Difelice v. Us Airways, Inc.

• Decision Date: 26 June 2006
• Docket Number: No. 1:04 CV 889.,1:04 CV 889.
• Parties: Vincent D. DIFELICE, on behalf of himself and all others similarly situated, Plaintiff, v. US AIRWAYS, INC., Defendant.
• Court: U.S. District Court — Eastern District of Virginia

436 F.Supp.2d 756

Vincent D. DIFELICE, on behalf of himself and all others similarly situated, Plaintiff, v. US AIRWAYS, INC., Defendant.

No. 1:04 CV 889.

United States District Court, E.D. Virginia. Alexandria Division.

June 26, 2006.

Stephen Ray Pickard, Alexandria, VA, for Plaintiff.

Charles C. Jackson, Christopher A. Weals, Christine Bannon Cox, Hana Fran Brilliant, Karen Ellen Gray, Amy Covert, Morgan Lewis & Bockius LLP, Washington, DC, for Defendant.

MEMORANDUM OPINION

ELLIS, District Judge.

This breach of fiduciary duty action brought against U.S. Airways, Inc. ("US Airways" or "the Company") pursuant to the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. §§ 1001 et seq., concerns the standard a prudent fiduciary must meet when considering whether to retain as an investment option in a defined contribution 401(k)¹ retirement plan an investment consisting primarily of company stock when the company is in financial distress.

This action was originally filed by Vincent D. DiFelice, a plan participant, on behalf of a class of plan participants, against U.S. Airways and Fidelity Management Trust Company ("Fidelity"), the directed trustee of the 401(k) plan at issue, for breach of their respective fiduciary duties.² Fidelity's threshold motion to dismiss was granted on September 27, 2005. See DiFelice v. U.S. Airways, Inc., 397 F.Supp.2d 735 (E.D.Va.2005) [Hereinafter DiFelice I]. Thereafter, plaintiff and U.S. Airways conducted extensive interrogatory, document and deposition discovery, following which U.S. Airways filed a motion for summary judgment. After briefing and oral argument, U.S. Airways' motion was granted in part and denied in part. It was granted with respect to the claim that U.S. Airways failed to provide complete and accurate information to Plan participants and denied with respect to the claim that U.S. Airways failed to exercise prudently its discretion to select and retain investment options for the retirement plan at issue. See DiFelice v. U.S. Airways, Inc., 397 F.Supp.2d 758 (E.D.Va.2005) [Hereinafter DiFelice II]. Also during the discovery, plaintiff successfully sought certification of a class. Specifically, plaintiff's motion for class certification was granted on March 22, 2006, resulting in the certification of the following class:

All participants and their beneficiaries in the U.S. Airways, Inc. 401(k) Savings Plan (the "Plan") for whose accounts the fiduciaries of the Plan acquired or held units of the U.S. Airways Group, Inc. Common Stock Fund at any time between October 1, 2001 and June 27, 2002.

See DiFelice v. U.S. Airways, 235 F.R.D. 70, 83 (E.D.Va.2006).

The sole issue remaining following discovery and summary judgment proceedings was whether U.S. Airways breached its fiduciary duty under ERISA by allowing the stock of U.S. Airways' parent corporation U.S. Airways Group, Inc. ("Group"), to remain as a plan investment option during the class period despite the Company's and concomitantly Group's precarious financial condition. This issue was then the focus of a six day bench trial in the course of which 18 witnesses testified, either live or by video deposition. Plaintiff presented 11 fact witnesses and 5 experts, and U.S. Airways presented 2 expert witnesses.³ Additionally, the trial record also included cross-designated portions of the depositions of ten additional witnesses, as well as a total of approximately 200 documentary exhibits. Based on this voluminous record and the parties' written and oral arguments, the Court issues the following findings of fact and conclusions of law, pursuant to Rule 52, Fed.R.Civ.P.

I. FINDINGS OF FACT

A. Introduction

1. This ERISA case involves an alleged breach of fiduciary duty by defendant U.S. Airways in offering and retaining the U.S. Airways Group, Inc. Common Stock Fund (the "Company Stock Fund") as an investment option for the U.S. Airways, Inc. 401(k) Savings Plan (the "Plan") during the period October 1, 2001 to June 27, 2002 ("the class period").

2. US Airways, a Delaware Corporation headquartered in Arlington, Virginia, is a certified air carrier engaged in the business of transporting passengers, property and mail primarily in the northeastern United States and Florida. It is the principal operating subsidiary of Group.

3. During the class period, Group's shares were publicly traded on the New York Stock Exchange. At all times during the class period, the Company Stock Fund was composed primarily of the publicly traded Group shares and the remainder in cash.

4. Plaintiff Vincent D. DiFelice, a citizen of Pennsylvania, has been employed by U.S. Airways as an aircraft mechanic since January 3, 1990. He was a participant in the Plan throughout the class period, and at certain times during the class period, he invested a significant percentage of his 401(k) account in the Company Stock Fund.

B. The U.S. Airways 401(k) Plan

1. The Plan

5. At all relevant times, U.S. Airways maintained a defined contribution plan⁴ under Section 401(k) of the Internal Revenue Code of 1986, 26 U.S.C. § 401(k), for the benefit of its employees covered by certain bargaining agreements, including flight attendants represented by the Association of Flight Attendants, and mechanics represented by the International Association of Machinists and Aerospace Workers.

6. The relevant documents governing the Plan consisted of the U.S. Airways, Inc. 401(k) Savings Plan, as amended, and the Trust Agreement for U.S. Air, Inc. 401(k) Savings Plan which is incorporated by reference. The Company also provided participants with several documents describing their rights and obligations under the Plan in greater detail, including the Summary Plan Description ("SPD"), and several investment brochures describing the Plan's investment options. As the Plan documents reflect, the Plan's stated purpose was "to provide retirement income" to the participants. The Plan documents also stated that the Plan was "intended to operate for the exclusive benefit of eligible employees and their beneficiaries."

7. The Plan was a participant-directed defined contribution plan that provides an individual account for each participant. Each participant's benefit was based solely on the value of his or her individual account, i.e., the contributions to the account plus any earnings and less any losses or allocated expenses.

8. The Plan permitted participants to contribute up to 15% of their salaries to the Plan on a pre-tax basis. In addition to a participant's contributions, U.S. Airways matched the contributions of certain employees up to a specified level. These matching contributions could not be invested in the Company Stock Fund.

9. The Plan provided: "The Company shall enter into a Trust Agreement with a Trustee, setting forth the terms, provisions, and conditions pursuant to which the Trustee shall hold, manage and administer all assets of the Plan in Trust." The Plan further provided: "The terms and provisions of the Trust Agreement are hereby incorporated into the Plan by reference." Pursuant to these provisions, the Company entered into a Trust Agreement with Fidelity dated January 1, 1993. Fidelity remained the directed trustee of the Plan throughout the entire class period.

10. Consistent with the Plan, the Trust Agreement states that the Trust was established "for the exclusive benefit of employees and their beneficiaries . . . ."

2. US Airways' Responsibilities Under the Plan

11. The Plan designated U.S. Airways as the administrator of the Plan for purposes of ERISA and the Internal Revenue Code. Particularly pertinent here is the Plan provision designating U.S. Airways as a named fiduciary with the authority "to employ such attorneys, agents, and accountants as it may deem necessary or advisable to assist in carrying out its duties hereunder . . . ."

12. The Plan granted U.S. Airways the discretionary authority to select or remove alternative investment funds.⁵

13. Neither the Plan nor the Trust Agreement mandated the offering of the Company Stock Fund as an investment alternative. Instead, this was left to U.S. Airways' discretion, the Plan stating that "[t]he Company may, in its discretion, terminate any Investment Manager and any Investment Fund." Likewise, the Trust Agreement stated, "Investment vehicles which the Company may select shall be limited to any investment options set forth in Schedule C that may be attached to and made part of this Agreement ... ." Schedule C to the Trust Agreement stated during the class period: "The Company may select as investment vehicles only from among the following investment options: .... (vi) employer securities issued by USAir Group, Inc."

14. The Trust Agreement stated: "Any investment by the Trustee in employer securities shall be made in accordance with the provisions of Article VIII." Article VIII, in turn, provided that Trust investments in employer securities shall be made via the Company Stock Fund. Further, Section 8.3 of the Trust Agreement, entitled "Fiduciary Responsibility for Investment in Company Stock," stated that: "The Company shall continually monitor the suitability under the fiduciary duty rules of Section 404(a)(1) of ERISA (as modified by Section 404(a)(2)) of acquiring and holding Company Stock."

3. The Pension Investment Committee

15. In accordance with the terms of the Plan, U.S. Airways delegated the authority to select, monitor, and terminate investment options under the Plan to the Pension Investment Committee ("PIC"). The PIC reported to the Human Resources Committee of the Board of Directors (the "HR Committee"), which in turn reported to the full Board of Directors.

16. The PIC had the responsibility and authority to make decisions regarding investment policy and investment options offered with respect to the Plan, as well as the responsibility and authority to monitor the prudence of investment options.

17. During the class period, the...