The opinion of the court was delivered by: Hon. Robert W. Gettleman
MEMORANDUM OPINION AND ORDER
Plaintiffs Cheryl Zdziarski and Zachary Glennon, former employees of R.H. Donnelley Corp. (the "Company") and participants in the R.H. Donnelley 401(k) savings plan (the "Plan") have brought a three count putative class action complaint pursuant to §§ 409 and 502 of the Employee Retirement Income Security Act ("ERISA"), 29 U.S.C. §§ 1109 and 1132, alleging that defendants breached their fiduciary duties to the Plan with respect to the Plan's holdings of Company stock. Named as defendants are: Michael P. Connors, a member of the Company's Board of Directors ("Board") during the alleged class period and a member of the Board's Compensation and Benefits Committee; Thomas J. Reddin, a member of the Board and until approximately February 2008 and a member of the Compensation and Benefits Committee; Barry Lawson Williams, a member of the Board and Chairman of the Compensation and Benefits Committee through 2007; Alan M. Shultz, a member of the Board who succeeded Williams as Chairman of the Compensation and Benefits Committee; and David C. Swanson, Chairman of the Board and Chief Executive Officer of the Company, who allegedly had authority to appoint and remove members of the Compensation and Benefits Committee. The complaint refers to Connors, Reddin, Williams, Schultz and Swanson collectively as the "Director Defendants."
Also named as defendants are the Employee Benefits Committee ("Benefits Committee") and its members Robert Bush, Amy Clark, Mark Hianik, Donna Tikkanen-Davis, and Gretchen Zech (the "Benefit Committee Defendants"); and the Asset Management Committee and its members Jenny L. Apker, Bush, Steven Blondy (also Executive Vice-President and Chief Financial Officer of the Company), Sylvester Johnson, Hianik, and Barry Sauder, (the "Asset Management Committee Defendants").
Count I alleges that all defendants breached their fiduciary duties to "prudently and loyally manage the Plan's assets." Count II alleges that all defendants breached their duty to avoid conflicts of interest. Count III alleges that the Director Defendants and Swanson (who plaintiffs characterize as the "Chairman Defendant") breached their duties to monitor the other fiduciaries (the Asset Management and Benefits Committee Defendants) and to provide those fiduciaries with accurate information. Defendants have moved to dismiss a portion of Count I and all of Counts II and III, and have moved to strike plaintiffs' jury demand. For the reason explained below defendants' motion to dismiss is granted in part and denied in part. The motion to strike the jury demand is granted.
Plaintiffs are two former employees of the Company who were participants in the Plan during the proposed class period of July 26, 2007 to January 29, 2010. Throughout that period the Company sponsored a 401(k) Defined Contribution Plan for eligible employees. The Plan was funded through a combination of employee and Company contributions, with Plan participants responsible for selecting how to allocate those contributions from among several different investment options. One such option was the R.H. Donnelley Common Stock Fund (the "Stock Fund") which, as its name suggests and in accordance with the Plan, was invested in Company stock. Prior to January 1, 2009, participants could invest up to 50% of their Plan accounts in the Stock Fund, and could freely transfer their investments among various investment options at any time.
According to the complaint, during the period in question the Company described itself as a provider of print and interactive marketing solutions. It is perhaps best know for publishing The Yellow Pages Telephone Directory, which allows businesses to provide to the public basic contact information, including name, address and telephone number. In 2003 the Company began to acquire Yellow Page publishing businesses, including Sprint Publishing and Advertising, a subsidiary of Sprint Corp. In 2004 the Company acquired AT&T's interest in the directory advertising businesses in Illinois and Northwest Indiana. In January 2006 the Company acquired Dex Media from Quest Communications International Inc. As a result of these acquisitions, the Company's long term debt grew from $2.1 billion at year-end 2002 to $10 billion at year-end 2007.
The Company would, as a matter of course, extend credit to its customers, many of which were small to mid-size companies. The Company's products and services largely involved a 12 month business cycle, and in July 2007, the Company reported that bad debt expense represented 3% of its revenue. By June 2009, bad debt represented 7.6% of the Company's revenue. Nonetheless, throughout the class period the Company had continued to publically tout its strong and stable business and described itself as "very recession resistant." Based on these statements, analysts issued favorable ratings and Plan participants maintained their holdings in the Stock Fund. Plaintiffs' claim that defendants misled them by misrepresenting its bad debts on Company financial statements, blaming the deterioration in its revenue on short term economic problems, down-playing the role of liquidity and analysts' ratings, and announcing unrealistic financial projections. Plaintiffs base their claims on statements made in the Company's financial quarterly report, conference calls, and press releases and Securities Exchange Commission ("SEC") filings made by certain defendants as required by the securities laws. The Company filed for bankruptcy on May 28, 2009. It emerged from bankruptcy protection on January 29, 2010, and is now known as Dex One Corporation.
Defendants have moved to dismiss a portion of Count I and all of Counts II and III under Fed. R. Civ. P. 12(b)(6) for failure to state a claim. Such a motion challenges the legal sufficiency of the complaint, not its merits. Autry v. Northwest Premium Services, Inc., 144 F.3d 1037, 1039 (7th Cir. 1998). The court accepts as true all of the well-pleaded factual allegations and draws all reasonable inferences in plaintiffs' favor. McMillian v. Collection Prof's, Inc., 455 F.3d 754, 758 (7th Cir. 2006). The complaint must put defendants on fair notice of what the claim is and the grounds on which it rest. The factual allegations must be sufficient to state a claim that is plausible on its face, rather than merely speculative. Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007). A claim is facially plausible when it allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged. Ashcroft v. Iqbal, 129 S.Ct. 1937, 1949 (2009).
Count I alleges generally that the Director Defendants, the Benefits Committee Defendants, and the Asset Management Defendants breached their fiduciary duties to "prudently and loyally manage the Plan's assets." According to the complaint, defendants breached those duties in three separate ways: (1) by continuing to offer R.H. Donnelley common stock as a Plan investment option when it was imprudent to do so; (2) by failing to provide complete and accurate information to Plan participants regarding the Company's financial condition and the prudence of investing in Company stock; and (3) by maintaining the Plan's pre-existing significant investment in Company equity when the Company stock was no longer a prudent investment for the Plan.*fn1 Defendants challenge theory number 2, arguing that the complaint fails to allege: (1) any statements made to Plan participants by defendants in their capacity as Plan fiduciaries; (2) any actionable omission by defendants; (3) any actual false statements made by defendants in any capacity; and (4) that defendants acted with intent to deceive Plan participants.
ERISA fiduciaries have a duty not to mislead Plan participants or misrepresent the terms or administration of the Plan. Mondry v. American Family Mut. Insurance Co., 557 F.3d 781, 807 (7th Cir. 2009). These duties apply, obviously, only to those who are, in fact, ERISA fiduciaries, In re: Citigroup ERISA Litig., 2009 WL 2762708 at *23 (S.D. NY 2009), and under ERISA fiduciaries may wear different hats. Employers, for example, can be ERISA fiduciaries and still take actions to the disadvantage of employee beneficiaries, when they act as employers or even as plan sponsors. Pegram v. Herdrich, 530 U.S. 211, 225 (2000). Fiduciaries are required, however, to wear only one hat at a time, and to wear the fiduciary hat when making fiduciary decisions. Id. (citing Hughes Aircraft Co. v. Jacobson, 525 U.S. 432, 443-44 (1999)). Because fiduciaries may wear two hats, in every case charging breach of ERISA fiduciary duties "the threshold question is not whether the actions of some person ...