In re Ford Motor Co. Erisa Litigation

• Decision Date: 22 December 2008
• Docket Number: No. 06-11718.,06-11718.
• Citation: 590 F.Supp.2d 883
• Parties: In re FORD MOTOR COMPANY ERISA LITIGATION.
• Court: U.S. District Court — Eastern District of Michigan

590 F.Supp.2d 883

In re FORD MOTOR COMPANY ERISA LITIGATION.

No. 06-11718.

United States District Court, E.D. Michigan, Southern Division.

December 22, 2008.

COPYRIGHT MATERIAL OMITTED

Lynn L. Sarko, Derek W. Loeser, Keller Rohrback, L.L.P., Seattle, WA, Joseph H. Meltzer, Edward W. Ciolko, Gerald D. Wells, III, Barroway Topaz Kessler Meltzer & Check LLP, Radnor, PA, for Interim Co-Lead Plaintiffs.

Stephen F. Wasinger, Stephen F. Wasinger PLC, Royal Oak, MI, Liaison Counsel for Plaintiff.

Myron D. Rumeld, Russell L. Hirschhorn, Gary S. Tell, Robert N. Eccles, O'Melveny & Myers, LLP, Washington, DC, Kathleen A. Lang, Michelle Thurber Czapski, Dickinson Wright, PLLC, Detroit, MI, for Defendants.

ORDER MODIFYING AND ADOPTING THE MAGISTRATE JUDGE'S REPORT AND RECOMMENDATION AND DENYING DEFENDANTS' MOTION TO DISMISS

STEPHEN J. MURPHY, III, District Judge.

INTRODUCTION

This litigation presents a question that has challenged federal courts: given that the Employee Retirement Income Security Act ("ERISA") excuses certain retirement-plan fiduciaries from any duty to diversify the holdings of the plans they manage, but otherwise requires them to engage in "prudent" management, how is a court to determine when an undiversified plan of this kind has been imprudently managed?

The suit involves a claim under the Employee Retirement Income Security Act ("ERISA") against Ford Motor Company and several related persons and organizations (collectively, "Ford"). Currently before the Court are the defendants' objections to Magistrate Judge Steven Pepe's Report and Recommendation ("R & R") of denial of defendants' motion to dismiss the complaint for failure to state a claim. The facts of the case are ably set forth in the R & R, and need not be repeated here since the only issues before the Court are purely legal ones. Suffice it to say that the plaintiffs are various salaried and hourly employees who are current or former participants in the 401(k) retirement savings plans provided by Ford to its employees. They complain of Ford's management of two of these plans, the Ford Motor Company Tax-Efficient Savings Plan for Hourly Employees and the For Motor Company Savings and Stock Investment Plan for Salaried Employees (jointly, "the plans"). At all relevant times, the governing documents of these plans required them to be invested primarily or exclusively in Ford's own stock. Ford also offered numerous other more diversified mutual funds and other investment funds; subject to minor restrictions, employees could direct their retirement savings into whichever plan they preferred.

The defendants are Ford Motor Company itself, and numerous of its employees and related organizations who were involved in administering the plans. They will collectively be referred to as "Ford." At all times relevant to this case, Ford also served as the fiduciary of the plans. The plaintiffs' allegations are that it mismanaged the plans—and thus violated ERISA—by continuing to invest them entirely in its own stock even as the company fell into financial straits.

Ford's instant motion is to dismiss the complaint, for failure to allege a breach of Ford's fiduciary duties under ERISA. Magistrate Judge Pepe recommended that the motion be denied, and Ford has filed objections to that recommendation.

ANALYSIS

I. Standard of Review

A District Court's standard of review for a magistrate judge's report and recommendation depends upon whether a party files objections. With respect to portions of an R & R that no party has objected to, the Court need not undertake any review at all. Thomas v. Arn, 474 U.S. 140, 150, 106 S.Ct. 466, 88 L.Ed.2d 435 (1985). On the other hand, Federal Rule of Civil Procedure 72(b) states, in relevant part:

The district judge to whom the case is assigned shall make a de novo determination upon the record, or after additional evidence, of any portion of the magistrate judge's disposition to which specific written objection has been made in accordance with this rule. The district judge may accept, reject, or modify the recommended decision, receive further evidence, or recommit the matter to the magistrate judge with instructions.

Thus, the Court will conduct de novo review of the R & R with respect to Ford's objections.

"[W]hen the allegations in a complaint, however true, could not raise a claim of entitlement to relief, `this basic deficiency should ... be exposed at the point of minimum expenditure of time and money by the parties and the court.'" Bell Atl. Corp. v. Twombly, 550 U.S. 544, ___, 127 S.Ct. 1955, 1966, 167 L.Ed.2d 929 (2007) (citations omitted). Accordingly, Federal Rule of Civil Procedure 12(b)(6) allows a defendant to test whether, as a matter of law, the plaintiff is entitled to legal relief even if everything alleged in the complaint is true. See Minger v. Green, 239 F.3d 793, 797 (6th Cir.2001) (citations omitted).

In assessing a motion brought pursuant to Rule 12(b)(6), the Court must presume all well-pleaded factual allegations in the complaint to be true and draw all reasonable inferences from those allegations in favor of the non-moving party. Mayer v. Mylod, 988 F.2d 635, 638 (6th Cir.1993). To determine whether Plaintiff has stated a claim, the Court will examine the complaint and any written instruments that are attached as exhibits to the pleading. Fed.R.Civ.P. 12(b)(6) & 10(c). Although the pleading standard is liberal, bald assertions and conclusions of law will not enable a complaint to survive a motion pursuant to Rule 12(b)(6). Leeds v. Meltz, 85 F.3d 51, 53 (2d Cir.1996). The Court will not presume the truthfulness of any legal conclusion, opinion, or deduction, even if it is couched as a factual allegation. Morgan v. Church's Fried Chicken, 829 F.2d 10, 12 (6th Cir. 1987).

The Federal Rules of Civil Procedure "do not require a claimant to set out in detail the facts upon which he bases his claim. To the contrary, all the Rules require is `a short and plain statement of the claim' that will give the defendant fair notice of what the plaintiff's claim is and the grounds upon which it rests." Conley v. Gibson, 355 U.S. 41, 47, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957). This standard requires the claimant only to put forth "enough facts to raise a reasonable expectation that discovery will reveal evidence of [the requisite elements of the claim]." Bell Atlantic, 127 S.Ct. at 1965. Thus, although "a complaint need not contain `detailed' factual allegations, its `[f]actual allegations must be enough to raise a right to relief above the speculative level on the assumption that all the allegations in the complaint are true.'" Ass'n of Cleveland Fire Fighters v. Cleveland, Ohio, 502 F.3d 545, 548 (6th Cir. Sept. 25, 2007) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, ___, 127 S.Ct. 1955, 1965, 167 L.Ed.2d 929 (2007)). Therefore, the Court will grant a motion for dismissal pursuant to Rule 12(b)(6) only in cases where there are simply not "enough facts to state a claim to relief that is plausible on its face." Bell Atlantic, 127 S.Ct. at 1974.

II. Governing Law

This dispute is essentially over the application of the legal duties imposed by ERISA. Ford does not dispute that it was the plan fiduciary, or that ERISA duties applied to it; instead Ford claims that its conduct as alleged in the complaint did not breach those duties.

"[T]he duties charged to an ERISA fiduciary are `the highest known to the law.'" Chao v. Hall Holding Co., Inc., 285 F.3d 415, 426 (6th Cir.2002). ERISA, as codified at 29 U.S.C. § 1104(a)(1), sets out the standard of conduct ordinarily required of plan fiduciaries:

[A] fiduciary shall discharge his duties with respect to a plan solely in the interest of the participants and beneficiaries and—

(A) for the exclusive purpose of:

(i) providing benefits to participants and their beneficiaries; and

(ii) defraying reasonable expenses of administering the plan;

(B) with the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent man acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims;

(C) by diversifying the investments of the plan so as to minimize the risk of large losses, unless under the circumstances it is clearly prudent not to do so; and

(D) in accordance with the documents and instruments governing the plan insofar as such documents and instruments are consistent with the provisions of this subchapter and subchapter III of this chapter.

Here, Magistrate Judge Pepe concluded, and the plaintiffs do not object, that the relevant plans are Employee Stock Ownership Plans ("ESOPs"), which are a type of Eligible Individual Account Plan ("EIAP") within the meaning of 29 U.S.C. § 1107(d). Paragraph (a)(2) of 29 U.S.C. § 1104 modifies the duties applicable to the fiduciaries of EIAPs:

In the case of an eligible individual account plan (as defined in section 1107(d)(3) of this title), the diversification requirement of paragraph (1)(C) and the prudence requirement (only to the extent that it requires diversification) of paragraph (1)(B) is not violated by acquisition or holding of qualifying employer real property or qualifying employer securities (as defined in section 1107(d)(4) and (5) of this title).

Thus, while ERISA recognizes that investing an entire plan in a single stock is often imprudent, in the case of EIAPs it nonetheless expressly permits these investments, while still purporting to require prudence in other respects. Courts, therefore, are in the difficult position of attempting to pass on the "prudence" of these sorts of funds without considering what would normally be regarded as their severe underdiversification. An overly strict scrutiny of EIAPs would read the diversification exemption out of the statute, while excessively lenient review would subject the residual prudence requirement to the same fate. Cf. Donovan v. Cunningham, ...