Adedipe v. U.S. Bank, Nat'l Ass'n

• Decision Date: 21 November 2014
• Docket Number: No. 13–cv–2687 JNE/JJK.,13–cv–2687 JNE/JJK.
• Citation: 62 F.Supp.3d 879
• Parties: Adetayo ADEDIPE et al., Plaintiffs, v. U.S. BANK, NATIONAL ASSOCIATION et al., Defendants.
• Court: U.S. District Court — District of Minnesota

62 F.Supp.3d 879

Adetayo ADEDIPE et al., Plaintiffs

v.U.S. BANK, NATIONAL ASSOCIATION et al., Defendants.

No. 13–cv–2687 JNE/JJK.

United States District Court, D. Minnesota.

Signed Nov. 21, 2014.

Bruce F. Rinaldi, Karen L. Handorf, Mary J. Bortscheller, Michelle C. Yau, Cohen, Milstein, Sellers & Toll, PLLC, Washington, DC, June Pineda Hoidal, Brian C. Gudmundson, Patricia A. Bloodgood, Carolyn G. Anderson, Zimmerman Reed PLLP, Minneapolis, MN, for Plaintiffs.

Stephen P. Lucke, Andrew J. Holly, Lincoln Loehrke, Matthew G. Woleske, Michael P. Weinbeck, Thomas P. Swigert, Dorsey & Whitney LLP, Aaron D. Van Oort, Elsa M. Bullard, Faegre Baker Daniels LLP, Mpls., MN, Amanda S. Amert, Brienne M. Letourneau, Craig C. Martin, Jenner & Block, Chicago, IL, for Defendants.

ORDER

JOAN N. ERICKSEN, District Judge.

This is a private civil enforcement action brought under the Employee Retirement Income Security Act (“ERISA”). The case was filed as a putative class action by participants in U.S. Bancorp's pension plan (hereinafter, “the Plan”). In their Consolidated Amended Complaint, the Plaintiffs allege that the Plan's fiduciaries breached their fiduciary obligations and caused the Plan to engage in prohibited transactions during the proposed class period, which runs from September 30, 2007—six years to the day before this suit was filed—through the end of December 2010.

Defendant Nuveen Asset Management LLC and the rest of the Defendants—collectively referred to as the “U.S. Bank Defendants”—have separately filed motions targeting the Amended Consolidated Complaint. Currently before the Court are Nuveen's Motion to Dismiss, ECF No. 96, and the U.S. Bank Defendants' Motion to Dismiss or, Alternatively, for Summary Judgment, ECF No. 102. The Plaintiffs responded in opposition to those motions, while also submitting their own motion for relief under Federal Rule of Civil Procedure 56(d), ECF No. 113.¹

For the reasons and in the manner discussed below, the motions brought by Nuveen and the U.S. Bank Defendants are each granted in part and denied in part, while the Plaintiffs' motion is denied.

Background

According to their Consolidated Amended Complaint (hereinafter, “CAC”), the Plaintiffs—Adetayo Adedipe, James Thole, Marlene Jackson, and Sherry Smith—are former employees of U.S. Bank and vested participants in the U.S. Bancorp pension plan.

They are suing three organizational defendants: U.S. Bancorp; U.S. Bank, National Association (hereinafter, “U.S. Bank”); and Nuveen Asset Management LLC. U.S. Bancorp is the sponsor of the Plan. U.S. Bank, a wholly-owned subsidiary of U.S. Bancorp, is the trustee of the Plan and was, during the proposed class period, the parent of the Plan's investment manager, FAF Advisors, Inc. Nuveen acquired FAF from U.S. Bank in December of 2010.

The Plaintiffs also name a number of individuals as defendants: nine members of the U.S. Bancorp Board of Directors; six individuals and ten John/Jane Does who were members of the U.S. Bancorp Compensation Committee during the proposed class period; and ten additional John/Jane Does who were members of the U.S. Bancorp Investment Committee during the proposed class period. U.S. Bancorp's Compensation and Investment Committees are named fiduciaries of the Plan that have the authority and obligation to manage it, while the Board has the power to appoint and remove the members of the two committees.

In all, the Plaintiffs assert eight counts against these Defendants. The first seven counts are brought, in various combinations, against the Board of Director Defendants, the two sets of Committee Defendants, FAF, and U.S. Bank—all of whom the Plaintiffs contend were either named or de facto fiduciaries of the Plan—for allegedly breaching their fiduciary obligations with respect to investing the Plan's assets and for causing the Plan to engage in prohibited transactions. The final count is brought against U.S. Bancorp alone, for “knowingly participat[ing] in the several breaches and prohibited transactions” by the fiduciaries.

Relevant here, then, are the ERISA provisions governing fiduciary responsibility that are codified at 29 U.S.C. §§ 1104, 1005, and 1006. At § 1104(a), ERISA imposes the following standard of care on a fiduciary of a pension plan:

(1) [A] fiduciary shall discharge his duties with respect to a plan solely in the interest of the participants and beneficiaries and—

(A) for the exclusive purpose of:

(i) providing benefits to participants and their beneficiaries; and

(ii) defraying reasonable expenses of administering the plan;

(B) with the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent man acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims;

(C) by diversifying the investments of the plan so as to minimize the risk of large losses, unless under the circumstances it is clearly prudent not to do so; and

(D) in accordance with the documents and instruments governing the plan insofar as such documents and instruments are consistent with the provisions of this subchapter and subchapter III of this chapter.

At § 1106, ERISA prohibits a fiduciary from causing the plan to engage in certain types of transactions:

(a) Transactions between plan and party in interest. Except as provided in section 1108 of this title:

(1) A fiduciary with respect to a plan shall not cause the plan to engage in a transaction, if he knows or should know that such transaction constitutes a direct or indirect—

(A) sale or exchange, or leasing, of any property between the plan and a party in interest;

(B) lending of money or other extension of credit between the plan and a party in interest;

(C) furnishing of goods, services, or facilities between the plan and a party in interest;

(D) transfer to, or use by or for the benefit of a party in interest, of any assets of the plan; or

(E) acquisition, on behalf of the plan, of any employer security or employer real property in violation of section 1107(a) of this title.

(2) No fiduciary who has authority or discretion to control or manage the assets of a plan shall permit the plan to hold any employer security or employer real property if he knows or should know that holding such security or real property violates section 1107(a) of this title.

(b) Transactions between plan and fiduciary. A fiduciary with respect to a plan shall not—

(1) deal with the assets of the plan in his own interest or for his own account,

(2) in his individual or in any other capacity act in any transaction involving the plan on behalf of a party (or represent a party) whose interests are adverse to the interests of the plan or the interests of its participants or beneficiaries, or

(3) receive any consideration for his own personal account from any party dealing with such plan in connection with a transaction involving the assets of the plan.

And at § 1105(a), ERISA imposes liability on a fiduciary for participating in, enabling, concealing, or ignoring a breach of fiduciary responsibility by a co-fiduciary.

In the CAC, the Plaintiffs allege that the Defendants violated these provisions in connection with three subjects. The first is the so-called 100% Equities Strategy. The CAC alleges that the Defendants invested the Plan's assets solely in equity securities, to the exclusion of other asset classes, in order to benefit themselves while exposing the Plan to inordinate risk. According to the CAC, by investing all of the Plan's assets in equities, the Defendants were able to report a higher assumed rate of return on the Plan's investments, which reduced to zero the amount that U.S. Bancorp was required to contribute to the Plan while also inflating U.S. Bancorp's stock price. The Plaintiffs allege that the Defendants persisted in this 100% Equities Strategy throughout the proposed class period despite indications of a deteriorating stock market in late 2007 and 2008. When the market crashed, the Plan, invested exclusively in equities, lost $1.1 billion. Only after FAF was sold to Nuveen in late 2010 did the Defendants revise their investment strategy; one-quarter of the Plan's assets are now invested in other asset classes.

The second subject of the CAC is the investment of Plan assets in Affiliated Funds. The Committee Defendants appointed FAF as the Plan's investment manager in 2007. In fulfilling that role throughout the proposed class period, FAF implemented the 100% Equities Strategy while investing up to 40% of the Plan's assets in its own equities-backed mutual funds. According to the Plaintiffs, the Committee Defendants selected FAF to manage the Plan's investments in order to “prop[ ] up” FAF, then a subsidiary of U.S. Bank, and FAF invested the Plan heavily in its own mutual funds to benefit itself by making those funds more attractive to other potential investors.

The third subject of the CAC is a Securities Lending Program administered by FAF in which the Plan participated during the proposed class period. The Plaintiffs allege that, pursuant to a contract effective in October of 2005, FAF loaned securities owned by the Plan to borrowers on a short-term basis. In exchange, the Plan received cash collateral—totaling $504 million by the end of 2007—which FAF then invested in two portfolios that it managed, the Mount Vernon Securities Lending Short–Term Bond Portfolio and the Mount Vernon Securities Lending Prime Portfolio. According to the CAC, FAF invested the Bond Portfolio “in asset-backed commercial paper issued by three specific structured investment vehicles,” which themselves “were backed by toxic subprime mortgages and Alt–A securities.” Those structured investment vehicles became distressed in the second half of 2007. At that time, instead of divesting the Plan from the Mount Vernon Portfolios, Emil Busse, FAF's head of securities lending, engaged in a fraudulent scheme to “liquidate and restructure the ... Bond Portfolio.” That scheme ultimately...