Spano v. Boeing Co.

125 F.Supp.3d 848

Gary Spano, John Bunk, and James White, Jr., Plaintiffs,

v.The Boeing Company, Employee Benefits Plans Committee, Scott M. Buchanan, and Employee Benefits Investment Committee, Case Defendants.

No. 3:06–CV–743–NJR–DGW

United States District Court, S.D. Illinois.

Signed December 30, 2014

Jason P. Kelly, Jerome J. Schlichter, Andrew D. Schlichter, Heather Lea, Mark G. Boyko, Michael A. Wolff, Sean E. Soyars, Troy A. Doles, Schlichter, Bogard et al., St. Louis, MO, for Plaintiffs.

Brian D. Boyle, Meaghan E. Vergow, Shannon M. Barrett, O'Melveny & Myers LLP, Washington, DC, Jeffrey S. Russell, Kimberly A. Mohr, Lisa Demet Martin, Thomas E. Wack, Carrie E. Byrnes, Bryan Cave, LLP, St. Louis, MO, for Defendants.

MEMORANDUM AND ORDER

ROSENSTENGEL, District Judge:

Pending before the Court are two motions filed by Defendants The Boeing Company, Employee Benefits Plans Committee, Scott M. Buchanan, and Employee Benefits Investment Committee (collectively "Defendants"): a Motion for Summary Judgment on the Merits (Doc. 406) and a Motion for Summary Judgment based on ERISA's Statute of Repose (Doc. 407). Also pending before the Court is a Motion to Strike (Doc. 412) filed by Plaintiffs Gary Spano, John Bunk, and James White, Jr. (collectively "Plaintiffs"). For the reasons set forth below, the Court denies the Motion for Summary Judgment on the Merits (Doc. 406), grants in part and denies in part the Motion for Summary Judgment based on ERISA's Statute of Repose (Doc. 407), and denies the Motion to Strike (Doc. 412).

FACTUAL AND PROCEDURAL BACKGROUND

This class action lawsuit involves a claim for breach of fiduciary duty brought pursuant to the Employee Retirement Income Security Act of 1974, 29 U.S.C. §§ 1001 –1461 ("ERISA"). Plaintiffs Gary Spano, John Bunk, and James White, Jr., are current and former employees of The Boeing Company ("Boeing") who participated in The Boeing Company Voluntary Investment Plan ("the Plan"), a 401(k) plan offered by Boeing to its employees. More specifically, the Plan is a multi-billion dollar defined contribution plan governed by ERISA (Doc 186, p. 26, ¶ 124). Plan Participants contribute varying percentages of their earnings to the Plan (Doc. 186, p. 1, ¶ 2). The Plan Participants' employer, Boeing, matches these contributions in varying percentages (Doc. 213–27, p. 22; Doc. 180–4, p. 6–7). In a defined contribution plan such as this one, Plan Participants choose an investment avenue for contribution and are entitled to the value of their own investment accounts (Doc 186, p. 9, ¶ 28; Doc. 371, p. 9).

Plaintiffs allege that Defendants are Plan fiduciaries who have breached their fiduciary duties pursuant to ERISA § 409, 29 U.S.C. § 1109, ERISA §§ 502(a)(2), (3), 29 U.S.C. §§ 1132(a)(2), (3). Plaintiffs allege two counts in the Second Amended Complaint: breach of fiduciary duty pursuant to ERISA § 502(a)(2) (Count 1), and other remedies for breach of fiduciary duty pursuant to ERISA § 502(a)(3) (Count 2) (See Doc. 186).

Defendant Boeing employs more than 150,000 employees across forty-eight states, with major operations in the Puget Sound area of Washington State, Southern California, and St. Louis, Missouri (Doc 186, p. 4, ¶ 16). Defendant Boeing is the Plan Sponsor who provides the 401(k) plan for its employees (Id. at p. 2, ¶ 7). Defendant Employee Benefit Plan Committee (the "Committee") is the Plan Administrator, which is generally responsible for the operation and administration of the Plan (Doc. 406, p. 3). Defendant Employee Benefits Investment Committee (the "EBIC") is the party that generally chooses and monitors investment managers in the Plan (Doc 406, p. 3). Defendant Scott M. Buchanan is the employee designated to sign the Plan's annual reports (Doc. 406, p. 3).

The Plan has been administered through a Master Trust Agreement between Boeing and State Street Bank and Trust Company, which later became CitiStreet (hereafter "State Street/CitiStreet"), since October 1, 1997 (Doc. 408, p. 3; Doc. 186, p. 10, ¶ 30).¹ The "Benefit Plan Administrative Services Contract" provides that State Street/CitiStreet would be paid a "hard dollar" per-participant fee for its services and would receive payments from certain mutual funds in the Plan under separate arrangements it had with those funds (Doc. 406, p. 4; Doc. 213–20, p. 4–5, 24). These additional amounts are commonly referred to as "revenue sharing."²

Plan Participants may choose to invest in a selection of investment options (Doc. 189, p. 11, ¶ 36). Some of the options offered were five passive index funds, along with the Boeing Company Stock Fund and the Stable Value Fund (Doc. 406, p. 4). Defendants also included four actively managed mutual funds (Technology Fund, Small Cap Fund, Value Fund, and Growth Fund) (Doc. 406, p. 5). Funds are chosen for plan inclusion by investment managers who are paid for their service out of the Plan (Doc. 186, p. 20–21, ¶ 85–86).

Plaintiffs allege a breach of fiduciary duty by Defendants for causing or allowing unreasonable fees and expenses to be charged against the assets of the Plan and by failing to ensure that the Plan's assets were used solely for the exclusive purpose of providing benefits to Plan Participants. Plaintiffs allege that Defendants caused the Plan to pay unreasonable administrative fees to its recordkeeper State Street/CitiStreet. Additionally, Plaintiffs allege that Defendants selected and retained mutual funds as Plan investment options until 2006, which charged excessive investment management expenses and were the vehicle Defendants used to funnel excessive Plan recordkeeping and administrative fees to State Street/CitiStreet via revenue sharing. Plaintiffs further allege that the Small Cap Fund provided additional revenue sharing fees to State Street/CitiStreet and charged its investors one hundred and seven basis points per year in fees, which was grossly excessive, in order to benefit Defendants' corporate relationship with State Street/CitiStreet. Plaintiffs further allege that Defendants failed to monitor and remove an imprudently risky concentrated sector fund, i.e. the Technology Fund, and instead retained this fund for the purpose of benefiting its corporate relationship, rather than for the sole benefit of the Plan Participants. Lastly, Plaintiffs allege that the Boeing Company Stock Fund incurred excessive fees and held excessive cash, impairing the value of the Plan assets. With regard to this fund, Plaintiffs also allege that Defendants failed to remedy the resulting transaction and institutional drag.

This case has generated a lengthy procedural history, which is only briefly summarized here. The case was filed in September 2006 and originally assigned to Judge James L. Foreman, who has since retired and passed away. In October 2006, the case was reassigned to Judge David R. Herndon. In September 2008, Judge Herndon granted Plaintiffs' Motion for Class Certification and certified the following class:

All persons, excluding the Defendants and/or other individuals who are or may be liable for the conduct described in this Complaint, who are or were participants or beneficiaries of the Plan and who are, were or may have been affected by the conduct set forth in this Complaint, as well as those who will become participants or beneficiaries of the Plan in the future.

(Doc. 193). Shortly thereafter, Defendants appealed Judge Herndon's Order to the Seventh Circuit Court of Appeals (Docs. 279, 288). In January 2011, the Seventh Circuit reversed Judge Herndon's Order granting class certification and remanded the case for further proceedings. See Spano v. The Boeing Co., 633 F.3d 574 (7th Cir.2011). On March 2, 2011, Plaintiffs filed an Amended Motion to Certify Class (Doc. 309), and on September 19, 2013, Judge Herndon certified the following class with subclasses (See Doc. 397):

Administrative Fee claim and class: All participants or beneficiaries of the Boeing Voluntary Investment Plan, excluding the Defendants, members of the Defendant committees, and the Boeing directors, who had an account balance at any time between September 28, 2000 and December 31, 2006, as all participants during that time paid recordkeeping fees.

Mutual Fund Subclass: All participants or beneficiaries of Boeing Voluntary Investment Plan, excluding the Defendants, members of the Defendant committees, and the Boeing directs, who, between September 28, 2000 and December 31, 2005, invested in any of the Plan's mutual funds, since each mutual fund during this time were laden with imprudently excessive fees.

Small Cap Fund Subclass: All participants or beneficiaries of the Boeing Voluntary Investment Plan, excluding the Defendants, members of the Defendant committees, and the Boeing directors, who, between September 28, 2000 and December 31, 2005, invested in the Small Cap mutual fund in the Plan.

Technology Fund Subclass: All participants or beneficiaries of the Boeing Voluntary Investment Plan, excluding the Defendants, members of the Defendant committees, and the Boeing directors, who, between September 28, 2000 and December 31, 2005 invested in the Plan's Technology Fund and whose investment in the Technology underperformed that of the diversified domestic equity markets as represented by the Standard and Poor's 500 Index Fund minus 5 basis points for investment management.

Company Stock Fund Subclass: All participants or beneficiaries of the Boeing Voluntary Investment Plan, excluding the Defendants, members of the Defendant committees, and the Boeing directors, who, between September 28, 2000 and December 31, 2006 invested in the Plan's Boeing Company Stock and whose investment in the Boeing Company Stock Fund underperformed that of Boeing Company Stock.

On January 8, 2014, Defendants filed two Motions for Summary Judgment: a Motion for Summary Judgment on the Merits (Doc. 406) and a Motion for Summary Judgment Based on ERISA's Statute of Repose (Doc. 407). On February 10, 2014, Plaintiffs...