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VI. Under Fifth
Circuit Precedent, Plaintiffs are Not Required to Prove that Defendants'
Fiduciary Breaches Caused the Plans' Losses; Defendants Have the Burden of
Proof on Causation
The Administrative Committee Defendants argue that
Plaintiffs have not alleged that Defendants' fiduciary breaches caused the
plans' losses. AC Mot. to Dismiss at pp. 25-29. Citing cases from the Second
and Sixth Circuits, Defendants claim in this regard that Plaintiffs have the
burden of proving causation.(10) The Fifth
Circuit, however, is among the several courts that have |
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rejected this approach. In McDonald, the
Fifth Circuit held that once a plaintiff proves a breach of fiduciary duty and
a prima facie case of loss to the plan, the burden of persuasion shifts to the
fiduciary to prove that the loss was not caused by the breach of duty. 60 F.3d.
at 237; accord Leigh, 727 F.2d at 138-139; Martin v.
Feilen, 965 F.2d 660, 671 (8th Cir. 1992); Kim v.
Fujikawa, 871 F.2d 1427, 1430-1431 (9th Cir. 1989); Davis
v. Torvick, No. C-93-1343 CW, 1996 WL 266127, at *5 (N.D. Cal.
May 2, 1996); see also Ehlmann v. Kaiser Found. Health
Plan, 20 F. Supp. 2d 1008, 1011 (N.D. Tex. 1998) ("[E]ven if Plaintiffs had
failed to plead causation, the burden of proof on that element in an ERISA
breach-of-fiduciary case lies with Defendants."), aff'd, 193 F.3d 552
(5th Cir.), cert. dismissed, 530 U.S. 1291 (2000). For this
reason, Plaintiffs' purported failure to plead causation provides no basis for
dismissal. |
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VII. The Complaint
States a Claim that Administrative Committee Members, Lay, and Northern Trust
Breached Their Fiduciary Duties to the Enron Savings Plan with Regard to the
Lockdown Period |
A. Plaintiffs Have Alleged Sufficient Facts for
Purposes of Establishing Article III Standing to Challenge the Defendants'
Conduct in Relation to the Lockdown Period |
The Administrative Committees (AC Mot. to Dismiss
29-32), Kenneth Lay (Lay Mot. to Dismiss 18-19), Administrative Committee
member Cindy Olson (Olson Mot. to Dismiss 14-16), and Northern Trust (Northern
Trust Mot. to Dismiss 43-44) have moved to dismiss Count II of the Complaint on
the ground that the Plaintiffs have failed to allege personalized injury from
the alleged fiduciary breaches regarding the lockdown period, and hence lack
standing under Article III to maintain the claim. Count II challenges the
Defendants' conduct in relation to a "lockdown period," during which the plans
were switching from one administrator (Northern Trust) to another (Hewitt
Associates) and participants were not permitted to direct any sale of shares in
their accounts. |
A party invoking federal jurisdiction bears the
burden of establishing the elements of Article III standing: (1) the plaintiff
must have suffered an injury in fact, i.e., an invasion of a legally
protected interest that is concrete and particularized, and actual or imminent;
(2) there must be a causal connection between the injury and the conduct
complained of, i.e., the injury has to be fairly traceable to the
challenged conduct of the defendant (and not some third party); and (3) it must
be likely as opposed to merely speculative that an injury will be redressed by
a favorable judgment of the court. Lujan v. Defenders of
Wildlife, 504 U.S. 555, 560-61 (1992). |
In this case, Plaintiffs allege that the failure
to provide adequate information about the lockdown, or to postpone the lockdown
in light of the news about Enron's unraveling financial situation, was a
fiduciary breach. They allege that this prevented participants from directing
the sale of Enron stock during this period, and "[a]s a direct result" the
plan, and indirectly the participants, suffered loss in the form of the
diminished value of the stock during the lockdown period. Complaint at ¶
754. The count thus plainly alleges that Defendants committed fiduciary
breaches that caused loss to the plan and its participants, and the count seeks
an order, available under §§ 409(a) and 502(a)(2) of ERISA, 29 U.S.C.
§§ 1109(a) and 1132(a)(2), to redress that loss. Complaint at ¶
760. The Complaint thus plainly alleges the requisites of Article III standing:
injury, causation, and redressability. |
Defendants argue that Plaintiffs have not alleged
a constitutionally adequate personal injury because they have not alleged that
they would have directed the sale of their Enron stock during this
period.(11) Although Defendants
characterize this as a deficiency in the Plaintiffs' pleading of "injury,"
Defendants' argument instead seems to be directed at the Plaintiffs'
allegations of causation, i.e., whether plaintiffs' loss is fairly
traceable to the alleged fiduciary breach. Defendants do not dispute, for
example, that Plaintiffs allege a decrease in the value of plan-held Enron
stock during the lockdown period, and do not (and of course could not) deny
that this loss in value is an injury cognizable under Article III. Rather they
contend that the fiduciaries' decision to implement the lockdown (as well as
any failure to provide adequate information about it) could not have caused the
loss to the participants unless the participants would have directed the sale
of plan-held Enron stock during this period. |
Whether Defendants' argument is viewed as
addressing injury or causation, the argument plainly lacks merit because it
conflicts with Supreme Court teaching that a plaintiff's burden of establishing
standing at the pleading stage of litigation is "relatively modest."
Bennett v. Spear, 520 U.S. 154, 171 (1997). As the Court
has explained: |
[E]ach element of Article III standing "must be
supported in the same way as any other matter on which the plaintiff bears the
burden of proof, i.e., with the manner and degree of evidence required
at the successive stages of the litigation." . . . Thus, while a plaintiff must
"set forth" . . . "specific facts" to survive a motion for summary judgment,
Fed. R. Civ. P. 56(e), and must ultimately support any contested facts . . . at
trial, "[a]t the pleading stage, general factual allegations of injury . . .
may suffice, for on a motion to dismiss we 'presume . . . specific facts that
are necessary to support the claim.'" |
Bennett, 520 U.S. at 167-68, quoting
Lujan, 504 U.S. at 561; see also National Org. for Women,
Inc. v. Scheidler, 510 U.S. 249, 255 (1994) (complaint must
be sustained against motion to dismiss if there are any facts establishing
standing that could be proved consistent with the complaint's
allegations).(12) |
Furthermore, it would be particularly
inappropriate to impose detailed pleading requirements, such as Defendants
advocate, regarding whether the fiduciary breach caused a loss to the plan and
Plaintiffs. As stated earlier, supra, at 38, under Fifth Circuit precedent, if
Plaintiffs carry their burden of establishing a breach and a prima facie case
of loss i.e., prove that the fiduciaries violated their duties of
loyalty or prudence with regard to the lockdown, and that the value of the
stock declined during the lockdown period liability could be established
in this case without Plaintiffs' producing evidence that they would have
directed the sale of stock, since the burden of persuasion would shift to the
Defendants. McDonald, 60 F.3d at 237. Thus, it would be inappropriate to
require that Plaintiffs' Complaint contain allegations concerning a matter
which Defendants may have to prove. Cf. Swierkiewicz, 122 S. Ct. at 997
(it would be "incongruous to require a plaintiff, in order to survive a motion
to dismiss, to plead more facts than he may ultimately need to prove to succeed
on the merits if direct evidence of discrimination is discovered").(13) |
Moreover, to the extent Defendants are arguing
that a particular showing of loss to Plaintiffs' individual accounts or
benefits, as opposed to a loss to the plan, is a prerequisite to Article III
standing, they are in error. Defendants, for example, rely (AC Mot. to Dismiss
30; NT Mot. to Dismiss 43) on Harley v. Minnesota Mining &
Mfg. Co., 284 F.3d 901, 906 (8th Cir. 2002), which held that a participant
in an over-funded defined benefit plan did not have standing to sue under
Article III to recover losses to the plan caused by a fiduciary breach, because
the plan's surplus was sufficiently large that the loss did not cause actual
injury to the participants' interests in the plan (consisting of their accrued
benefits). As Plaintiffs explain (Plaintiffs' NT Opposition 46), Harley
is easily distinguishable from this case, which does not involve a defined
benefit plan (let alone an overfunded one), but instead involves defined
contribution plans that have been decimated by the loss in value of Enron
stock.(14) |
A participant's interest in the security of his
benefits under the plan is sufficiently concrete and personal that an invasion
of that interest is a cognizable injury under Article III standing, and falls
well within the scope of standing principles articulated by the Supreme
Court.(15) Thus, plan participants have
Article III standing to recover losses to their plan resulting from a fiduciary
breach whenever that recovery contributes to the value or security of the
participant's interest in a plan.(16)
|
B. The Complaint Sufficiently Alleges that
Northern Trust was a Fiduciary and that It Had Discretionary Control with
Respect to the Lockdown |
Northern Trust asserts that the Complaint fails to
state a claim that it was a fiduciary in connection with the lockdown of the
Savings Plan.[17] The determination of a person's fiduciary status requires
specific fact-finding concerning the person's conduct and the surrounding
circumstances in each case to decide whether the person exercised the requisite
control. Lancaster, 55 F.3d at 1046-50. Accordingly, fiduciary status
generally is not an issue that is appropriate for resolution by a Rule 12(b)(6)
motion before discovery. Moreover, the Complaint alleges facts that, if true,
state a claim that Northern Trust had fiduciary control with respect to the
lockdown, and breached its obligations under ERISA. |
The following facts alleged in the Complaint are
undisputed: (1) Northern Trust was the trustee of the Savings Plan and held the
plan's assets; (2) plan participants normally could direct Northern Trust to
sell Enron stock owned by the plan and allocated to their accounts and to
purchase other available investment alternatives; and (3) from October 26 to
November 14, 2001, the Savings Plan participants were prevented from selling
their shares of Enron stock. See NT Brief, at 2, 7. Count II additionally
alleges that Northern Trust had the ability to postpone the lockdown until the
price stabilized and that it could have refused to participate in the lockdown;
Northern Trust knew or should have known the true facts concerning the value of
Enron's volatile stock; it knew that the Savings Plan and the Plan's
participants would lose money if they were prevented from selling during the
lockdown; and participants had asked for a postponement of the lockdown.
Complaint at ¶¶ 413-16, 723, 755, 759. As a result of Northern
Trust's failure to postpone the lockdown, the Savings Plan allegedly lost
hundreds of millions of dollars. Complaint at ¶ 759. |
Thus, the Plaintiffs allege that Northern Trust
had the authority to stop the lockdown, was aware that the Savings Plan would
lose money if the lockdown proceeded, and had knowledge of a number of red
flags that should have alerted it to danger. These allegations that
Northern Trust knew or should have known that Enron stock was in a precarious
condition, had reason to think that Enron's financial condition was about to be
uncovered, and knew that at least some participants wanted out are
sufficient to state a claim that Northern Trust had a duty to act, even if it
was acting as a "directed trustee"(18) in
this matter, as it claims. The allegations are additionally bolstered by a
number of publicly known facts that immediately predated the lockdown, and are
recited in the Complaint, as matters of public knowledge that should have been
known to Northern Trust (e.g., Enron had just reported that it had lost
$618 million and written down $1.2 billion of its net worth, and the SEC was
opening an investigation of its accounting practices). Id. at
¶¶ 413, 414, and 416. |
Although Northern Trust disputes that it was a
fiduciary for the purposes of the lockdown, the Complaint alleges that Northern
Trust, in fact, exercised authority and control over the plan assets by
imposing the lockdown, thus preventing the participants from selling the Enron
shares allocated to their accounts. Plaintiffs specifically allege that
Northern Trust had "the power to stop the lockdowns from going forward as
scheduled" but failed to do so. Id. at ¶ 723. Thus, the Complaint
can fairly be read to assert that Northern Trust exercised discretionary
control over the timing and length of the lockdown and that Northern Trust was
a fiduciary under § 3(A)(ii) or (iii), 29 U.S.C. § 1002(A)(ii),
(iii), as to the lockdown. |
Northern Trust's argument that Plaintiffs should
not have the opportunity to conduct discovery and prove these allegations
because Northern Trust was a "directed" trustee is without merit. As discussed
below, even if Northern Trust were a directed trustee in connection with the
lockdown, it could not escape its fiduciary responsibilities by following
directions that it knew or should have known were contrary to ERISA or the
terms of the plan. Furthermore, as explained below, there is a factual dispute
as to whether Northern Trust was a directed trustee with respect to the
investments at issue under the terms of the Plan and Trust Agreement, as set
forth in detail in the parties' briefs. NT Brief, at 9-13, Plaintiffs' Reply,
at 27. Although Northern Trust points to a number of provisions showing that it
was subject to direction by the Administrative Committee, the plan documents
and trust agreement appear to have given it discretionary authority and control
over plan assets and administration in the absence of such direction. NT Brief,
at 9, 11-13, Plaintiffs' Reply, at 12, 17, 26. At this stage in the
proceedings, there is a factual issue as to the scope of Northern Trust's
control over the length and duration of the lockdown that cannot be resolved on
a 12(b)(6) motion to dismiss. |
C. Even if Northern Trust was Given Written
Instructions Concerning the Lockdown, the Complaint States a Claim for
Relief |
Even if the Administrative Committee gave written
instructions to Northern Trust as to the specific length and timing of the
lockdown, the Complaint still states a claim for relief. The Complaint alleges,
apparently in the alternative, that any such lockdown instructions were
improper and contrary to ERISA and that Northern Trust knew or should have
known that the directions violated ERISA. Complaint at ¶¶ 750, 755.
Thus, the Complaint adequately states a claim that Northern Trust breached its
duties by following a direction that was improper or contrary to ERISA.
|
ERISA § 403(a), 29 U.S.C. § 1103,
provides that the trustee "shall have the exclusive authority and discretion to
manage and control the assets of the plan." ERISA § 403(a)(1), however,
contains an exception to that exclusive authority: |
[T]o the extent that the plan expressly provides
that the trustee or trustees are subject to direction of a named fiduciary who
is not a trustee, . . . the trustees shall be subject to the proper
directions of such fiduciary which are made in accordance with the terms
of the plan and which are not contrary to the Act. |
ERISA § 403(a)(1), 29 U.S.C. §
1103(a)(1) (emphasis added). Under this provision, the trustee may not follow
the directions of the named fiduciary if they are contrary to the terms of the
plan or ERISA. See Koch v. Dwyer, No. 98 CIV. 5519 RPP,
1999 WL 528181, at *9 (S.D.N.Y. July 22, 1999); Herman v.
NationsBank Trust Co. (Georgia), 126 F.3d 1354, 1361-62, 1370 (11th Cir.
1997). |
Northern Trust's argument that the trustee need
only determine whether it is "clear on its face" that the direction violates
the plan or ERISA is wrong and contrary to the language of § 403(a)(1). NT
Brief, at 22. Under the standard urged by Northern Trust, the trustee would
only have a duty to disregard the direction if, for example, the plan document
did not authorize the named fiduciary to make such a direction or the
transaction was a per se prohibited transaction with a party in interest under
§ 406(a), 29 U.S.C. § 1106(a). Section 403(a)(1), however, is not so
limited and requires the fiduciary to disregard any directions that are
"contrary to the Act." Accordingly, even if Northern Trust had no discretionary
role under the Savings Plan, as it asserts, it could not follow directions that
it knew or should have known were imprudent or disloyal in violation of ERISA
§§ 404(a)(1)(A) and (B), 29 U.S.C. §§ 1104(a)(1)(A) and
(B). |
Certainly where, as here, the trustee allegedly
already has actual knowledge of the facts and circumstances that cause the
direction to violate the prudence or loyalty requirements (without any
additional investigation), the trustee has the same duty to disregard the
direction that he has if the violation were clear on its face. Koch,
1999 WL 528181, at *10 (neither the statute nor the case law uses a "clear on
their face" test; directed trustee can be held liable for following a direction
that he knew was imprudent). Congress could not have intended directed trustees
to disobey directions that on their face violate ERISA or the plan but to obey
directions that they otherwise know violate ERISA. |
This interpretation is consistent with the common
law of trusts, which imposed a duty of inquiry when there were sufficient red
flags to alert the directed trustee to a potential breach: |
[W]here the holder of the power [to direct the
trustee] holds it as a fiduciary, the trustee is not justified in complying
with his directions if the trustee knows or ought to know that the
holder of the power is violating his duty to the beneficiaries as fiduciary in
giving the directions. . . . |
IIA Scott on Trusts § 185, at pp.
574-55 (4th ed. 1987) (emphasis added). Essentially, the common law imposed a
duty on the directed trustee to disregard directions where it knew or should
have known that the direction was contrary to fiduciary duties. |
This is not to say, however, that a directed
trustee has an independent obligation to verify the prudence of every
transaction or to duplicate the work of the plan fiduciaries that have
discretionary authority over the management of plan assets. See
Nationsbank, 126 F.3d at 1361-62, 1370-71 (directed trustee does not have a
direct obligation of prudence under ERISA § 404, 29 U.S.C. § 1104;
its obligation is simply "to make sure the directions are proper, in accordance
with the terms of the plan, and not contrary to ERISA," id. at 1371).
See also Maniace v. Commerce Bank of Kansas City, N.A.
v. Zeller, 40 F.3d 264, 267-268 (8th Cir. 1994) (holding that
directed trustee did not act as a fiduciary when following directions of named
fiduciary but was subject to the obligations of ERISA § 403(a)(1)),
cert. denied, 514 U.S. 111 (1995); but see FirsTier Bank,
N.A. v. Zeller, 16 F.3d 907, 911 (8th Cir.)(directed trustee
had to adhere to the duty of prudence under ERISA § 404 to inquire into
the merits of participant loans, even though directed by another fiduciary),
cert. denied, 513 U.S. 817 (1994). |
In this case, the Plaintiffs adequately allege
that Northern Trust knew or should have known that it was imprudent to proceed
with the lockdowns. As set forth in the preceding section, they allege not only
that Northern Trust actually knew that the lockdown was going to injure
participants, but that they were aware of numerous red flags that should have
alerted Northern Trust that the lockdown would put participants' accounts at
risk. Accordingly, the Complaint cannot be dismissed for failure to state a
claim. Northern Trust may ultimately show that it neither knew nor should have
known that anything was amiss or that the lockdown was imprudent. The issue is
factual, however, and cannot be resolved on a motion to dismiss for failure to
state a claim. |
|
|
VIII. Plaintiffs'
Offset Claim is a Claim for Equitable Refief Under § 502(a)(3) of
ERISA |
Under the terms of the Cash Balance Plan, the
benefits accrued by the Plaintiffs are offset by the market value of stock held
in the ESOP as of certain past dates when the stock was worth more than it is
today. As a result of the use of those past stock prices as an offset, retirees
receive smaller benefits than they would receive if benefits were offset only
by the negligible value of Enron's stock today. The Plaintiffs allege that
because the Administrative Committee knew or should have known that the market
value of Enron stock was substantially less than the value set by the plan,
"these Defendants had a fiduciary duty to compute each component of the offset
according to the true value as opposed to the artificially inflated market
price; a duty to refuse to permanently fix a component of the offset on a basis
that did not reflect the stock's true value on the relevant dates; and/or a
duty to disclose that the price at which components of the offset would be
fixed were artificially inflated or otherwise not reflective of the true value
of the stock on the relevant dates." Pl. Mem. in Opp. at 71. The Defendants
argue both that they did not violate any fiduciary duty with regard to the
offset and that the loss remedy asserted by the Plaintiffs is unavailable under
§ 502(a)(3) of ERISA, 29 U.S.C. § 1132(a)(3). |
It is not clear to the Secretary whether the
Plaintiffs' offset argument, as pleaded, is sustainable. This claim, unlike the
others addressed in this brief, appears to raise an issue of plan design,
rather than fiduciary conduct or the management of plan assets. However,
Defendants have not simply challenged their liability under the Plaintiffs'
complaint, but have argued that § 502(a)(3) of ERISA, 29 U.S.C. §
1132(a)(3), would provide no remedy even if there were a fiduciary breach.
Because of the importance of the remedial issue, the Secretary addresses it
here. If the claim is proven, the relief sought fits comfortably within ERISA
§ 502(a)(3), which provides that a participant or beneficiary may bring a
civil action to obtain "appropriate equitable relief." 29 U.S.C. §
1132(a)(3). Moreover, contrary to the Defendants' argument, ERISA allows
participants to bring both § 502(a)(3) and § 502(a)(1)(B) claims, in
cases where a § 502(a)(1)(B) claim alone cannot provide complete relief.
|
A. Monetary Relief is Available Against the
Administrative Committee Members Under § 502(a)(3) of ERISA |
The Secretary agrees with Plaintiffs that
monetary relief against breaching fiduciaries is equitable relief within the
meaning of § 502(a)(3) of ERISA, 29 U.S.C. § 1132(a)(3), under
Great-West v. Knudsen, 122 S. Ct. 708, 712-16 (2002).
Indeed, Plaintiffs' ERISA Opposition at pp. 76-82 is largely adapted from an
amicus brief the Secretary of Labor filed on appeal in another case,
Ostler v. OCE-USA, No. 01-380l, 2001 WL 1191183 (N.D. Ill.
Nov. 4, 2001) (appeal to Seventh Circuit voluntarily dismissed and claim paid),
and therefore the Secretary need not reiterate Plaintiffs' arguments here.
Under the common law, monetary relief from a breaching fiduciary was
traditionally, typically, and exclusively available from the courts of equity,
and is therefore "equitable" under the reasoning of Great-West. As
stated in the Restatement on Trusts (one of the authoritative texts which
Great-West urges courts to consult in determining whether relief is
equitable), monetary relief against breaching fiduciaries is equitable when it
restores the beneficiary to "the position he would have been if the trustee had
not committed the breach of trust." Restatement (Second) of Trusts, § 205,
at 458 cmt. a. |
The Administrative Committee Defendants err when
they assert that Plaintiffs cannot bring a claim under § 502(a)(3) because
they purportedly could assert an immediate and unconditional right of payment
against the fiduciaries and therefore could bring an action at law against the
fiduciaries for payment of money allegedly due. Defendants are alluding to a
recognized legal remedy that is available against trustees in certain narrow
circumstances not present here. See Restatement (Second) of Trusts
§ 198(1) (1959)("If the trustee is under a duty to pay money immediately
and unconditionally to the beneficiary, the beneficiary can maintain an action
at law against the trustee to enforce payment.").(19) The Enron participants are not seeking to
enforce an unconditional right to monetary payment, and have no remedy at law
in any case (§ 502(a)(3) authorizes only "equitable relief" and the
Plaintiffs have no cause of action at law for benefits under §
502(a)(1)(B) as set forth below). Rather, they are seeking relief for fiduciary
breaches. The word "unconditional" in the Restatement is crucial: it refers to
instances in which a trustee undoubtedly owes a sum certain to a beneficiary
and has simply refused to pay it. As one court analyzed, |
It seems to us that the word "unconditionally"
[in § 198(1)] was intended to mean without the intervention of equity.
This interpretation is borne out by . . . illustrations which follow the text.
Each of the illustrations presents a situation in which there is no possible
need for the intervention of equity, the only question being whether the
trustee failed to perform a ministerial act expressly mandated by the trust
instrument. The court's function in such a case is no different from that
performed in the interpretation of a contract, or any other document. The
instant case, on the other hand, presents the traditionally equitable question
of whether or not the alleged "common law trustee" breached its fiduciary duty.
Unless and until that equitable question is resolved in plaintiffs' favor, the
alleged trustee is under no duty to make any payment whatsoever.
|
Nobile v. Pension Comm. of
Pension Plan for Employees of New Rochelle Hosp., 611 F. Supp. 725, 728-29
(S.D.N.Y. 1985).(20) See also 76 Am.
Jur. 2d Trusts § 667 (2002) ("The remedies of the beneficiaries of a
testamentary trust against the trustee for a breach of trust are exclusively
equitable; an action by beneficiaries for breach of trust is an equitable
proceeding, even if money damages are the only remedy sought.");
Vartanian v. Monsanto Co., 880 F. Supp. 63, 72 (D. Mass.
1995) ("[C]ourts have uniformly found that 'entitlement to benefits due
immediately and unconditionally' applies only to straightforward breach of
contract claims. . . . In this instance, a complicated claim for breach of a
trustee's fiduciary duty most certainly an equitable claim is at
the bottom of both plaintiffs'" claims.). |
The Administrative Committee Defendants also err
in claiming that monetary relief to an individual beneficiary, that does not
inure to the benefit of the entire trust, is not equitable relief within the
meaning of §§ 502(a)(3) and (5), 29 U.S.C. §§ 1132(a)(3)
and (5). Indeed, Varity rejects this very argument, holding that "the sort of
relief provided by both subsection (5) and, by implication, subsection (3),
would include an award to 'participants and beneficiaries,' rather than to the
'plan,' for breach of fiduciary obligation." 516 U.S. at 510 (noting that
§ 502(l) "calculates a certain civil penalty as a percentage of the sum
'ordered by [the] court to be paid by such fiduciary . . . to a plan or its
participants and beneficiaries' under subsection (5)." (emphasis and
ellipses in original)). |
B. There is no Bar to Bringing Both §
502(a)(3) and § 502(a)(1)(B) Claims in the Same Action when §
502(a)(1)(B) Cannot Provide Complete Relief |
The Plaintiffs' offset claim does not seek
benefits due under the plan under § 502(a)(1)(B), 29 U.S.C. §
1132(a)(1)(B). Section 502(a)(1)(B) authorizes a cause of action for breaches
of the contractual agreements set forth in the terms of an ERISA plan and
provides for remedies in the form of recovery of benefits due under the plan,
enforcement of rights under the plan, and a declaration of future rights to
benefits under the plan. A § 502(a)(1)(B) claim, and the remedies that
provision makes available, are all essentially contractual in nature. Thus, the
purpose of § 502(a)(1)(B) is to enforce the contractual terms of the plan
and the remedies provided therein are intended to give the claimants the
benefit of the bargain embodied in the plan. Significantly, ERISA §
502(a)(1)(B) does not provide a remedy of disgorgement of unjust enrichment or
other equitable relief. Success on a claim under § 502(a)(1)(B) often
turns on an interpretation of language contained in the plan and requires a
showing that participants did not receive benefits promised by the terms of the
plan. |
The Administrative Committee Defendants are
incorrect in stating that Plaintiffs' claim is truly a claim under §
502(a)(1)(B). Plaintiffs' offset claim in Count IV does not seek benefits under
the plan; to the contrary, Plaintiffs admittedly have received benefits under
the plan calculated using the plan formula, which defined the benefit by
reference to the market price of the stock as of specified dates. Plaintiffs
argue that the fiduciaries had a duty, under §§ 404(a)(1)(A) and (B),
to disregard the plan documents and to compute the offset according to the
"true value" of the stock, rather than the artificially inflated value that
resulted from the plan formula. Plaintiffs also argue that the fiduciaries had
a duty to disclose to participants and beneficiaries that the offset amount was
being artificially inflated, and a duty to refuse to permanently fix a
component of the offset on a basis that did not reflect the stock's true value
on the relevant dates. Complaint at ¶ 773. This does not amount to a
"disguised claim for plan benefits." Since Plaintiffs are not seeking benefits
in accordance with the formula found in the plan documents, § 502(a)(1)(B)
offers them no remedy, and equitable relief under § 502(a)(3) is their
only available avenue. |
The Administrative Committee Defendants also
misread the law by asserting that § 502(a)(3) claims and §
502(a)(1)(B) claims may never be brought in the same action. In fact, it is
permissible to assert claims, in the alternative, under both
§§502(a)(1)(B) and 502(a)(3), 29 U.S.C. §§ 1132(a)(1)(B)
and 1132(a)(3). See, e.g., O'Rourke v. Pitney Bowes, No.
95 CIV 10288, 1996 WL 539848, at*2 (S.D.N.Y. Sept. 23, 1996) (motion to dismiss
denied because it is not "beyond doubt" that participant can prove no set of
facts that would entitle him to relief under § 502(a)(3), although it may
ultimately turn out that participant is entitled to legal relief under §
502(a)(1)(B) and therefore not entitled to a § 502(a)(3) remedy); Benjamin
v. Morris, No. 97 C 6714, 1998 WL 299434 (N.D. Ill. May 20, 1998) (same);
cf. Fotta v. Trustees of the United Mine Workers of
America, Nos. 97-3619, 97-3663, 1998 WL 884503, at*5 n.1 (3d. Cir. Dec. 18,
1998) (allowing § 502(a)(3) claim to go forward, court noted that it did
not reject § 502(a)(1)(B) as a possible statutory basis but did not need
to reach the issue). |
Defendants' argument is based on a misreading of
Varity, 516 U.S. at 515. Construing ERISA's civil enforcement scheme
expansively, the Varity Court held that ERISA § 502(a)(3), 29
U.S.C. § 1132(a)(3), is a "catch‑all" provision guaranteeing
individual ERISA plan participants the right to an adequate recovery for
breaches of fiduciary duty. 516 U.S. at 509‑13. In response to arguments
that Plaintiffs would simply dress up benefit claims in § 502(a)(3)
clothing in order to avoid the exhaustion of remedies and standard of review
applicable to benefit claims, the Court concluded that this would not happen
because § 502(a)(3) authorizes only "appropriate" equitable relief. The
Court concluded that lower courts would not allow fiduciary claims to go
forward when the Plaintiffs could obtain adequate relief through a benefit
claim and, therefore, relief under § 502(a)(3) would not be
"appropriate." Id. at 515. |
The two cases cited by Defendants, Tolson
v. Avondale, 141 F.3d 604 (5th Cir. 1998) and Rhorer
v. Raytheon Eng'g, 181 F.3d 639 (5th Cir. 1999), which found that
relief was not available under both §§ 502(a)(1)(B) and 502(a)(3),
are distinguishable.(21) In those cases,
participants brought suit under both § 502(a)(1)(B) and § 502(a)(3)
asserting an erroneous denial of benefits. The court in both cases held that
because adequate relief was available under § 502(a)(1)(B), Varity did not
allow relief to be obtained under § 502(a)(3). Here, in contrast, adequate
relief is not available under § 502(a)(1)(B). |
|
|
IX. Plaintiffs
Sufficiently Alleged a Claim Against Anderson for Knowing Participation in a
Fiduciary Breach |
In Count I of the Complaint, Plaintiffs allege
that various Defendants breached their fiduciary duties under ERISA by
accepting, acquiring, and retaining (at their initiative or at the direction of
the participants) Enron stock as an investment under the Enron Savings Plan and
ESOP. Complaint at ¶ 740. Plaintiffs also allege (as clarified in
Plaintiffs' ERISA Opposition at 53) that Arthur Andersen LLP (Andersen),
although not a plan fiduciary, was a knowing participant in these fiduciary
breaches. Complaint at ¶ 714. Anderson seeks dismissal on the ground that
ERISA does not provide a cause of action for knowing participation in a
fiduciary breach under § 404, 29 U.S.C. § 1104. Whether Anderson is
liable as a knowing participant is a factual question that should not be
resolved on a motion to dismiss. |
The Supreme Court has expressly held that a
nonfiduciary party-in-interest who has actual or constructive knowledge of the
circumstances that made the fiduciary's actions a breach of duty and
participates in that breach can be liable for appropriate equitable relief
under ERISA § 502(a)(3), 29 U.S.C. § 1132(a)(3). Harris Trust
& Sav. Bank v. Salomon Smith Barney, Inc., 530 U.S. 238,
248 (2000). Defendant Andersen is therefore incorrect that, under
Mertens v. Hewitt Assocs., 508 U.S. 248 (1993), it is
"questionable" whether ERISA provides a cause of action against a nonfiduciary
for knowing participation in a fiduciary breach of duty. Andersen Mem. at 15.
The Court in Harris Trust specifically stated that it was "merely
flagging the issue" in its allusion to "knowing participation" in
Mertens, which constituted "dictum." Harris Trust, 530 U.S. at
248. After Harris Trust, the viability of such a cause of action can no
longer be questioned. |
In its Reply Brief, Anderson argues that Harris
Trust only applies to cases brought under ERISA § 406, 29 U.S.C.
§ 1106, not under § 404, 29 U.S.C. § 1104. While Harris
Trust, as a factual matter, concerned a claim under § 406, this
purported distinction is contrary to the broad language of Harris Trust,
which states that "§ 502(a)(3) admits of no limit . . . on the universe of
possible defendants . . . the focus, instead, is on redressing the 'act or
practice which violates any provision of [ERISA Title I].'" Harris
Trust, 530 U.S. at 246 (emphasis added). Title I of ERISA includes §
404 as well as §406. Indeed, the Court noted that § 502(l), 29 U.S.C.
§ 1132(l), allows the Secretary to assess a civil penalty against any
"'other person'" who "'knowing[ly] participat[es] in'" "any . . .
violation of . . . part 4 . . . by a fiduciary." 530 U.S. at 248
(ellipses in original, emphasis added). The amount of such penalty, according
to the Court, is defined by reference to the amount ordered by a court to be
paid by such other person in a suit instituted by the Secretary under
subsection (a)(2) or (a)(5). Therefore, the Court reasoned, the "plain
implication is that the Secretary may bring a civil action under §
502(a)(5), 29 U.S.C. § 1132(a)(5), against an 'other person' who
'knowing[ly] participat[es]' in a fiduciary's violation." The plain meaning and
logic of this language applies with equal force to violations of § 404 as
to § 406 violations, and applies to § 502(a)(3), which is the
corollary to §502(a)(5). |
The Fifth Circuit, even before Harris
Trust, had held that nonfiduciaries who knowingly participated in a breach
of trust under § 404, 29 U.S.C. § 1104, could be held liable.
Whitfield v. Lindemann, 853 F.2d 1298, 1303 (5th
Cir.)(attorney, who was not yet acting as plan counsel at time of fiduciary
breach, was liable as nonfiduciary), cert. denied sub nom.,
Klepak v. Dole, 490 U.S. 1089 (1998).(22) When the Mertens decision left it
unclear whether the Supreme Court would permit recovery against knowing
participants, the Fifth Circuit stated that if a knowing participation claim
was permissible, it would permit recovery on such a claim. Lancaster, 55
F.3d at 1043, n.9 ("[t]o the extent that liability as a knowing participant to
a breach by a fiduciary is a valid theory of recovery, [defendants can be]
liable . . . on that basis"). Now that the Harris Trust decision has put
to rest the question of whether knowing participation is a valid theory of
recovery, there can be no doubt that the Fifth Circuit would again allow it in
a § 404 case. |
Plaintiffs sufficiently allege that Andersen
knowingly participated in the fiduciary breaches of the other Defendants.
Plaintiffs allege that Andersen "knowingly participated in the Enron
Defendants' breaches of fiduciary duty by actively concealing from the Plan
fiduciaries and Plan participants the true financial condition of the Company
and the imprudence of investing in Enron stock." Complaint at ¶ 744. This
suffices to state a claim that Andersen is "an 'other person' who 'knowing[ly]
participat[es]' in a fiduciary's violation," as required by the Supreme Court
in Harris Trust. 530 U.S. at 248. |
Although Andersen also seeks dismissal on the
ground that Plaintiffs cannot establish that they are entitled to such relief
because they have not alleged that Andersen received payment from the plans or
otherwise obtained plan assets, Plaintiffs are entitled to prove any facts or
possible theory in support of their claim consistent with the allegations of
the Complaint. See generally Jones v. Greninger, 188 F.3d
322, 324 (5th Cir. 1999). As Plaintiffs explain, Great-West, 122 S. Ct. at 708,
permits recovery of equitable restitution, and other forms of equitable relief.
Plaintiffs' ERISA Opposition at 55. Their Complaint alleges that Andersen
received large sums in connection with its provision of services to Enron
(which, Plaintiffs allege, constituted knowing participation in a breach) and
Plaintiffs should be permitted to prove that these included property that
belonged to the plan. If Plaintiffs prove that Andersen obtained such assets
pursuant to its knowing participation in the breach, and that in order to
prevent unjust enrichment such assets should be deemed to rightfully belong to
the plan, the court would be authorized to impose a constructive trust over the
assets (or proceeds traceable to such assets), and order Andersen to convey
those assets to the plan, along with any profits derived therefrom. See
generally 1 D. Dobbs, Law of Remedies § 4.3(2), at 590-591 (2nd
ed. 1993). |
|
|
|
Defendants variously claim that they had no
knowledge of the financial wrongdoings at Enron, no way to gain any knowledge
of the financial wrongdoing, no ability to act on participants' behalf, and no
responsibility to the participants. Defendants' arguments and excuses cannot be
reconciled with ERISA's protection of employees' retirement security. ERISA is
unambiguous in what it requires of fiduciaries: they must act to protect the
interests of plan participants and beneficiaries. Such action could consist of
disclosing vitally needed information to participants, investigating suspicious
circumstances surrounding plans, or freezing further investment in stock that
might be heavily overvalued and likely to crash, to name only some examples.
Defendants could not fulfill their fiduciary responsibilities by doing nothing
at all to safeguard the interests of participants and beneficiaries whom they
were duty-bound to protect. Taking the Plaintiffs' allegations as true, as this
Court must for purposes of a Rule 12(b)(6) motion, the Complaint states a claim
that the Defendants breached their fiduciary duties under ERISA, and that the
breaches caused losses to the plaintiffs. |
For the foregoing reasons, the Secretary
respectfully requests that the Court deny Defendants' motions to dismiss.
|
Respectfully submitted, for the Secretary of
Labor: |
Eugene Scalia Solicitor of Labor |
Karen L. Handorf Deputy Associate
Solicitor Plan Benefits Security Division |
Timothy D. Hauser Associate Solicitor
Plan Benefits Security Division |
Elizabeth Hopkins Counsel for Appellate and
Special Litigation Plan Benefits Security Division |
/s/ Robin Springberg Parry<br>
Trial Attorney |
Mark Flynn Senior Appellate Attorney
Special Appellate and Supreme Court Litigation Division |
William Scott Senior Trial Attorney
Plan Benefits Security Division |
U.S. Department of Labor Office of the
Solicitor Plan Benefits Security Division PO Box 1914 Washington,
DC 20013 Tel 202.693.5614 Fax 202.693.5610 |
|
|
|
|
I hereby certify that on the 30th day of
August 2002 a true and correct copy of the foregoing Amended Brief of the
Secretary of Labor as Amicus Curiae Opposing the Motions to Dismiss was: (1)
served on all counsel on the attached service list electronically via the
www.esl.3624.com <http://www.esl.3624.com> web site
pursuant to the Courts Orders of June 6, 2002 and August 7, 2002; (2)
sent via Fax Machine to: |
Ms. Carolyn S. Schwartz United States Trustee,
Region 2 33 Whitehall Street Twenty-First Floor New York, New York
10004 Tel 212.510.0500 Fax 212.668.2255 |
and (3) mailed by first class mail, postage
prepaid to: |
Dr. Bonnee Linden, Pro Se Linden Collins
Associates 1223 West Broadway, PO Box 114 Hewlett, New York 11557
|
/s/ G. William Scott G. William Scott
|
|
|
|
Ms. Carolyn S. Schwartz United States
Trustee, Region 2 33 Whitehall Street Twenty-First Floor New York,
New York 10004 Tel 212.510.0500 Fax 212.668.2255 |
William S. Lerach Helen J. Hodges G.
Paul Howes Milberg Weiss Bershad Hynes & Lerach, LLP 410 B. Street,
Suite 1700 San Diego, California 92101 Tel 619.231.1058 Fax
619.231.7423 Email enron@milberg.com Attorneys for the Regents of the
University of California and Lead Counsel for the Newby Plaintiffs |
James E. Colemen, Jr. Carrington, Coleman,
Sloman & Blumenthal, 200 Crescent Court, Suite 1500 Dallas, Texas
75201 Tel 214.855.3000 Fax 214.855.1333 Email deakin@ccsb.com
Attorneys for Defendant Kenneth Lay |
Eric J.R. Nichols Beck Redden &
Secrest One Houston Center 1221 McKinney Street, Suite 4500
Houston, Texas 77010 Tel 713.951.3700 Fax 713.951.3720 Email
enichols@brsfirm.com Attorney for Michael J. Kopper, Chewco Investments,
L.P. and LJM Cayman, L.P. |
John J. McKetta, III Helen Currie
Foster Graves, Dougherty, Hearon & Moody 515 Congress Avenue, Suite
2300 Austin, Texas 78701 Tel 512.480.2005 Fax 512.478.1976
Email mmcketta@gdhm.com Attorneys for Defendant Rebecca
Mark-Jusbasche |
Sharon Katz Davis Polk & Wardell
450 Lexington Avenue New York, New York 10017 Tel 212.450.4000 Fax
212.450.3633 Email andersen.courtpapers@dpw.com Attorneys for Arthur
Andersen, L.L.P. |
Billy Shepherd Cruse, Scott, Henderson
& Allen, L.L.P. 600 Travis Street, Suite 3900 Houston, Texas
77002-2910 Tel 713.650.6600 Fax 713.650.1720 Email
bshepherd@crusescott.com |
Anthony C. Epstein Steptoe & Johnson
LLP 1330 Connecticut Avenue, NW Washington, DC 20036-1795 Tel
202.429.8065 Fax 202.261.7507 Email aepstein@steptoe.com Attorney
for Defendants Philip J. Bazelides, Mary K. Joyce and James S.
Prentice |
Craig Smyser Smyser Kaplan & Veselka,
LLP 700 Louisiana, Suite 2300 Houston, Texas 77002 Tel
713.221.2330 Fax 713.221.2320 Email enronservice@skv.com Attorney
for Defendant Andrew Fastow |
Ms. Linda L. Addison Fulbright &
Jaworski 1301 McKinney, Suite 5100 Houston, Texas 77002-3095 Tel
713.651.5628 Fax 713.651.5246 Email laddison@fulbright.com Attorney
for The Northern Trust Company and Northern Trust Retirement Consulting
LLC |
Robert Hayden Burns Burns Wooley &
Marseglia 1415 Louisiana, Suite 3300 Houston, Texas 77002 Tel
713.651.0422 Fax 713.651.0817 Email hburns@bwmzlaw.com Attorneys
for Defendant Kristina Mordaunt |
Kenneth S. Marks Susman Godfrey LLP
1000 Louisiana, Suite 3300 Houston, Texas 77002 Tel 713.651.9366
Fax 713.654.6666 Email kmarks@susmangodfrey.com Attorney for Enron
Corporation |
Paul Vizcarrondo, Jr. Wachtell, Lipton,
Rosen & Katz 51 West 52nd Street New York, New York
10019 Tel 212.403.1000 Fax 212.403.2000 Email
pvizcarrondo@wlrk.com Attorney for Goldman Sachs, Salomon Smith Barney,
Banc of America Securities |
John L. Murchison, Jr. Vinson & Elkins,
L.L.P. 2300 First City Tower 1001 Fannin Houston, Texas 77002
Tel 713.758.2222 Fax 713.758.2346 Email jmurchison@velaw.com |
Mark C. Hansen Reid M. Figel Kellogg,
Huber, Hansen, Todd & Evans PLLC 1615 M. Street, NW, Suite 400
Washington, DC 20036 Tel 202.326.7900 Fax 202.326.7999 Email
mhansen@khhte.com, rfigel@khhte.com Attorneys for Defendant Nancy
Temple |
Dr. Bonnee Linden, Pro Se Linden Collins
Associates 1226 West Broadway, PO Box 114 Hewlett, New York 11557
[Send by mail per Dr. Linden] |
Andrew J. Mytelka David Le Blanc Greer,
Herz & Adams, L.L.P. One Moody Plaza, 18th Floor
Galveston, Texas 77550 Tel 409.797.3200 Fax 409.766.6424 Email
amytelka@greerherz.com, dleblanc@greerherz.com, swindsor@greerherz.com,
bnew@greerherz.com Attorneys for American National Plaintiffs |
Lynn Lincoln Sarko Keller Rohrback LLP
1201 Third Avenue, Suite 3200 Seattle, Washington 98101-3052 Tel
206.623.1900 Fax 206.623.3384 Email lsarko@kellerrohrback.com
Co-lead counsel for the Tittle Plaintiffs |
Henry F. Schuelke, III Robert Sutton
Janis, Schuelke & Wechsler 1728 Massachusetts Avenue, NW
Washington, DC 20036 Tel 202.861.0600 Fax 202.861.4750 Email
hsschuelke@janisschuelke.com, rsutton@janisschuelke.com Attorney for
Defendant Ben Glisan |
James F. Marshall, Esq. Judicial Watch,
Inc. Western Regional Headquarters 2540 Huntington Drive, Suite 201
San Marino, California 91108-2601 Tel 626.287.4540 Fax 626.237.2003
Email marshall@attglobal.net Attorney for the Wilt Plaintiffs |
Herbert S. Washer Clifford Chance Rogers
& Wells 200 Park Avenue, Suite 5200 New York, New York
10166-0153 Tel 212.878.8000 Fax 212.878.8375 Email
herbert.washer@cliffordchance.com Attorneys for Merrill Lynch & Co.,
Inc. |
Mark F. Pomerantz Richard A. Rosen Brad
S. Karp Claudia L. Hammerman Paul, Weiss, Rifkind, Wharton &
Garrison 1285 Avenue of the Americas New York, New York 10019-6064
Tel 212.373.3000 Fax 212.757.3990 Email
grp-citi-service@paulweiss.com Attorneys for Defendant Citigroup |
Hugh R. Whiting David E. Miller Jones,
Day, Reavis & Pogue 600 Travis Street, Suite 6500 Houston, Texas
77002 Tel 832.239.3939 Fax 832.239.3600 Email
hrwhiting@jonesday.com, demiller@jonesday.com C. Attorneys for Lehman
Brothers |
Harvey Brown Orgain, Bell & Tucker,
L.L.P. 2700 Post Oak Boulevard, Suite 1410 Houston, Texas 77056 Tel
713.572.8772 Fax 713.572.8766 Email hgb@obt.com Attorneys for
Arthur Anderson UK |
Lawrence D. Finder Haynes & Boone,
LLP 1000 Louisiana Street Suite 4300 Houston, Texas 77002-5012
Tel 713.547.2006 Fax 713.547.2600 Email finderl@haynesboone.com
Attorney for Credit Suisse First Boston |
Jack ONeill Jason Norwood
Clements, ONeill, Pierce, Wilson & Fulkerson, L.L.P. 1000
Louisiana, Suite 1800 Houston, Texas 77002 Tel 713.654.7607 Fax
713.654.7690 Email Sutton@copwf.com Attorneys for Joseph
Sutton |
Roger E. Zuckerman Steven M. Salky
Zuckerman Spaeder LLP 1201 Connecticut Avenue, NW Washington, DC
20036 Tel 202.778.1800 Fax 202.822.8106 Email
djeffrey@zuckerman.com Attorneys for Lou L. Pai |
James N. Benedict Clifford Chance Rogers
& Wells, L.L.P. 200 Park Avenue, Suite 5200 New York, New York
10166-0153 Tel 212.878.8000 Fax 212.878.8375 Email
james.benedict@cliffordchance.com Attorneys for Alliance Capital
Management, L.P. |
Paul Bessette Brobeck, Phleger &
Harrison LLP 4801 Plaza on the Lake Austin, Texas 78746 Tel
512.330.4000 Fax 512.330.4001 Email bofa@brobeck.com Attorneys for
Bank of America Corp. |
Clayton C. Cannon Stumpf Craddock Massey
& Pulman 1400 Post Oak Boulevard, Suite 400 Houston, Texas
77056 Tel 713.871.0919 Fax 713.874.0408 Email
ccannon@scmplaw.com Attorneys for Thomas Bauer |
Michael Connelly Kent Altsuler
Connelly, Baker, Wotring & Jackson, LLP 700 Louisiana, Suite 1850
Houston, Texas 77002 Tel 713.980.1710 Fax 713.980.1731 Email
enron@mto.com Attorneys for Kirkland & Ellis |
Stephen J. Crimmins Pepper Hamilton LLP
Hamilton Square 600 Fourteenth Street, NW Washington, DC 20005 Tel
202.220.1200 Fax 202.220.1665 Email crimminss@pepperlaw.com
Attorneys for Kevin P. Hannon |
Murray J. Fogler McDade Fogler Maines,
L.L.P. Two Houston Center 909 Fannin, Suite 1200 Houston, Texas
77010-1006 Tel 713.654.4300 Fax 713.654.4343 Email
mfogler@mfml.com Attorneys for Lou L. Pai |
Marshall A. Karlan Gibson, Dunn &
Crutcher, L.L.P. 200 Park Avenue New York, New York 10166-0193 Tel
212.351.4000 Fax 212.351.4035 Email enronlitigation@gibsondunn.com
Attorneys for Merrill Lynch |
Eliot Lauer Curtis, Mallet-Prevost, Colt
& Mosle, LLP 101 Park Avenue New York, New York 10178-0061 Tel
212.696.6000 Fax 212.697.1559 Email elauer@cm-p.com Attorney for
Michael C. Odom |
William E. Matthews 1000 Louisiana, Suite
3400 Houston, Texas 77002-5007 Tel 713.276.5500 Fax
713.276.5555 Email wmatthews@gardere.com Attorney for Andersen
Worldwide |
Elizabeth T. Parker Pepper Hamilton LLP
3000 Two Logan Square 18th and Arch Streets Philadelphia,
Pennsylvania 19103 Tel 215.981.4000 Fax 215.981.4756 Email
parkere@pepperlaw.com Attorneys for Kevin P. Hannon |
R. Paul Yetter Yetter & Warden,
L.L.P. 909 Fannin, Suite 3600 Houston, Texas 77010 Tel
713.632.8000 Fax 713.632.8002 Email pyetter@yetterwarden.com
Attorneys for The Florida State Board of Admin and NYC Pension Funds |
|
Steve W. Berman Hagens Berman, LLP 1301
Fifth Avenue, Suite 2900 Seattle, Washington 98101 Tel 206.623.7292
Fax 206.623.0594 Email steve@hagens-berman.com Co-Lead counsel for the
Tittle Plaintiffs |
Jeremy L. Doyle Gibbs & Bruns,
L.L.P. 1100 Louisiana Street, Suite 5300 Houston, Texas 77002 Tel
713.650.8805 Fax 713.750.0903 Email jdoyle@gibbs-bruns.com Attorney
for Robert Belfer, Norman Blake, Ronnie Chan, John Duncan, Joe Foy, Wendy
Gramm, Robert Jaedicke, Charles LeMaistre, John Mendelsohn, Jerome Meyer, Paulo
Ferraz Pereira, Frank Savage, Charls Walker, John Wakeham, Herbert
Winokur |
Robert M. Stern Kathleen Kelly
OMelveny & Meyers, L.L.P. 555 13th Street, NW, Suite 500 West
Washington, DC 20004 Tel 202.383.5328 Fax 202.383.5414 Email
restern@omm.com Attorneys for Defendant Jeffrey Skilling |
H. Bruce Golden Golden & Owens,
L.L.P. 1221 McKinney Street, Suite 3600 Houston, Texas 77010 Tel
713.223.2600 Fax 713.223.5002 Email golden@goldenowens.com
Attorneys for Defendant John A. Urquhart |
Rusty Hardin Rusty Hardin & Associates,
P.C. 1201 Louisiana, Suite 3300 Houston, Texas 77002 Tel
713.652.9000 Fax 713.652.9800 Email rhardin@rustyhardin.com
Attorneys for Arthur Andersen, LLP |
Roger B. Greenberg Schwartz, Junell,
Campbell & Outhout 2000 Two Houston Center, 909 Fannin Houston,
Texas 77010 Tel 713.752.0017 Fax 713.752.0327 Email
rgreenberg@schwartz-junell.com Attorneys for the Regents of the University
of California |
Michael D. Warden, Esq. Sidley Austin Brown
& Wood, LLP 1501 K. Street, NW Washington, DC 20005 Tel
202.736.8000 Fax 202.736.8711 Email mwarden@sidley.com Attorneys D.
Stephen Goddard, Jr. |
Abigail K. Sullivan Bracewell &
Patterson, L.L.P. 711 Louisiana Street, Suite 2900 Houston, Texas
77002 Tel 713.221.1205 Fax 713.221.2149 Email
asullivan@bracepatt.com Attorney for James v. Derrick,
Jr. |
Mark K. Glasser Reginald R. Smith King
& Spalding, L.L.P. 1100 Louisiana, Suite 4000 Houston, Texas
77002 Tel 713.751.3200 Fax 713.751.3290 Email
mkglasser@kslaw.com Attorney for LJM II Co-Investment |
Barry G. Flynn Law Office of Barry G.
Flynn. P.C. 1300 Post Oak Boulevard, Suite 750 Houston, Texas 77056
Tel 713.840.7474 Fax 713.840.0311 Email bgflaw@mywavenet.com
Attorney for David Duncan |
Jack C. Nickens Nickens Lawless & Flack
LLP 600 Travis, Suite 7500 Houston, Texas 77002 Tel
713.571.9191 Fax 713.571.9652 Email trichardson@nlf-law.com
Attorney for The Estate of J. Clifford Baxter, Deceased, Richard B. Buy,
Richard A. Causey, Mark A. Frevert, Joseph M. Hirko, Stanley C. Horton, Steven
J. Kean, Mark E. Koenig, Michael S. McConnell, Jeffrey McMahon, J. Mark Metts,
Cindy K. Olson, Lou L. Pai, Kenneth D. Rice and Paula Rieker |
Charles G. King King & Pennington,
L.L.P. 711 Louisiana Street, Suite 3100 Houston, Texas 77002 Tel
713.225.8404 Fax 713.225.8488 Email cking@kandplaw.com Attorney for
Goldman Sachs, Salomon Smith Barney, Banc of America Securities |
Bernard v. Preziosi, Jr. Curtis,
Mallet-Provost, Colt & Mosle, LLP 101 Park Avenue New York, New
York 10178-0061 Tel 212.696.6000 Fax 212.697.1559 Email
bpreziosi@cm-p.com Attorney for Defendant Michael C. Odom |
G. Sean Jez Fleming & Associates
1330 Post Oak Boulevard, Suite 3030 Houston, Texas 77056 Tel
713.621.7944 Fax 713.621.9638 Email enron@fleming-law.com Attorney
for Individual Plaintiffs |
Jeffrey C. King Hughes & Luce,
L.L.P. 1717 Main Street, Suite 2800 Dallas, Texas 75201 Tel
214.939.5900 Fax 214.939.6100 Email kingj@hughesluce.com Attorney
for Bruce Willison |
William F. Martson, Jr. Tonkon Torp LLP
1600 Pioneer Tower, 888 SW Fifth Avenue Portland, Oregon 97204 Tel
503.802.2005 Fax 503.972.3705 Email rick@tonkon.com Attorney for
Ken L. Harrison |
Gary A. Orseck Robbins, Russell, Englert
Orseck & Untereiner LLP 1801 K. Street, NW, Suite 411 Washington,
DC 20006 Tel 202.775.4500 Fax 202.775.4510 Email
gorseck@robbinsrussell.com Attorney for Defendant Michael Lowther |
Scott B. Schreiber Arnold & Porter
555 Twelfth Street, NW Washington, DC 20004-1206 Tel 202.942.5000
Fax 202.942.5999 Email enroncourtpapers@aporter.com Attorney for
Defendant Thomas Bauer |
John K. Villa Williams & Connolly,
L.L.P. 725 Twelfth Street, NW Washington, DC 20005 Tel
202.434.5000 Fax 202.434.5705 Email jvilla@wc.com Attorney
for Vinson & Elkins, L.L.P., Ronald T. Astin, Joseph Dilg, Michael P. Finch
and Max Hendrick III |
Taylor M. Hicks Stephen M. Loftin Hicks
Thomas & Lilienstern, LLP 700 Louisiana, Suite 1700 Houston, Texas
77002 Tel 713.547.9100 Fax 713.547.9150 Email
thicks@hicks-thomas.com, sloftin@hicks-thomas.com |
David H. Braff Sullivan & Cromwell
125 Broad Street New York, New York 10004 Tel 212.558.4000 Fax
212.558.3588 Email braffd@sullcrom.com Attorneys for Barclays
PLC |
Michael Schloss Senior Trial Attorney
Leslie Canfield Perman Counsel for General Litigation U.S. Department
of Labor Office of the Solicitor Plan Benefits Security Division
200 Constitution Ave., NW, Room N-4611 Washington, DC 20210 Tel
202.693.5586 Fax 202.693.5610 Email schloss-michael@dol.gov,
Perlman-leslie@dol.gov |
Richard W. Clary Cravath, Swaine &
Moore Worldwide Plaza, 825 Eighth Avenue New York, New York 10019
Tel 212.474.1227 Fax 212.474.3700 Email rclary@cravath.com Attorney
for Credit Suisse First Boston |
Richard Mithoff Mithoff & Jacks One
Allen Center, Penthouse, 500 Dallas Houston, Texas 77002 Tel
713.654.1122 Fax 713.739.8085 Email enronlitigation@mithoff-jacks.com,
cgall@jenkens.com, t_rice@stblaw.com Attorneys for Defendant J.P. Morgan
Chase & Co. |
Jacalyn Scott Wilshire Scott & Dyer
P.C. 1221 McKinney, Suite 3000 Houston, Texas 77010 Tel
713.651.1221 Fax 713.651.0020 Email jscott@wsd-law.com Attorney for
CitiGroup and Salomon Smith Barney |
Paul J. Ondrasik, Jr. F. Michael Kail
Anthony C. Epstein Steptoe & Johnson LLP 1330 Connecticut Avenue,
NW Washington, DC 20036 Tel 202.429.3000 Fax 202.429.3902 Email
pondrasik@steptoe.com Attorneys for James G. Barnhart, Keith Crane, William
Gulyassy, Roderick Hayslett, Sheila Knudsen, Tod A. Lindholm, Mikie Rath and
David Shields |
Bruce D. Angiolillo Thomas C. Rice
Simpson Thacher & Bartlett 425 Lexington Avenue New York, New York
10017-3954 Tel 212.455.2000 Fax 212.455.2502 Email
bangiolillo@stblaw.com, jyoungwood@stblaw.com Attorneys for J.P. Morgan
Chase |
Lawrence Byrne White & Case, L.L.P.
1155 Avenue of the Americas New York, New York 10036 Tel
212.819.8200 Fax 212.354.8113 Email lbyrne@whitecase.com Attorneys
for Deutsche Bank AG |
David L. Carden Jones, Day, Reavis &
Pogue 222 East 41st Street New York, New York 10017 Tel
212.326.3939 Fax 212.755.7306 Email dlcarden@jonesday.com Attorneys
for Lehman Brothers |
Robert. E. Cook Cook & Roach,
L.L.P. Chevron Texaco Heritage Plaza 1111 Bagby, Suite 2650
Houston, Texas 77002 Tel 713.652.2031 Fax 713.652.2029 Email
rcook@cookroach.com Attorney for Alliance Capital |
Michael G. Davies Hoguet Newman &
Regal, LLP 10 East 40th Street New York, New York 10016
Tel 212.689.8808 Fax 212.689.5101 Email mdavies@hnrlaw.com
Attorneys for Arthur Andersen-India |
Chuck A. Gall Jenkins & Gilchrist
1445 Ross Avenue, Suite 3200 Dallas, Texas 75202-2799 Tel
214.855.4338 Fax 214.855.4300 Email cgall@jenkens.com Attorneys for
J.P. Morgan Chase |
William H. Knull, III Mayer, Brown, Rowe
& Maw 700 Louisiana, Suite 3600 Houston, Texas 77002-2730 Tel
713.221.1651 Fax 713.224.6410 Email cibc-newby@mayerbrownrowe.com
Attorneys for Canadian Imperial Bank |
Gregory A. Markel Brobeck, Phleger &
Harrison LLP 1633 Broadway, 47th Floor New York, New York
10019 Tel 212.581.1600 Fax 212.586.7878 Email bofa@brobeck.com
Attorneys for Bank of America |
Robert C. Micheletto Jones, Day, Reavis
& Pogue 77 West Wacker Chicago, Illinois 60601-1692 Tel
312.782.3939 Fax 312.782.8585 Email rmicheletto@jonesday.com
Attorneys for Lehman Brothers |
John W. Spiegel Ronald L. Olson Dennis
C. Brown Kevin S. Allred Kristin L. Myles Munger, Tolles &
Olson 355 South Grand Avenue, 35th Floor Los Angeles, California
90071 Tel 213.683.9100 Fax 213.683.5152 Email enron@mto.com
Attorneys for Kirkland & Ellis |
Arthur Stock Berger & Montague,
P.C. 1622 Locus Street Philadelphia, Pennsylvania 19103 Tel
215.875.3000 Fax 215.875.4635 Email astock@bm.net Attorneys for
Frank Wilson |
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Silverman v.
Mutual Benefit Life Ins. Co., 138 F.3d 98, 105-06 (2nd Cir.),
cert. denied, 525 U.S. 876 (1998); Kuper, 66 F.3d at 1459-60;
but see Secretary v. Gilley, 209 F.2d 877 (6th Cir.
2002).
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Defendants also suggest that
the Complaint is deficient because the named Plaintiffs have failed to allege
that they were harmed individually. Plaintiffs, however, allege generally that
they are members of the class of participants and that their claims are typical
of the class. Complaint at ¶ 729. Moreover, the Complaint, including the
allegations in Count II, the lockdown claim, contains several specific
references to the named Plaintiffs' losses. See Complaint at ¶¶ 750,
754, 756 (alleging with respect to Count II that "Plaintiffs and the
Plans' other participants and beneficiaries" suffered losses) (emphasis added);
see also Complaint at ¶¶ 23-42 (describing loss in value of
named plaintiffs' plan-held Enron stock).
Some Defendants argue (AC Mot.
to Dismiss at 31) that the named Plaintiffs lack standing because they have
failed to allege that they complained about the impending lockdown. Defendants
do not explain, however, why such complaint is an element of either the ERISA
fiduciary breach claim or Article III standing. In any event, Plaintiffs
expressly allege that Defendant Northern Trust proceeded with the lockdown
"despite the fact that plan participants were complaining about the [l]ockdown
in light of Enron's unraveling financial situation." Complaint at ¶
13.
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The Supreme Court's
explanation of the pleading requirements for Article III standing is in keeping
with its recent decision in Swierkiewicz v. Sorema N.A.,
534 U.S. 506 (2002), which, although it did not address constitutional
standing, strongly affirmed the principle of notice pleading under the Federal
Rules of Civil Procedure. The Court held in Swierkiewicz that an
employment discrimination plaintiff need not allege facts in his complaint
meeting the requirements of a prima facie case of discrimination, see
McDonnell Douglas Corp. v. Green, 411 U.S. 792 (1973), and
that requiring him to do so would be inconsistent with the principle, embodied
in Rule 8(a), Fed. R. Civ. P., that a complaint need only give fair notice of
the plaintiff's claim and the ground upon which it rests. 122 S. Ct. at
998-99.
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In their reply brief, the
Administrative Committee Defendants quarrel with the application of the
burden-shifting principle, noting that it only comes into play once a breach
has been established and applies only to the determination of the amount of
loss. AC Reply, at 20 n.21. McDonald, however, states that the burden of
proving causation shifts to the breaching fiduciaries. 60 F.3d at 237 (citation
omitted).
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Harley is not only
distinguishable, it is also wrong, both as to its particular holding and its
unduly restrictive notion of Article III standing in the ERISA context. See
generally Financial Insts. Ret. Fund v. Office of Thrift
Supervision, 964 F.2d 142 (2nd Cir. 1992) (participants had Article III
standing to bring suit for breach of fiduciary duty even though defined benefit
plan at issue was overfunded). Congress provided participants with standing
under § 502(a)(2) to obtain plan-based relief for a fiduciary breach under
§ 409(a), so that they could police their own plans and bring suit to
correct violations of the statute that injure plans. A participant is thus
entitled to sue not only when the fiduciary breach can be demonstrated to have
had a direct adverse effect on the value of the participant's individual
benefit, but also when a breach has the effect of decreasing the security of
his interest in a plan (and, by the same token, when the security of that
interest would be strengthened by providing a remedy authorized by §
409(a)).
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See, e.g. Department of
Commerce v. United States House of Representatives, 525 U.S.
316, 332 (1999) (resident of Indiana had standing to challenge Census Act based
on likelihood challenged procedures would result in decline in the number of
Indiana representatives and the consequent dilution of resident's vote);
Clinton v. City of New York, 524 U.S. 417, 432 (1998)
(potato growers are injured by line item veto of provision that would have
given favorable tax treatment to sellers of potato processing plants, resulting
in greater willingness to sell plants to potato growers); Gollust
v. Mendell, 501 U.S. 115, 123 (1991) (even investor with only
one share of stock would have standing to enforce prohibition against insider
trading; although recovery inures only to stock issuer's benefit, indirect
interest derived through potential marginal increase in the value of one share
of stock is enough to confer standing).
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Northern Trust also challenges
Plaintiffs' standing to litigate the allegations in Count III, regarding the
fiduciaries' failure to diversify Savings Plan assets. Count III, however,
clearly alleges that there was a fiduciary breach of failure to diversify the
plan investments in accordance with the terms of the Plan, "with the result
that . . . the Plan was dangerously over-weighted in Enron stock," and that
"[a]s a direct and proximate result of [the breach], the Plan, and indirectly
the Plaintiffs and the Plan's other participants and beneficiaries suffered
losses in the hundreds of millions of dollars." Complaint at ¶¶ 765,
766. The Count seeks restoration of those losses pursuant to Section 409(a).
Complaint at ¶ 767. For the reasons given above with respect to Count II,
these allegations sufficiently allege the constitutional prerequisites of
injury, causation, and redressability. If anything, Northern Trust's arguments
about Count III have less to do with Plaintiffs' standing than those raised
regarding Count II. The Count III arguments that Northern Trust raises (NT Mot.
to Dismiss 44) -- that the Savings Plan contained a panoply of investment
funds, that participants were by plan terms given choice of funds in which to
invest, and that Northern Trust played no role in plan design -- are arguments
going to the factual merits of the breach of duty claim, rather than to
participants' standing.
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Although Northern Trust
correctly contends that the lockdown, as such, applied solely to the Savings
Plan and not to the ESOP, Motion to Dismiss at 32-33, this does not fully join
Plaintiffs' argument. Plaintiffs contend that the ESOP effectively was locked
down during this time period because of the plan provision requiring
participants to request a cash-out of the ESOP before the 20th of each month or
else wait until the end of the following month. See Response to Motion
to Dismiss, at 37-38. Plaintiffs' argument is that Northern Trust breached its
fiduciary duty by following this provision, when it was clearly imprudent to do
so. Id. Although Northern Trust disputes that it was a fiduciary at all
under the ESOP, despite being identified as such in the relevant plan document,
this appears to be a factual dispute not amenable to resolution at this
stage.
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Under ERISA § 403(a)(1),
a trustee's responsibility for plan assets is lessened if "the plan expressly
provides that the trustee or trustees are subject to the direction of a named
fiduciary who is not a trustee, in which case the trustees shall be subject to
proper directions of such fiduciary which are made in accordance with the terms
of the plan and which are not contrary to the Act." 29 U.S.C. §
1103(a)(1). Thus, the plan must be explicit in order to create a "directed
trustee," and such trustee is still bound by the terms of ERISA, including its
fiduciary provisions.
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While the Secretary does not
agree with Defendants that the Plaintiffs have a remedy available at law, it is
important to note that Defendants have ignored the Restatement's explicit
statement in § 198(1) that these are "[c]oncurrent remedies. Although the
beneficiary can maintain an action at law against the trustee as stated in this
Section, he also has equitable remedies against the trustee. See § 199."
Therefore, even if Defendants were correct that there was a remedy at law here,
Plaintiffs could also have a remedy in equity.
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The Nobile court also
notes that Jefferson Nat'l Bank of Miami Beach v. Central National Bank of
Chicago, 700 F.2d 1143, 1149 (7th Cir. 1983), a case relied on by Enron's
Administrative Committee Defendants, inexplicably omits the word
"unconditionally" from the part of its opinion that quotes the text of §
198. This material omission could account for Jefferson Bank's incorrect
interpretation of § 198. As the Nobile court says of Jefferson
Bank and the only other case cited by the Enron Administrative Committee
Defendants, Dixon v. Northwestern Nat'l Bank, 297 F.
Supp. 485 (D. Minn. 1969), "We believe that those cases misread the cited
Restatement section, and that their conclusion was unsound." Nobile, 611
F. Supp. at 729.
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Defendants' citation of
McCall v. Burlington Northern/Santa Fe Co., 237 F.3d 506,
512 (5th Cir. 2000), cert. denied, 122 S. Ct. 57 (2001) is even
more inapposite. In McCall, the participants simply argued that the
Defendants had breached their fiduciary duty by denying them benefits.
Obviously, in such a case, § 502(a)(1)(B) would be the appropriate claim,
since denial of a benefit under a plan was the complaint. In contrast,
Plaintiffs in this case assert that granting them the benefits under the
formula used in the plan was a breach of fiduciary duty.
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Other courts have also held
nonfiduciaries liable for knowing participation in a fiduciary violation of
§ 404. See, e.g., McGarry v. Eastern Air Lines,
Inc., No. 86-2497-CV-RYSKAMP, 1987 WL 13900, at *8-9 (S.D. Fla. July 6,
1987).
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