Kenney v. State St. Corp.

Thomas U. Kenney, on behalf of himself and a class of persons similarly situated, Plaintiff,

v.State Street Corporation et al., Defendants.

Civil Action No. 09-10750-DJC

UNITED STATES DISTRICT COURT DISTRICT OF MASSACHUSETTS

Dated: September 15, 2011

MEMORANDUM & ORDER

CASPER, J.

I. Introduction

Plaintiff Thomas U. Kenney ("Kenney"), a former employee of Defendant State Street Corporation has filed this putative class action on behalf of himself and other similarly situated participants in the State Street Salary Savings Plan (the "Plan") for whose individual accounts the Plan held shares of common stock of State Street (including in the form of units of the State Street's Employee Stock Ownership Plan ("ESOP")) during the Class Period.¹ Kenney alleges that Defendants State Street Corporation, North America Regional Benefits Committee of State Street Corporation ("Benefits Committee"), State Street Corporation Committee Investment Committee ("Investment Committee") and various individual members of the Benefits Committee andInvestment Committee (collectively, the "Defendants" or "State Street") breached certain of its fiduciary duties under the Employment Retirement Income Security Act, 29 U.S.C. §§ 1001-1461 ("ERISA") by mismanaging Plan assets, making materially misleading statements and/or omissions and continuing to permit Plan participants to maintain shares of State Street stock and/or continue to invest Plan funds in State Street stock. On July 20, 2009, Kenney filed an amended complaint asserting six claims including, but not limited to, claims that the Defendants had breached their fiduciary duties by continuing to offer State Street common stock as an investment under the Plan and had made negligent misrepresentations and material nondisclosures regarding same. D. 9. On March 15, 2010, the Court (Saris, J.), upon the Defendants' motion, dismissed all, but one of the Kenney's claims in his amended complaint. Kenney v. State Street Corp., 694 F.Supp.2d 67 (D. Mass. 2010) ("Kenney I"). Subsequently, the Defendants moved for summary judgment on the surviving claim-Kenney's claim of negligent misrepresentation-and the Court (Saris, J.) allowed that motion on December 9, 2010. Kenney v. State Street Corp., 754 F.Supp.2d 288 (D. Mass. 2010) ("Kenney II").

On July 16, 2010, Kenney moved for leave to file a second amended complaint. D. 92. In the proposed second amended complaint, Kenney asserts six claims including claims against all the Defendants for lack of prudence in permitting Plan participants to continue to invest in and/or maintain investments in State Street common stock (First Claim), negligent misrepresentation (Second Claim) and material nondisclosure (Third Claim). In this amended pleading, Kenney requests a jury trial "of all issues so triable" and makes claims for equitable relief pursuant to ERISA § 502(a)(3), 29 U.S.C. § 1132(a)(3). Defendants opposed Kenney's motion on the grounds that the pleading, as amended, failed to state a plausible claim for relief and, therefore, any amendmentwould be futile. The Court referred the matter to Chief Magistrate Judge Dein. After a hearing and extensive briefing from the parties, Chief Magistrate Judge Dein issued her Report and Recommendation ("R&R"), dated May 18, 2011, recommending that the Court grant the motion only in part since the second amended complaint stated a claim for lack of prudence (First Claim), but failed to do as to all of the other claims (Second through Sixth Claims). The R&R also recommends that the Court strike Kenney's demand for a jury trial and the equitable relief that he seeks.

After the issuance of the R&R, the parties engaged in extensive briefing. Kenney and the Defendants have both now filed objections to the R&R, D. 142, 143, and each has responded to the other parties' objections. D. 144, 145, 149, 150. Defendants object only as to the recommendation in the R&R that allows the motion to amend with respect to Kenney's First Claim alleging lack of prudence in the management of the Plan. D. 142. Kenney objects to the R&R only to the extent that it recommends that he not be permitted to assert his claims for negligent misrepresentation (Second Claim) and for material nondisclosure (Third Claim), at least with respect to the granting of equitable relief for these claims. D. 143. For the reasons set forth below, the Court ADOPTS and ACCEPTS the R&R and Kenney's motion for leave to file a second amended complaint is GRANTED in part and DENIED in part. The Court also declines the Defendants' invitation to grant them leave under 28 U.S.C. § 1292(b) to file an immediate appeal.

II. Discussion

A district court judge "may accept, reject, or modify, in whole or in part, the findings or recommendations made by the magistrate judge." 28 U.S.C. § 636(b)(1). This Court, pursuant to 28 U.S.C. § 636(b)(1), must make "a de novo determination of those portions of the report orspecified proposed findings or recommendations to which the parties have objected." Id.; see Fed. R. Civ. P. 72(b)(3).

A. Defendants' Objections

Defendants object to the portion of the R&R that concludes that the proposed second amended complaint states a claim against State Street for violating their duty of prudent plan management (First Claim). The bases for that objection are that: 1) the First Claim in the proposed second amended complaint does not state a plausible basis for relief and the conclusion to the contrary in the R&R is inconsistent with Judge Saris' earlier decision dismissing the lack of prudence claim in the first amended complaint; and 2) the R&R should have applied the "presumption of prudence." Finally, the Defendants request that if this Court accepts the R&R as to the First Claim, that it certify an immediate appeal to the First Circuit of the issue of whether districts courts in this Circuit should apply the presumption of prudence.

1. The First Claim of the Proposed Second Amended Complaint Does State a Claim for Relief

In considering the Defendants' opposition to a motion to amend on the grounds that amending the complaint would be futile, the Court must apply the standard that applies to a motion to dismiss under Fed. R. Civ. P. 12(b)(6). Hatch v. Dep't for Children, Youth and Their Families, 274 F.3d 12, 19 (1st Cir. 2001); Transwitch Corp. v. Galazar Networks, Inc., 377 F.Supp.2d 284, 290 (D. Mass. 2005). Post-Twombly and Iqbal, whether a complaint should survive a motion to dismiss depends upon whether the pleading satisfies the "plausibility" standard. Ashcroft v. Iqbal, 129 S.Ct. 1937 (2009); Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007). As the First Circuit has made clear, "[i]n resolving a motion to dismiss, a court should employ a two-step approach." Ocasio-Hernández v. Fortuño-Burset, 640 F.3d 1, 9 (1st Cir. 2011) (applying Iqbal and Twombly)."It should begin by identifying and disregarding statements in the complaint that merely offer 'legal conclusion[s] couched as . . . fact[]' or '[t]hreadbare recitals of the elements of a cause of action.'" Id. at 12 (quoting Iqbal, 129 S.Ct. at 1949-50) (further citation omitted). "A plaintiff is not entitled to 'proceed perforce' by virtue of allegations that merely parrot the elements of the cause of action." Id. (quoting Iqbal, 129 S.Ct. at 1950). The remaining "[n]on-conclusory factual allegations in the complaint must be then treated as true, even if seemingly incredible" and assessed to determine whether they, "'allow[ ] the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.'" Id. (quoting Iqbal, 129 S.Ct. at 1949, 1951). If they do, "the claim has facial plausibility." Id. (quoting Iqbal, 129 S.Ct. at 1949). "The make-or-break standard . . . is that the combined allegations, taken as true, must state a plausible, not a merely conceivable, case for relief." Id. (quoting Sepúlveda-Villarini v. Dep't. of Educ. of P.R., 628 F.3d 25, 29 (1st Cir. 2010) (Souter, J.)).

Applying this standard, the First Claim states a plausible claim against the Defendants. Under ERISA, fiduciaries are required to "act 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." Bunch v. W.R. Grace & Co., 555 F.3d 1, 7 (1st Cir. 2009) (internal quotation marks and citations omitted). In this context, "prudence involves a balancing of competing interests under conditions of uncertainty." Id. (internal quotation marks and citation omitted). The court must review an ERISA fiduciary's conduct in light of "the totality of the circumstances." Id. The totality of the circumstances shall include, but is not limited to, consideration of the "plan structure and aims, the disclosures made to participants regarding the general and specific risks associated with investment in company stock . . . the nature and extent of challenges facing the company thatwould have an effect on stock price and viability," DiFelice v. U.S. Airways, Inc., 497 F.3d 410, 418 (4th Cir. 2007), and "the market price of the [company's] stock." Bunch, 555 F.3d at 7; R&R at 26. This, however, is a non-exhaustive test. See Bunch, 555 F.3d at 7; DiFelice, 497 F.3d at 418. The focus of this inquiry is on the conduct of the fiduciary, not on the performance of the investments. Id.

Accepting the properly pled factual allegations, as the Court must, and applying this standard, the allegations in the First Claim sufficiently allege a claim for lack of prudence. First, the structure of the Plan and its aims, including the summary plan description ("SPD") showing that participants had at least twenty investment options to choose from, that the plan is "a tax qualified plan with an employee stock ownership feature" and that the SPD contained a "warning" that "neither State Street nor the Plan fiduciaries are responsible for the consequences of your investment decisions," (D. 142 at 8-9), does not in...