GRIFFIN v. FLAGSTAR BANCorp. INC.
| Decision Date | 31 March 2011 |
| Docket Number | Case Number: 2:10-cv-10610 |
| Parties | DEBRA GRIFFIN and JOY GARDNER, on Behalf of Themselves and a Class of Persons Similarly Situated, Plaintiffs, v. FLAGSTAR BANCORP, INC.; REBECCA A. LUCCI; ERIN ENGLAND; JOHN DOES 1-10, AND; RICHARD ROES 1-20, Defendants. |
| Court | U.S. District Court — Eastern District of Michigan |
PAUL D. BORMAN
UNITED STATES DISTRICT JUDGE
ORDER GRANTING DEFENDANTS' MOTION TO DISMISS
This case comes before the Court on defendants Flagstar Bancorp, Inc. ("Flagstar" or the "Company"), Erin England and Rebecca Lucci (the "Executive Defendants"), John Does 1-20, and Richard Roes 1-20's (collectively "Defendants") motion to dismiss. (Dkt. No. 17.) Plaintiffs have filed a response (Dkt. No. 19), and Defendants have filed a reply (Dkt. No. 21.) Oral arguments were heard on February 2, 2011 at 2:00 p.m. For the following reasons, Defendants' motion is GRANTED.
I. Background
This action arises from Debra Griffin and Joy Gardner's ("Plaintiffs") claim, on behalf of themselves and a class of persons similarly situated (the "Participants" or "Employees"), that their former employer Flagstar breached its fiduciary duties under the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. § 1001, et seq., by failing to prudently and independently administer the Flagstar Bank 401(k) Plan (the "Plan") since December 31, 2006 (the "Class Period"). (Compl. ¶¶ 1-4.) Plaintiffs bring this action under § 502(a)(2) and (3) of ERISA, 29 U.S.C. § 1132(a)(2), (3). (Id. ¶ 1.) Specifically, Plaintiffs allege that Defendants violated the duties imposed upon plan fiduciaries under ERISA section 404, 29 U.S.C. § 1104. (Id.)
During most of the Class Period, the governing document for the Plan was The Corporate Plan for Retirement Fidelity Basic Plan Document No. 02 (the "Plan Document"). (Defs.' Mot. 4; Ex. 1.) In 2008, the Plan Document was superseded by the Volume Submitter Defined Contribution Plan Fidelity Basic Plan Document No. 14 (the "Amended Plan Document"). (Defs.' Mot. 4; Ex. 5.) Under the Plan, each Participant was provided with their own individual account. Each Employee chose how much of their salary was withheld from a given paycheck and deposited into their account. (Compl. ¶ 27.) Flagstar also made employer "matching" contributions. (Defs.' Mot. 1.) As a result, the Plan is a "defined contribution" or "individual account" plan within the meaning of ERISA § 3(34), 29 U.S.C. § 1002(34). (Compl. ¶ 27.)
The Plan allowed Participants to invest in a variety of investment options, of which Flagstar stock (or "Company Stock") was one choice. (Def.'s Mot. 4.) Participants could choose from among 23 investment options that were selected by Flagstar, the Plan's Administrator. (Defs.' Mot. 4; Ex. 2 at 28.) While the investment options were chosen by Flagstar, each Participant directed the Plan's trustee where to invest the funds in his or her individual account. (Defs.' Mot. 4.) Section 1.23 of Plan Document states "Participant Accounts shall be invested . . . in accordance with the investment directions provided to the Trustee by each Participant for allocating his entire Account among the options listed in the Service Agreement." (Id.) (emphasis added).
Thus, each employee participant was given a "menu" containing 23 investment options, and it was totally the participant's choice as to which option(s) to exercise.
Plaintiff Debra Griffin lives in the State of Georgia. (Compl. ¶ 10.) She was employed by Flagstar (or a subsidiary or division of Flagstar) for several years, and she directed an investment in Flagstar common stock through her individual account in the Plan during the Class Period. (Id.) Plaintiff Joy Gardner is also a resident of the State of Georgia. (Id. ¶ 11.) She too was employed by Flagstar (or one of its subsidiaries or divisions), and she directed an investment in Flagstar common stock through her Plan account during the Class Period. (Id.)
Defendant Flagstar is a Michigan-based savings and loan holding company. (Id. ¶ 12.) Flagstar operates through its subsidiary, Flagstar Bank, FSB which is a federally chartered stock savings bank. (Id.) At the end of 2008, Flagstar operated 175 banking centers in Michigan, Indiana, and Georgia. (Id.) It also operates 104 home loan centers located in 27 states. (Id.) Flagstar is incorporated in Michigan and maintains its principal place of business at 5151 Corporate Drive Troy, MI 48098. (Id.) Plaintiffs allege that Flagstar managed and administered the Plan's assets and acted as the named fiduciary with respect to the Plan, or appointed a committee to do so. (Id. ¶ 13.)
Defendant Rebecca A. Lucci ("Lucci") allegedly is, or was, First Vice President, Director of Human Resources at Flagstar and signed the Plan's Form 11-K Annual Reports for the fiscal years ending on December 31, 2006 and 2008 on behalf of the Company as "Plan Administrator." (Id. ¶ 14; Pls.' Resp. Ex. E at 15.) She also signed the Plan's 5500 Annual Return/Report of Employee Benefit plan for the fiscal years 2006 and 2007 (the "5500 Reports") on behalf of Flagstar. (Compl. ¶ 14; Pls.' Resp. Ex. H at 3.) Plaintiffs allege that these actions indicate that Lucci was a Plan fiduciary during the Class Period. (Compl. ¶ 14.)
Defendant Erin England ("England") served as First Vice President of Human Resources, Employee Benefits Manager of the Flagstar as of July 10, 2006. (Id. ¶ 15.) She signed the Plan's 5500 Reports as "Plan Administrator." (Id.; Pls.' Resp. Ex. H at 3.) Accordingly, Plaintiffs allege that England was a Plan fiduciary during the Class Period. (Compl. ¶ 15.)
Plaintiffs allege that defendants John Does 1-201 were "an investment committee and any other committee(s) which administered the Plan and all members thereof." (Id. ¶ 16.) Plaintiffs claim that while they currently do not know the identities of these defendants, they are believed to be employees of the Company and fiduciaries of the Plan who were responsible for carrying out its provisions. (Id.) Plaintiffs allege that defendants Richard Roes 1-20 (the "Monitoring Defendants") were "persons who had the duty and responsibility to properly appoint, monitor, and inform the John Doe defendants (as defined herein) and/or other persons who exercised day-to-day responsibility for the management and administration of the Plan and its assets." (Id. ¶ 17.)
Congress enacted ERISA in 1974 after studying the nation's private pension and other benefit plans for almost a decade. Rankin v. Rots, 278 F. Supp. 2d 853, 869 (E.D. Mich. 2003) (quoting Central States, Se. & Sw. Areas Pension Fund v. Cent. Transp., Inc., 472 U.S. 559, 569 (1985)). Congress sought to assure the financial soundness and equitable character of employee benefit plans. Id. To that end, ERISA requires plans to name fiduciaries, to whom strict and detailed duties and obligations are assigned. Id. at 870. ERISA requires benefit plans to "provide for one or more named fiduciaries who jointly or severally shall have authority to control and manage the operations and administration of the plan." 29 U.S.C. § 1102(a)(1).
Under section 404, a plan fiduciary must "discharge his duties with respect to a plan solely in the interest of the participants and beneficiaries and for the exclusive purpose of: providing benefits to participants and their beneficiaries; and defraying reasonable expenses of administering the plan." 29 U.S.C. § 1104(a)(1)(A). This must be done "with the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent man" would use. § 1104(a)(1)(B). If a fiduciary breaches these duties, he "shall be personally liable to make good to such plan any losses to the plan resulting from each such breach . . . and shall be subject to such other equitable or remedial relief as the court may deem appropriate." § 1109(a).
Under ERISA, a person is a plan's fiduciary "to the extent (i) he exercises any discretionary authority or discretionary control respecting management of such plan or exercises any authority or control respecting management or disposition of its assets . . . or (iii) he has any discretionary authority or discretionary responsibility in the administration of such plan." § 1002(21)(A).
Plaintiffs' complaint alleges that Defendants violated their fiduciary duties in several ways. (Compl. ¶ 2.) Plaintiffs contend that Defendants failed to prudently and loyally manage the Plan's investments by: "(1) continuing to invest Plan assets in Company stock when it was imprudent to do so; (2) failing to provide complete and accurate information to Plan participants regarding the Company'[s] financial condition and the prudence of investing in company stock; and (3) maintaining the Plan's pre-existing heavy investment in Flagstar equity when Company stock was no longer a prudent investment for the Plan." (Id.) Plaintiffs allege that Defendants knew or should have known that investing in Flagstar stock was imprudent because of Flagstar's significant credit risks, and uncertainty about how devastating the recession would get, which made Flagstar stock "a particularly risky and imprudent investment for the Plan's participants' retirement savings." (Id. ¶ 5.) Plaintiffs aver that Defendants had the discretion to establish and change what investment options Participants had, and that by continuing to offer Flagstar stock as an option they acted imprudently. (Id. ¶¶ 34-36, 39.)
In support of their allegations, Plaintiffs claim Defendants knew Flagstar was heavily exposed to concentrations of credit risk in areas of the country that were hardest hit by the credit collapse such as Michigan, California, and Florida; Flagstar was not profitable and did not have "good prospects;" Flagstar's credit costs and loan losses continually increased throughout the Class...
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