IN RE REGIONS MORGAN KEEGAN ERISA LITIGATION

• Citation: 692 F. Supp.2d 944
• Decision Date: 09 March 2010
• Docket Number: No. 08-2192.,08-2192.
• Parties: In re REGIONS MORGAN KEEGAN ERISA LITIGATION. Terry Hamby, et al., Plaintiffs, v. Morgan Asset Management, Inc., et al., Defendants.
• Court: U.S. District Court — Western District of Tennessee

692 F. Supp.2d 944

In re REGIONS MORGAN KEEGAN ERISA LITIGATION.

Terry Hamby, et al., Plaintiffs, v. Morgan Asset Management, Inc., et al., Defendants.

No. 08-2192.

United States District Court, W.D. Tennessee, Western Division.

March 9, 2010.

Lynn L. Sarko, Derek W. Loeser, Margie E. Wetherald, Sarah Kimberly, Keller Rohrback L.L.P., Seattle, WA, Interim Co-Lead Counsel, Counsel for Robert Harrison and Caesar Smith.

Ellen M. Doyle, William T. Payne, John Stember, Stephen M. Pincus, Joel R. Hurt, Pamina Ewing, Stember Feinstein Doyle & Payne, LLC, Pittsburgh, PA, Interim Co-Counsel-Lead Counsel, Counsel for Terry Hamby & Nancy Jackson, (Local Counsel Jon C. Goldfarb-Wiggins, Child, Quinn & Pantazis, LLC).

Jeffrey P. Harris, Elizabeth Hutton, Statman, Harris & Eyrich, LLC, Cincinnati, OH, Counsel for Robert Harrison and Caesar Smith.

Todd M. Schneider, Mark T. Johnson, Schneider Wallace Cottrell Brayten Konecky, LLP, San Francisco, CA, Counsel for Plaintiff Gary Shamblin.

John C. Goldfarb, Wiggins, Childs, Quinn & Pantazis, LLC, Birmingham, AL, Co-Counsel for Terry Hamby & Nancy Jackson.

W. Brantley Phillips, Matthew M. Curley, Michael L. Dagley, Bass Berry & Sims PLC, Nashville, TN, Counsel for Morgan Asset Management, Inc. & Morgan Keegan & Company, Inc.

Michael A. Brady, Shepherd B. Tate, Bass Berry & Sims PLC, Memphis, TN, Counsel for Morgan Asset Management, Inc. & Morgan Keegan & Company, Inc.

Tom Fitzgerald, Christopher J. Rillo, Thomas S. Gigot, Sara Zumwalt, Groom Law Group, Chartered, Washington, DC, Counsel for Regions Financial Corporation, Regions Bank, Ken Alderman, George W. Bryan, John Buchanan, Earnest W. Deavenport, Jr., David B. Edmonds, Irene Esteves, Christopher Glaub, O.B. Grayson Hall, Jr., Tim Laney, Susan W. Matlock, Claude Nielsen, C. Dowd Ritter, David Rupp, Jill Shelton, Lee K. Styslinger, III, Tom Thompson, David Turner, Barbara H. Watson, William C. Wells, II., Henry Dinken, John Daniel, W. Charles Mayer, III, Ronnie Jackson, Sharon Davis, Sherry Anthony, Martha Ingram, Alan Deer, Candace Bagby, Alton Yother, Tusa McNary, Kemmons Wilson, Jr., E.W. "Rusty" Stephenson, Michael Starnes, Bryan Jordan, Lea Stokes, Susan Martinez, James S.M. French.

Peter S. Fruin, Jeffrey A. Lee, William B. Wahlheim, Jr., Grace R. Murphy, Maynard Cooper & Gale, PC, Birmingham, AL, Counsel for Regions Bank & Reg.

ORDER GRANTING IN PART AND DENYING IN PART DEFEDANTS' MOTIONS TO DISMISS

SAMUEL H. MAYS, JR., District Judge.

Before the Court are Defendants' Motions to Dismiss Plaintiffs' Consolidated Supplemental Class Action Complaint for Violation of ERISA. Defendants Morgan Keegan & Company, Inc. ("Morgan Keegan") and Morgan Asset Management ("MAM") filed a Motion to Dismiss on April 10, 2009. Also on April 10, 2009, Regions Bank, Regions Financial Corporation ("Regions"), and 19 individuals, ("Individual Regions Defendants"), filed a Motion to Dismiss ("Regions Motion").¹ Additional individual Defendants filed motions to dismiss on April 15, 2009,² April 22, 2009,³ May 5, 2009,⁴ May 26, 2009,⁵ and July 1, 2009.⁶ All Defendants have filed motions to dismiss and each of the motions incorporates and adopts the April 10, 2009 Regions Motion. Plaintiffs responded in opposition on June 11, 2009. Defendants filed replies to Plaintiffs' response on July 23, 2009 and August 14, 2009. For the following reasons, Defendants' motions are GRANTED IN PART and DENIED IN PART.

I. Jurisdiction

The Court has jurisdiction to adjudicate federal claims under 28 U.S.C. § 1331 and jurisdiction over ERISA claims under 29 U.S.C. § 1132.

II. Background

Plaintiffs are six current or former employee participants in Regions sponsored 401(k) retirement plans or their predecessors.⁷ Plaintiffs bring this case under the Employee Retirement Income Security Act of 1974 ("ERISA") based on losses to those Plans. Regions sponsored and administered the three Plans at issue. In April 2008, two of the Plans, the Regions Financial 401(k) Plan (the "Legacy Plan") and the AmSouth Bancorp Thrift Plan (the "AmSouth Plan"), were merged into the third Plan, the Regions Financial Corporation 401(k) Plan (the "Merged Plan").

Defendants are various fiduciaries and parties in interest to the Plans, including Regions, Regions Bank, Morgan Keegan, and MAM.⁸ The Consolidated Supplemental Class Action Complaint for Violation of ERISA (the "Complaint")⁹ identifies distinct groups of fiduciaries of the Plans and describes their fiduciary duties based on the Plan documents. The Complaint groups Defendants as follows:

—Regions has at all applicable times been the Plan Sponsor of all three Plans with the power to appoint and remove the Trustee and the Plan Administrator for each Plan. In that capacity, Regions exercises fiduciary discretion and authority. (Amended Complaint ¶¶ 96-99.) ("Compl.") Regions is the Trustee to the Plans, as that term is defined in 29 U.S.C. § 1103, and exercises fiduciary discretion and authority in that capacity. (Id. ¶¶ 100-01.)

—The Compensation Committee Defendants are a committee comprised of Regions' Board of Directors with the authority to review the Plans, select and appoint administrators, trustees, named fiduciaries, actuaries, and investment managers. (Id. ¶¶ 102-04.)

—The Legacy Plan Benefits Management Committee Defendants are named fiduciaries of the Legacy Plan, as that term is defined under ERISA, with the authority to manage and control the operation and administration of the Plan. (Id. ¶ 105.) They have the responsibility for communicating with participants in a Plan-wide and uniform manner and for selecting and monitoring the investment funds in the Legacy Plan. (Id. ¶¶ 106-07.)

—The Legacy Plan Benefit Administration Committee Defendants are named fiduciaries for the investments made by the Legacy Plan. (Id. ¶ 109.)

—The "Additional Defendants" to each Plan include those persons with authority to administer and construe the respective Plan, and appoint and remove members of the Compensation Committee. (Id. ¶¶ 49, 52, 56, 111-13, 117-19.)

—The AmSouth Thrift Plan Benefits Committee Defendants are named fiduciaries to the Am-South Plan and have responsibility for selecting and monitoring the investment funds within the Plan. (Id. ¶¶ 114-16.)

—The Regions 401(k) Plan Benefits Management Committee Defendants are the named fiduciaries and Plan Administrators to the Merged Plan with the authority and responsibility to manage and control the operation and administration of the Merged Plan. (Id. ¶¶ 120-24.)

—The Regions 401(k) Plan Investment Committee Defendants have the responsibility delegated by the Regions 401(k) Benefits Management Committee to select and monitor the funds in the Merged Plan. (Id. ¶¶ 125-27.)

Plaintiffs allege that each of them is or was a participant in the Merged Plan, the Legacy Plan, and/or the AmSouth Plan. Each Plaintiff also alleges that he or she chose to invest in the Plans' Employees Stock Ownership Plan ("ESOP") Fund, in one or more of the Regions Morgan Keegan ("RMK") Select Funds, or in some combination of those Funds. (Id. ¶¶ 32-37.) Plaintiffs further allege that the Plans suffered losses because of investments made through the ESOP Funds and the RMK Select Funds. (Id. ¶¶ 497-99.) In their fifteen-count Complaint, Plaintiffs contend that various of the four corporate and 37 individual Defendants named in the Complaint are personally liable under ERISA § 409, 29 U.S.C. § 1109, and are obligated to restore the alleged investment losses or to disgorge any profits earned in violation of ERISA requirements. (Compl. ¶ 26.)

Counts I-V, the "Company Stock Subclass Allegations," allege that Defendants violated ERISA by offering Regions stock as an investment alternative during the Company Stock Subclass Period, January 1, 2007 to present. Plaintiffs allege that, throughout this period, Defendants failed to remove Regions stock as an investment alternative and divest the Plans of stock although they knew or should have known it was not a prudent investment. (Id. ¶ 152-231.) To support these claims, Plaintiffs cite seven instances of "improper and extremely risky business activities in which Regions engaged." (Plaintiffs' Response to Regions Defs.' Motion 5.) ("Pl.'s Resp. to Regions Defs.") First, Plaintiffs allege that Regions built a risky and undiversified portfolio of residential and commercial loans that were heavily concentrated in overinflated markets, thus exposing Regions to large losses. (Compl. ¶¶ 152-63.) Second, Plaintiffs allege that Regions failed to increase its loan loss reserves commensurate with its risky lending activities, which artificially inflated Regions' stock price and made it an imprudent investment alternative. (Compl. ¶¶ 164-176.) Third, the Complaint alleges that Regions' undiversified and large wager on subprime, mortgage-backed securities ("MBS") made Regions stock an extremely risky investment alternative. (Id. ¶¶ 184-189.) Fourth, Plaintiffs allege that Regions failed to employ prudent credit risk management in its home equity lending. (Id. ¶¶ 177-183.) Fifth, Plaintiffs allege that Regions violated Generally Accepted Accounting Principles ("GAAP") by failing to measure and report its goodwill properly until it was forced to take a $6 billion write-down in the Fourth Quarter 2008. (Id. ¶¶ 196-99.) Sixth, Plaintiffs allege that Regions' off-balance sheet lending activities of over $41 billion exposed the company to increased risk of loss, making Regions' stock an imprudent Plan investment. (Id. ¶¶ 190-95.) Seventh, Plaintiffs allege that Regions' auction rate securities ("ARS") activities made company stock an imprudent investment for the Plans. (Id. ¶¶ 200-02.)

Counts VI-X, the "Bond Fund Subclass Allegations," allege that Defendants violated ERISA by offering the RMK Select Bond Funds (the "Bond Funds") as investment alternatives throughout the Bond Fund Subclass Period, January 1, 2007 to the present. (Id. ¶¶ 232-68.) The Bond Fund...