Rankin v. Rots
| Decision Date | 20 August 2003 |
| Docket Number | No. 02-CV-71045.,02-CV-71045. |
| Citation | 278 F.Supp.2d 853 |
| Parties | Quincie RANKIN, individually and on behalf of others similarly situated; on behalf of hersleft and on behalf of the Kmart Corporation Retirement Savings Plan "A," Plaintiff, v. David P. ROTS, et al., Defendant. |
| Court | U.S. District Court — Eastern District of Michigan |
Mark I. Steckloff, Mary Ellen Gurewitz, Sachs Waldman, Detroit, MI, for plaintiff.
Robert N. Eccles, O'Melveny & Myers, Washington, DC, Donald R. Bachand, III, Garratt & Bachand, Jon R. Steiger, Philip T. Carter, Howard & Howard, Bloomfield Hills, MI, Scott R. Lassar, Walter C. Carlson, pending app, Erin E. Kelly, Mark B. Blocker, Sidley, Austin, Chicago, IL, Sharon M. Woods, Todd R. Mendel, Barris, Sott, Walter B. Connolly, Jr., Miller, Canfield, Walter B. Connolly, Jr., Daniel P. Colling, Foley & Lardner, Detroit, MI, Lyman R. Lyon, Troy, MI, Lisa B. Deutsch, Seth C. Farber, Robert C. Myers, pending app, Dewey Ballantine, New York City, for defendants.
MEMORANDUM AND ORDER DENYING DEFENDANTS'S MOTION TO DISMISS
Based upon each and all of the disclosures, releases and market events ... as well as other information available both publically and privately to all or certain fiduciaries regarding Kmart and information which was known additionally to various individual defendants, a loyal and prudent fiduciary would have begun an evaluation and an independent investigation of whether Kmart stock remained a prudent investment alternative for the Plans and concluded that either elimination of Kmart stock as an investment alternative and diversification or even complete divestiture within the ESOP was prudent. On information and belief and in anticipation of further discovery, none of the defendants initiated or performed such an investigation or evaluation, and Kmart stock remained an investment alternative in the Plan, and the ESOP remained fully invested in Kmart stock
Second Amended Complaint at ¶ 96.
This is a case under the Employment Retirement Income Security Act ("ERISA"), 29 U.S.C. § 1001 et seq. claiming breach of fiduciary duty which has as its genesis the collapse of Kmart Corporation (Kmart) into bankruptcy.1 Plaintiff Quince Rankin seeks recovery on behalf of herself, and other similarly situated Kmart employees,2 who invested in Kmart stock through participation in Kmart's 401(K) plan under which Kmart matched participant contributions with investments in Kmart stock. Rankin names as defendants various officers and directors of Kmart which she claims are fiduciaries within the meaning of ERISA and have breached their fiduciary duties with respect to the administration of the 401(K) plan essentially by continuing to invest in Kmart stock at a time when Kmart was in serious decline and which resulted in significant losses to the Plan.
Before the Court are several motions to dismiss Rankin's complaint3 filed by certain defendants. They are:
Defendant Charles Conaway's Motion to Dismiss;
Defendants James B. Adamson, Lilyan Affinito, Richard Cline, Willie Davis, Joseph Flannery, Robert Kennedy, Robin Smith, Thomas Stallkamp, and Richard Statuto's Motion to Dismiss.
For the reasons which follow, the motions are DENIED.
A. The parties
Rankin is a participant in Kmart's Retirement Savings Plan "A" (the Plan). She holds approximately 160 shares of Kmart stock in the Plan.
Defendants, and their respective titles and/or roles, are:5
Charles Conway former CEO and Director
Jim Defebaugh Vice-President, Associate
General Counsel and Secretary
and member of the Employee Benefit
Plans Investment Committee
(hereafter referred to as the "EBPIC")6
Don Morford Director of Employee Benefits
and member of the EBPIC
James Adamson Outside Director and
CEO, formerly served on Finance
Committee
Lilyan Affinito Outside Director, formerly
on Audit Committee
Richard Cline Outside Director, formerly
on Compensation and Incentives
Committee
Willie Davis Outside Director, formerly
on Compensation and Incentives
Committee
Joseph Flannery Outside Director, formerly
on Finance Committee
Robert Kennedy Outside Director, formerly
on Compensation and Incentives
Committee and Finance
Committee
Robin Smith Outside Director, formerly
on Audit Committee
Thomas Stallkamp Outside Director, formerly
on Finance Committee
Richard Statuto Outside Director,7 formerly
on Finance Committee
B. The Plan Documents8
The Plan is both a defined contribution plan and an eligible individual account plan. Its effective date is September 1, 1998. The Plan maintains an individual account for each participant and provides benefits based solely on the amount contributed. There are two sources for contributions: voluntary contributions by participants and matching contributions by Kmart. The matching or employer contributions are part of an Employee Stock Ownership Plan (an "ESOP") which under ERISA allows the matching contributions to be invested in the company's stock and limits a participant's ability to transfer contributions to other investments. During the relevant time,9 the Plan provided that the ESOP assets at all times shall be invested "primarily in [Kmart] stock." See Art. 14.1,10 The Plan also provides that a participant's employer contributions must be in Kmart stock until the participant reaches age 55 and had been a participant for five full years. After January 1, 1999, a participant age 55 who had been a participant for five years could elect to have future employer contributions invested in any of the investment funds11 by making a proper election with Kmart.12 During the relevant time, the Plan held significant amounts of its assets in Kmart stock.
Kmart is the named Plan Administrator with the broad discretionary authority to "interpret, construe, and determine the application of the Plan and its terms ...." Art. 16.1(b). The Plan states that it "shall appoint any Trustee under the Plan and enter into a trust agreement in connection therewith." Art. 16.1(c). It also states that Kmart "may appoint an investment manager or managers with regard to an Investment Fund and may employ one or more persons to render advice with regard to any of the [Kmart's] responsibilities under the Plan." Art. 16.1(e). Kmart "may also delegate any of the foregoing powers to any person or persons or committee or committees, whether already existing or newly-created." Art. 16.1(g).
Under the Trust Agreement, Kmart, as Plan Administrator, appointed Boston Safe Deposit and Trust Company as Trustee. The Plan assets, including the ESOP, were placed in a Trust account. Kmart, however, retained the ability to make investment decisions on behalf of the Plan. In terms of making investment decisions under the Plan, the Trust Agreement states that Kmart Art. II sec. 2.1.
On July 18, 1989, prior to the Plan's effective date, the Board of Directors passed a resolution regarding administration of Kmart's then existing Savings Plan and Pension Plan. This resolution was in effect until June 11, 2002 and was therefore operative during part of the relevant time. The resolution provides in relevant part (emphasis added):
NOW, THEREFORE, BE IT RESOLVEDED that the Director of Employee Benefits is responsible for the administration of the Plans, including maintenance of records, communications with participants and beneficiaries, payment of benefits and filing of reports. Said Director may adopt and amend such rules, regulations and form and establish such procedures as he or she deems necessary or appropriate in his of her discretion for the administration of the Plans. Said Director shall have the discretionary authority to interpret, construe and determine the application of the Plans and their terms and to resolve all issues arising under the Plans, including the authority to (i) construe dispute of doubtful terms of the Plans or of any rules, regulation, form or procedure, (ii) determine the eleigibility of an individual to participate in the Plans, (iii) determine the amount, if any, of benefits to which any participant, former participant, spouse, beneficiary or other person may be entitled under the Plans, (iv) determine the timing and manner of payment of benefits, (v) determine any matter relating to the administration of the Plans or any claim under the Plans, and (vi) resolve all other issues arising under the Plans, any such determinations to be final and binding upon all persons.
FURTHER RESOLVED, that the Director of Employee Benefits shall have the authority to employ persons to render advice or assistance with regard to the administration of the Plans or the securing of any appropriate governmental approvals with respect to the Plans. Said Director shall employ a consulting actuary, to whom shall be delegated the determination of liabilities under the Pension Plan, and said Director shall recommend to the Employee Benefit Plans Investment Committee (the "EBPIC") the amount of the contribution of the Company and participating recommendations concerning amendments to the Plans and affiliates to which the Pension Plan or the Savings Plan is to be extended, which after having the approval of the Legal Department and the Vice President of Personnel, shall be submitted by said Director to the Finance Committee or the Board of Directors.
FURTHER RESOLVED, that the members of the EBPIC shall...
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