I to the extent that it
alleges a claim of co-fiduciary liability. Section 1105 of ERISA
In addition to any liability which he may have
under any other provisions of this part, a
fiduciary with respect to a plan shall be liable
for a breach of fiduciary responsibility of
another fiduciary with respect to the same plan in
the following circumstances: (1) if he
participates knowingly in, or knowingly undertakes
to conceal, an act or omission of such other
such act or omission is a breach; (2)
if, by his failure to comply with section
1104(a)(1) of this title in the administration of
his specific responsibilities which give rise to
his status as a fiduciary, he has enabled such
other fiduciary to commit a breach; or (3) if he
has knowledge of a breach by such other fiduciary,
unless he makes reasonable efforts under the
circumstances to remedy the breach.
29 U.S.C.A. § 1105(a). Plaintiffs allege that the Committee
Defendants breached their fiduciary duty by "knowingly undertaking to
conceal Household's failure to prudently and loyally manage Plan
assets. . . ." (Comp. 122). We find that this conclusory allegation does
not even meet the liberal requirements under the notice pleading
standard. There are not sufficient facts to provide Defendants with
notice of the operative facts which would pertain to a co-fiduciary
libaility claim. The allegations that all of the Defendants knew of
the improper conduct of Household and the Defendants individually acted
improperly does not show that co-fiduciary liability is appropriate.
Therefore, we grant Defendants' motion to dismiss the claim based
upon co-fiduciary liability.
Based on the foregoing analysis, we deny the Defendants' motion to
dismiss the claim for failure to prudently manage Plan assets in Count I.
We deny the Defendants' motion to dismiss the breach of loyalty claim in
Count I. We grant the Defendants' motion to dismiss the misrepresentation
claim in Count II. We grant the Defendants' motion to dismiss the claim
for the alleged omission to disclose non-public
information in Count II. We deny the Defendants' motion to dismiss the
breach of duty to monitor claim in Count III. We grant the Defendants'
motion to dismiss the claim in Count III based upon Aldinger's and
Household's failure to disclose non-public information. We deny the
Defendants' motion to dismiss the breach of duty to manage the Plan
claim regarding matching contributions in Count IV. We also grant the
Defendants' motion to dismiss the co-fiduciary liability claim in Count
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