Harris v. Koenig
| Decision Date | 12 March 2009 |
| Docket Number | Civil Action No. 02-618 (GK). |
| Parties | William S. HARRIS, et al., Plaintiffs, v. James E. KOENIG, et al., Defendants. |
| Court | U.S. District Court — District of Columbia |
James Brian McTigue, Gregory Yann Porter, McTigue & Porter, LLP, Washington, DC, Ellen M. Doyle, Joel R. Hurt, Stember Feinstein Doyle & Payne, LLC, Pittsburgh, PA, for Plaintiffs.
Jonathan S. Quinn, Lisa A. Kellmeyer, Sarah R. Wolff, Sachnoff & Weaver, Ltd., Matthew J. O'Hara, Reed Smith Sachnoff & Weaver, Matthew R. Kipp, Skadden, Arps, Slate, Meagher & Flom LLP, Kristi Nelson, Freeman, Freeman & Salzman P.C., Phillip L. Stern, Neal, Gerber & Eisenberg LLP, Daniel J. Hayes, Francis J. Higgins, Peter G. Rush, Lawrence M. Gavin, Nicholas J. Etten, Bell, Boyd, Lloyd, LLC, Wilber H. Boies, McDermott, Will & Emery, Chicago, IL, Richard L. Brusca, Skadden, Arps, Slate, Meagher & Flom LLP, Michael J. Schrier, Bell, Boyd & Lloyd, LLP, Charles R. Work, McDermott, Will & Emery, Washington, DC, Steven W. Kasten, McDermott Will & Emery LLP, Boston, MA, for Defendants.
Plaintiffs, William S. Harris, Reginald E. Howard, and Peter M. Thornton, Sr., are former employees of Waste Management Holdings, Inc. ("Old Waste" or "the Company")1 and participants in the Waste Management Profit Sharing and Savings Plan ("Old Waste Plan" or "Plan"). They bring this action under the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. §§ 1001, et seq., on behalf of the approximately 30,000 Plan participants seeking to recoup losses suffered by the Plan related to the purchase of Old Waste common stock ("Company Stock") between January 1, 1990 and July 15, 2002 at prices "artificially inflated" by material undisclosed information about Old Waste's "true financial condition." Third Am. Compl. ¶ 1. Plaintiffs allege three separate claims periods — (1) January 1, 1990 through February 24, 1998 ("First Claim Period"); (2) July 15, 1999 through December 1, 1999 ("Second Claim Period"); and (3) February 7, 2002 through July 15, 2002 ("Third Claim Period") — and separate ERISA violations during each of those periods. Id.
Defendants are the "Old Waste Fiduciaries," which include Old Waste (the Plan's sponsor); the Old Waste executives who allegedly administered the Old Waste Plan, including the Waste Management, Inc. Profit Sharing and Savings Plan Investment Committee ("Old Waste Investment Committee"); the individual Trustee Members of the Old Waste Investment Committee;2 the Waste Management, Inc. Profit Sharing and Savings Plan Administrative Committee ("Old Waste Administrative Committee"); the individual Trustee Members of the Old Waste Administrative Committee;3 the Old Waste Board of Directors; the individual Members of the Old Waste Board of Directors;4 and DOES 1-15.5
Defendants are also the "New Waste Fiduciaries," which include the Waste Management Retirement Savings Plan ("New Waste Plan"); and the New Waste executives who allegedly administered the New Waste Plan, including the Investment Committee of the Waste Management Retirement Savings Plan ("New Waste Investment Committee"); the individual Trustee Members of the New Waste Investment Committee;6 the State Street Bank and Trust Company ("State Street"); and DOES 16-30.7
This matter is before the Court on Defendants' Omnibus Motion to Dismiss the Third Amended Complaint [# 186] ( ) and State Street Bank and Trust Company's Motion to Dismiss the Third Amended Complaint [#183] ("State Street's Mot.").8 Upon consideration of the Motions, Oppositions, Replies, and the entire record herein, and for the reasons stated below, Defendants' Omnibus Motion to Dismiss is granted in part and denied in part and State Street's Motion to Dismiss is denied.
The Old Waste Plan is an "individual account" or "defined contribution" employee pension plan. See Defs.' Ex. 22 (1999 Summary Plan Description) at 25. An individual account or defined contribution plan is "one where employees and employers may contribute to the plan, and the employer's contribution is fixed and the employee receives whatever level of benefits the amount contributed on his behalf will provide." Hughes Aircraft Co. v. Jacobson, 525 U.S. 432, 439, 119 S.Ct. 755, 142 L.Ed.2d 881 (1999) (internal quotations omitted). See 29 U.S.C. § 1002(34) ().
Old Waste Plan participants may invest in any of the Plan's ten investment options, including the Waste Management Inc., Stock Fund which is invested primarily in Company Stock ("Stock Fund") as well as cash. See Defs.' Omnibus Mot., Ex. 22 (1999 Summary Plan Description at 3, 11). See Third Am. Compl. ¶ 40.
On January 16, 1998, Old Waste and Waste Services, Inc., merged to become New Waste. On January 1, 1999, the Old Waste Plan was merged with the USA Waste Services, Inc. Employee's Savings Plan to become the Waste Management Retirement Savings Plan ("New Waste Plan"). On the same date, State Street was appointed to serve as the Trustee of the New Waste Plan. Effective February 1, 1999, the New Waste Investment Committee appointed State Street to serve as the Investment Manager for Company Stock assets. See Third Am. Compl. ¶¶ 47, 50. Pursuant to the terms of the Investment Manager Agreement between State Street and the New Waste Investment Committee, State Street had "full discretionary authority to manage Company Stock assets." Id. ¶ 50.
The State Street appointments were made after the July 24, 1998 filing of the Complaint in the Illinois Securities Litigation, discussed infra.
On October 10, 1997, Old Waste announced in a press release that the prior reports of its earnings from continuing operations for the third quarter of 1996 were overstated. See id. ¶ 88. It also cautioned "that earnings for the third quarter of 1997 were expected to be below analysts' expectations and that [Old Waste's] fourth Quarter 1997 results might be reduced by a charge to income that could be material to its results of operations for the year." See id.
By December 18, 1997, various purchasers of Old Waste securities had filed fourteen securities fraud class actions in the United States District Court for the Northern District of Illinois ("Illinois district court") alleging, in relevant part, that Old Waste, certain of its officers and directors and its auditor, Arthur Andersen, LLP, had violated Section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b), and Securities and Exchange Commission Rule 10b-5, 17 C.F.R. § 240.10b-5. See In re Waste Mgmt., Inc. Sec. Litig., CA 97-7709 (N.D.Ill.) ("Illinois Securities Litigation").
On February 24, 1998, Old Waste announced that it was restating its financial statements for 1991 and prior periods, including the periods 1992 through 1996, and the first three quarters of 1997 ("Restatement"). It also admitted that prior to 1992 and continuing through the first three quarters of 1997, it had materially overstated its reported income by $1.43 billion. See Third Am. Compl. ¶ 89.
On July 24, 1998, the Illinois Securities Litigation plaintiffs filed a consolidated amended complaint claiming that the Old Waste Fiduciaries "had engaged in potential breaches of fiduciary obligations with respect to the Old Waste Plan by causing it to acquire shares of Old Waste Stock between January 1, 1990[and] February 24, 1998, when they knew that such stock was not a prudent Plan investment because its price exceeded fair market value." Id. ¶ 110.
As already noted, on January 1, 1999, State Street Bank was appointed Trustee of the New Waste Plan, after its merger with the Old Waste Plan, and on February 1, 1999, State Street was appointed Investment Manager for Company Stock assets.
On July 15, 1999, the Illinois district court entered a Preliminary Approval Order approving a proposed settlement and provisionally certifying a class, for settlement purposes only, of all persons (other than defendants and their affiliates) who had acquired Company Stock between November 3, 1994 and February 24, 1998. See id. ¶ 111. Pursuant to the Preliminary Approval Order, "a Notice of Pendency and Proposed Settlement of Class Action, dated July 20, 1999 (the `Illinois Notice'), was sent to [all] members of the [Illinois settlement class], including the Plan and its fiduciaries." Id. The Illinois Notice described the scope of the release that would be given by members of the Illinois settlement class in exchange for the settlement consideration, and advised class members of their right to object to or opt out of the proposed settlement by September 2, 1999. See id.
On September 17, 1999, the Illinois district court entered a Final Judgment and Order of Dismissal endorsing the proposed settlement ("Illinois Securities Settlement"). See id. ¶ 116.
On July 6, 1999, New Waste "issued a press release reporting a $250 million projected revenue shortfall for the second quarter of 1999 and sharply lower earnings." Id. ¶ 102. On November 9, 1999, after a subsequent review of its books and records, New Waste announced after-tax charges and adjustments of $1.23 billion. See id. ¶ 105.
On July 7, 1999, the first of over thirty securities class action complaints was filed against New Waste and certain of its officers and directors in In re Waste Mgmt., Inc. Sec. Litig., H99-2183 (S.D.Texas), in the United States District Court for the Southern District of Texas ("Texas district court") ("Texas Securities Litigation"). See id. ¶ 125. According to Plaintiffs, the complaint placed State Street on notice that "senior management of New Waste had engaged in alleged...
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