In re Reliant Energy Erisa Litigation, H-02-2051.
| Decision Date | 30 January 2004 |
| Docket Number | No. H-02-2051.,H-02-2051. |
| Parties | In re: RELIANT ENERGY ERISA LITIGATION This Document Relates To: All Actions |
| Court | U.S. District Court — Southern District of Texas |
John G. Emerson, Jr., Emerson Poynter LLP, Houston, TX, Robert A. Izard, Schatz & Nobel, Hartford, CT, Amanda Frances Bell, Brant C. Martin, Puls Taylor et al, Fort Worth, TX, Scott E. Poynter, Emerson Poynter LLP, Little Rock, AR, for Plaintiff.
James Edward Maloney, Baker & Botts, Andrew Ramzel, Rusty Hardin & Assoc. PC, Jack D. Ballard, Attorney at Law, Houston, TX, Lawrence H. Hunt, Jr., R. Rene Pengra, Sidley Austin et al, Alison J. Maki, Randall M. Lending, Philip L. Mowery, Vedder Price et al, Chicago, IL, Gary S. Tell, Robert N. Eccles, O Melveny & Meyers, Washington, DC, for Defendants.
Pending before the Court is the Reliant Defendants' Motion to Dismiss Plaintiff's Second Amended Complaint [Doc. # 37]. Plaintiff has responded [Doc. # 73], and the Reliant Defendants have replied [Doc. # 83]. Also pending before the Court is Defendant Ennis Knupp's motion to dismiss Plaintiff's Second Amended Complaint [Doc. # 66]. Plaintiff has responded [Doc. # 80], and Ennis Knupp has replied [Doc. # 88]. The motions have been fully briefed,1 and are ripe for determination. Having considered the parties' submissions, the applicable legal authorities, and all matters of record, the Court concludes the Reliant Defendants' motion should be granted in part, and Defendant Ennis Knupp's motion should be granted to the same extent as the Reliant Defendants' motion, but denied in part. Ennis Knupp remains a Defendant in this suit.
This is an ERISA breach of fiduciary duty case. Defendant Reliant Energy, Inc. ("REI") is an energy services provider. In the late 1990s, REI, through its subsidiary Reliant Energy Services ("RES"), entered into the wholesale energy trading business. In December 2000, REI transferred all of its unregulated business, including RES, to a newly-formed subsidiary, Defendant Reliant Resources, Inc. ("RRI"). On April 30, 2001, 18% of the shares in RRI were offered to the public in an initial public offering. REI held the remaining shares until September 30, 2002. REI was then renamed CenterPoint Energy.2
Plaintiff, Brad Kirschbaum, an employee of REI, brings this suit as both a class action under Rule 23 of the Federal Rules of Civil Procedure and a representative action under ERISA. ERISA § 502(a)(2), 502(d)(1), 29 U.S.C. § 1132(a)(2) and 1132(d)(1). Plaintiff is a participant in an ERISA "defined contribution" or "individual account" plan which was offered to him by his employer, REI (the "REI Plan").3 The plan offered participants the opportunity to contribute up to 16% of their compensation in pre-tax 401(k) contributions and/or after-tax contributions. The REI Plan offered a number of investment options in which to invest their contributions. One investment option under the REI Plan was the Reliant Energy Common Stock Fund (the "REI Fund") which was comprised primarily of REI common stock. The REI Plan also contained an Employee Stock Ownership Plan ("ESOP"). Under the ESOP, the company matched between a minimum of 75% and a maximum of 125% of the first 6% of a participant's contributions to the REI Plan. The matching contributions were paid in REI stock from the ESOP, and were allocated to the REI Fund. Similar plans were offered by Defendant RRI (the "RRI Plans").
Plaintiff's Second Amended Complaint ("Plaintiff's Complaint") generally alleges that the common stock of REI and RRI were imprudent investments, based both on public information and non-public information,4 and that Defendants violated their fiduciary duties under ERISA by continuing to offer REI and RRI stock (through the REI Fund and the RRI Funds, respectively) as investment options in their employees' defined contribution plans, despite REI and RRI stock being imprudent investments.
There are numerous Defendants in this case. They can be grouped as follows: (1) the REI Defendants: REI, the REI Benefits Committee members, and certain individual members of the REI Compensation Committee, (2) the RRI Defendants: RRI, members of the RRI Benefits Committee, and certain individual members of the RRI Compensation Committee, and (3) Ennis Knupp & Associates ("Ennis Knupp"), an independent investment consulting firm providing investment consulting services to the REI and RRI Plans.5
A motion to dismiss under Rule 12(b)(6) of the Federal Rules of Civil Procedure is viewed with disfavor and is rarely granted. Manguno v. Prudential Property and Cas. Ins. Co., 276 F.3d 720, 725 (5th Cir.2002). The complaint must be liberally construed in favor of the plaintiff, and all facts pleaded in the complaint must be taken as true. Id. The district court may not dismiss a complaint under Rule 12(b)(6) "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." Id. (quoting Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957)). Thus, the Court must determine whether the complaint states any legally valid claim for relief when construed in the light most favorable to the plaintiff and with every doubt resolved in the plaintiff's behalf. Collins v. Morgan Stanley Dean Witter, 224 F.3d 496, 498 (5th Cir.2000). Furthermore, a plaintiff must plead specific facts, not mere conclusory allegations or unwarranted deductions of fact, in order to avoid dismissal for failure to state a claim. Id.
In deciding a motion to dismiss, the Court may consider contents of SEC disclosure documents, Lovelace v. Software Spectrum Inc., 78 F.3d 1015, 1018 (5th Cir.1996) (securities fraud case), and the full text of documents referenced in the complaint that are integral to the complaint, San Leandro Emergency Med. Group Profit Sharing Plan v. Philip Morris Cos., 75 F.3d 801, 808-09 (2d Cir.1996). The Court may also refer to documents of public record. See Davis v. Bayless, 70 F.3d 367, 372 n. 3 (5th Cir.1995).
"The notice pleading requirements of Federal Rule of Civil Procedure 8 and case law do not require an inordinate amount of detail or precision." St. Paul Mercury Insurance Co. v. Williamson, 224 F.3d 425, 434 (5th Cir.2000). Rule 8(a) provides that the Complaint must contain "a short and plain statement of the claim showing that the pleader is entitled to relief." FED. R. CIV. P. 8(a). Rule 8(e)(1) provides that the averments in a Complaint must be "simple, concise, and direct." FED. R. CIV. P. 8(e).
The function of a complaint is to "give the defendant fair notice of what the plaintiff's claim is and the grounds upon which it rests." Swierkiewicz v. Sorema N.A., 534 U.S. 506, 512, 122 S.Ct. 992, 152 L.Ed.2d 1 (2002); St. Paul, 224 F.3d at 434. "Pursuant to Rule 8(a), a complaint will be deemed inadequate only if it fails to (1) provide notice of circumstances which give rise to the claim, or (2) set forth sufficient information to outline the elements of the claim or permit inferences to be drawn that these elements exist." Beanal v. Freeport-McMoran, Inc., 197 F.3d 161, 164 (5th Cir.1999). ERISA does not have heightened pleading requirements, but is subject to the notice pleading standard of Rule 8. In re Enron, 284 F.Supp.2d 511, 653 (S.D.Tex.2003) (citing Heimann v. National Elevator Indus. Pension Fund, 187 F.3d 493, 509, 511 (5th Cir.1999), overruled on other grounds by Arana v. Ochsner Health Plan, 338 F.3d 433, 440 n. 11 (5th Cir.2003)).
Defendants move to dismiss Plaintiff's Complaint on several grounds. First, Defendants argue that Plaintiff does not have standing to bring his claim against RRI, the RRI Benefits Committee members, or the various individual RRI Defendants, as he has never been an employee of RRI, nor a participant in or beneficiary of any of the savings plans offered by that company. Next, Defendants argue that REI and the REI Compensation Committee members are not fiduciaries for purposes of this litigation. Third, Defendants argue that Plaintiff's Complaint fails to state a claim against the REI Benefits Committee because the claims attack the design of the Plans, which challenge is prohibited by the "settlor doctrine." Fourth, Defendants claim that Plaintiff has not alleged facts suggesting that the REI Benefits Committee members knew or should have known about the round-trip trades which allegedly artificially inflated REI and RRI revenues. Finally, Defendants contend Plaintiff's claims based on alleged misrepresentations must fail because any alleged misrepresentations were not made in a fiduciary capacity. Plaintiff opposes each of these arguments on various grounds.
The Court now turns to Defendants' various arguments for dismissal of each count of Plaintiff's Complaint.
Plaintiff Brad Kirschbaum is a participant in the REI Savings Plan. He has never been employed by RRI and has never been a participant, beneficiary, or fiduciary of any of the RRI Plans. Defendants contend that because Plaintiff has never been a participant, beneficiary, or fiduciary of any of the RRI Plans, Plaintiff lacks standing to bring claims against the RRI Defendants in this case. See Local 159 v. Nor-Cal Plumbing, Inc., 185 F.3d 978, 981 (9th Cir.1999); Hall v. Lhaco, Inc., 140 F.3d 1190, 1197 (8th Cir.1998); Adamson v. Armco, Inc., 44 F.3d 650, 654 (8th Cir.1995). Plaintiff responds that because he brings this suit as a class action and a representative action under ERISA, he has standing to pursue class claims against fiduciaries of plans in which he was not a participant or beneficiary, citing Fallick v. Nationwide Mutual Ins. Co., 162 F.3d 410 (6th Cir.1998), and Forbush v. J.C. Penney...
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