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Spano v. The Boeing Co.

United States District Court, S.D. Illinois

December 30, 2014

GARY SPANO, JOHN BUNK, and JAMES WHITE, JR., Plaintiffs,
v.
THE BOEING COMPANY, EMPLOYEE BENEFITS PLANS COMMITTEE, SCOTT M. BUCHANAN, and EMPLOYEE BENEFITS INVESTMENT COMMITTEE, Defendants

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          For Gary Spano, as representative of a class of similarly situated person, and on behalf of the Plan, John Bunk, as representative of a class of similarly situated person, and on behalf of the Plan, Marlene White, substitued for James White Jr., deceased per order 491, Plaintiffs: Jason P. Kelly, Jerome J. Schlichter, LEAD ATTORNEYS, Andrew D. Schlichter, Heather Lea, Mark G. Boyko, Michael A. Wolff, Sean E. Soyars, Troy A. Doles, Schlichter, Bogard et al. - St. Louis, St. Louis, MO.

         For Douglas J. Peterman, Appointed as a class representative of the Administrative Fees class and the Company Stock Fund subclass, added per order 491, Kenneth W. Griffin, Appointed as a class representative of the Administative Fees class and all subclasses, added per order 491, Plaintiffs: Jerome J. Schlichter, LEAD ATTORNEY, Sean E. Soyars, Schlichter, Bogard et al. - St. Louis, St. Louis, MO.

         For Boeing Company, Employee Benefits Plans Committee, Scott M. Buchanan, Employee Benefits Investment Committee, Defendants: Brian D. Boyle, LEAD ATTORNEY, Meaghan E. VerGow, Shannon M. Barrett, PRO HAC VICE, O'Melveny & Myers LLP - Washington, DC, Washington, DC; Jeffrey S. Russell, Kimberly A. Mohr, Thomas E. Wack, LEAD ATTORNEYS, Carrie E. Byrnes, Lisa Demet Martin, LEAD ATTORNEY, PRO HAC VICE, Bryan Cave, LLP - St. Louis, St. Louis, MO.

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         MEMORANDUM AND ORDER

         NANCY J. ROSENSTENGEL, United States District Judge.

         Pending before the Court are two motions filed by Defendants The Boeing Company, Employee Benefits Plans Committee, Scott M. Buchanan, and Employee Benefits Investment Committee (collectively " Defendants" ): a Motion for Summary Judgment on the Merits (Doc. 406) and a Motion for Summary Judgment based on ERISA's Statute of Repose (Doc. 407). Also pending before the Court is a Motion to Strike (Doc. 412) filed by Plaintiffs Gary Spano, John Bunk, and James White, Jr. (collectively " Plaintiffs" ). For the reasons set forth below, the Court denies the Motion for Summary Judgment on the Merits (Doc. 406), grants in part and denies in part the Motion for Summary Judgment based on ERISA's Statute of Repose (Doc. 407), and denies the Motion to Strike (Doc. 412).

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         Factual and Procedural Background

         This class action lawsuit involves a claim for breach of fiduciary duty brought pursuant to the Employee Retirement Income Security Act of 1974, 29 U.S.C. § § 1001-1461 (" ERISA" ). Plaintiffs Gary Spano, John Bunk, and James White, Jr., are current and former employees of The Boeing Company (" Boeing" ) who participated in The Boeing Company Voluntary Investment Plan (" the Plan" ), a 401(k) plan offered by Boeing to its employees. More specifically, the Plan is a multi-billion dollar defined contribution plan governed by ERISA (Doc 186, p. 26, ¶ 124). Plan Participants contribute varying percentages of their earnings to the Plan (Doc. 186, p. 1, ¶ 2). The Plan Participants' employer, Boeing, matches these contributions in varying percentages (Doc. 213-27, p. 22; Doc. 180-4, p. 6-7). In a defined contribution plan such as this one, Plan Participants choose an investment avenue for contribution and are entitled to the value of their own investment accounts (Doc 186, p. 9, ¶ 28; Doc. 371, p. 9).

         Plaintiffs allege that Defendants are Plan fiduciaries who have breached their fiduciary duties pursuant to ERISA § 409, 29 U.S.C. § 1109, ERISA § § 502(a)(2), (3), 29 U.S.C. § § 1132(a)(2), (3). Plaintiffs allege two counts in the Second Amended Complaint: breach of fiduciary duty pursuant to ERISA § 502(a)(2) (Count 1), and other remedies for breach of fiduciary duty pursuant to ERISA § 502(a)(3) (Count 2) ( See Doc. 186).

         Defendant Boeing employs more than 150,000 employees across forty-eight states, with major operations in the Puget Sound area of Washington State, Southern California, and St. Louis, Missouri (Doc 186, p. 4, ¶ 16). Defendant Boeing is the Plan Sponsor who provides the 401(k) plan for its employees ( Id. at p. 2, ¶ 7). Defendant Employee Benefit Plan Committee (the " Committee" ) is the Plan Administrator, which is generally responsible for the operation and administration of the Plan (Doc. 406, p. 3). Defendant Employee Benefits Investment Committee (the " EBIC" ) is the party that generally chooses and monitors investment managers in the Plan (Doc 406, p. 3). Defendant Scott M. Buchanan is the employee designated to sign the Plan's annual reports (Doc. 406, p. 3).

         The Plan has been administered through a Master Trust Agreement between Boeing and State Street Bank and Trust Company, which later became CitiStreet (hereafter " State Street/CitiStreet" ), since October 1, 1997 (Doc. 408, p. 3; Doc. 186, p. 10, ¶ 30).[1] The " Benefit Plan Administrative Services Contract" provides that State Street/CitiStreet would be paid a " hard dollar" per-participant fee for its services and would receive payments from certain mutual funds in the Plan under separate arrangements it had with those funds (Doc. 406, p. 4; Doc. 213-20, p. 4-5, 24). These additional amounts are commonly referred to as " revenue sharing." [2]

         Plan Participants may choose to invest in a selection of investment options (Doc. 189, p. 11, ¶ 36). Some of the options offered were five passive index funds, along with the Boeing Company Stock Fund and the Stable Value Fund (Doc. 406, p. 4). Defendants also included four actively managed mutual funds (Technology

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Fund, Small Cap Fund, Value Fund, and Growth Fund) (Doc. 406, p. 5). Funds are chosen for plan inclusion by investment managers who are paid for their service out of the Plan (Doc. 186, p. 20-21, ¶ 85-86).

         Plaintiffs allege a breach of fiduciary duty by Defendants for causing or allowing unreasonable fees and expenses to be charged against the assets of the Plan and by failing to ensure that the Plan's assets were used solely for the exclusive purpose of providing benefits to Plan Participants. Plaintiffs allege that Defendants caused the Plan to pay unreasonable administrative fees to its recordkeeper State Street/CitiStreet. Additionally, Plaintiffs allege that Defendants selected and retained mutual funds as Plan investment options until 2006, which charged excessive investment management expenses and were the vehicle Defendants used to funnel excessive Plan recordkeeping and administrative fees to State Street/CitiStreet via revenue sharing. Plaintiffs further allege that the Small Cap Fund provided additional revenue sharing fees to State Street/CitiStreet and charged its investors one hundred and seven basis points per year in fees, which was grossly excessive, in order to benefit Defendants' corporate relationship with State Street/CitiStreet. Plaintiffs further allege that Defendants failed to monitor and remove an imprudently risky concentrated sector fund, i.e. the Technology Fund, and instead retained this fund for the purpose of benefiting its corporate relationship, rather than for the sole benefit of the Plan Participants. Lastly, Plaintiffs allege that the Boeing Company Stock Fund incurred excessive fees and held excessive cash, impairing the value of the Plan assets. With regard to this fund, Plaintiffs also allege that Defendants failed to remedy the resulting transaction and institutional drag.

         This case has generated a lengthy procedural history, which is only briefly summarized here. The case was filed in September 2006 and originally assigned to Judge James L. Foreman, who has since retired and passed away. In October 2006, the case was reassigned to Judge David R. Herndon. In September 2008, Judge Herndon granted Plaintiffs' Motion for Class Certification and certified the following class:

All persons, excluding the Defendants and/or other individuals who are or may be liable for the conduct described in this Complaint, who are or were participants or beneficiaries of the Plan and who are, were or may have been affected by the conduct set forth in this Complaint, as well as those who will become participants or beneficiaries of the Plan in the future.

(Doc. 193). Shortly thereafter, Defendants appealed Judge Herndon's Order to the Seventh Circuit Court of Appeals (Docs. 279, 288). In January 2011, the Seventh Circuit reversed Judge Herndon's Order granting class certification and remanded the case for further proceedings. See Spano v. The Boeing Co., 633 F.3d 574 (7th Cir. 2011). On March 2, 2011, Plaintiffs filed an Amended Motion to Certify Class (Doc. 309), and on September 19, 2013, Judge Herndon certified the following class with subclasses ( See Doc. 397):

Administrative Fee claim and class: All participants or beneficiaries of the Boeing Voluntary Investment Plan, excluding the Defendants, members of the Defendant committees, and the Boeing directors, who had an account balance at any time between September 28, 2000 and December 31, 2006, as all participants during that time paid recordkeeping fees.
Mutual Fund Subclass: All participants or beneficiaries of Boeing Voluntary Investment

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Plan, excluding the Defendants, members of the Defendant committees, and the Boeing directs, who, between September 28, 2000 and December 31, 2005, invested in any of the Plan's mutual funds, since each mutual fund during this time were laden with imprudently excessive fees.
Small Cap Fund Subclass: All participants or beneficiaries of the Boeing Voluntary Investment Plan, excluding the Defendants, members of the Defendant committees, and the Boeing directors, who, between September 28, 2000 and December 31, 2005, invested in the Small Cap mutual fund in the Plan.
Technology Fund Subclass: All participants or beneficiaries of the Boeing Voluntary Investment Plan, excluding the Defendants, members of the Defendant committees, and the Boeing directors, who, between September 28, 2000 and December 31, 2005 invested in the Plan's Technology Fund and whose investment in the Technology underperformed that of the diversified domestic equity markets as represented by the Standard and Poor's 500 Index Fund minus 5 basis points for investment management.
Company Stock Fund Subclass: All participants or beneficiaries of the Boeing Voluntary Investment Plan, excluding the Defendants, members of the Defendant committees, and the Boeing directors, who, between September 28, 2000 and December 31, 2006 invested in the Plan's Boeing Company Stock and whose investment in the Boeing Company Stock Fund underperformed that of Boeing Company Stock.

         On January 8, 2014, Defendants filed two Motions for Summary Judgment: a Motion for Summary Judgment on the Merits (Doc. 406) and a Motion for Summary Judgment Based on ERISA's Statute of Repose (Doc. 407). On February 10, 2014, Plaintiffs filed timely response briefs (Docs. 408, 409). On February 24, 2014, Defendants filed replies to both motions (Docs. 410, 411). One day later, Plaintiffs filed a Motion to Strike (Doc. 412) both reply briefs. On March 24, 2014, Defendants filed a Notice of Supplemental Authority (Doc. 419). Plaintiffs subsequently filed Notices of Supplemental Authority on April 17, 2014 (Doc. 423), July 17, 2014 (Doc. 445), August 25, 2014 (Doc. 454), and October 6, 2014 (Doc. 463).

         On May 19, 2014, the case was transferred to the undersigned District Judge (Doc. 425). The Final Pretrial Conference was reset to September 22, 2014, with a presumptive Bench Trial month of October 2014. On August 4, 2014, the undersigned District Judge held a hearing on the Motions for Summary Judgment ( See Doc. 448). At that hearing, the trial setting was canceled pending a ruling on the motions.

         Relevant Legal Standards

         I. Summary Judgment Standard of Review

         Summary Judgment is only appropriate " if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Spurling v. C & M Fine Pack, Inc., 739 F.3d 1055, 1060 (7th Cir. 2014) ( quoting Fed.R.Civ.P. 56(a)). In determining whether a genuine issue of fact exists, the Court must view the evidence and draw all reasonable inferences in favor of the party opposing the motion. Bennington v. Caterpillar Inc., 275 F.3d 654, 658 (7th Cir. 2001); see also Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). A " court may not assess the credibility of witnesses, choose between competing inferences or balance the relative weight of conflicting evidence . . . ." Reid v. Neighborhood Assistance Corp. of America, 749 F.3d 581, 586 (7th Cir. 2014) ( quoting Abdullahi v. City of Madison,

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423 F.3d 763, 769 (7th Cir. 2005)).

         II. ERISA General Provisions

         ERISA imposes upon fiduciaries twin duties of loyalty and prudence, requiring them to act " solely in the interest of [plan] participants and beneficiaries" and to carry out their duties " with the care, skill, prudence, and diligence" as would a prudent man under the same circumstances. See 29 U.S.C. § 1104(a)(1); Jenkins v. Yager, 444 F.3d 916, 924 (7th Cir. 2006). A claim of breach of fiduciary duty under ERISA requires Plaintiffs to prove: " (1) that the defendants are plan fiduciaries; (2) that the defendants breached their fiduciary duties; and (3) that the breach caused harm to the plaintiff." Jenkins, 444 F.3d at 924. There is no dispute as to the Defendants' status as fiduciaries.

         " Under ERISA, a fiduciary's failure to exercise his or her discretion -- i.e., to balance the relevant factors and make a reasoned decision as to the preferred course of action -- under circumstances in which a prudent fiduciary would have done so is a breach of the prudent man standard of care." See George v. Kraft Foods Global, Inc., 641 F.3d 786, 796 (7th Cir. 2011); DiFelice v. U.S. Airways, Inc., 497 F.3d 410, 420-21 (4th Cir. 2007). As the parties point out in the briefing, there are conflicting views among the circuits regarding the standard of review for a claim of breach of the duties of loyalty and prudence. See John Blair Communications, Inc. Profit Sharing Plan v. Telemundo Group, Inc. Profit Sharing Plan, 26 F.3d 360, 368-370 (1994) (the Second Circuit held that de novo review applies to a claim that the fiduciary breached its duty of loyalty by using investment gains from one plan's assets to benefit another plan" ); but see Ganton Techs., Inc. v. National Indus. Group Pension Plan, 76 F.3d 462, 466-467 (2d Cir. 1996) (applying deferential review to a breach-of-loyalty claim); see also Tussey v. ABB, Inc., 746 F.3d 327, 333-335, 336, 338 (8th Cir.), cert. denied, 135 S.Ct. 477, 190 L.Ed.2d 358 (2014) (Eighth Circuit held that abuse-of-discretion review applies to a plan interpretation that arises in the context of claims that fiduciaries breached the duties of prudence and loyalty). The Seventh Circuit has found that prudence " involves a balancing of competing interests under conditions of uncertainty," and thus the Court will review the Defendant fiduciaries' actions for abuse of discretion. See Armstrong v. LaSalle Bank Nat. Ass'n, 446 F.3d 728, 733 (7th Cir. 2006) (" a decision that involves a balancing of competing interests under conditions of uncertainty requires an exercise of discretion, and the standard of judicial review of discretionary judgments is abuse of discretion." ).

         Discussion

         I. Plaintiffs' Motion to Strike Defendants' Reply Briefs (Doc. 412)

         The Court initially considers Plaintiffs' Motion to Strike Defendants' Reply Briefs (Doc. 412). In the motion, Plaintiffs urge the Court to strike Defendants' reply briefs because Defendants have failed " to demonstrate any exceptional circumstances warranting replies." (Doc. 412, p.1). Local Rule 7.1 (c) provides in bold type that " [r]eply briefs are not favored and should be filed only in exceptional circumstances." SDIL-LR 7.1(c). It also provides that " the party filing the reply brief shall state the exceptional circumstances." Id. Contrary to Plaintiffs' assertions, Defendants did set forth their exceptional circumstances in both of their reply briefs ( See Doc. 410, p. 1, FN *; Doc. 411, p. 2). Further, this district does not require the parties to seek leave of Court in order to file a reply. Given the fact that

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the undersigned District Judge received this case fro the docket of Judge Herndon at this late stage in the litigation, the undersigned District Judge finds the reply briefs to be helpful. For these reasons, the Court denies Plaintiffs' Motion to Strike Defendants' Reply Briefs (Doc. 412).

         II. Defendants' Motion for Summary Judgment Based on ERISA's Statute of Repose (Doc. 407)

         In their Motion for Summary Judgment Based on ERISA's Statute of Repose (Doc. 407), Defendants argue that the six-year statute bars all claims based on events that arose prior to September 28, 2000, and there are no exceptions that apply to toll the statute. As the party seeking summary judgment based on the six-year statute, Defendants bear the burden of identifying evidence which shows that the conduct alleged occurred more than six years prior to the commencement of this action on September 28, 2006. See Avery v. Mapco Gas Prods., Inc., 18 F.3d 448, 452 (7th Cir. 1994). If Defendants satisfy that burden, Plaintiffs " are obligated to come forward with evidence sufficient to establish a genuine factual dispute as to when [the conduct occurred]." Id.

         ERISA provides that any Plan Fiduciary who breaches its fiduciary duty is " personally liable to make good to such plan any losses to the plan resulting from each such breach." 29 U.S.C. § 1109. ERISA section 1113 sets timeliness standards for this type of action, providing no action may be commenced with respect to a fiduciary's breach after the earlier of:

(1) six years after the (A) date of the last action which constituted a part of the breach or violation, or (B) in the case of an omission, the latest date on which the fiduciary could have cured the breach; or
(2) three years after the earliest date on which the plaintiff had actual knowledge of the ...

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