Nelson v. Ipalco Enterprises, Inc.

• Citation: 480 F.Supp.2d 1061
• Decision Date: 28 March 2007
• Docket Number: No. 1:02-cv-0477-DFH-TAB.,1:02-cv-0477-DFH-TAB.
• Parties: Joseph J. NELSON and Michael Wycoff, on behalf of themselves and all others similarly situated, Plaintiffs, v. IPALCO ENTERPRISES, INC., Employees' Pension Committee for Employees' Thrift Plan of Indianapolis Power & Light Company, John R. Hodowal, Ramon L. Humke, Bryan G. Tabler, Max Califar, Steve J. Plunkett, and Tom A. Steiner, Defendants.
• Court: U.S. District Court — Southern District of Indiana

480 F.Supp.2d 1061

Joseph J. NELSON and Michael Wycoff, on behalf of themselves and all others similarly situated, Plaintiffs, v. IPALCO ENTERPRISES, INC., Employees' Pension Committee for Employees' Thrift Plan of Indianapolis Power & Light Company, John R. Hodowal, Ramon L. Humke, Bryan G. Tabler, Max Califar, Steve J. Plunkett, and Tom A. Steiner, Defendants.

No. 1:02-cv-0477-DFH-TAB.

United States District Court, S.D. Indiana, Indianapolis Division.

March 28, 2007.

Andrew M. Volk, Nicholas Styant-Browne, Steve W. Berman, Tyler Stuart Weaver, Hagens Berman Sobol Shapiro LLP, Seattle, WA, John R. Price, John R. Price & Associates, Indianapolis, IN, for Plaintiffs.

Dane Hal Butswinkas, John Andrew Ploumitsakos, John Andrew Ploumitsakos, Vidya Atre Mirmira, Williams & Connolly LLP, Washington, DC, Catherine A. Meeker, James H. Ham, III, John W. Purcell, Paul A. Wolfla, Baker & Daniels, Indianapolis, IN, for Defendants.

FINDINGS OF FACT AND CONCLUSIONS OF LAW

HAMILTON, District Judge.

                Table of Contents
                Introduction ..................................................................____
                Findings of Fact...............................................................____
                   I.  The Parties ............................................................____
                  II.  Thrift Plan History and the 1995 and 1997 Amendments ...................____
                       A.  Investor Choices....................................................____
                       B.  Investor Education Efforts..........................................____
                       C.  Plan Terms on Investment Choices....................................____
                 III.  IPALCO in 1999 .........................................................____
                  IV.  Exploration of a "Transforming Transaction" ............................____
                   V.  Negotiations with AES ..................................................____
                

                  VI.  After the Announcement..................................................____
                 VII.  Defendants' Evaluation of AES and IPALCO................................____
                VIII.  Plaintiffs' View of AES ................................................____
                  IX.  The Individual Defendants' Interests in the AES Deal....................____
                       A.  Termination Benefit Agreements......................................____
                       B.  Stock Sales by Defendants and Other IPALCO Insiders ................____
                       C.  Disclosure of IPALCO Insider Transactions...........................____
                   X.  Disclosures to Thrift Plan Participants.................................____
                  XI.  Financial and Investment Advice.........................................____
                       A.  The Country Club Advice Session for Executives......................____
                       B.  Merrill Lynch Advisers for Plaintiffs...............................____
                 XII.  Pension Committee Considerations........................................____
                XIII.  The Closing and the Individual Defendants' Terminations.................____
                Conclusions of Law ............................................................____
                   I.  Fiduciary Duties Under ERISA ...........................................____
                  II.  Allowing Plaintiffs to Invest in IPALCO and then AES ...................____
                 III.  Wrongful Promotion and a Duty to Disclose...............................____
                  IV.  Conversion of the Employer Match........................................____
                Conclusion.....................................................................____
                

Introduction

The liability issues were tried to the court in this class action alleging breaches of fiduciary duty under Section 404 of the federal Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. § 1104. The court now states its findings of fact and conclusions of law pursuant to Rule 52 of the Federal Rules of Civil Procedure. Substance rather than the court's label shall govern whether a matter is treated as a finding of fact or conclusion of law.¹

Defendant IPALCO Enterprises, Inc. is the parent company of the Indianapolis Power and Light Company, a public utility that generates and distributes electricity in the Indianapolis area. The AES Corporation acquired IPALCO in a stock-for-stock transaction that closed on March 27 2001. IPALCO became a wholly owned subsidiary of AES, and all IPALCO shareholders became shareholders of AES. In the year and a half that followed the March 27, 2001 closing, AES stock lost more than 90 percent of its market value. Ex. 89.

Plaintiffs are a class consisting of all plan participants and beneficiaries in a Section 401(k) plan known as the Employees' Thrift Plan of Indianapolis Power & Light Company who held a beneficial interest in IPALCO stock on or about March 27, 2001 that was exchanged for stock in The AES Corporation. The Thrift Plan itself is also a plaintiff. The Thrift Plan allowed participants to make their own decisions about how to invest their own contributions, though employer matching contributions were always made and held as IPALCO stock.

When the IPALCO — AES deal closed on March 27, 2001, the Thrift Plan held total assets of $228 million. Approximately $145 million, or about 64 percent of the Thrift Plan assets, was invested in IPALCO stock that was exchanged for AES stock. As AES stock value declined in the months after AES bought IPALCO, plaintiffs' accounts with the Thrift Plan experienced dramatic drops in value. Plaintiffs allege that the defendants — IPALCO itself and the former IPALCO executives who were responsible for the Thrift Plan before the AES deal closed — violated their fiduciary duties under ERISA by failing to remove IPALCO and then AES as investment options, by promoting continued investment in IPALCO and AES, by failing to disclose to Plan participants (more specifically than public disclosures required under federal securities laws) the individual defendants' personal sales of IPALCO stock, and by allowing the conversion of Plan assets from IPALCO stock to AES stock.

As explained below, the court finds that defendants did not breach their fiduciary duties under ERISA. Without the benefit of hindsight, the AES transaction and investments in AES stock appeared reasonable, prudent, and consistent with the Thrift Plan itself at the time. There is no evidence at all that the individual defendants had any negative inside information about AES or the prospects of its stock. Defendants did not give investment advice themselves. They also made competent and appropriate investment advice readily available to Thrift Plan participants. The individual defendants fully complied with their obligations under federal securities law to disclose their own sales of IPALCO stock and the risks associated with investments in AES. ERISA did not require the defendants to make any additional and special disclosures only to the Thrift Plan participants. Accordingly, the court is entering final judgment in favor of defendants.

Findings of Fact

I. The Parties

In 2000, defendant IPALCO Enterprises, Inc. ("IPALCO") was a publicly traded holding company whose principal asset was its ownership of Indianapolis Power & Light Company, a public utility that generates and distributes electric power in the Indianapolis area.

In 1960, before the establishment of IPALCO as a holding company, Indianapolis Power & Light Company established the Employees' Thrift Plan of Indianapolis Power & Light. Company ("the Thrift Plan" or "the Plan"). The Thrift Plan was designed to supplement the traditional defined-benefit retirement plan that the company operated. The Plan enabled employees to make voluntary investments. The employer matched employee contributions up to four percent of salary. The Plan was designed so that employer matches were always made in the form of stock in the company. Employees could choose how to invest their own contributions.² The Plan was treated as an Eligible Individual Account Plan ("EIAP") under ERISA, which allowed it to invest more than 10 percent of its assets in employer stock. See 29 U.S.C. § 1104(a)(2). The Plan fiduciaries and administrators did not make specific decisions about how to invest the employee contributions. The Plan administrator and IPALCO as the Plan sponsor selected the available menu options for employees' investment choices.

The Pension Committee: Indianapolis Power & Light Company has been the sponsor of the Thrift Plan. The named administrator of the Thrift Plan was the Employees' Pension Committee for Employees' Thrift Plan of Indianapolis Power & Light Company, known here as "the Pension Committee." During the time leading up to the March 27, 2001 closing of the AES deal, the Pension Committee members were the individual defendants in this case: IPALCO chief executive officer John R. Hodowal, IPALCO chief operating officer Ramon L. Humke, Pension Committee chairman Bryan G. Tabler (also vice president, secretary, and general counsel), Max Califar (vice president of human resources), Stephen J. Plunkett (controller), and Tom A. Steiner (also a vice president).

The Plaintiffs: The court certified a plaintiff class in this case consisting of the Thrift Plan itself and all Thrift Plan participants and beneficiaries who held a beneficial interest in IPALCO stock on or about March 27, 2001 that was exchanged for AES stock. The named class representatives are Joseph J. Nelson and Michael Wycoff.

Mr. Nelson worked for Indianapolis Power & Light for 31 years. After the AES purchase, he lost his job in 2002 when he was 57 years old. He worked in the coal and ash department, primarily as a manager, doing and supervising some of the most difficult work at Indianapolis Power & Light. Mr. Nelson joined the Thrift Plan early in his career with Indianapolis Power & Light. He invested over the years, steadily increasing the percentage he invested. By the time he retired, he was investing 13 percent of his pay in the Thrift Plan. He also benefited throughout his career from the employer match of four percent of...