In re Bank of Am. Corp.. Sec.

• Decision Date: 27 August 2010
• Docket Number: Master File No. 09 MD 2058(PKC).
• Citation: 756 F.Supp.2d 330
• Parties: In re BANK OF AMERICA CORP. SECURITIES, DERIVATIVE, AND EMPLOYEE RETIREMENT INCOME SECURITY ACT (ERISA) LITIGATION.This Document Relates to: All ERISA Actions.
• Court: U.S. District Court — Southern District of New York

756 F.Supp.2d 330

In re BANK OF AMERICA CORP. SECURITIES, DERIVATIVE, AND EMPLOYEE RETIREMENT INCOME SECURITY ACT (ERISA) LITIGATION.This Document Relates to: All ERISA Actions.

Master File No. 09 MD 2058(PKC).

United States District Court, S.D. New York.

Aug. 27, 2010.

MEMORANDUM AND ORDER

P. KEVIN CASTEL, District Judge:

This is a putative class action for damages and injunctive relief brought pursuant to the Employee Retirement Income Security Act (“ERISA”), 29 U.S.C. § 1132, et seq. Plaintiffs are participants in four plans covered by ERISA: the Bank of America 401(k) Plan (the “BofA 401(k) Plan”), the Bank of America 401(k) Plan for Legacy Companies (the “Legacy Plan”), the Countrywide 401(k) Plan (the “Countrywide Plan”), and the Bank of America Pension Plan, (the “Pension Plan”) (collectively referred to as the “Plans”).

Plaintiffs allege that defendants were fiduciaries of the Plans and that, from January 11, 2008 through January 21, 2009 (the “Class Period”), defendants breached various fiduciary duties they owed to the Plans in violation of ERISA. ( See Consolidated Amended Complaint (the “Complaint”) ¶ 5.) Principally, plaintiffs allege that defendants allowed the imprudent investment of 401(k) plan assets in Bank of America (“BofA” or the “Company”) stock, failed to eliminate the Company Stock Option, a fund invested primarily in BofA stock, as an investment choice for the 401(k) and Countrywide Plans and offered BofA stock as an investment measure for Pension Plan participants. Plaintiffs allege that such actions were imprudent because defendants knew or should have known that BofA had recently engaged in several acquisitions that compromised the Company, including the acquisitions of Countrywide Financial Corporation (“Countrywide”) and Merrill Lynch & Co., Inc. (“Merrill”). In addition, plaintiffs allege that defendants failed to disclose the risks that BofA shareholders would assume as a result of these acquisitions. According to plaintiffs, these actions transformed the character of BofA stock, making it an imprudent investment. Plaintiffs also assert claims for failure to monitor, claiming that defendants failed to remove fiduciaries who breached their duties of loyalty and prudence by investing in BofA stock and continuing to offer Plan Participants the option of investing in the Common Stock Fund.

Plaintiffs filed the Complaint on October 9, 2009. (Docket No. 35.) Defendants move to dismiss the Complaint pursuant to Rule 12(b)(6), Fed.R.Civ.P., for failure to state a claim upon which relief may be granted.

For reasons more fully explained, defendants' motion is granted. Plaintiffs have failed to adequately and plausibly allege that defendants, other than the Benefits Committee, acted as fiduciaries, that the decision to allow the Company Stock Fund to remain as an investment option for the 401(k) Plans, as required by the Plan documents, and as an investment measure for the Pension Plan, was imprudent, that defendants breached a fiduciary duty to monitor the appointed trustees and administrators of the Plans or that defendants breached a fiduciary duty by failing to disclose material information to Plan Participants. The Complaint, viewed in the light most favorable to plaintiffs, does not plausibly allege that the Benefits Committee breached its duty of prudence when it followed Plan documents and continued to offer the Company Stock Fund as an investment option for Plan Participants. Because the Complaint does not plausibly allege a breach of the duty of prudence or loyalty, it also fails to plausibly allege a breach of the duty to monitor. Furthermore, the Complaint fails to plausibly allege a breach of the duty to disclose. Because the Complaint fails to plausibly allege a claim for breach of fiduciary duty, the claims based on a theory of co-fiduciary liability are also dismissed.

I. Procedural History

Multiple actions relating to the claims asserted in the Complaint were filed against the defendants in various districts. Upon BofA's application, the Judicial Panel on Multidistrict Litigation consolidated the related actions for coordinated pretrial purposes and, on June 11, 2009 assigned them to the Honorable Denny Chin pursuant to 28 U.S.C. § 1407. The Complaint was filed on October 9, 2009. (Docket No. 35) Upon Judge Chin's elevation to the Second Circuit, the consolidated action was reassigned to the undersigned on April 28, 2010. (Docket No. 250.) Defendants now move to dismiss pursuant to Rule 12(b)(6), Fed.R.Civ.P. (Docket No. 119.)

For the purposes of this motion, the allegations set forth in the Complaint are accepted as true, with the exception of legal conclusions couched as factual allegations. See Ashcroft v. Iqbal, ––– U.S. ––––, 129 S.Ct. 1937, 1949–50, 173 L.Ed.2d 868 (2009). All reasonable inferences are drawn in the plaintiffs' favor as the non-movants. United States v. City of New York, 359 F.3d 83, 91 (2d Cir.2004). Certain materials, including the Plan documents, are properly considered on the motion because, as will be explained, they are incorporated by reference into the Complaint.

II. The Parties.

Plaintiffs are individuals who are “participants” in the BofA 401(k) Plan, the Legacy 401(k) Plan, the Countrywide 401(k) Plan or the Pension Plan (the “Plan Participants”). (Compl. ¶ 27–33, 162.)

Defendant BofA is a Delaware corporation with headquarters in North Carolina. ( Id. ¶ 35.) BofA “provides a diverse range of banking and non-banking financial services and products domestically and internationally.” ( Id.)

The Bank of America Corporation Corporate Benefits Committee (the “Benefits Committee”) is the administrator for each Plan. ( Id. ¶ 36.) The Complaint names as defendants individuals who served as members of the Benefits Committee during the Class Period: J. Steele Alphin, Amy Woods Brinkley, Barbara J. Desoer, Liam E. McGee, Timothy J. Mayopoulos, Brian T. Moynihan, Bruce L. Hammonds, and Richard K. Struthers. ( Id. ¶¶ 37–45.)

The Bank of America Compensation and Benefits Committee (the “Compensation Committee”) is a committee composed of members of BofA's board of directors. ( Id. ¶ 46.) The Compensation Committee “provid[es] overall guidance with respect to the establishment, maintenance and administration of [BofA's] compensation programs and employee benefits plans.” ( Id. ¶ 47.) The Compensation Committee also had the authority to delegate its discretionary duties and responsibilities with respect to the adoption, amendment, modification or termination of benefit plans. ( Id. ¶ 49.) The Complaint names individuals who served as members of the Compensation Committee during the Class Period as defendants: O. Temple Sloan, Jr., Thomas M. Ryan, Patricia Mitchell, and Meredith R. Spangler. ( Id. ¶ 51.)

The Complaint also names as defendants the other individual BofA directors during the Class Period. ( Id. ¶ 52.) The board defendants include the individuals who were members of the Compensation Committee, as well as individuals Kenneth D. Lewis, Jackie M. Ward, Thomas May, Walter E, Massey, Charles Gifford, William Barnet III, John Collins, Robert Tillman, Frank Bramble, Sr., Monica Lozano, Tommy Franks, and Gary Countryman. ( Id. ¶ 55.)

Defendant Kenneth Lewis (“Lewis”) was Chairman of the board of directors from February 2005 until 2009. ( Id. ¶ 55(a).) Lewis has been President of BofA since July 2004 and Chief Executive Officer (“CEO”) since April 2001. ( Id.)

III. Jurisdiction

Federal question jurisdiction is properly invoked because plaintiffs' claims arise under ERISA, 29 U.S.C. § 1132, et seq. 28 U.S.C. § 1331.

IV. This Action

Plaintiffs claim that defendants BofA and the Benefits Committee (together, the “Prudence Defendants”) breached their fiduciaries duties of loyalty and prudence to the Plans by continuing to offer the Company Stock Option as an investment choice to Plan Participants when they knew, or should have known, that the Company Stock Option was no longer a prudent investment (Counts I and V). Plaintiffs also assert claims against defendants BofA, the Compensation Committee, and the board (the “Monitoring Defendants”) for failure to monitor the Prudence Defendants, which plaintiffs allege enabled the breach of the duties of prudence and loyalty (Counts II and VI). Plaintiffs further claim that defendants BofA, the Benefits Committee, and Lewis, (the “Communications Defendants”) breached their fiduciary duties by failing to provide “complete and accurate information” to Plan Participants (Counts III and VII), Finally, plaintiffs assert claims for breach of fiduciary duty against all defendants on a theory of co-fiduciary liability (Counts IV and VIII).

V. Background

The facts below are taken from the Complaint. Non-conclusory factual allegations are taken as true for purposes of this motion. See Iqbal, 129 S.Ct. at 1949–50.

Plaintiffs claim that as a result of ill-conceived acquisitions and business decisions, BofA, which was once “perceived as a ‘financial stalwart,’ with diverse and safe income streams, [became] a repository for some of the most toxic assets ever assembled,” causing a “devastating impact” on the value of BofA stock. (Compl. ¶ 235.)

In 2005, BofA acquired MBNA, the country's largest credit card issuer at the time. ( Id. ¶ 178.) As a result of the acquisition, BofA's consumer and small business division grew and accounted for 48% of BofA's net income. ( Id. ¶ 179.) Approximately two years later, on October 1, 2007, BofA acquired LaSalle Bank (“LaSalle”). ( Id. ¶ 180.) LaSalle was a Midwestern commercial bank that was “heavily invested in the consumer credit and housing credit markets.” ( Id.)

In 2007, as a global credit crisis began to unfold, “[s]everal major mortgage lenders disclosed extraordinary loan default rates.” ( Id. ¶ 182.) Between April 2007 and January 2008, several subprime lenders filed for bankruptcy, including New Century Financial Corporation on April 2, 2007 and American Home...