United States District Court, D. Minnesota
IRON WORKERS MID-SOUTH PENSION FUND, Derivatively on Behalf of U.S. Bancorp, Plaintiff,
RICHARD K. DAVIS, ANDREW CECERE, PATRICK T. STOKES, O'DELL M. OWENS, JERRY W. LEVIN, VICTORIA BUYNISKI GLUCKMAN, DAVID B. O'MALEY, ARTHUR D. COLLINS, JR., JOEL W. JOHNSON, CRAIG D. SCHNUCK, OLIVIA F. KIRTLEY, DOUGLAS M. BAKER, JR., Y. MARC BELTON, RICHARD D. REITEN, TERRANCE R. DOLAN, RICHARD J. HIDY, DIANE L. THORMODSGARD, BRYAN R. CALDER, Defendants, and U.S. BANCORP, a Delaware Corporation, Nominal Defendant.
Brian J. Robbins, Craig W. Smith, Gina Stassi, Julia M. Williams, ROBBINS ARROYO LLP, San Diego, CA Henry M. Helgen, III and Amanda R. Cefalu, ANDERSON, HELGEN, DAVIS & NISSEN, LLC, Minneapolis, MN for plaintiff.
Hugh D. Brown, Peter W. Carter, and Kristina L. Carlson, DORSEY & WHITNEY LLP, Minneapolis, MN for defendants Richard K. Davis, Andrew Cecere, Patrick T. Stokes, O'Dell M. Owens, Jerry W. Levin, Victoria Buyniski Gluckman, David B. O'Maley, Arthur D. Collins, Jr., Joel W. Johnson, Craig D. Schnuck, Olivia F. Kirtley, Douglas M. Baker, Jr., Y. Marc Belton, and Richard D. Reiten.
Kristina L. Carlson, DORSEY & WHITNEY LLP, Minneapolis, MN for defendants Terrance R. Dolan, Richard J. Hidy, Diane L. Thormodsgard, and Bryan R. Calder.
Sarah H. Daggett and Steve W. Gaskins, GASKINS, BENNETT, BIRRELL, SCHUPP, LLP, Minneapolis, MN for nominal defendant.
MEMORANDUM OPINION AND ORDER AFFIRMING THE FEBRUARY 10, 2014 ORDER OF THE MAGISTRATE JUDGE
JOHN R. TUNHEIM, District Judge.
Plaintiff in this matter brought a complaint alleging that Defendants - who are current and former officers and directors of U.S. Bancorp ("US Bank") - breached their fiduciary duty by failing to properly oversee the performance of U.S. Bank's largest subsidiary, U.S. Bank National Association ("US Bank NA") as trustee of several trusts that invested in mortgage-backed securities. The Court previously dismissed without prejudice Plaintiff's claim based on failure of oversight, finding that Plaintiff's allegations were "insufficient to plausibly state a claim that Defendants consciously disregard their oversight duties." Iron Workers Mid-S. Pension Fund v. Davis, Civ. No. 13-289, 2013 WL 6858567, at *8 (D. Minn. Dec. 30, 2013). The Court allowed Plaintiff forty-five days in which "to file an amended complaint addressing the noted shortcomings in its breach of fiduciary duty claim." Id. at *10.
Plaintiff then brought a motion to conduct limited discovery for the purpose of obtaining documents from U.S. Bank that would allow it to fully and fairly plead its failure of oversight claim. Plaintiff also sought an extension of the deadline in which to file its amended complaint. United States Magistrate Judge Jeanne J. Graham denied Plaintiff's motion to conduct limited discovery and allowed a short extension of the time for filing the amended complaint. Plaintiff objects to the Magistrate Judge's order. Because the Court finds the Magistrate Judge's conclusion that discovery is not warranted is neither clearly erroneous nor contrary to law under these circumstances, the Court will overrule Plaintiff's objections.
Plaintiff is a pension fund that currently holds U.S. Bank stock and held U.S. Bank stock at the time of the wrongdoing alleged in the complaint. (Compl. ¶ 18, Feb. 5, 2013, Docket No. 1.) Defendants are current and former members of U.S. Bank's Board of Directors and U.S. Bank's CEO and CFO. ( Id. ¶¶ 20-34.) A number of the Defendants currently serve, or have served, on U.S. Bank's Audit Committee and/or Risk Management Committee. ( Id. )
During the relevant time period U.S. Bank NA served as trustee for a group of trusts holding residential mortgages as part of mortgage-backed securities transactions. ( Id. ¶¶ 1-2.) Iron alleges that, as trustee, U.S. Bank NA owed numerous duties to the trusts and breached those duties. ( Id. ¶¶ 61, 64, 68-69, 71, 73, 78, 81, 84-88.) As a result of its alleged failures as trustee, U.S. Bank NA is now the subject of two class actions in the Southern District of New York brought by investors. ( Id. ¶ 7.)
On February 29, 2012, three months after the first class action against U.S. Bank NA was filed in New York, Plaintiff sent a demand letter to the U.S. Bank board alleging that the officers and directors had engaged in misconduct in relation to the company's duties as trustee for the mortgage-backed securities trusts. ( Id. ¶ 118, Ex. A.) The letter demanded that U.S. Bank investigate to determine which employees, officers, or directors were responsible for overseeing U.S. Bank's internal controls relating to its role as trustee and who may be responsible for U.S. Bank NA's failings as trustee. ( Id., Ex. A at 5.) Plaintiff also requested that U.S. Bank "commence legal proceedings against each party identified as being responsible for the mismanagement and other related misconduct" alleged in the letter. ( Id. ) After a series of communications between U.S. Bank and Plaintiff that spanned six months, Plaintiff sent a letter stating its belief that U.S. Bank was refusing to investigate ( id. ¶ 125, Ex. H at 22-23) and initiated the present lawsuit on February 5, 2013.
In its complaint, Plaintiff alleged that Defendants breached their fiduciary duties of loyalty and good faith by failing to prevent U.S. Bank NA from violating its duties as trustee. ( Id. ¶ 45.) Plaintiff pointed to various "red flags" which it alleged demonstrate that Defendants knew that there were defects in the mortgages underlying the mortgagebacked securities and knew that U.S. Bank NA was failing to comply with its duties as trustee. ( Id. ¶¶ 90-110.) In particular, Plaintiff identified the collapse in 2008 of the banking entities that originated the underlying mortgages which resulted in numerous investigations, news reports, and lawsuits showing that those entities regularly breached their warranties and representations in mortgage transactions and several state and federal reports on abuses by banks in foreclosure proceedings, as evidence that Defendants "knew or were recklessly unaware" of the deficiencies in the underlying mortgages in the trusts, failed to ensure that U.S. Bank NA was performing its duties as trustee, and failed to establish any system of oversight. ( Id. ¶¶ 103, 110.)
I. MOTION TO DISMISS
US Bank and Defendants both moved to dismiss Plaintiff's complaint in its entirety. (Nominal Def.'s Mot. to Dismiss, Apr. 15, 2013, Docket No. 13; Defs.' Mot. to Dismiss, Apr. 15, 2013, Docket No. 15.) The Court granted the motion to dismiss, concluding, in relevant part that Plaintiff's "allegations are insufficient to plausibly state a claim that Defendants consciously disregarded their oversight duties." Iron Workers Mid-S. Pension Fund, 2013 WL 6858567 at *8. The Court explained that Plaintiff had "failed to present facts suggesting that the Board was presented with red flags alerting it to potential misconduct at the Company, " and also that the complaint "lacks any description of what such oversight would have looked like." Id. (internal quotation marks omitted). Therefore the Court ...