The Bd. of Trustees of The City of Birmingham Employees' Ret. System v. Bank

• Decision Date: 15 February 2011
• Docket Number: 10–cv–10206.,Case Nos. 09–cv–13201
• Citation: 767 F.Supp.2d 793
• Parties: The BOARD OF TRUSTEES OF THE CITY OF BIRMINGHAM EMPLOYEES' RETIREMENT SYSTEM, et al., Plaintiffs,v.COMERICA BANK, Defendant.
• Court: U.S. District Court — Eastern District of Michigan

767 F.Supp.2d 793

The BOARD OF TRUSTEES OF THE CITY OF BIRMINGHAM EMPLOYEES' RETIREMENT SYSTEM, et al., Plaintiffs,

v.COMERICA BANK, Defendant.

Case Nos. 09–cv–13201

10–cv–10206.

United States District Court, E.D. Michigan, Southern Division.

Feb. 15, 2011.

Christopher D. Kaye, E. Powell Miller, Miller Law Firm, Rochester, MI, Sharon S. Almonrode, Sullivan, Ward, Southfield, MI, for Plaintiffs.Robert G. Brower, Thomas P. Bruetsch, Bodman, Detroit, MI, for Defendant.

OPINION AND ORDER GRANTING IN PART AND DENYING IN PART DEFENDANT'S MOTION TO DISMISS (docket no. 51)

STEPHEN J. MURPHY, III, District Judge.

In this proposed class action, nine pension plans, through their boards of trustees (“Plaintiffs”), contend that Defendant Comerica Bank (“Comerica”) violated various state and federal statutes in the course of managing the plans' assets. Plaintiffs assert claims for declaratory judgment (count I), breach of fiduciary duty under the common law (count II), ERISA violations (counts III and IV), violations of Michigan law (count V), breach of contract (count VI), and breach of the implied covenant of good faith and fair dealing (count VII). The nub of Plaintiffs' claims is that Comerica invested some of Plaintiffs' assets in a security that Comerica knew or should have known was not a prudent investment, and, when it became clear the security would fail, refused to sell it, resulting in a loss for which Plaintiffs were not later indemnified.

Comerica moves to dismiss the complaint for failure to state a claim. The Court conducted a hearing on the motion and took the matter under advisement. For the reasons stated below, the Court will grant Comerica's motion in part and deny it in part. All ERISA claims asserted here by governmental pension plans will be dismissed with prejudice.

BACKGROUND FACTS

The following facts are alleged in the amended complaint or contained in documents attached to it, and adopted by reference by the Court for purposes of resolving this motion. See Commercial Money Ctr., Inc. v. Illinois Union Ins. Co., 508 F.3d 327, 335 (6th Cir.2007) (citing Fed.R.Civ.P. 10(c)).

Plaintiffs are nine boards of trustees of various pension and retirement plans in Michigan.¹ Four of the boards govern governmental plans and the five others govern private plans. Amend. Compl. ¶¶ 9–17. Plaintiffs participated in Comerica's Securities Lending Program (“Program”) and each entered into substantially similar Security Lending Agreements (“Agreements”) with Comerica. Under the Agreements, Comerica would loan Plaintiffs' securities (held in accounts with Comerica) to third-parties in exchange for collateral worth slightly more than the securities' market value. Id. ¶ 7. Comerica would pool the collateral given for each participant's securities into a “collateral investment pool” and invest the pool conservatively. Id. ¶ 24. When the loans became due, Comerica would return the collateral and Plaintiffs would retake the securities and keep the investment income. Id. ¶ 29. For its services, Comerica charged Plaintiffs a percentage of the investment income. Id.

Each Agreement contained investment guidelines listing the specific types of investments in which Comerica was permitted to invest, as well as more general limitations on investments that Comerica was permitted to pursue. Amend. Compl. Exs. A–I. The guidelines permit a wide variety of investments, including “[c]orporate medium term notes and corporate floating rate instruments with a minimum long-term investment grade rating.” Amend. Compl. Ex. A–I (guidelines, at I(B)).² The guidelines also establish “[a] per issuer limit of 5% of the cash collateral pool [for] the purchase of ... corporate or medium term notes.” Id. at II(D). Precisely because the collateral had to be returned at the end of the loan period, safeguarding principal was the primary objective of the Program. Id. ¶¶ 7, 49. Other goals included maintaining a diversified portfolio of investments and adequate liquidity, and optimizing the spread between collateral earnings and the rebate paid to the borrowers of the securities. Id. ¶ 52. Comerica expressly disclaimed any duty to indemnify Plaintiffs in the event of a loss. Id. Exs. A–I.

In the summer of 2007, Comerica invested an unidentified percentage of the collateral investment pool in medium-term notes issued by Sigma Finance, Inc.³ Id. ¶ 59. Sigma Finance, Inc. is a Delaware corporation organized for the purpose of issuing debt securities for its offshore parent company, Sigma Finance Corporation (“Sigma”). Id. Sigma is a structured investment vehicle that is now in receivership.⁴

Specifically at issue here is Comerica's investment in Sigma corporate medium-term notes with a maturity date of May 18, 2009 (“Sigma notes”). Id. ¶ 164. At the time of purchase, the Sigma notes were rated AAA by Standard & Poor's and Aaa by Moody's Investors Service, the highest ratings available for investment-grade securities. Id. ¶ 138. Nevertheless, Plaintiffs contend that the investment was too risky from the outset because Sigma was a stand-alone entity with $52 billion in debt as of July 2007, and had no investment or commercial bank behind it. Id. ¶¶ 63, 65, 104. For support, Plaintiffs include in their amended complaint various quotations from and paraphrasing of articles in news sources beginning in August 2007. The articles discuss both structured investment vehicles generally and Sigma specifically. Id. ¶¶ 68–158. The articles also document the steady decline of Sigma from the summer of 2007 until October 1, 2008, when Sigma was placed in receivership, and the Sigma notes lost considerable value. Sigma's creditors declared Sigma in default and seized its assets, ultimately sending the company into receivership. Id. ¶ 157–163.

Plaintiffs assert seven counts against Comerica, claiming that Comerica should never have invested in the Sigma notes, failed to properly monitor the investment, and failed to sell the notes before they lost considerable value. Plaintiffs contrast Comerica's allegedly imprudent conduct with that of the Orange County California Treasurer's Office, which, on September 12, 2008, sold Orange County's investments in Sigma notes for 91.5 cents on the dollar, thereby avoiding a $50 million loss. Id. ¶ 153. Plaintiffs contend that despite the red flags raised by numerous financial experts and market reports, Comerica failed to take similar action to protect Plaintiffs' assets. Id. ¶ 154.

DISCUSSION

I. Legal Standard–Rule 12(b)(6)

“[W]hen the allegations in a complaint, however true, could not raise a claim of entitlement to relief, ‘this basic deficiency should ... be exposed at the point of minimum expenditure of time and money by the parties and the court.’ ” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 557, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) (quoting 5 Charles A. Wright & Arthur R. Miller, Federal Practice and Procedure § 1216, pp. 233–34 (3d ed.2004)). Accordingly, Federal Rule of Civil Procedure 12(b)(6) allows a defendant to test whether, “as a matter of law, the plaintiff is entitled to legal relief even if everything alleged in the complaint is true.” See Mayer v. Mylod, 988 F.2d 635, 638 (6th Cir.1993). “To survive a motion to dismiss under Rule 12(b)(6) motion, a complaint must contain either direct or inferential allegations respecting all the material elements to sustain a recovery under some viable legal theory.” Hunter v. Sec'y of the U.S. Army, 565 F.3d 986, 992 (6th Cir.2009) (citation omitted).

In assessing a motion brought pursuant to Rule 12(b)(6), a court must presume as true all well-pleaded factual allegations and draw all reasonable inferences from those allegations in favor of the non-moving party. Bishop v. Lucent Techs., Inc., 520 F.3d 516, 519 (6th Cir.2008). Although the pleading standard is liberal, and a court must accept as true all factual allegations in the complaint, it need not accept as true any legal conclusion alleged therein, even if couched as a factual allegation. Ashcroft v. Iqbal, ––– U.S. ––––, 129 S.Ct. 1937, 1945, 173 L.Ed.2d 868 (2009). “Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice.” Id.

The Federal Rules of Civil Procedure do not require a plaintiff to set out in detail the facts upon which he bases his claim. They require only “a short and plain statement of the claim” that gives the defendant fair notice of what the plaintiff's claim is and the grounds upon which it rests. Fed.R.Civ.P. 8(a). This requires a plaintiff to put forth “enough facts to raise a reasonable expectation that discovery will reveal evidence of [the requisite elements of the claim].” Twombly, 550 U.S. at 556, 127 S.Ct. 1955. Thus, although “a complaint need not contain ‘detailed’ factual allegations, its ‘[f]actual allegations must be enough to raise a right to relief above the speculative level on the assumption that all the allegations in the complaint are true.’ ” Ass'n of Cleveland Fire Fighters v. Cleveland, Ohio, 502 F.3d 545, 548 (6th Cir.2007) (quoting Twombly, 550 U.S. at 555, 127 S.Ct. 1955). Therefore, the Court will grant a Rule 12(b)(6) motion only in cases where there are simply not “enough facts to state a claim to relief that is plausible on its face.” Twombly, 550 U.S. at 570, 127 S.Ct. 1955. “[W]here the well-pleaded facts do not permit the court to infer more than the mere possibility of misconduct, the complaint has alleged—but it has not ‘show[n]’—‘that the pleader is entitled to relief.’ ” Iqbal, 129 S.Ct. at 1950 (quoting Fed.R.Civ.P. 8(a)(2)).

II. Analysis

Comerica makes four arguments in its motion: A) the governmental plans cannot assert claims under ERISA; B) Plaintiffs improperly view the Sigma investment in isolation rather than as part of a broader investment portfolio; C) the allegations fail to give rise to plausible claims because they rely on hindsight and speculation and because there are obvious...