Stanford v. Foamex L.P., Civil Action No. 07–4225.
| Decision Date | 30 September 2011 |
| Docket Number | Civil Action No. 07–4225. |
| Citation | 822 F.Supp.2d 455 |
| Parties | William STANFORD, Jr., individually and on behalf of all other similarly situated persons and on behalf of the Foamex L.P. Savings Plan, Plaintiff, v. FOAMEX L.P. et al., Defendants. |
| Court | U.S. District Court — Eastern District of Pennsylvania |
OPINION TEXT STARTS HERE
Charles H. Thulin, Ekman Bohrer & Thulin, Richard E. Spoonemore, Sirianni Youtz Meier & Spoonemore, Seattle, WA, Kent Cprek, Jennings Sigmond, Philadelphia, PA, for Plaintiff.
Brian Casal, Buchanan Ingersoll & Rooney PC, Barbara W. Mather, Marshall Walthew, Sara Beth Richman, Pepper Hamilton LLP, Philadelphia, PA, John A. Goodman, Buchanan Ingersoll Rooney PC, Washington, DC, Michael Paul Monaco, Song Mondress PLLC, Seattle, WA, Rosemary J. Bruno, Buchanan Ingersoll & Rooney PC, Amy Covert, Proskauer Rose LLP, Newark, NJ, Charles F. Seemann, III, Howard Shapiro, Michael D. Spencer, Robert W. Rachal, Proskauer Rose LLP, New Orleans, LA, Sheryl D. Willert, Williams Kastner & Gibbs, Seattle, WA, for Defendants.
Plaintiff William Stanford, Jr., filed this class action individually and on behalf of all other similarly situated persons and on behalf of the Foamex L.P. Savings Plan (the “Plan”) under section 502(a)(2) of the Employee Retirement Income Security Act (“ERISA”), 29 U.S.C. § 1132(a)(2). He asserts several claims against Foamex L.P. (“Foamex”), K. Douglas Ralph, Stephen Drap, Gregory J. Christian, and George L. Karpinski (collectively with Foamex, the “Foamex defendants”) and against Fidelity Management Trust Co. (“Fidelity”). Now pending are cross-motions filed by plaintiff and defendants for summary judgment under Federal Rule of Procedure 56. For the reasons that follow, I will deny plaintiff's motion, I will grant in part and deny in part the Foamex defendants' motion, and I will deny Fidelity's motion.
Foamex is a wholly owned subsidiary of Foamex International, Inc. (“Foamex International”), which is engaged in the business of manufacturing and distributing foam products. Stanford v. Foamex L.P., 263 F.R.D. 156, 160 n. 2 (E.D.Pa.2009).2 Foamex established the Plan to provide retirement income to eligible employees. Plaintiff Stanford is a former employee of Foamex and was a participant in the Plan. (Foamex Defs.' Statement of Uncontested Material Facts (“Foamex Facts”) ¶ 1.)
The Plan was a 401(k) defined-contribution, or individual account, plan. The Plan allowed participating employees to make pre-tax contributions, through regular payroll deductions, to their individual accounts and to direct that their contributions be invested in one or more of the available investment options. (Decl. of Richard E. Spoonemore (Jan. 24, 2011) (“Spoonemore Decl.”) Ex. A (“Plan”) §§ 3.1, 4.4.) Under the terms of the Plan, Foamex matched the contributions of eligible employees, up to a specified level. (Plan § 3.2.1.) As the Summary Plan Description explained, a participating employee's account balance was “made up of [his or her] contributions, [Foamex's] matching contributions, ... and investment earnings.” (Fidelity's Statement of Undisputed Facts (“Fidelity Facts”) Ex. 7, Summary Plan Description (“SPD”) at 8.) A participant could “[e]xchange between investment options” and thereby “reallocate savings” in his or her account daily. ( Id. at 8, 12.) The Plan made each participant “solely responsible” for investment decisions, and participating employees were informed that “[f]iduciaries of the Plan may be relieved of liability for any losses which are the direct and necessary result of investment instructions given by participants or beneficiaries.” ( Id. at 7–8.)
The Foamex L.P. Benefits Committee (the “Benefits Committee”), which was to consist of at least three members appointed by Foamex, the Plan sponsor, was the Plan administrator and the named fiduciary of the Plan. (Plan §§ 1.47, 12.3.) Defendants K. Douglas Ralph, Stephen Drap, Gregory J. Christian, and George L. Karpinski were members of Foamex's senior management and served on the Benefits Committee during the relevant period. (Foamex Facts ¶ 5.) Ralph was an executive vice president and the chief financial officer of Foamex. (Spoonemore Decl. Ex. F, Dep. of Kenneth Douglas Ralph (“Ralph Dep.”) at 9:14–23.) Drap was the vice president of manufacturing for foam products. Karpinski was a senior vice president and the treasurer of Foamex. (Spoonemore Decl. Ex. E, Dep. of George L. Karpinski (“Karpinski Dep.”) at 9:11–16.) Christian, who was an executive vice president and Foamex's general counsel and secretary (Foamex Facts ¶ 6), was the chairman of the Benefits Committee (Fidelity Facts ¶ 4). On July 19, 2005, he was also named chief restructuring officer. (Foamex Facts ¶ 6); Fidelity Facts Ex. 1 (). Thomas A. McGinley, who is not named as a defendant, was Foamex's director of compensation and benefits (Spoonemore Decl. Ex. H, Dep. of Thomas McGinley (“McGinley Dep.”) at 9:15–10:8), and served as the Benefits Committee's secretary, although he was not a member of the committee (Fidelity Facts ¶ 15; Pl.'s Undisputed Material Facts (“Pl.'s Facts”) ¶ 19). The Benefits Committee had the “complete authority to control and manage the operation and administration of the Plan” (Plan § 12. 1), including the authority to select the investment options available to Plan participants (Plan § 4.4).
Both Foamex, as the Plan sponsor, and the Benefits Committee, as the Plan administrator, had the authority to amend the Plan at any time. (Plan § 13. 1.)
Fidelity served as the Plan's trustee, pursuant to a trust agreement (the “Trust Agreement”) between Foamex and Fidelity. (Foamex Facts ¶ 3.) The Trust Agreement stated that the Benefits Committee, as the named fiduciary, would direct Fidelity as to the investment options in which Plan participants could invest (Spoonemore Decl. Ex. C (“Trust Agreement”) § 4(b)),3 and provided that Fidelity would “have no responsibility for the selection of investment options under the Trust and [would] not render investment advice to any person in connection with the selection of such options” ( id. § 4(a)). The agreement further provided that Fidelity would not be liable for following a direction of the named fiduciary if the direction was in a writing signed by an authorized signatory and if Fidelity reasonably believed the signature to be genuine, “unless it is clear on the direction's face that the actions to be taken under the direction would be prohibited under ERISA or would be contrary to the terms of this Agreement.” (Trust Agreement § 7(c)). McGinley was authorized to sign letters of direction to Fidelity on behalf of the Benefits Committee, both in its capacity as named fiduciary and in its capacity as Plan administrator (Fidelity Facts ¶ 18; Spoonemore Decl. Ex. L); he was also authorized to act on behalf of Foamex, as evidenced by the fact that he signed the Trust Agreement on behalf of Foamex (Fidelity Facts ¶ 19; Trust Agreement (signature page)).
Among the investment options available to Plan participants was the Foamex Stock Fund, a nondiversified stock fund that invested in the common stock of Foamex International. The Foamex Stock Fund was a unitized fund and also included “cash or short-term liquid investments” in amounts designed “to satisfy daily participant exchange or withdrawal requests.” (Trust Agreement § 4(e).) Accordingly, an investor's interest in the Foamex Stock Fund was measured in units of participation, rather than shares of common stock, and the value of each unit (the net asset value) was based on the price of the underlying Foamex International common stock as well as the value of the cash held by the fund. ( Id.) This unitized structure enabled participants to invest in or transfer their investments out of the fund on a daily basis, rather than having to wait three days, the normal settlement period for purchases and sales of stock. It also allowed Fidelity to offset participant purchases and sales, thereby reducing the Plan's transaction costs. (Fidelity Facts Ex. 14, Decl. & Expert Report of Ellen A. Hennessy & John J. Miller (“Hennessy Report”) ¶ 11.)
The Summary Plan Description explained that “[t]he investment performance of the fund is directly tied to the financial performance of Foamex International Inc. and its subsidiaries, along with general market conditions,” and advised participants that “[b]ecause of the non-diversified nature of this fund, investing in this fund involves a greater element of risk than the other available funds.” (SPD at 7.)
Under section 4(e) of the Trust Agreement, the Benefits Committee, as the named fiduciary, was charged with setting the target cash percentage and drift allowance in the Foamex Stock Fund after consulting with Fidelity. 4 And Fidelity was responsible for ensuring that the amount of cash in the Foamex Stock Fund fell within the agreed upon range. (Trust Agreement § 4(e).) Until July 2005, the Foamex Stock Fund maintained a target cash balance of 5%. (Foamex Facts ¶ 11; Spoonemore Decl. Ex. J, Dep. of Elisabeth Pathe (“Pathe Dep.”) at 10:22–11:3.)
The Trust Agreement further provided that the Benefits Committee was responsible for “continually monitor[ing] the suitability under the fiduciary duty rules of section 404(a)(1) of ERISA ... of acquiring and holding” the common stock of Foamex International, and that Fidelity would not be liable for any loss resulting from the directions of the Benefits Committee, as the named fiduciary, with respect to the acquisition or holding of Foamex International common stock, unless it was “clear on their face that the actions to be taken under those directions would be prohibited by [ERISA's]...
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...apparently remains good law in the Second Circuit, and it has been followed by other courts as well. See, e.g., Stanford v. Foamex L.P., 822 F. Supp. 2d 455, 488 (E.D. Pa. 2011); Nagy v. DeWese, 771 F. Supp. 2d 502, 520 (E.D. Pa. 2011); see also Willett v. Blue Cross & Blue Shield of Ala., ......