Dudenhoeffer v. Fifth Third Bancorp

• Decision Date: 24 November 2010
• Docket Number: Case No. 1:08–CV–538.
• Citation: 757 F.Supp.2d 753
• Parties: John DUDENHOEFFER, Plaintiff,v.FIFTH THIRD BANCORP, et al., Defendants.
• Court: U.S. District Court — Southern District of Ohio

757 F.Supp.2d 753

John DUDENHOEFFER, Plaintiff,

v.FIFTH THIRD BANCORP, et al., Defendants.

Case No. 1:08–CV–538.

United States District Court, S.D. Ohio, Western Division.

Nov. 24, 2010.

Edward W. Ciolko, James A. Maro, Joseph H. Meltzer, Julie Siebert–Johnson, Barroway Topaz Kessler Meltzer & Check LLP, Mark K. Gyandoh, Schiffrin Barroway Topaz & Kessler, LLP, Radnor, PA, Ronald Richard Parry, Covington, KY, Thomas J. McKenna, New York, NY, for Plaintiff.James Eugene Burke, Danielle Marie D'Addesa, David Thomas Bules, Jennifer J. Morales, Joseph M. Callow, Jr, Keating Muething & Klekamp, Cincinnati, OH, for Defendants.

ORDER

SANDRA S. BECKWITH, Senior District Judge.

This matter is before the Court on Defendant Fifth Third Bancorp, et al.'s motion to dismiss the amended consolidated class action complaint (Doc. No. 56). For the reasons that follow, Defendants' motion to dismiss is well-taken and is GRANTED.

I. Background

Plaintiffs John Dudenhoeffer and Alireza Partovipanah, both former employees of Fifth Third Bancorp, filed suit against Defendant Fifth Third Bancorp and several individual Defendants ¹ on behalf on themselves and a class of similarly-situated individuals for alleged violations of the Employee Retirement Income Security Act, 29 U.S.C. § 1001, et seq. Plaintiffs are participants in the Fifth Third Bancorp Master Profit Sharing Plan (“the Plan”) and invested in Fifth Third common stock through the Plan during the class period.

The complaint has four counts. Count I generally alleges that Defendants breached their fiduciary duty to Plaintiffs and the class, in violation of 29 U.S.C. § 1109, by maintaining Fifth Third stock as an investment option after it become imprudent to do so. Count I also alleges that Defendants breached their fiduciary duty by failing to provide complete and accurate information to the plan participants about Fifth Third's financial condition and the prudence of investing in Fifth Third stock. Finally, Count I alleges that Defendants breached their fiduciary duty to plan participants by maintaining its preexisting investment in Fifth Third stock, i.e., not divesting the Plan of Fifth Third stock, after it became an imprudent investment for the Plan.

Count II alleges that some of the individual Defendants breached their fiduciary duties to the plan participants by failing to monitor the performance of persons charged with managing the Plan's assets despite their knowledge that investing in Fifth Third stock was an imprudent option.

Count III alleges that some of the individual Defendants violated ERISA by failing to avoid or ameliorate conflicts of interest, which in turn allegedly compromised their ability to act in the best interests of the plan participants.

Count IV alleges that Defendants breached their fiduciary duties to the plan participants by failing to correct known breaches of fiduciary duties, by participating in breaches of fiduciary duty, or enabling breaches of fiduciary duty, in violation of 29 U.S.C. § 1105.

The complaint sets out in detail the nature and operation of the Plan. Consolidated Class Action Complaint (Doc. No. 54) ¶¶ 37–51. Generally, however, the Plan is a defined contribution profit sharing plan with a 401(k) feature. Plan participants can make contributions to the Plan and can direct the Plan to make investments in any one of 20 separate investment funds, including one fund that invests entirely in Fifth Third common stock, except for short-term liquid assets to accommodate the liquidity needs of the fund. Fifth Third also matches up to 4% of each employee's pre-tax contributions. The matching contributions are invested initially in the Fifth Third Stock Fund, but participants have the right to move these contributions to other funds. Although the parties dispute this point, as the Court explains infra, at 756–58, the Fifth Third Stock Fund of the Plan is an employee stock ownership fund (“ESOP”) under ERISA.

The complaint contains 281 paragraphs and is 78 pages long. The alleged breaches of fiduciary duty generally arise, however, out of the same fact pattern set forth in Eshe Fund v. Fifth Third Bancorp, Case No. 1:08–CV–421 (S.D.Ohio) (Beckwith, S.J.), a securities fraud class action that has been consolidated with this one for purposes of discovery. For present purposes, it is sufficient to note that the complaint alleges that during the class period, Fifth Third switched from being a conservative lender to a subprime lender. As a result, Fifth Third's loan portfolio became increasingly at risk due to defaults. The complaint alleges that this change in lending philosophy and/or mismanagement of the company made investing in Fifth Third common stock too risky for a retirement plan, that Defendants knew or should have known that Fifth Third stock was too risky, that they should have stopped further investment of Plan assets in Fifth Third stock, and that they should have divested the Plan of Fifth Third stock. The complaint alleges that the price of Fifth Third stock declined 74% from the beginning of the class period, July 19, 2007, through September 18, 2009. Complaint ¶ 50.

Defendants now move to dismiss the complaint pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure. This motion has been fully briefed and is now ready for disposition.

II. Rule 12(b)(6) Standard of Review

A motion to dismiss for failure to state a claim operates to test the sufficiency of the complaint. The trial court must construe the complaint in the light most favorable to the plaintiff, and accept as true all well-pleaded factual allegations. See Scheuer v. Rhodes, 416 U.S. 232, 236, 94 S.Ct. 1683, 40 L.Ed.2d 90 (1974), and Roth Steel Products v. Sharon Steel Corp., 705 F.2d 134, 155 (6th Cir.1983). The court need not accept as true legal conclusions or unwarranted factual inferences. Lewis v. ACB Business Servs., Inc., 135 F.3d 389, 405 (6th Cir.1998).

The complaint, however, must contain more than labels, conclusions, and formulaic recitations of the elements of the claim. Sensations, Inc. v. City of Grand Rapids, 526 F.3d 291, 295 (6th Cir.2008) (citing Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007)). The factual allegations of the complaint must be sufficient to raise the right to relief above the speculative level. Id. Nevertheless, the complaint is still only required to contain a short, plain statement of the claim indicating that the pleader is entitled to relief. Id. (citing Erickson v. Pardus, 551 U.S. 89, 93, 127 S.Ct. 2197, 167 L.Ed.2d 1081 (2007)). Specific facts are not necessary and the pleader is only required to give fair notice of the claim and the grounds upon which it rests. Id. To withstand a motion to dismiss, “a complaint must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face.” Ashcroft v. Iqbal, –––U.S. ––––, 129 S.Ct. 1937, 1949, 173 L.Ed.2d 868 (2009) (internal quotation marks omitted). Mere conclusions, however, are not entitled to the assumption of truth. Id. at 1950. A claim is facially plausible if it contains content which allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged. Id. at 1949. Plausibility is not the same as probability, but the complaint must plead more than a possibility that the defendant has acted unlawfully. Id. If the complaint pleads conduct which is only consistent with the defendant's liability, it fails to state a plausible claim for relief. Id.

III. Analysis

Defendants' motion to dismiss starts with the premise that the Fifth Third Stock Fund is an ESOP. Because this fund is an ESOP, Defendants argue, they are entitled to a presumption that their decision to maintain the investment in, and decision not to divest the fund of, Fifth Third common stock is entitled to deference. Moreover, Defendants argue, the complaint fails to allege facts which overcome the presumption that investment in Fifth Third stock was reasonable. Thus, Defendants continue, the breach of fiduciary duty claims alleged in Count I fail as a matter of law. Additionally, Defendants argue, because the remaining breach of fiduciary duty claims are derivative of or dependent on Count I, they fail as well. The Court agrees.

A. Breach of Fiduciary Duty Concerning Retaining Fifth Third Stock as an Investment Option for the Plan

1. The Fifth Third Stock Fund is an ESOP

The first issue that needs to be resolved is whether the Fifth Third Stock Fund is an ESOP. Fifth Third initially argues that Plaintiffs are not entitled to litigate this issue because then-Magistrate Judge Black determined in an earlier case, Shirk v. Fifth Third Bancorp, No. 05–CV–049, 2009 WL 692124, at *11 (S.D.Ohio Jan. 29, 2009), that the Fifth Third Stock Fund is an ESOP. Plaintiffs argue that Judge Black's decision is not res judicata on this issue because they were not parties in Shirk. The Court need not, however, resolve the collateral estoppel issue because the Fifth Third Stock Fund plainly is an ESOP.

An ESOP is “a stock bonus plan which is qualified, or a stock bonus plan and money purchase plan both of which are qualified, under section 401 of Title 26, and which is designed to invest primarily in qualifying employer securities[.]” 29 U.S.C. § 1107(d)(6)(A). The Sixth Circuit apparently has not addressed whether the ESOP determination is a question of law that can be decided at the pleading stage by reviewing the plan documents or whether it is a question of fact to be decided sometime after fact discovery is completed. District courts in the Sixth Circuit have reached opposition conclusions. See In re Ford Motor Co. ERISA Litigation, 590 F.Supp.2d 883, 903 (E.D.Mich.2008) (question of law for trial court); In re General Motors ERISA Lit., No. 05–71085, 2006 WL 897444 at *7 (E.D.Mich. Apr. 6, 2006) (same); In re Diebold Erisa Lit., No. 5:06–CV0170, 2008 WL 2225712, at *8 (N.D.Oh...