United States District Court, D. Minnesota
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For Adetayo Adedipe, on behalf of herself individually, and on behalf of all others similarly situated, Plaintiff: Bruce F Rinaldi, Karen L Handorf, Mary J. Bortscheller, Michelle C Yau, LEAD ATTORNEYS, PRO HAC VICE, Cohen, Milstein, Sellers & Toll, PLLC, Washington, DC; June Pineda Hoidal, LEAD ATTORNEY, Brian C Gudmundson, Patricia A Bloodgood, Carolyn G Anderson, Zimmerman Reed, PLLP, Minneapolis, MN.
For Sherry Smith, on behalf of herself individually, and on behalf of all others similarly situated, James J. Thole, on behalf of herself individually, and on behalf of all others similarly situated, Marlene Jackson, on behalf of herself individually, and on behalf of all others similarly situated, Plaintiffs: Bruce F Rinaldi, Karen L Handorf, Michelle C Yau, LEAD ATTORNEYS, PRO HAC VICE, Cohen, Milstein, Sellers & Toll, PLLC, Washington, DC; June Pineda Hoidal, LEAD ATTORNEY, Patricia A Bloodgood, Carolyn G Anderson, Zimmerman Reed, PLLP, Minneapolis, MN.
For U.S. Bank National Association, individually and as successor in interest to FAF Advisors, Inc., Richard K. Davis, Douglas M Baker, Jr, Y. Marc Belton, Peter H. Coors, Joel W. Johnson, Olivia F. Kirtley, O'Dell M. Owens, Craig D. Schnuck, Arthur D. Collins, Jr., Victoria Buyniski Gluckman, Jerry W. Levin, David B. O'Maley, Patrick T. Stokes, Richard G. Reiten, Warren R. Staley, Defendants: Stephen P Lucke, LEAD ATTORNEY, Andrew J Holly, Lincoln Loehrke, Thomas P Swigert, Dorsey & Whitney LLP, Mpls, MN.
For Nuveen Asset Management LLC, as successor in interest to FAF Advisors, Inc., Defendant: Aaron D Van Oort, LEAD ATTORNEY, Elsa M Bullard, Faegre Baker Daniels LLP, Mpls, MN; Amanda S Amert, Brienne M Letourneau, Craig C Martin, LEAD ATTORNEYS, PRO HAC VICE, Jenner & Block, Chicago, IL.
JOAN N. ERICKSEN, United States District Judge.
This is a private civil enforcement action brought under the Employee Retirement Income Security Act (" ERISA" ). The case was filed as a putative class action by participants in U.S. Bancorp's pension plan (hereinafter, " the Plan" ). In their Consolidated Amended Complaint, the Plaintiffs allege that the Plan's fiduciaries breached their fiduciary obligations and caused the Plan to engage in prohibited transactions during the proposed class period, which runs from September 30, 2007 -- six years to the day before this suit was filed -- through the end of December 2010.
Defendant Nuveen Asset Management LLC and the rest of the Defendants -- collectively referred to as the " U.S. Bank Defendants" -- have separately filed motions targeting the Amended Consolidated Complaint. Currently before the Court are Nuveen's Motion to Dismiss, ECF No. 96, and the U.S. Bank Defendants' Motion to Dismiss or, Alternatively, for Summary Judgment, ECF No. 102. The Plaintiffs
responded in opposition to those motions, while also submitting their own motion for relief under Federal Rule of Civil Procedure 56(d), ECF No. 113.
For the reasons and in the manner discussed below, the motions brought by Nuveen and the U.S. Bank Defendants are each granted in part and denied in part, while the Plaintiffs' motion is denied.
According to their Consolidated Amended Complaint (hereinafter, " CAC" ), the Plaintiffs -- Adetayo Adedipe, James Thole, Marlene Jackson, and Sherry Smith -- are former employees of U.S. Bank and vested participants in the U.S. Bancorp pension plan.
They are suing three organizational defendants: U.S. Bancorp; U.S. Bank, National Association (hereinafter, " U.S. Bank" ); and Nuveen Asset Management LLC. U.S. Bancorp is the sponsor of the Plan. U.S. Bank, a wholly-owned subsidiary of U.S. Bancorp, is the trustee of the Plan and was, during the proposed class period, the parent of the Plan's investment manager, FAF Advisors, Inc. Nuveen acquired FAF from U.S. Bank in December of 2010.
The Plaintiffs also name a number of individuals as defendants: nine members of the U.S. Bancorp Board of Directors; six individuals and ten John/Jane Does who were members of the U.S. Bancorp Compensation Committee during the proposed class period; and ten additional John/Jane Does who were members of the U.S. Bancorp Investment Committee during the proposed class period. U.S. Bancorp's Compensation and Investment Committees are named fiduciaries of the Plan that have the authority and obligation to manage it, while the Board has the power to appoint and remove the members of the two committees.
In all, the Plaintiffs assert eight counts against these Defendants. The first seven counts are brought, in various combinations, against the Board of Director Defendants, the two sets of Committee Defendants, FAF, and U.S. Bank -- all of whom the Plaintiffs contend were either named or de facto fiduciaries of the Plan -- for allegedly breaching their fiduciary obligations with respect to investing the Plan's assets and for causing the Plan to engage in prohibited transactions. The final count is brought against U.S. Bancorp alone, for " knowingly participat[ing] in the several breaches and prohibited transactions" by the fiduciaries.
Relevant here, then, are the ERISA provisions governing fiduciary responsibility that are codified at 29 U.S.C. § § 1104, 1005, and 1106. At § 1104(a), ERISA imposes the following standard of care on a fiduciary of a pension plan:
[A] fiduciary shall discharge his duties with respect to a plan solely in the interest of the participants and beneficiaries and--
(A) for the exclusive purpose of:
(i) providing benefits to participants and their beneficiaries; and
(ii) defraying reasonable expenses of administering the plan;
(B) with the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent man acting in a like capacity and familiar with such matters would use in the conduct of an
enterprise of a like character and with like aims;
(C) by diversifying the investments of the plan so as to minimize the risk of large losses, unless under the circumstances it is clearly prudent not to do so; and
(D) in accordance with the documents and instruments governing the plan insofar as such documents and instruments are consistent with the provisions of this subchapter and subchapter III of this chapter.
At § 1106, ERISA prohibits a fiduciary from causing the plan to engage in certain types of transactions:
(a) Transactions between plan and party in interest. Except as provided in section 1108 of this title:
A fiduciary with respect to a plan shall not cause the plan to engage in a transaction, if he knows or should know that such transaction constitutes a direct or indirect--
(A) sale or exchange, or leasing, of any property between the plan and a party in interest;
(B) lending of money or other extension of credit between the plan and a party in interest;
(C) furnishing of goods, services, or facilities between the plan and a party in interest;
(D) transfer to, or use by or for the benefit of a party in interest, of any assets of the plan; or
(E) acquisition, on behalf of the plan, of any employer security or employer real property in violation of section 1107(a) of this title.
No fiduciary who has authority or discretion to control or manage the assets of a plan shall permit the plan to hold any employer security or employer real property if he knows or should know that holding such security or real property violates section 1107(a) of this title.
(b) Transactions between plan and fiduciary. A fiduciary with respect to a plan shall not--
deal with the assets of the plan in his own interest or for his own account,
in his individual or in any other capacity act in any transaction involving the plan on behalf of a party (or represent a party) whose interests are adverse to the interests of the plan or the interests of its participants or beneficiaries, or
receive any consideration for his own personal account from any party dealing with such plan in connection with a transaction involving the assets of the plan.
And at § 1105(a), ERISA imposes liability on a fiduciary for participating in, enabling, concealing, or ignoring a breach of fiduciary responsibility by a co-fiduciary.
In the CAC, the Plaintiffs allege that the Defendants violated these provisions in connection with three subjects. The first is the so-called 100% Equities Strategy. The CAC alleges that the Defendants invested the Plan's assets solely in equity securities, to the exclusion of other asset classes, in order to benefit themselves while exposing the Plan to inordinate risk. According to the CAC, by investing all of the Plan's assets in equities, the Defendants were able to report a higher assumed rate of return on the Plan's investments, which reduced to zero the amount that U.S. Bancorp was required to contribute to the Plan while also inflating U.S. Bancorp's stock price. The Plaintiffs allege that the Defendants persisted in this 100% Equities Strategy throughout the proposed class period despite indications of
a deteriorating stock market in late 2007 and 2008. When the market crashed, the Plan, invested exclusively in equities, lost $1.1 billion. Only after FAF was sold to Nuveen in late 2010 did the Defendants revise their investment strategy; one-quarter of the Plan's assets are now invested in other asset classes.
The second subject of the CAC is the investment of Plan assets in Affiliated Funds. The Committee Defendants appointed FAF as the Plan's investment manager in 2007. In fulfilling that role throughout the proposed class period, FAF implemented the 100% Equities Strategy while investing up to 40% of the Plan's assets in its own equities-backed mutual funds. According to the Plaintiffs, the Committee Defendants selected FAF to manage the Plan's investments in order to " prop up" FAF, then a subsidiary of U.S. Bank, and FAF invested the Plan heavily in its own mutual funds to benefit itself by making those funds more attractive to other potential investors.
The third subject of the CAC is a Securities Lending Program administered by FAF in which the Plan participated during the proposed class period. The Plaintiffs allege that, pursuant to a contract effective in October of 2005, FAF loaned securities owned by the Plan to borrowers on a short-term basis. In exchange, the Plan received cash collateral -- totaling $504 million by the end of 2007 -- which FAF then invested in two portfolios that it managed, the Mount Vernon Securities Lending Short-Term Bond Portfolio and the Mount Vernon Securities Lending Prime Portfolio. According to the CAC, FAF invested the Bond Portfolio " in asset-backed commercial paper issued by three specific structured investment vehicles," which themselves " were backed by toxic subprime mortgages and Alt-A securities." Those structured investment vehicles became distressed in the second half of 2007. At that time, instead of divesting the Plan from the Mount Vernon Portfolios, Emil Busse, FAF's head of securities lending, engaged in a fraudulent scheme to " liquidate and restructure the . . . Bond Portfolio." That scheme ultimately failed, causing the value of the Bond Portfolio to drop significantly in March of 2008 and resulting in over $14 million in losses to the Plan. The Plaintiffs allege that FAF's parent, U.S. Bank, soon discovered the failed scheme, conducted an investigation, and, when Busse was subsequently found to have committed several violations of the Securities and Exchange Acts by the Securities and Exchange Commission, " paid to settle [his] case."
As relief for the ERISA violations allegedly committed by the Defendants in these three areas, the Plaintiffs seek to have the fiduciary Defendants disgorge any profits they made through the use of the Plan's assets and restore to the Plan the losses it suffered. The Plaintiffs also seek the creation of a constructive trust for the benefit of the Plan and its participants, the removal of the fiduciary Defendants as Plan fiduciaries, and injunctions that would prohibit the Plan's fiduciaries from utilizing a 100% Equities Strategy and require them to monitor the Plan's investment manager in implementing a revised investment strategy.
With their motions, the Defendants argue that the CAC should be dismissed in its entirety on various grounds, including that the Plaintiffs lack standing to bring this suit, that their ERISA claims are time-barred or have been released, and that their pleading otherwise fails to state a claim on which relief can be granted.
The Plaintiffs' standing -- a " threshold question in every federal court case," U.S. v. One Lincoln Navigator 1998, 328 F.3d 1011, 1013
(8th Cir. 2003) -- must be considered first.
To bring suit in federal court, a plaintiff must have both statutory and constitutional standing. See generally Lexmark Intern., Inc. v. Static Control Components, Inc., 134 S.Ct. 1377, 1386-88, 188 L.Ed.2d 392 (2014). In their motions, Nuveen and the U.S. Bank Defendants jointly argue that the Plaintiffs lack constitutional standing, which is a matter of subject matter jurisdiction that " implicates Rule 12(b)(1)." Faibisch v. University of Minnesota, 304 F.3d 797, 801 (8th Cir. 2002).
The Defendants do not challenge the Plaintiffs' statutory standing -- in other words, that the claims the Plaintiffs assert in the CAC are " encompass[ed]" by a cause of action that Congress " legislatively conferred" with ERISA. Lexmark, 134 S.Ct. at 1387. Nevertheless, a consideration of this issue provides a helpful backdrop to the parties' arguments around constitutional standing. The Court therefore begins there.
A. Statutory standing.
Congress enacted ERISA in 1974 for the " primary purpose" of " protect[ing] individual pension rights." Harley v. Minnesota Min. and Mfg. Co., 284 F.3d 901, 907 (8th Cir. 2002) (quoting H.R. Rep. NO. 93-533 (1974), reprinted in 1974 U.S.C.C.A.N. 4639, 4639)). To that end, ERISA " regulat[es] the structure and operation of retirement plans." Roth v. Sawyer-Cleator Lumber Co., 16 F.3d 915, 917 (8th Cir. 1994).
Among the retirement plans that ERISA regulates are " defined benefit plans" like the Plan. See 29 U.S.C. § § 1002(35), 1002(2)(A), 1003. A defined benefit plan " consists of a general pool of assets" -- which " may be funded by employer or employee contributions, or a combination of both"  -- out of which " a fixed periodic payment" is made to a participant upon her retirement. Hughes Aircraft Co. v. Jacobson, 525 U.S. 432, 439, 119 S.Ct. 755, 142 L.Ed.2d 881 (1999) (internal quotation and citation omitted). Owing to the structure of this type of retirement plan, " [n]o [participant] has a claim to any particular asset that composes a part of the plan's general asset pool." Id. at 440. Participants in such plans do, however, have " a right to a certain defined level of benefits, known as 'accrued benefits.'" Id.
To protect that right, ERISA contains numerous provisions that are designed to ensure the " equitable character" and " financial soundness" of the plan itself, 29 U.S.C. § 1001(a), some of which were discussed above. For instance, ERISA requires that the plan be " control[led] and manage[d]" by fiduciaries acting " solely in the interest of the participants and beneficiaries" and " with . . . care, skill, prudence, and diligence," 29 U.S.C. § § 1102(a)(1), 1104(a)(1); that those fiduciaries " diversify the investments of the plan so as to minimize the risk of large losses," 29 U.S.C. § 1104(a)(1)(D); and that the fiduciaries refrain from causing the plan to engage in " certain transactions deemed likely to injure the plan," Harris Trust and Sav. Bank v. Salomon Smith Barney, Inc., 530 U.S. 238, 242, 120 S.Ct. 2180, 147 L.Ed.2d 187 (2000) (discussing 29 U.S.C. § 1106).
Elsewhere, ERISA requires that the plan be funded in a manner that provides
sufficient assets to meet its liabilities, 29 U.S.C. Ch. 18, Subch. I, Subt. B, Pt. 3, and that the plan maintain insurance against underfunding at termination through the Pension Benefit Guaranty Corporation, 29 U.S.C. Ch. 18, Subch. III. All of these requirements are means to the end of " guarantee[ing] that if a worker has been promised a defined pension benefit upon retirement -- and if he has fulfilled whatever conditions are required to obtain a vested benefit -- he actually will receive it." Pension Ben. Guar. Corp. v. R.A. Gray & Co., 467 U.S. 717, 720, 104 S.Ct. 2709, 81 L.Ed.2d 601 (1984) (quotation and citation omitted). See also 29 U.S.C. § 1001(b)-(c) (declaration that policy of ERISA is to " protect . . . the interests of participants in employee benefit plans and their beneficiaries" by " establishing standards of conduct, responsibility, and obligation for fiduciaries," " by requiring [plans] to meet minimum standards of funding," and " by requiring plan termination insurance" ); Lockheed Corp. v. Spink, 517 U.S. 882, 887-88, 116 S.Ct. 1783, 135 L.Ed.2d 153 (1996) (discussing " key measures" of ERISA that are designed " [t]o increase the chances that employers will be able to honor their benefits commitments--that is, to guard against the possibility of bankrupt pension funds" ).
To enforce ERISA's " comprehensive legislative scheme," Congress authorized both criminal and civil actions against those who violate its provisions. Aetna Health Inc. v. Davila, 542 U.S. 200, 208, 124 S.Ct. 2488, 159 L.Ed.2d 312 (2004) (quoting Massachusetts Mut. Life Ins. Co. v. Russell, 473 U.S. 134, 147, 105 S.Ct. 3085, 87 L.Ed.2d 96 (1985)). See 29 U.S.C. § § 1131 (criminal penalties), 1132 (civil enforcement). The civil causes of action set forth at 29 U.S.C. § 1132(a) are " a distinctive feature of ERISA, and essential to accomplish Congress' purpose of creating a comprehensive statute for the regulation of employee benefit plans." Aetna, 542 U.S. at 208.
In the CAC, the Plaintiffs invoke subsection (2) of this " integrated enforcement mechanism," id. Under that provision, " [a] civil action may be brought . . . by the Secretary [of Labor], or by a participant, beneficiary or fiduciary for appropriate relief under [29 U.S.C. § ] 1109 . . . ." Section 1109, in turn, makes
[a]ny person who is a fiduciary with respect to a plan who breaches any of the responsibilities, obligations, or duties imposed upon fiduciaries by this subchapter shall be personally liable to make good to such plan any losses to the plan resulting from each such breach, and to restore to such plan any profits of such fiduciary which have been made through use of assets of the plan by the fiduciary, and shall be subject to such other equitable or remedial relief as the court may deem appropriate, including removal of such fiduciary. . . .
With its incorporation of the remedies for a fiduciary breach described in § 1109, the cause of action granted to participants at § 1132(a)(2) authorizes relief only for injuries suffered by the plan itself; it " does not provide a remedy for individual injuries distinct from plan injuries." LaRue v. Dewolff, Boberg & Associates, Inc., 552 U.S. 248, 256, 128 S.Ct. 1020, 169 L.Ed.2d 847 (2008). See also Russell, 473 U.S. at 140-42, 144 (concluding that " recovery for a violation of §  inures to the benefit of the plan as a whole" and that " Congress did not intend that section to authorize any relief except for the plan itself" ).
In the CAC, the Plaintiffs, as participants, explicitly seek relief on behalf of the Plan and for injuries to the Plan caused by the Defendants' alleged breaches of their fiduciary responsibilities. E.g., CAC ¶ ¶ 19
(" Plaintiffs bring this action . . . to recover losses to the Plan for which Defendants are personally liable . . . ." ), ¶ 53 (" While the Plan is not a party to this action, the relief requested in this action is for the benefit of the Plan, pursuant to . . . 29 U.S.C.§ 1132(a)(2)." ). Twenty-nine U.S.C. § 1132(a)(2) provides them with a cause of action to do so.
B. Constitutional standing.
However, even though the Plaintiffs have a cause of action to seek relief for injuries to the Plan under ERISA, " [i]t is settled that Congress cannot erase Article III's standing requirements by statutorily granting the right to sue to a plaintiff who would not otherwise have standing." Raines v. Byrd, 521 U.S. 811, 820 n.3, 117 S.Ct. 2312, 138 L.Ed.2d 849 (1997). In other words, the Plaintiffs may not " proceed under § 1132(a)(2) on behalf of the plan" unless they themselves have Article III standing to bring suit against the Defendants for the misconduct that is alleged in the CAC. Braden v. Wal-Mart Stores, 588 F.3d 585, 593 (8th Cir. 2009).
The standing inquiry mandated by Article III is a matter of subject matter jurisdiction; it ensures that " the Judiciary's power [is kept] within its proper constitutional sphere." Raines, 521 U.S. at 820. The case-or-controversy requirement imposed by the Constitution limits the federal courts to deciding only that subset of disputes that are " capable of resolution through the judicial process" and in which the plaintiff has a " personal stake." Id. at 819. See also Mass. v. U.S. Envtl. Prot. Agency, 549 U.S. 497, 517, 127 S.Ct. 1438, 167 L.Ed.2d 248 (2007) (" At bottom, the gist of the question of standing is whether [plaintiffs] have such a personal stake in the outcome of the controversy as to assure that concrete adverseness which sharpens the presentation of issues upon which the court so largely depends for illumination." ) (quotation omitted).
Therefore, the Plaintiffs, as the party invoking the power of the Court to adjudicate this dispute, bear the burden of establishing as the " irreducible constitutional minimum of standing" (1) that they have personally suffered an " injury in fact" (2) that is " fairly traceable to the challenged action of the defendant" and (3) that is " likely [to] be redressed by a favorable decision." Braden, 588 F.3d at 591 (quoting Lujan v. Defenders ...