IN RE MORGAN STANLEY ERISA LITIGATION

696 F. Supp.2d 345

In re MORGAN STANLEY ERISA LITIGATION.

No. 07 Civ. 11285(Rws).

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

December 9, 2009.

Milberg LLP, by Sanford P. Dumain, Esq., Lori G. Feldman, Esq., Arvind Khurana, Esq., Sara E. Fuks, Esq., Wolf Halderstein Adler Freeman & Herz LLP, by Mark C. Rifkin, Esq., Michael Jaffe, Esq., Kate M. McGuire, Esq., Harwood Feffer LLP, by Robert I. Harwood, Esq., Samuel K. Rosen, Esq., Jennifer Hirsh, Esq., New York, NY, Schiffrin Barroway Topaz & Kessler LLP, by Joseph H. Meltzer, Esq., Edward W. Ciolko, Esq., James Maro, Esq., Radnor, PA, Abraham Fruchter & Twersky LLP, by Jeffrey Abraham, Esq., New York, NY, for Plaintiff.

Davis Polk & Wardwell, by Robert F. Wise, Jr., Esq., Charles S. Duggan, Esq., New York, NY, for Defendants.

OPINION

SWEET, District Judge.

Defendants Morgan Stanley ("Morgan Stanley" or the "Company"), Morgan Stanley & Co., Inc. ("MS & Co.,") (collectively the "Corporate Defendants"), Karen Jamesley, Morgan Stanley's Global Director of Human Resources ("Jamesley"), John Mack, a member of Morgan Stanley's Board of Directors ("Mack" or the "Morgan Stanley Director Defendant"),¹ members of MS & Co.'s Board of Directors (the "MS & Co. Director Defendants"), and members of the Investment Committee (the "Investment Committee Defendants") (collectively, the "Defendants"), have moved pursuant to Rules 12(b)(6) and 9(b), Fed.R.Civ.P., to dismiss the Consolidated Amended Class Action Complaint (the "Complaint"). On the conclusions set forth below, the motion is denied.

I. PROCEDURAL HISTORY

This is a consolidated class action brought by participants in the Morgan Stanley 401(k) Plan ("401(k) Plan") and the Morgan Stanley Employee Stock Ownership Plan ("ESOP") (collectively the "Plans") against Defendants for violations of their fiduciary duties under the Employee Retirement Income Security Act of 1974 ("ERISA"). The action was commenced on December 14, 2007, with the filing of a complaint by Plaintiff Carolyn Egan on behalf of herself and all others similarly situated (07 Civ. 11285). Additional complaints were subsequently filed by John Siefken on December 20, 2007 (07 Civ. 11456), C. Kenneth Coulter on December 28, 2007 (07 Civ. 11624), Gregory Major on January 18, 2008 (08 Civ. 496), and Michael Chiecko, Eli Mond, Elena Ramos, Alvin Saini, and John Sudolsky on February 6, 2008 (08 Civ. 1206).

By order of this Court, on February 11, 2008, the above-referenced actions were consolidated pursuant to Fed.R.Civ.P. 42(a) under Docket Number 07 Civ. 11285. Wolf Haldenstein Adler Freeman & Herz LLP, and Milberg Weiss LLP were appointed Interim Co-Lead Class Counsel, and Schiffrin Barroway Topaz & Kessler, LLP, and Harwood Feffer LLP were appointed to the Interim Executive Committee of Class Counsel.² The Consolidated Amended Class Action Complaint was filed on July 28, 2008.

Defendants' motion to dismiss the Complaint, filed September 26, 2008, was marked fully submitted on December 23, 2008.

II. FACTUAL ALLEGATIONS

The following allegations, taken from the Complaint, are accepted as true for the purpose of resolving the motion to dismiss.

A. The Parties

This action is brought by and on behalf of participants in the 401(k) and ESOP Plans, who, as a result of their own or Morgan Stanley's contributions, held Morgan Stanley stock in their individual 401(k) Plan and/or ESOP accounts from August 9, 2006 to the present (the "Class Period").

Defendant Morgan Stanley is a global financial services company headquartered in New York, New York, that provides financial advisory services, investment advisory services, global asset management products and services in equity, fixed income, alternative investments, and private equity to its clients and customers. Morgan Stanley is the "sponsor" of the ESOP, as that term is defined by section 3(16)(B) of ERISA, 29 U.S.C. § 1002(16)(B).

Defendant MS & Co., a wholly owned subsidiary of Morgan Stanley, is a Delaware corporation headquartered in New York, New York. MS & Co. is Morgan Stanley's primary broker-dealer in the U.S. and is part of Morgan Stanley's Global Wealth Management Group. MS & Co. is the "sponsor" of the 401(k) Plan.

During the Class Period defendant Karen Jamesley was Morgan Stanley's Global Director of Human Resources. As such, she served as the "Plan Administrator" for both the 401(k) Plan and the ESOP. See 401(k) Plan, Definition; ESOP, Art. 1.34.

Morgan Stanley Director Defendant John J. Mack was, at all times during the Class Period, Morgan Stanley's Chief Executive Office ("CEO") and its Chairman of the Board.

MS & Co. Director Defendants Walid A. Chammah, Charles Chasin, Zoe Cruz, Richard Portogallo, James P. Gorman, Neal A. Shear, and Cordell G. Spencer, were, during the Class Period, members of the Board of Directors of MS & Co.

During the Class Period, management of the Plans was in the hands of the Investment Committee, members of which were appointed by and served at the pleasure of the MS & Co. Director Defendants. Under the terms of the Plans, the Investment Committee consisted of no fewer than three persons, each of whom was an employee and/or advisory director of Morgan Stanley or MS & Co. Investment Committee Defendants Michael Rankowitz, Thomas C. Schneider, Michael T. Cunningham, R. Bradford Evans, Kirsten Feldman, Edmund C. Puckhaber, and William B. Smith served as members of the Investment Committee during all or part of the Class Period.

Plaintiffs' Complaint also names unknown "John Doe" Defendants 1-10, individuals including members of the Investment Committee and officers, directors and employees of Morgan Stanley and MS & Co., who have been fiduciaries of the Plans during the Class Period, but whose identities are currently unknown to Plaintiffs.

B. The Plans

The Plans are retirement plans operated and established by Morgan Stanley as a benefit for its employees to permit taxadvantaged savings for retirement and other long-term goals. Each Plan is an "employee pension benefit plan," as defined by § 3(2)(A) of ERISA, 29 U.S.C. § 1002(2)(A).

1. The 401(k) Plan

The 401(k) Plan is a "defined contribution plan" within the meaning of ERISA § 3(34), 29 U.S.C. § 1002(34). Employees who work at least 20 hours per week are eligible to participate in the 401(k) Plan at the commencement of their employment. Individual accounts are maintained for each 401(k) Plan participant, and each participant's account is credited with employee contributions, Company contributions, and the 401(k) Plan's earnings, and charged with the allocation of investment losses and administrative expenses not otherwise paid by Morgan Stanley.

Contributions to the 401(k) Plan are allocated among the available investments as selected by the participant from among the investments designed by the Investment Committee. As of December 31, 2007, there were 27 investment vehicles available for selection in the 401(k) Plan, including a fund consisting solely of Company Stock.

Plan participants with an annual salary of less than $200,000 per year are eligible for Morgan Stanley's matching program. The Company matches dollar for dollar value up to six percent of an employee's pre-tax eligible pay for the first $2,000 of eligible pre-tax contributions, and 50 cents per dollar for each additional dollar of eligible pre-tax contributions. The Company also may make other contributions, including a discretionary profit sharing contribution, the amount of which varies from year to year, and a "retirement contribution" for employees hired after June 30, 2007, who have worked at Morgan Stanley for at least one year.

Participants in the 401(k) Plan can elect to make contributions on a pre-tax basis through payroll deductions up to a predetermined limit. Employees can also elect to contribute a certain percentage of eligible compensation in after-tax dollars up to an annual maximum. Participants are always 100% vested in contributions to the 401(k) Plan made from their eligible compensation and in the earnings thereon.

2. The ESOP

All employees regularly scheduled to work at least twenty hours per week are also eligible to participate in the ESOP. Participants make contributions to the ESOP through their contributions to the 401(k) Plan, and all investments in Company Stock are transferred to the ESOP.

Section 6(f) of the 401(k) Plan provides that "Company Contributions to the Plan for a Plan Year shall be made in the form of cash unless the Company MS & Co. determines that any and all such contributions shall be made in the form of Company Stock." During the Class Period, all Company contributions were made exclusively in Company Stock and made to the ESOP.

As of January 1, 2007, restrictions on the transfer of holdings of Company Stock in the ESOP attributable to Company Contributions were loosened. Now participants over 55 or with three years service can fully transfer all such holdings, and participants under age 55 with at least three years of service can transfer such holdings allocated to their accounts after January 2007, and can transfer all such holdings allocated to their accounts before January 2007 in accordance with a schedule provided in the 2007 Summary Plan Description ("SPD").

Participants in the Plans hired on or after January 1, 2004 become vested in Company Contributions and earnings thereon in the ESOP upon the earlier of the completion of three years of service, or termination of employment due to death, total and permanent disability, retirement, or release, as defined in the 401(k) Plan.

Plaintiff's Allegations

The Complaint alleges that Defendants, "fiduciaries" of the Plans, breached their duties to the Plans and participants and beneficiaries of the Plans during the Class Period in violation of ERISA §§ 404(a) and 405, 29 U.S.C. §§ 1104(a) and 1105. Specifically, the Complaint alleges that Morgan Stanley, under Mack's leadership, dramatically increased the Company's...