Gedek v. Perez

66 F.Supp.3d 368

Mark GEDEK, individually and on behalf of all others similarly situated, Plaintiff

v.Antonio M. PEREZ, et al., Defendants.

Thomas W. Greenwood, individually and on behalf of all others similarly situated, Plaintiff

v.Antonio M. Perez, et al., Defendants.

Barry Bolger, individually and on behalf of all others similarly situated, Plaintiff

v.Antonio M. Perez, et al., Defendants.

Julius Coletta, individually and on behalf of all others similarly situated, Plaintiff

v.Antonio M. Perez, et al., Defendants.

Andrew J. Mauer, on behalf of himself, the Eastman Kodak Employees' Savings and Investment Plan and a class of persons similarly situated, Plaintiff

v.The Eastman Kodak Savings and Investment Plan Committee, et al., Defendants.

Plaintiffs Dale Toal and Claude Matte, individually and on behalf of all others similarly situated, Plaintiffs

v.Antonio Perez, et al., Defendants.

Allen E. Hartter, individually and on behalf of all others similarly situated, Plaintiff

v.Antonio Perez, et al., Defendants.

Nos. 12–CV–6051L

12–CV–6056L

12–CV–6067L

12–CV–6071L

12–CV–6078L

12–CV–6080L

12–CV–6146L.

United States District Court, W.D. New York.

Signed Dec. 17, 2014.

Nadeem Faruqi, Gerald D. Wells, III, Jacob A. Goldberg, Michael Hynes, Faruqi & Faruqi, LLP, New York, NY, Robert J. Gray, Faruqi & Faruqi LLP, Jenkintown, PA, Jules L. Smith, Blitman & King, Rochester, NY, for Plaintiff.

Michael R. Law, Phillips Lytle LLP, Rochester, NY, Jaclyn Nicci Adams, Paul Blankenstein, William J. Kilberg, Gibson, Dunn & Crutcher, LLP, Washington, DC, for Defendants.

DECISION AND ORDER

DAVID G. LARIMER, District Judge.

INTRODUCTION

These seven cases, which have been consolidated for all purposes under Rule 42(a) of the Federal Rules of Civil Procedure, have been brought by participants and beneficiaries of the Savings and Investment Plan (“SIP”) of Eastman Kodak Company (“Kodak”) and the Eastman Kodak Stock Ownership Plan (“ESOP”) (collectively “the Plans”), against the administrators and fiduciaries of the Plans.

Plaintiffs allege that the Plans are subject to the Employee Retirement Income Security Act (“ERISA”), 29 U.S.C. § 1001 et seq., and that defendants have violated ERISA by failing to prudently manage the Plans' assets. Plaintiffs allege that defendants have done so principally by continuing to invest those assets in Kodak stock even after it became obvious that Kodak was headed for bankruptcy and that its stock was going to plummet in value.

The actions have been brought as a Rule 23 class action, with a proposed class consisting of all participants in the Plans for whose individual accounts the Plans invested primarily in Kodak stock at any time from January 1, 2010 through and including the date of liquidation of the Plans (“the class period”). Consolidated Complaint (Dkt. # 48) ¶ 41.¹

Two sets of defendants have appeared in this action. The “Kodak defendants” include the Kodak Savings and Investment Plan Committee (“SIPCO”) and the Kodak Stock Ownership Plan Committee (“SOPCO”), which are the plan administrators for the SIP and ESOP, respectively, as well as various individuals who held positions on those committees during the class period. The other defendant, BNY Mellon Financial Corporation (“Mellon”) is the successor in interest to Boston Safe Deposit and Trust (“Boston”), which was the trustee of the SIP during the class period.²

Both the Kodak defendants and Mellon have moved to dismiss the claims against them pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure. For the reasons that follow, the motions are denied.

BACKGROUND

The facts as alleged in the complaint, the truth of which is accepted for purposes of the motions to dismiss, are as follows. At all times relevant to the complaint, the Plans were employee benefit plans within the meaning of ERISA; see 29 U.S.C. §§ 1002(2)(A), 1002(3).

Both the SIP and ESOP are defined-contribution plans under ERISA. Each participant has an individual account, and the participant's benefits are based on the amount that the participant contributes to his or her account, as increased or diminished by the performance of the investments selected for that account.³ Thus, both the SIP and ESOP qualify as “eligible individual account plans” (“EIAPs”) under 29 U.S.C. § 1107(d)(3)(A).⁴

The ESOP is funded entirely by Kodak. The plan document states that “[n]o participant shall be required or permitted to make contributions to the Plan or Trust.” ESOP Doc. (Dkt. # 74–2) § 5.01(d). Virtually all Kodak employees are eligible to participate in the ESOP. Id. § 4.01. The ESOP is administered by SOPCO, which consists of Kodak's chief financial officer (“CFO”), general counsel, director of human resources, treasurer, and director of “Worldwide Total Compensation.” Id. § 2.36.

The ESOP plan document states that the purpose of the ESOP is

to enable eligible Employees of Eastman Kodak Company and certain Affiliated Companies to share in the future of the Company, to provide Employees with an opportunity to accumulate capital for their future economic security, and to enable Employees to acquire stock ownership interests in Eastman Kodak Company. Consequently, Company contributions to the Plan will be invested primarily in Employer Securities.

Id. § 1.02. The document goes on to state that “[t]he Plan is also designed to provide a method of corporate finance to the Company....” Id.

Once a participant has reached age 55 and has completed at least ten years of service, the participant may choose to take some of his account in cash. Id. §§ 9.01, 9.02. While the participant could, on his own, reinvest that cash elsewhere, the participant cannot reallocate his ESOP account itself into a different fund or into different investments. Rather, the ESOP document states that “[t]he Trust Fund [i.e., the plan assets] will be invested primarily in Employer Securities,” that “[a]ll investments ... will be made by the Trustee only upon the direction of SOPCO,” and that “SOPCO may direct that the entire Trust Fund assets be invested and held in Employer Securities.” Kodak's Motion (Dkt. # 56) Ex. B, § 6.01. The trustee does have some limited discretion, however, to “invest the Trust Fund in savings accounts, certificates of deposit, high-grade short-term securities, equity stock, bonds or other investments desirable for the Trust,” and the plan document further states that “the Trust Fund may be held in cash.” Id.

The SIP is administered by SIPCO, which consists of the same individuals as SOPCO. As stated, during the class period, Mellon's predecessor in interest, Boston, was the SIP trustee.

The SIP is partially funded by the participants themselves. The SIP plan document states that one purpose of the SIP is to give Kodak employees an opportunity to defer some of their pre-tax wages. Dkt. # 56–2 Ex. A § 1.01. At least some participants are also eligible to receive matching funds from Kodak on such deferred amounts. See id. and § 5.02.

The plan document states that the SIP is also intended to “offer Participants the opportunity to invest in Employer Securities,” i.e., shares of Kodak common stock. Id. §§ 1.01, 2.16. It further states that “Participants may, but need not, invest some or all of their Plan Account balances in the Kodak Stock Fund.” Id. The Kodak Stock Fund is “an employee stock ownership plan component” of the SIP that “consists primarily of Employer Securities....” Id. §§ 1.01, 7.01(b)(1). The SIP document expressly provides that “the Kodak Stock Fund must be made available for investment,” but that “no Participant or beneficiary is required to invest in the Kodak Stock Fund,” and that “a range of [other] investment alternatives” must be maintained at all times. Id. § 7.01(c) and (b)(2).

The factual allegations of the consolidated complaint are lengthy, but the gist of plaintiffs' claims is fairly straightforward. According to plaintiffs, throughout the class period, defendants knew or should have known that Kodak's financial condition was poor, that its long-term prospects were not good, and that as a result, its stock price was going to continue to decline, which it in fact did. By the end of the class period, Kodak stock was trading for a small fraction of its earlier levels. Eventually, on January 19, 2012, Kodak filed for bankruptcy protection under Chapter 11. In short, then, plaintiffs allege that it was imprudent of defendants to continue to permit the Plans to offer Kodak funds to participants, or to continue to purchase or hold Kodak stock. As a result of that alleged imprudence, the Plans, and the participants, suffered losses.

Count I of the complaint alleges that defendants (other than T. Rowe Price and SOPCO) failed to prudentially manage the SIP and its assets, in violation of their fiduciary duties under ERISA, and that defendants are therefore liable to restore the losses to the Plans caused by those breaches, pursuant to 29 U.S.C. §§ 1109, 1132(a)(2), and 1132(a)(3). Count II alleges a similar claim as to the ESOP, against all defendants other than SIPCO, Boston and Mellon. Count III asserts a claim of co-fiduciary liability against all defendants. Plaintiffs seek a monetary payment to the Plans to make good the losses they suffered due to defendants' breaches, unspecified injunctive relief, and attorney's fees.

DISCUSSION

I. Kodak Defendants

As the Second Circuit has stated, “ERISA's central purpose is to protect beneficiaries of employee benefits plans. In pursuit of this goal, ERISA imposes a ‘prudent man standard of care’ on fiduciaries entrusted with the administration of these plans.”St. Vincent Catholic Medical Centers Retirement Plan v. Morgan Stanley Inv. Mgmt. Inc., 712 F.3d 705, 715 (2d Cir.2013) (additional internal quote omitted).

That standard is set forth in 29 U.S.C. § 1104. That section provides, inter alia, that in general, “a fiduciary shall discharge his duties ... with the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent man acting in...