Crocker v. Kv Pharm. Co.

• Decision Date: 24 March 2010
• Docket Number: No. 4:09–CV–198 (CEJ).,4:09–CV–198 (CEJ).
• Citation: 49 Employee Benefits Cas. 1459,782 F.Supp.2d 760
• Parties: Harold S. CROCKER, Jr., and Anna Bodnar, Individually and on Behalf of Others Similarly Situated, Plaintiffs,v.KV PHARMACEUTICAL COMPANY, et al., Defendants.
• Court: U.S. District Court — Eastern District of Missouri

782 F.Supp.2d 760

49 Employee Benefits Cas. 1459

Harold S. CROCKER, Jr., and Anna Bodnar, Individually and on Behalf of Others Similarly Situated, Plaintiffs,

v.KV PHARMACEUTICAL COMPANY, et al., Defendants.

No. 4:09–CV–198 (CEJ).

United States District Court,E.D. Missouri,Eastern Division.

March 24, 2010.

Ellen M. Doyle, John Stember, Stephen M. Pincus, William T. Payne, Pamina Ewing, Ellen M. Doyle, Stember and Feinstein, Pittsburgh, PA, Mark A. Potashnick, S. Sheldon Weinhaus, Mark A. Potashnick, Weinhaus and Potashnick, St. Louis, MO, Paul J. D'Agrosa, Wolff and D'Agrosa, Clayton, MO, Peter W. Overs, Jr., Robert I. Harwood, Harwood Feffer, LLP, New York, NY, for Plaintiff.Paul Blankenstein, William J. Kilberg, Gibson and Dunn, Mark J. Hulkower, Patrick F. Linehan, Paul J. Ondrasik, Ryan T. Jenny, Shawn P. Davisson, Steptoe and Johnson LLP, Washington, DC, Robert P. Berry, Berry and Maxson, LLC, Bryan D. Lemoine, McMahon and Berger, Christopher C. Swenson, Polsinelli Shughart PC, St. Louis, MO, for Defendant.

MEMORANDUM AND ORDER

CAROL E. JACKSON, District Judge.

This matter is before the Court on the defendants' motions to dismiss the consolidated amended complaint of plaintiffs Harold S. Crocker, Jr., and Anna Bodnar, pursuant to Rule 12(b)(6), Fed.R.Civ.P. Plaintiffs filed an opposition, and the issues are fully briefed.

I. The Parties ¹

Plaintiffs are employees of defendant KV Pharmaceutical Company (KV) and participants in KV's Fifth Restated Profit Sharing Plan and Trust (the Plan). (Doc. # 72, at 4, para. 7–8). Plaintiffs purport to represent “all participants in or beneficiaries of the Plan ... whose individual Plan accounts were invested in KV Class A common stock and/or KV Class B common stock ... at any time between February 2, 2003 through the present (the “Class Period”).” ² Id. at 1–2 (footnote omitted).

KV is a pharmaceutical company that develops, manufactures, and markets prescription drug products. KV's securities include Class A and B common stock as well as preferred stock.

Marc S. Hermelin (M. Hermelin) served as Chairman of the Board of KV (the “Board”) as well as the Chief Executive Officer throughout the Class Period.

David S. Hermelin (D. Hermelin) served as a director and Vice President of KV until he resigned in December 2008, but he continues to serve on the Board.

Ronald J. Kanterman has served on the Board since March 26, 2008, and served as a KV principal executive officer ³ in his official capacity as Vice President, Chief Financial Officer, Treasurer, and Assistant Secretary throughout the Class Period. “Kanterman is [also] a member of a committee of KV executives and employees that administers the Plan[.]” (Doc. # 72, at 5, para. 11).

Likewise, Gerald R. Mitchell served as KV's Principal Financial Officer in his official capacity as KV's Chief Financial Officer and a member of the Board. Mitchell “is a member of a committee of KV executives and employees that administers the Plan[.]” ⁴ Id. at 6, para. 13.

Richard H. Chibnall has served as KV's Principal Accounting Officer ⁵ in the capacity as KV's Vice President and Chief Accounting Office since June 2005, and as Vice President of Finance from February 2000 through June 2005. Id., para. 15. Chibnall “is a member of a committee of KV executives and employees that administers the Plan[.]” Id.

Melissa Hughes has served as KV's Director of Human Resources since January 2006, and “is a member of a committee of KV executives and employees that administers the Plan[.]” (Doc. # 72, at 6 para. 16).

Mary Ann Tichner is KV's Benefits Manager and is “a member of a committee of KV executives and employees that administers the Plan[.]” ( Id., at 7, para. 17).⁶

Finally, in their amended complaint, plaintiffs name Does 1–20 as defendants. Does 1–20 are identified as “additional fiduciaries of the Plan [who] include the individuals who administer the Plan.” Id., at 7, para. 20.

II. The Plan

The Plan is an employee pension benefit plan within the meaning of §§ 3(3) and 3(2)(A) of the Employment Retirement Income Security Act (ERISA), 29 U.S.C. § 1002(2)(3) and 1002(2)(A). The Plan is also a defined contribution, an eligible individual account plan (EIAP), within the meaning of ERISA § 3(34), 29 U.S.C. § 1002(34), in that separate individual accounts are maintained for each participant based upon his/her contribution to such account. Id., at 8, para. 22.

The Plan is maintained under the documents as amended and restated as of January 1, 2002 (the 2002 Plan Document). Id. at 8, para. 24. KV is the named Plan administrator and sponsor. “As Plan Sponsor [and] Administrator [, KV] select[s] investment options or alternatives in the Plan and [has] the right to change or remove any investment option.” Id. at 10, para. 32. “In addition, [KV has] authority and discretion to appoint, monitor, and remove [KV] directors, officers, and employees as fiduciaries of the Plan.” (Doc. # 72, at 10, at para. 33). Pursuant to a Fidelity Advisor 401(k) Premium Service Plan Service Agreement (the Service Agreement),⁷ Fidelity Management Trust Company also administers the Plan. Id. at 8, para. 25.

According to the 2002 Plan Document:

Full-time employees are eligible to participate in both the Deferral Contribution and Matching Employer Contribution benefits of the Plan upon completion of one year, or 1,000 hours of service, for the Company and upon reaching 21 years of age. Each employee may become a participant of the Plan on the first pay period coinciding with, or following, the fulfillment of the eligibility requirements. Plan participants may contribute up to 14% of their covered compensation, up to the maximum allowable under [the] Internal Revenue Code. These contributions are allocated as directed by the participant. The Company matches 50% of a participant's contribution not to exceed 7% of a participant's covered compensation. Participants become fully vested in such matching contributions gradually over a 6–year period. These contributions are allocated as directed by the participant. In addition, the Company may also make a profit sharing contribution on a discretionary basis on behalf of all eligible Plan participants, whether or not participants make an elective contribution for the Plan year. Profit sharing contributions are based on the Company's profitability and are allocated to participant accounts based on compensation levels. These contributions are 100% participant directed. Participants become 100% vested after five years, with no vesting prior to such time. There are approximately 27 investment options under the Plan, one of which is the KV A Stock Fund.

Id., at 8–9, para. 27–31 (internal citations omitted).

“ERISA requires that every participant in an employee benefit plan be given a Summary Plan Description (“SPD”), the latest version of which for the Plan [is] dated February 4, 2009.” Id. at 8, para 24. KV was responsible for distributing the SPD prospectus to the Plan participants. Id. at 11, para. 36. The Prospectus “describe[s] the investment characteristics of the Plan's various investment options[, and] contained or incorporated ... representations disseminated to participants[.]” (Doc. # 72, at 11, para. 36).

“The KV Plan Committee Defendants ... had discretionary authority and control regarding the administration and management of the Plan and/or Plan assets, ... possessed the full authority in their absolute discretion to determine all questions of eligibility for entitlement of Plan benefits [, and was] responsible for selecting, evaluating, monitoring, and altering investment alternatives offered by the Plan.” Id. at 12, para. 42.

III. Factual and Procedural Background

In April 2003, the United States Food and Drug Administration issued KV a warning letter. Id. at 16, para. 57. The FDA also issued KV warning letters in January 2004, January 2005 and March 2006. Id. at para. 58.

On October 31, 2006, KV filed a Form 8–K, announcing that:

[I]t had been served with a derivative lawsuit filed in St. Louis City Circuit Court, alleging that certain stock option grants to current or former Officers and Directors issued between 1995 and 2002 had been dated improperly. In response, the Board of Directors referred this matter to the independent members of its Audit Committee, which subsequently established a Special Committee to investigate the matter....

The Board also stated that Defendants Marc Hermelin would repay the Company $1.4 million as a result of an internal investigation that found that the Company's grant of stock was improper. KV [stated] that in addition to expenses related to the stock options, an income tax expense of approximately $6.9 million would also be included in KV's restated consolidated financial statements for [fiscal years] 2004–2006 .... due to an increase in liability for uncertain tax positions in previous years, partially offset by certain tax refunds.

Accordingly, the previously issued consolidated financial statements of the Company for the fiscal years ending March 31, 1996 through 2006 and the quarter end[ing] June 30, 2006 should no longer be relied upon. In addition, management's assessment of internal control over financial reporting, and the auditor's report on internal control over financial reporting for the year end [ing] March 31, 2006 should also no longer be relied upon. In addition, the Company's earnings and press releases and other communications should no longer be relied upon to the extent they relate to these financial statements. Management of the Company has discussed this conclusion with the Company's independent registered public accounting firm, KPMG LLP.

(Doc. # 72, at 17–18, para. 65, 67–68) (emphasis in original).

In April 2007, the FDA issued KV a warning letter. Id. at para. 58. Then, on October 11, 2007, KV filed a Form 8–K, announcing that “the Special Committee had determined that the Company's accounting for most of the stock option grants during ...