Morrison v. Moneygram Interns., Inc.
| Decision Date | 25 March 2009 |
| Docket Number | No. 08-CV-1121 (PJS/JJG).,08-CV-1121 (PJS/JJG). |
| Parties | Delilah MORRISON and Sherri Arguello, on behalf of themselves and all others similarly situated, Plaintiffs, v. MONEYGRAM INTERNATIONAL, INC.; Philip W. Milne; David J. Parrin; Anthony P. Ryan; Jess T. Hay; Linda Johnson Rice; Albert M. Teplin; Timothy R. Wallace; Monte E. Ford; Judith K. Hofer; Robert C. Krueger; Donald E. Kiernan; Douglas L. Rock; Othon Ruiz Montemayor; The MoneyGram International, Inc. Pension and 401(k) Committee; John Does 1-20, Defendants. |
| Court | U.S. District Court — District of Minnesota |
Thomas J. McKenna, Gainey & McKenna, New York, NY; and Shawn M. Perry, Perry & Perry, PLLP, for plaintiffs.
Stephen P. Lucke, F. Matthew Ralph, Jessica J. Nelson, and Andrew J. Holly, Dorsey & Whitney LLP, for defendants.
Plaintiffs Delilah Morrison and Sherri Arguello invested in a retirement plan ("the Plan") sponsored by their former employer, defendant MoneyGram International, Inc. ("MoneyGram") and established pursuant to the Employee Retirement Income Security Act ("ERISA"), 29 U.S.C. § 1001 et seq. Plaintiffs bring this putative class action against various Plan fiduciaries, including MoneyGram itself, the MoneyGram International Inc. Pension and 401 (k) Committee ("the Committee"), and various named and unnamed corporate officers and directors. Plaintiffs allege that defendants breached various fiduciary duties, and that those breaches resulted in losses for which defendants are now liable to the Plan under §§ 1109 and 1132(a)(2).1 Plaintiffs also seek injunctive and monetary relief for a class of participants and beneficiaries under § 1132(a)(3).
This matter is before the Court on defendants' motion to dismiss for lack of subject-matter jurisdiction under Fed. R.Civ.P. 12(b)(1) and for failure to state a claim under Fed.R.Civ.P. 12(b)(6). Defendants' motion raises a number of difficult legal issues, some of which have divided the federal courts. For the reasons stated below, the Court grants defendants' motion with respect to Count IV and denies it in all other respects.
MoneyGram is the sponsor and administrator of the Plan, which was established on July 1, 2004 (the first day of the proposed class period). Am. Compl. ¶¶ 3, 42, 53, 59; Swanson Decl. Ex. B § 1.1 (hereinafter "Plan § ___"). The Plan incorporates a trust agreement ("the Trust") between MoneyGram and the Plan trustee, T. Rowe Price Trust Company. Am. Compl. ¶ 42; Plan § 1.1; McKenna Decl. Ex. A (hereinafter "Trust § ___"). The Committee is the "named fiduciary" of the Plan within the meaning of § 1102(a). Plan § 8.1. All of the individual defendants are alleged to be Plan fiduciaries within the meaning of § 1002(21)(A). In this Order, the Court will sometimes refer to defendants collectively as "MoneyGram."2
The Plan is a "defined contribution" or "individual account" plan within the meaning of § 1002(34). Am. Compl. ¶ 40. The Plan is funded by contributions from individual participants and from their employer, MoneyGram. Am. Compl. ¶¶ 41, 48. The Plan offers several investment funds, including the Employer Stock Fund, which invests solely in MoneyGram stock. Plan § 7.2(c). Participants may choose to invest their individual contributions in any fund offered by the Plan, with the exception of the Employer Stock Fund. That fund is reserved for employer contributions.3 Plan § 7.2(c).
MoneyGram has committed to match participants' contributions to the Plan up to a certain level, and MoneyGram may choose to make additional profit-sharing contributions to the Plan. Am. Compl. ¶ 48; Plan § 4.1. Until March 14, 2008, when the Employer Stock Fund was closed to additional investments, MoneyGram's matching and profit-sharing contributions were initially invested in the Employer Stock Fund. Am. Compl. ¶¶ 48, 50; Plan § 7.3(a). A participant could then transfer the contributions that MoneyGram had made on her behalf to any of the other funds, or she could leave those contributions in the Employer Stock Fund. Swanson Decl. Ex. C at 17 (hereinafter "SPD at ___").
MoneyGram is a large company that provides money-transfer and other financial services to customers around the world. MoneyGram was incorporated in December 2003, and its common stock began trading on the New York Stock Exchange on July 1, 2004. Am. Compl. ¶¶ 14, 70-71. MoneyGram is a spinoff of a subsidiary of another company, Viad Corp. ("Viad"). MoneyGram assumed all liabilities for retirement benefits for certain current and former Viad employees. Am. Compl. ¶¶ 70-71.
According to plaintiffs, MoneyGram's business model is "predicated upon acquiring high interest long-term assets with relatively low interest short-term money." Am. Compl. ¶ 76. MoneyGram's goal is to "generate arbitrage income, as measured by the difference between the relatively low interest paid to the short-term commercial paper creditors and the higher interest to be received by MoneyGram on its long-term investments." Am. Compl. ¶ 76. Toward that end, MoneyGram invested hundreds of millions of dollars in mortgage-backed securities, Am. Compl. ¶¶ 65, 72—money that MoneyGram had borrowed by issuing short-term commercial paper, Am. Compl. ¶ 76.
As of June 30, 2004, mortgage-backed securities made up approximately two-thirds of MoneyGram's investment portfolio. Am. Compl. ¶ 72. As of the same date, MoneyGram's investment portfolio had suffered nearly $12 million in long-sustained losses—that is, losses of one year or longer in duration. Am. Compl. ¶ 72. Under Generally Accepted Accounting Principles ("GAAP"), a company may exclude from the calculation of net income the unrealized losses suffered on an investment in a security if (1) the losses are temporary (or, in accounting parlance, not "other than temporary"), and (2) the security is "held to maturity," meaning that the company has the intent and ability to hold the security until it matures. Am. Compl. ¶¶ 73-74.
MoneyGram chose to treat its unrealized losses as temporary and its mortgage-backed securities as "held to maturity" under GAAP. Am. Compl. ¶ 75. As a result, MoneyGram excluded those unrealized losses when computing its net income. Am. Compl. ¶ 75. Plaintiffs allege that this accounting treatment was improper both because the losses that MoneyGram sustained on the mortgage-backed securities were "other than temporary" and because MoneyGram did not have the ability to hold these assets until maturity. Am. Compl. ¶ 77. As a result, plaintiffs allege, MoneyGram materially understated its recognized losses and thereby materially overstated its net income. Am Compl. ¶ 77.
When a company excludes unrealized losses from the calculation of its net income under GAAP, the company is nevertheless required to calculate and disclose those losses. Am. Compl. ¶ 73. Plaintiffs allege that, in addition to materially understating the losses that it should have recognized (i.e., the losses that, under GAAP, should have been reflected in reductions to net income), MoneyGram also materially understated its unrealized losses (i.e., the losses that, under GAAP, were properly ignored when calculating net income). Am Compl. ¶¶ 87-92. For example, plaintiffs allege that MoneyGram disclosed $100 million in unrealized losses on certain securities as of November 30, 2007, but when it sold those same securities in January 2008, MoneyGram realized $200 million in losses—double the amount that it had disclosed just a few weeks earlier. Am. Compl. ¶¶ 90-91.
In late 2007, Euronet Worldwide, Inc. offered to buy MoneyGram for $20 per share (which represented a premium of about 43% over the closing price on the day of the offer). MoneyGram rejected the offer. Am. Compl. ¶¶ 78, 137-145. A short time later, on January 14, 2008, MoneyGram announced that it had completed the valuation of its investment portfolio as of November 30, 2007, and had experienced additional unrealized net losses of $571 million since September 30, 2007, bringing cumulative net unrealized losses to $860 million. Am. Compl. ¶ 69. Immediately after this announcement, MoneyGram's stock lost nearly half its value. Am. Compl. ¶ 69. In the same press release, MoneyGram announced that it was engaged in negotiations with new investors for a capital infusion; ultimately, these new investors purchased a majority stake in MoneyGram for around $760 million. Am. Compl. ¶¶ 116, 119.
By March 2008, MoneyGram had lost about $1.6 billion on its investments in mortgage-backed securities, and its stock had lost 92% of its value over the preceding year. Am. Compl. ¶ 119. After MoneyGram disclosed these losses, the SEC opened an investigation into MoneyGram's previous financial statements. Am. Compl. ¶ 119. As of the date of the filing of the amended complaint, MoneyGram stock—the same stock that Euronet Worldwide was willing to purchase for $20 per share in late 2007—was trading at under $1.50 per share. Am. Compl. ¶ 122.
Plaintiffs allege that a number of communications made by defendants during the class period were fiduciary communications governed by ERISA. Those communications include all of MoneyGram's public SEC filings and all of the press releases that were incorporated into those filings. Plaintiffs allege that these purported fiduciary communications included inaccurate information about MoneyGram's investment portfolio. Specifically, plaintiffs allege that these purported fiduciary communications inaccurately reported that MoneyGram had the ability to hold its investments long-term, materially understated MoneyGram's unrealized losses, failed to acknowledge that MoneyGram's losses were "other than temporary," improperly represented that MoneyGram's losses were due to temporary market conditions, and failed to include disclosures that would enable Plan...
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