Difelice v. U.S. Airways, Inc.

• Decision Date: 01 August 2007
• Docket Number: No. 06-1892.,06-1892.
• Citation: 497 F.3d 410
• Parties: Vincent D. DiFELICE, on behalf of himself and all others similarly situated, Plaintiff-Appellant, v. U.S. AIRWAYS, INCORPORATED, Defendant-Appellee, and Fidelity Management Trust Company, Defendant.
• Court: U.S. Court of Appeals — Fourth Circuit

497 F.3d 410

Vincent D. DiFELICE, on behalf of himself and all others similarly situated, Plaintiff-Appellant, v. U.S. AIRWAYS, INCORPORATED, Defendant-Appellee, and Fidelity Management Trust Company, Defendant.

No. 06-1892.

United States Court of Appeals, Fourth Circuit.

Argued March 16, 2007.

Decided August 1, 2007.

ARGUED: Walter H. Fleischer, McLean, Virginia, for Appellant. Christopher Alan Weals, Morgan, Lewis & Bockius, L.L.P., Washington, D.C., for Appellee. ON BRIEF: Ellen M. Doyle, Richard A. Finberg, James A. Moore, Joel R. Hurt, Malakoff, Doyle & Finberg, P.C., Pittsburgh, Pennsylvania, for Appellant. Charles C. Jackson, James E. Bayles, Jr., Julia Y. Trankiem, Morgan, Lewis & Bockius, L.L.P., Chicago, Illinois, for Appellee.

Before MOTZ and SHEDD, Circuit Judges, and HAMILTON, Senior Circuit Judge.

Affirmed by published opinion. Judge MOTZ wrote the opinion, in which Judge SHEDD and Senior Judge HAMILTON joined.

OPINION

DIANA GRIBBON MOTZ, Circuit Judge.

In August 2002, following a period of severe financial stress exacerbated by the September 11th attacks, U.S. Airways, Inc. (U.S.Airways), the principal operating subsidiary of U.S. Airways Group (Group), filed for relief under Chapter 11 of the Bankruptcy Code. As a consequence, all Group stock was cancelled without distribution to stockholders. Vincent DiFelice then brought this action seeking recovery under the Employee Retirement Income Security Act of 1974 (ERISA) on behalf of U.S. Airways employees (the Employees) who held Group stock from October 1, 2001 to June 27, 2002 through a U.S. Airways 401(k) plan. The district court certified a class, permitting DiFelice to represent these employees, and, after a bench trial, granted judgment to U.S. Airways. DiFelice v. U.S. Airways, Inc., 436 F.Supp.2d 756 (E.D.Va.2006). For the reasons explained within, we affirm.

I.

In support of its legal conclusions, the district court set forth 132 detailed factual findings. See id. at 756-81. We summarize below only those findings necessary to a resolution of the Employees' contentions on appeal.

A.

Throughout the class period, U.S. Airways maintained a defined contribution § 401(k) plan for qualified employees, administered through a trust agreement (collectively the Plan). See 26 U.S.C. § 401(k) (2000); 29 U.S.C. § 1002(34) (2000). U.S. Airways, the named administrator of the Plan for tax and ERISA purposes, delegated its duties to the Pension Investment Committee (PIC), a group of high-ranking company officers, including the Chief Financial Officer, who reported, through the Human Resources Committee of the Board of Directors, to the full Board. The PIC, which had both the responsibility and the authority to make decisions regarding investment options under the Plan, met regularly to review the performance of the Plan's investment options and to confer with outside financial advisors and investment consultants. During the nine-month class period, the PIC held several informal meetings and four formal meetings, at which it circulated agendas and written materials.

U.S. Airways intended the Plan "`to provide retirement income'" and "`to operate for the exclusive benefit of eligible employees and their beneficiaries.'" DiFelice, 436 F.Supp.2d at 759 (quoting Plan documents). The Plan "permitted participants to contribute up to 15% of their salaries . . . on a pre-tax basis," id.; U.S. Airways matched certain employee contributions up to a specified level. Each employee who chose to invest through the Plan had his own individual account; the balance in a participant's account consisted of his contributions and any matched funds, "plus any earnings and less any losses or allocated expenses." Id.

The Plan granted U.S. Airways the authority to "`determine the number and type of Investment Funds and select the investments for such Investment Funds.'" Id. at 760 n. 5 (quoting Plan document). "`[I]n its discretion,'" U.S. Airways could "`terminate any . . . Investment Fund.'" Id. at 760 (quoting Plan document). The Plan stated that the menu of Investment Funds could, but need not, include a Fund consisting of Group stock. If the Plan did include such a Fund, it required that U.S. Airways "`continually monitor the suitability . . . of acquiring and holding Company Stock.'" Id. (quoting Plan document).

During the class period, the Plan offered twelve diversified Investment Funds, including a money market fund, a fixed income fund, various mutual funds, and several diversified portfolio funds. The Plan also offered a Company Stock Fund ("Company Fund"), which held Group stock and sufficient cash to meet transfer and payment needs, usually amounting to approximately 10% of Fund assets. Within this thirteen-Fund menu, participants had an almost unlimited ability to allocate their investments.¹ Even after participants had elected to invest in a particular Fund or Funds, they could transfer any prior investments, and direct any new investments, to other Plan Funds. In this way, the onus was on the participants to manage their investments.

U.S. Airways, however, did provide participants with a Summary Plan Document (SPD), as well as other brochures and pamphlets, which provided general information about the Plan's mechanics, descriptions of the various Fund options, and specific warnings about the Company Fund. The materials identified the Company Fund as the riskiest, most volatile offering, and stated that investment in this Fund was appropriate for "`[s]omeone who does not rely on this fund for his/her entire portfolio.'" Id. at 765 (quoting Plan document). At least two Plan brochures included a graphic showing the thirteen investment options on a spectrum from lower risk and lower return potential to higher risk and higher return potential; the graphics showed the Company Fund as the highest risk (and highest return potential) Fund. These materials explained that this was so because "`[i]nvesting in a non-diversified single stock fund involves more risk than investing in a diversified fund.'" Id. (quoting Plan document).

In the same vein, the Plan literature emphasized the importance of spreading investment dollars among three basic asset types—stocks, bonds, and short-term investments—and among three basic strategies—growth, income, and preservation of principal—in order to minimize the risk of significant losses in one particular investment or investment type. The SPD informed participants that U.S. Airways did not "`guarantee the performance of the [Company] Fund,'" id. at 765, or any other Fund, and that participants alone were responsible for any losses which resulted from their Plan selections. The SPD also stated, in bold print, that Plan participants should consider seeking professional advice when deciding how to allocate their contributions.

B.

Throughout the class period, U.S. Airways remained an embattled company "facing serious hurdles, with its long-term success, and indeed viability, in doubt." Id. at 766. Even before the attacks of September 11th, U.S. Airways confronted liquidity problems. Plans for a merger with United Airlines ended after the Department of Justice indicated its intent to file a lawsuit to block the merger. U.S. Airways then announced a three-phase restructuring plan, through which it hoped to reduce costs and improve its financial position.

The company's situation declined markedly after September 11, 2001. Although all airlines struggled then, U.S. Airways faced particular challenges. It had the highest cost structure of any major United States airline, confronted significant competitive threats from low-fare carriers in its primary markets, and suffered from a decrease in what had been substantial operations at Ronald Reagan National Airport in Washington, D.C. On September 10, 2001, the Group stock price closed at $11.62 per share. In the days after the September 11th attacks, Group stock never closed lower than $4.10 per share, its closing price on September 27, 2001. By October 1, 2001, the share price had rebounded very slightly to $4.48. The value of the Company Fund decreased in similar fashion over the same period.

During the class period, October 1, 2001 to June 27, 2002, U.S. Airways implemented cost-cutting measures, for example, reducing its workforce and using more regional jet and turbo-prop aircraft. It also sought to ease liquidity concerns by borrowing against its fleet and requesting government assistance. At the end of the 2001 calendar year, the Group stock price had rebounded to $6.34 per share. In early 2002, market analysts took a "wait-and-see" approach to Group stock, with all nine analysts covering the stock recommending a "Hold." By April 2002, U.S. Airways recognized that cost-cutting would not generate sufficient liquidity for its survival and the company announced that it would seek government assistance from the Air Transportation Stabilization Board (ATSB) as well as concessions from key stakeholders. Despite this news, in mid-April, the Group stock price was largely unchanged from four months earlier, trading at $6.25 per share on April 15th.

Over this same seven-month period— from September 2001 to April 2002—as U.S. Airways's financial situation, and liquidity, generated both cautious optimism and cause for concern, the PIC not only met internally, but also sought outside advice from U.S. Airways's Associate General Counsel, and later from outside legal counsel, about whether it should retain the Company Fund as an option under the Plan. All parties—the PIC, the Associate General Counsel, and the outside legal counsel, O'Melveny & Myers, LLP—believed it unnecessary, at that time, to cease offering the Company Fund. The Human Resources Committee of the Board of Directors and, later, the full Board considered and approved the PIC's decision to retain the Fund.

In May 2002, U.S. Airways filed a required Form 10-Q with the Securities and Exchange Commission, which indicated...