In re Dynegy, Inc. Erisa Litigation

• Citation: 309 F.Supp.2d 861
• Decision Date: 05 March 2004
• Docket Number: No. CIV.A.H-02-3076.,CIV.A.H-02-3076.
• Parties: In re: DYNEGY, INC. ERISA LITIGATION Constance K. Schied, on behalf of herself and a class of persons similarly situated, Plaintiff, v. Dynegy, Inc., et al., Defendants.
• Court: U.S. District Court — Southern District of Texas

309 F.Supp.2d 861

In re: DYNEGY, INC. ERISA LITIGATION Constance K. Schied, on behalf of herself and a class of persons similarly situated, Plaintiff, v. Dynegy, Inc., et al., Defendants.

No. CIV.A.H-02-3076.

United States District Court, S.D. Texas, Houston Division.

March 5, 2004.

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Robin L. Harrison, Justin M. Campbell, III, Campbell Harrison et al, Houston, TX, Ron Kilgard, Gary A. Gotto, Laurie B. Ashton, Keller Rohrback PLC, Phoenix, AZ, Lynn Lincoln Sarko, Derek W. Loeser, Erin M. Riley, Elizabeth A. Leland, Keller Rohrback LLP, Seattle, WA, Marc I. Machiz, Cohen Milstein et al, Marka A. Peterson, Attorney at Law, Washington, DC, for Plaintiff.

David D. Sterling, Baker Botts LLP, Michael M. Wilson, Clements O'Neill et al, Jack C. Nickens, Nickens Keeton et al, Judith Batson Sadler, Sadler & Sykes, Martin Scott Michelman, Shook Hardy et al, Houston, TX, Anthony C. Epstein, Paul J. Ondrasik, Jr., F. Michael Kail, Morgan D. Hodgson, Steptoe and Johnson LLP, Washington, DC, Brian T. Ortelere, Thomas S. Bloom, Joseph J. Costello, Morgan Lewis et al, Philadelphia, PA, for Defendants.

R. Blake Young, pro se.

MEMORANDUM AND ORDER

LAKE, District Judge.

Plaintiff, Constance K. Schied, brings this civil enforcement action pursuant to § 502 of the Employee Retirement Income Security Act (ERISA), 29 U.S.C. § 1132, on behalf of participants and beneficiaries of the Dynegy Inc. Profit Sharing 401(k) Savings Plan (Plan) who were invested in the common stock of Dynegy Inc. through the Plan during the period from April 27, 1999, through January 30, 2003,¹ against defendants, Dynegy, Inc. ("Dynegy" or "the Company"), Dynegy's Board of Directors,² the Human Resources Committee of Dynegy's Board of Directors,³ Dynegy's Benefit Plans Committee (BPC)⁴ and its predecessor, the Retirement/Benefit Plans Committee (RBPC),⁵ and the trustees of the trust that held the assets of the Plan: CG Trust for the period before January 1, 2002, and Vanguard Fiduciary Trust Company for the period after January 1, 2002. Plaintiff seeks to make the Plan whole for losses caused by breach of defendants' fiduciary duties in violation of ERISA § 409, 29 U.S.C. § 1109, during a proposed class period beginning on April 27, 1999, and ending on January 30, 2003. TAC ¶¶ 52 and 314. Pending before the court are the following motions: Defendant Robert D. Doty's Motion to Dismiss (Docket Entry No. 35); Defendant Charles L. Watson's Motion to Dismiss (Docket Entry No. 36); Motion to Dismiss on Behalf of Dynegy Inc. and Certain Members of its Board of Directors, Benefit Plans and Retirement/Benefit Plans Committees (Docket Entry No. 37); Motion to Dismiss on Behalf of Director Defendants Lipton, Mustoe, Poole, Robertson, Rubenfield, and Woertz and Retirement/Benefit Plans Committee Defendant Barton (Docket Entry No. 41); Motion to Dismiss Third Amended Complaint on Behalf of Defendants Stephen J. Brandon and Paul N. Woollacott for Lack of Service of Process and Personal Jurisdiction (Docket Entry No. 43), as amended and supplemented by Rule 12(b)(6) Motion to Dismiss Third Amended Complaint (Docket Entry No. 54); Defendant CG Trusts' Motion for Summary Judgment, or in the alternative, Motion to Dismiss Count IX of Plaintiff's Third Amended Complaint (Docket Entry No. 61); and Defendant Vanguard Fiduciary Trust Company's Motion to Dismiss Count X of Plaintiff's Third Amended Complaint (Docket Entry No. 52). For the following reasons the pending motions will be ruled upon as stated in the Conclusions and Order, § VI, below.

I. Standard of Review

A motion to dismiss for failure to state a claim tests the formal sufficiency of the pleadings and is "appropriate when a defendant attacks the complaint because it fails to state a legally cognizable claim." Ramming v. United States, 281 F.3d 158, 161 (5th Cir.2001), cert. denied sub nom Cloud v. United States, 536 U.S. 960, 122 S.Ct. 2665, 153 L.Ed.2d 839 (2002). The court must accept the factual allegations of the complaint as true, view them in a light most favorable to the plaintiff, and draw all reasonable inferences in the plaintiff's favor. Id."[A] court may dismiss a complaint only if it is clear that no relief could be granted under any set of facts that could be proved consistent with the allegations." Swierkiewicz v. Sorema N.A., 534 U.S. 506, 122 S.Ct. 992, 998, 152 L.Ed.2d 1 (2002)(quoting Hishon v. King & Spalding, 467 U.S. 69, 104 S.Ct. 2229, 2232, 81 L.Ed.2d 59 (1984)).

When a federal court reviews the sufficiency of a complaint, before the reception of any evidence either by affidavit or admissions, its task is necessarily a limited one. The issue is not whether a plaintiff will ultimately prevail but whether the claimant is entitled to offer evidence to support the claims.

Id. at 997 (quoting Scheuer v. Rhodes, 416 U.S. 232, 94 S.Ct. 1683, 1686, 40 L.Ed.2d 90 (1974)). See also Conley v. Gibson, 355 U.S. 41, 78 S.Ct. 99, 102, 2 L.Ed.2d 80 (1957) ("[A] complaint should not be dismissed for failure to state a claim unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief.").

ERISA does not have heightened pleading requirements. Claims asserted under ERISA are subject to the notice pleading standard of Federal Rule of Civil Procedure 8, which "substitute[d] the requirement of `a short and plain statement of the claim showing that the pleader is entitled to relief' for the technical formula, such as `facts constituting a cause of action,' which typified the preexisting codes." Heimann v. National Elevator Industry Pension Fund, 187 F.3d 493, 509 (5th Cir.1999), overruled on other grounds, Arana v. Ochsner Health Plan, 338 F.3d 433 (5th Cir.2003) (quoting Charles A. Wright and Arthur R. Miller, Federal Practice and Procedure, § 1202 at 68 (2d ed.1990)). See also Swierkiewicz, 122 S.Ct. at 998 (Rule 8 is a simplified notice pleading standard that applies to all civil actions, with limited exceptions, i.e., those enumerated in Rule 9(b), and requires merely a statement that gives the defendant fair notice of what the plaintiff's claim is and the grounds upon which it rests.).

"In considering a motion to dismiss for failure to state a claim, a district court must limit itself to the contents of the pleadings, including attachments thereto." Collins v. Morgan Stanley Dean Witter, 224 F.3d 496, 498 (5th Cir.2000)(citing Fed.R.Civ.P. 12(b)(6)). Documents not attached to the pleadings, but to the motion to dismiss, may be considered "part of the pleadings if they are referred to in the plaintiff's complaint and are central to her claim ... [because i]n so attaching, the defendant merely assists the plaintiff in establishing the basis of the suit, and the court in making the elementary determination of whether a claim has been stated." Id. at 498-499 (citing Venture Assocs. Corp. v. Zenith Data Sys. Corp., 987 F.2d 429, 431 (7th Cir.1993)). See also Great Plains Trust Co. v. Morgan Stanley Dean Witter & Co., 313 F.3d 305, 312-314 (5th Cir.2002)(allowing consideration of documents attached to motion to dismiss where as here the plaintiff referenced those documents in her complaint, relied on their contents to assert her claims, and did not object to their consideration by the court).

II. Introduction to Dynegy and the Events Leading to this Action

Plaintiff's TAC contains the following factual allegations about Dynegy and the events leading to this action, which for purposes of the pending motions are accepted as true.

A. Dynegy⁶

Dynegy was originally known as Natural Gas Clearinghouse, a company that was founded in 1984 to match gas buyers and sellers without taking title. Throughout the 1980s the company grew dramatically as deregulation of the natural gas industry permitted independent marketers to secure larger volumes of gas. By 1990 the company was trading natural gas futures, buying gas gathering and processing facilities, and creating subsidiaries. In 1995 the company changed its name to NGC and went public after buying Trident NGL, an integrated natural gas liquids company. In 1996 NGC bought Chevron's natural gas business and propane dealer LPG Services Group. In 1997 NGC acquired Destec Energy and began forming retail energy market alliances with regional entities. In 1998 the company continued forming alliances with regional entities and changed its name to Dynegy, short for "dynamic energy." Dynegy's current businesses include power generation and wholesale and direct commercial and industrial marketing of power, natural gas, coal, and related products. Dynegy also engages in the transportation, gathering, and processing of natural gas liquids and the transmission and distribution of electricity and natural gas to retail consumers.

B. Events Leading to this Action

Plaintiff alleges that

[t]hroughout the Class Period [April 27, 1999, to January 20, 2003], the Company appeared to grow rapidly and to experience tremendous and sustained growth in revenues. As a result, the Company was able to raise more than $1.7 billion in 2000 and 2001 alone from the issuance and sale of stock to investors, including sales to the Plan. During the Class Period, Dynegy stock experienced a meteoric rise from trading at under $8 per share at the start of the Class Period to trading at over $50 per share.

Throughout the Class Period, Dynegy engaged in ... activities which Defendants knew or should have known resulted in artificially inflating Dynegy's earnings, revenue and stock price: (1) Project Alpha ... (2) Round-Trip Trades ... (3) Energy Price Manipulation ... (4) Financing and Liquidity Constraints ... (5) Intentional Attempt to Manipulate Financial Results.

... Dynegy eventually was forced to restate its financial results for 1999-2001, twice within a three-month period as ... revelations about the deception during that time-period came...