In re Citigroup Erisa Litig.

104 F.Supp.3d 599

In re CITIGROUP ERISA LITIGATION.

No. 11 CV 7672 JGK.

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

Signed May 13, 2015.

Brad Nelson Friedman, Milberg LLP, Kent Andrew Bronson, Bernstein Litowitz Berger & Grossmann LLP, Curtis Victor Trinko, Law Offices of Curtis V. Trinko, LLP, New York, NY, Edgar Pauk, Edgar Pauk, Esq., Brooklyn, NY, Amy C. Williams–Derry, Keller Rohrback L.L.P., Seattle, WA, Edward W. Ciolko, Joseph H. Meltzer, Kessler Topaz Meltzer & Check, LLP, Radnor, PA, for Plaintiff.

Brad S. Karp, Lewis R. Clayton, Susanna M. Buergel, Paul A. Paterson, Paul, Weiss, Rifkind, Wharton & Garrison, LLP, for Defendant.

OPINION AND ORDER

JOHN G. KOELTL, District Judge:

During the subprime mortgage crisis of 2008, the price of Citigroup Inc. (“Citigroup”) stock dropped precipitously. The Citigroup 401(k) Plan (the “Citigroup Plan”) and the Citibuilder 401(k) Plan for Puerto Rico (the “Citibuilder Plan”) required that the Plans include an option to allow employees to invest in the Citigroup Common Stock Fund, which is invested in Citigroup common stock. The plaintiffs, participants and beneficiaries of the Plans, claim that the various defendants were responsible for the Plans' investments and breached their fiduciary duties by failing to limit the Plans' investments in Citigroup common stock, and otherwise violated their fiduciary duties under the Employee Retirement Income Security Act of 1974 (“ERISA”), 29 U.S.C. § 1001 et seq.

The defendants now move to dismiss the Complaint. They argue, among other things, that this action is time-barred by ERISA's statute of limitations, 29 U.S.C. § 1113, and that there is no plausible claim that they breached any duties in following the Plans' requirements to make Citigroup stock available as an investment option for employees.

More specifically, the plaintiffs, Steven Muehlgay, Sherri M. Harris, Chad D. Meisner, Frederick L. Winfield, Thomas Ehrbar, and Mark Geroulo (collectively, “the plaintiffs”) are employee participants or beneficiaries of the Citigroup Plan. They sue on behalf of themselves and others similarly situated to recover losses suffered by the Plans from January 16, 2008, to March 5, 2009. The plaintiffs allege that the defendants Citigroup, Citibank, N.A., the Plan Administration Committee of Citigroup Inc. (“the Administration Committee”), the 401(k) Plan Investment Committee of Citigroup Inc. (“the Investment Committee”), and individual corporate directors and officers of Citigroup¹(collectively, “the defendants”), violated their fiduciary duties to the plaintiffs under ERISA.

The Plans are defined contribution plans or individual account plans consisting of contributions made by employees and the employer, Citigroup. The Plans offer participants a variety of investment options, and participants are solely responsible for determining how contributions are invested among the available options. The Plans require that they include as an investment option the Citigroup Common Stock Fund, invested exclusively in Citigroup common stock plus limited liquid investments necessary to meet liquidity needs. Participants in the Citigroup Plan and the Citibuilder Plan are allowed to contribute up to 50% of their eligible pay, up to annual statutory limitations.²In certain circumstances, Citigroup makes matching contributions into the Plans in the form of Citi stock, although participants are able to convert that stock into any other investment. Third Am. Consol. Compl. (“Compl.”) ¶ 67; Paterson Decl. Ex. 5 (Citigroup 401(k) Plan As Amended and Restated Effective January 1, 2009 (“Citigroup Plan”)) § 7.02; Citigroup Plan § 5.04; Paterson Decl. Ex. 4 (Citibuilder 401(k) Plan for Puerto Rico As Amended and Restated Effective January 1, 2009 (“Citibuilder Plan”)) § 7.02.

This is the second consolidated action against the defendants asserting ERISA claims based on the decline in Citigroup's stock price during the subprime mortgage crisis. The first consolidated action was based on a drop in the price of Citigroup stock from $55.70 per share on January 1, 2007, to $26.94 per share on January 15, 2008. On August 31, 2009, Judge Stein granted the defendants' motion to dismiss that action, and on October 19, 2011, the Second Circuit Court of Appeals affirmed. Following the decision by the Court of Appeals, numerous class actions were filed and consolidated. In the current Third Consolidated Amended Complaint, the plaintiffs seek recovery based on a drop in the price of Citigroup stock from $27.23 per share on January 16, 2008, to $0.97 per share on March 5, 2009.

The plaintiffs allege five separate claims for violations of ERISA. The plaintiffs allege that the defendants violated their fiduciary duties of prudence and loyalty under ERISA by allowing the Plans to continue to hold and purchase Citigroup stock despite abundant public information regarding Citigroup's precarious condition and the riskiness of Citigroup stock. The plaintiffs also allege a duty of prudence claim based on the defendants' failure to respond prudently to nonpublic information. The plaintiffs bring further claims for the failure of Citigroup, Citibank, and the Director Defendants to monitor and adequately inform other fiduciaries, and a claim for co-fiduciary liability against all defendants. The defendants now move to dismiss the Third Consolidated Amended Complaint for failure to state a claim upon which relief can be granted pursuant to Federal Rule of Civil Procedure 12(b)(6).

I.

In deciding a motion to dismiss pursuant to Rule 12(b)(6), the allegations in the complaint are accepted as true, and all reasonable inferences must be drawn in the plaintiffs' favor. McCarthy v. Dun & Bradstreet Corp.,482 F.3d 184, 191 (2d Cir.2007); Arista Records LLC v. Lime Group LLC,532 F.Supp.2d 556, 566 (S.D.N.Y.2007). The Court's function on a motion to dismiss is “not to weigh the evidence that might be presented at a trial but merely to determine whether the complaint itself is legally sufficient.” Goldman v. Belden,754 F.2d 1059, 1067 (2d Cir.1985). The Court should not dismiss the complaint if the plaintiffs have stated “enough facts to state a claim to relief that is plausible on its face.”

Bell Atl. Corp. v. Twombly,550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). “A claim has facial plausibility when the plaintiff[s] plead [ ] factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal,556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009). While the Court should construe the factual allegations in the light most favorable to the plaintiffs, “the tenet that a court must accept as true all of the allegations contained in the complaint is inapplicable to legal conclusions.” Id.

When presented with a motion to dismiss pursuant to Rule 12(b)(6), the Court may consider documents that are referenced in the complaint, documents that the plaintiffs relied on in bringing suit and that are either in the plaintiffs' possession or that the plaintiffs knew of when bringing suit, or matters of which judicial notice may be taken. See Chambers v. Time Warner, Inc.,282 F.3d 147, 152–53 (2d Cir.2002); see also In re Am. Exp. Co. ERISA Litig.,762 F.Supp.2d 614, 618 (S.D.N.Y.2010).

II.

The Court accepts the following factual allegations for the purposes of the motion to dismiss.

A.

The plaintiffs are individual participants in the Citigroup Plan who held Citigroup stock in their individual Plan accounts during the class period. Compl. ¶¶ 35–38. Citigroup and Citibank are named sponsors of the Citigroup Plan and Citibuilder Plan, respectively. Compl. ¶¶ 41–42. The plaintiffs allege that under the terms of the Plans and various trust agreements, Citigroup had the authority to appoint trustees for the Plans and to appoint members of the Administration and Investment Committees. Compl. ¶¶ 89–93. During a portion of the class period, Citigroup appointed Citibank as a trustee of the Citigroup Plan. Compl. ¶ 99. Although Citigroup and Citibank delegated management and administrative duties to the Administrative and Investment Committees, the plaintiffs allege that Citigroup and Citibank retained some of these duties. Compl. ¶¶ 94, 100. Accordingly, the plaintiffs allege that Citigroup and Citibank are both named and de facto fiduciaries of the Plans within the meaning of ERISA § 3(21)(A), 29 U.S.C. § 1102(21)(A), because they exercise “authority or control respecting management or disposition of [Plan] assets,” and exercise “discretionary authority or discretionary control respecting management” of the plan. Compl. ¶¶ 98, 102 (alteration in original) (quoting ERISA § 3(21)(A)).

The Director Defendants—Bischoff, Pandit, and Rubin—were members of the Citigroup Board of Directors during the class period. Compl. ¶¶ 45–47. The plaintiffs allege that the Director Defendants appointed the Administration and Investment Committee Members, had a duty to monitor and provide necessary information to their appointees, and consequently are de facto fiduciaries of the Plans within the meaning of ERISA § 3(21)(A).

The named fiduciaries of the Plans subject to ERISA are the Administration Committee and the Investment Committee. Compl. ¶¶ 107, 112. The Administration Committee was the administrator of the Plans and was “charged with managing the operation and administration of the Plans.” Compl. ¶ 106. The Plans confer upon the Administration Committee “the power and the duty to take all actions and to make all decisions that shall be necessary or proper to carry out the provisions of the Plan.” Compl. ¶ 108. These powers include, among others, the authority to “make and enforce ... rules and regulations,” to modify, change, establish, or terminate such rules and regulations, and to “construe the Plan[s] and to determine all questions of fact and law that may arise hereunder.” Compl. ¶ 109. The Administration Committee also has the power and duty to...