In re Sprint Corp. Erisa Litigation
| Decision Date | 27 May 2004 |
| Docket Number | No. 03-2202-JWL.,03-2202-JWL. |
| Parties | In re SPRINT CORPORATION ERISA LITIGATION |
| Court | U.S. District Court — District of Kansas |
Diane A. Nygaard, The Nygaard Law Firm, Leawood, KS, Robert A. Izard, Jr., Wayne T. Boulton, Schatz & Nobel, PC, Hartford, CT, for Plaintiffs.
Howard Shapiro, Robert Rachal, Stacey C.S. Cerrone, Shook, Hardy & Bacon, LLP, New Orleans, LA, Clayton L. Barker, Mark A. Thornhill, Spencer Fane Britt & Browne, Charles W. German, David J. Rempel, Rouse Hendricks German May PC, Richard N. Bien, Robyn Lyn Turner, Lathrop & Gage, Kansas City, MO, Timothy M. O'Brien, Shook, Hardy & Bacon L.L.P., Overland Park, KS, James M Webster, III, Mark C. Hansen, Kellogg, Huber, Hansen, Todd & Evans, Gary S. Tell, Robert N. Eccles, O'Melveny & Myers, LLP, Washington, DC, for Defendants.
This is a putative class action involving claims of alleged breach of fiduciary duties under the Employee Retirement Income Security Act of 1974, 29 U.S.C. §§ 1000-1461 ("ERISA"). Plaintiffs assert claims as participants in and on behalf of three different retirement savings plans against defendants Sprint Corporation, committees that participated in administering the plans and individual members of those committees, the individual members of Sprint's board of directors (collectively, the "Sprint defendants"), and the third-party trustee for the plans, Fidelity Management Trust Company ("Fidelity").
The matter is presently before the court on defendants' motions to dismiss (docs. 51 & 53). For the reasons explained below, the court will grant in part and deny in part defendants' motions to dismiss plaintiffs' claims. Specifically, the court will dismiss plaintiffs' imprudent investment claim insofar as it alleges defendants should have amended the plans to reduce or eliminate investments in Sprint stock, plaintiffs' imprudent investment and disclosure claims against the director defendants, and plaintiffs' co-fiduciary liability claims against the director defendants and Fidelity. Defendants' motions to dismiss will otherwise be denied.
Plaintiffs Robert K. Fries, Fran Lindholm, Anton P. Spanier, LaVonne M. Easter, and Jeffrey M. Snethen have brought these consolidated cases as participants in and on behalf of the Sprint Retirement Savings Plan (the "Savings Plan"), the Sprint Retirement Savings Plan for Bargaining Unit Employees (the "Savings Plan for BUE"), and the Centel Retirement Savings Plan for Bargaining Unit Employees ("Centel Plan"), together with their predecessor plans (collectively, the "plans"). This lawsuit arises from the plans' investment in the Sprint FON Stock Fund, the Sprint PCS Stock Fund, the TRASOP Sprint Stock Fund, the TRASOP Sprint PCS Stock Fund, the Sprint FON CESOP Fund and/or the Sprint PCS CESOP Stock Fund (collectively, "Sprint stock"). Plaintiffs allege the plans invested over 60% of their assets in Sprint stock while the stock deteriorated into a "speculative, high-risk investment[ ]."
Plaintiffs allege defendants breached their fiduciary duties in the manner in which they administered the plans. Defendants include Sprint Corporation, which is the administrator of the plans; Sprint Investment Trusts Committee, Sprint Pension and Savings Trusts Committee, Sprint Savings Plans Committee, Sprint Employee Benefits Committee, Sprint Investment Committee, and Sprint Savings and Retirement Plans Committee, which are committees comprised of Sprint employees that participated in administering the plans (collectively, the "committee defendants"); Gene M. Betts, I. Benjamin Watson, Randall T. Parker, J. Richard Devlin, Robert Dellinger, and M. Jeannine Strandjord, who are or were high and/or senior level Sprint employees who served as individual members of one or more of the committee defendants (collectively, the "individual members of the committee defendants"); William T. Esrey, Ronald T. LeMay, Arthur B. Krause, John P. Meyer, Dubose Ausley, Warren L. Batts, Michel Bon, Ruth M. Davis, Irvine O. Hockaday, Jr., Linda Koch Lorimer, Charles E. Rice, Ron Sommer, Stewart Turley, Harold S. Hook, and Louis W. Smith, who are or were members of Sprint's board of directors (collectively, the "director defendants"); and Fidelity, which is the third-party trustee for the plans.
The plans are 401(k) defined contribution plans that allow participants to direct the plans to purchase investments from among the investment options selected by the fiduciaries, and those investments are then allocated to participants' individual accounts. The plans provide participants with several investment options, one of which is the "Company Stock Fund." The plans also provide for matching contributions by Sprint. Under the Savings Plan and the Savings Plan for BUE, these employer contributions are held in a separate employer contribution account that is invested in the Company Stock Fund. Under the Centel Plan, the employer contributions are invested in the same manner as the participant's designation for his or her own contributions.
Plaintiffs' complaint alleges Sprint was a fiduciary insofar as it was the administrator of the plans; it was responsible for disseminating to participants the summary plan descriptions ("SPDs") and prospectuses; it exercised discretion over SPDs and prospectuses; its employees served on the various committee defendants; its board of directors is an agent of the corporation; and it made direct representations to participants regarding the plans. The various committees and their members were fiduciaries insofar as the committees were designated as administrators and named fiduciaries of the plans; they had various investment responsibilities such as determining the objectives, policies, and guidelines for investments (including Sprint stock), determining the suitability of acquiring and holding Sprint stock, investigating investment options, and eliciting information from Sprint to permit participants to make proper investment decisions; they were responsible for disseminating SPDs and prospectuses to participants; and they had authority to direct the trustee with respect to investment options. The director defendants were fiduciaries insofar as they were responsible for appointing and removing members of the committees; ensuring the committee members were properly performing their duties with respect to selecting investment options and investing assets; and conveying information necessary for the committee members to perform their duties. In addition, Mr. Esrey was a fiduciary insofar as he made direct representations to participants. Fidelity was a fiduciary insofar as it had exclusive authority to manage and control the assets of the plans (except to the extent that it was directed to invest all or a portion of the assets), and it was also to investigate the advisability of investing in Sprint stock in compliance with the terms of the plans and ERISA.
Plaintiffs' complaint also alleges that all of the defendants are liable as co-fiduciaries pursuant to ERISA § 405, 29 U.S.C. § 1105. Also, liability for imprudent investments was not shifted to participants pursuant to ERISA § 404(c), 29 U.S.C. § 1104(c), because defendants failed to comply with § 404(c) by declaring the plans were 404(c) plans, by negligently failing to disclose all material information, and by failing to provide an adequate description of the Company Stock Fund investment objectives and risk and return characteristics. Further, the act of designating investment alternatives is a fiduciary function regardless of a plan's purported § 404(c) status.
Plaintiffs assert three claims against defendants: (1) an imprudent investment claim; (2) a disclosure claim; and (3) an appointment claim.
Claim I alleges that Sprint stock was an imprudent investment, and that all defendants breached their fiduciary duties by allowing the plans to purchase and hold shares of Sprint stock and by allowing Sprint stock to remain an investment option under the plans. Plaintiffs base this allegation on both public and nonpublic information.
Publicly available information reflects that in approximately June of 1998, in response to fierce competition and declining profits in the long-distance industry, Sprint announced plans to incur costs of $2 billion to develop a new Internet system called the "Integrated On-Demand Network" ("ION"). In order to attempt to withstand the high development costs of ION and the declining profitability of the long-distance business, in October of 1999 Sprint announced plans to merge with rival WorldCom in a stock exchange valued at $129 billion. In July of 2000, Sprint announced that it was terminating the planned merger because it could not obtain regulatory approval. In August of 2000, Sprint announced that it intended to remain independent and pursue high-growth/high-risk opportunities because of its weak telephone business. Sprint began a marketing program, eventually referred to as "Clear Pay," that targeted poor credit customers for wireless service. In October of 2001, Sprint announced that it was abandoning the ION project, and effectively admitted that one of the project's foundations was a failure. Meanwhile, Sprint tightened the terms of its Clear Pay program, but the program continued to deteriorate and Sprint became overly dependent on poor credit subscribers. During all of this, credit rating agencies gradually and continually cut the ratings on Sprint stock. By June of 2002, Moody's Investor Service had cut Sprint's credit rating to the last level above "junk" status and Standard & Poor's had cut Sprint's debt to the lowest investment grade.
Plaintiffs allege that, meanwhile, defendants knew...
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