Source: http://www.apfn.org/enron/enron_court.htm
Timestamp: 2017-11-20 18:53:32
Document Index: 615304903

Matched Legal Cases: ['§ 1132', '§ 409', '§ 1109', '§ 409', '§ 1109', '§ 1331', '§ 502', '§ 1132', '§ 502', '§ 1132', '§ 3', '§ 1002', '§ 407', '§ 1107', '§ 401', '§ 401', '§ 3', '§ 1002', '§ 3', '§ 1002', '§ 402', '§ 1102', '§ 402', '§ 3', '§ 1102', '§ 405', '§ 1105', '§ 404', '§ 1104', '§ 502', '§ 1132', '§ 1109', '§ 409', '§ 1109', '§ 409', '§ 1109', '§ 502', '§ 1132', '§ 409', '§ 1109']

The principal Enron defendant named in the Complaint is the Enron Corporation, an Oregon corporation which is based in Houston, Texas (see www.Enron.com ). The other Enron defendants are: Mary K. Joyce, named as the "Plan Administrator" in certain of the Annual Reports of the Plan during times relevant to this action; James S. Prentice, named as the Chairman of the Administrative Committee in certain public filings of Enron; John and Jane Does 2-20, who are or were members of "Administrative Committee" of the Plan from January 1, 1997 to the present. Their identity is now unknown to Plaintiffs. Once their identity is discovered, Plaintiffs will seek leave to amend to join them under their true names. These Defendants are referred to collectively as the Administrative Committee Defendants; and those individuals that are now or were in 2000 members of the Board of Directors of Enron, as follows:
Robert A. Belfer (2000-01), Norman P. Blake (2000-01), Ronnie C. Chan (2000-01), John H. Duncan (2000-01), Wendy L. Gramm (2000-01), Robert K. Jaedicke (2000-01), Kenneth L. Lay (2000-01), Charles A. LeMaistre (2000-01), Jeffrey K. Skilling (2000-01), John A. Urquhart (2000 only), John Wakeman (2000-01), Herbert S. Winokur (2000-01), Ken L. Harrison (2000 only), John Mendelsohn (2000-01), Jerome J. Meyer (2000 only), Rebecca Mark-Jusbasche (2000 only), Paulo V. Ferraz Pereira (2000-01), and Frank Savage (2000-01). They are named both individually and as constituting the Board of Directors of Enron for those years.
The Complaint (below) alleges that during the Class Period the defendants breached their fiduciary duties when Enron and executives officers were made aware of numerous practices that made Enron's stock an inappropriate Plan investment during the Class Period. The fiduciaries failed in their duty to disclose and inform the 401(k) participants regarding this information. Instead they encouraged participants and beneficiaries of the Plan to continue to make and maintain substantial investments in the Company Stock Funds in the Plan. http://www.enronerisa.com/defendant.html
Pamela M. Tittle, Plaintiff No. 2, and Plaintiff No. 3, on behalf of themselves and a class of persons similarly situated,
Enron Corp., an Oregon corporation; Mary K. Joyce; Robert A. Belfer, Norman P. Blake, Ronnie C. Chan, John H. Duncan, Wendy L. Gramm, Ken L. Harrison; Robert K. Jaedicke, Kenneth L. Lay, Charles A. LeMaistre, Jeffrey K. Skilling, John A. Urquhart, John Wakeman, Herbert S. Winokur, John Mendelsohn, Jerome J. Meyer, Rebecca Mark-Jusbasche, Paulo V. Ferraz Pereira, and Frank Savage, individually and as constituting the Board of Directors of Enron Corp.; James S. Prentice; and John and Jane Does 2-20,
FIRST AMENDED COMPLAINT FOR BREACH OF FIDUCIARY DUTY
CASE No. H 01-3913
For their Complaint against Defendants, Plaintiffs allege as follows:
1. This is a civil enforcement action brought pursuant to section 502 of the Employee Retirement Income Security Act ("ERISA") (29 U.S.C. § 1132).
2. The lawsuit concerns the Enron Corp. Savings Plan (the "Plan"), a 401(k) plan established by Enron Corp. ("Enron") as a benefit for its employees to permit tax-advantaged savings for retirement and other long-term goals.
3. The Plaintiffs, Ms. Pamela M. Tittle, Plaintiff No. 2, and Plainitff No.3, are participants in the Plan. They claim that the Defendants, i.e., Enron itself and certain individuals, are fiduciaries of the Plan. Further, they claim that they breached their fiduciary duties to herself and the other participants and beneficiaries of the Plan in violation of ERISA § 409 (29 U.S.C. § 1109) in a variety of ways, especially in connection with the Plans holdings of company stock. And they claim that the Defendants are obliged, under ERISA, to make good to the Plan the loss it has suffered as a result of their fiduciary breaches. These losses have yet to be calculated, and depend on a variety factors, but will likely exceed $1.0 billion.
4. Because her claims apply to the participants and beneficiaries as a whole, and because ERISA authorizes participants such as Ms. Tittle, Plaintiff No. 2, and Plaintiff No. 3 to sue for plan-wide relief for breaches of fiduciary duty, they seek to bring this action on behalf of themselves and the class of all the participants and beneficiaries of the Plan during the relevant period.
NATURE OF THE APPLICATION FOR PRELIMINARY INJUNCTION
5. Among the claims asserted in this action is that the fiduciaries, i.e., Enron itself and various individual Enron insiders, all have an irreconcilable conflict of interest in continuing to serve as fiduciaries of the Plan.
6. In the brief time since the original complaint in this matter was filed on November 13, 2001, it has become clear that actions that critically affect the interests of the participants, are being taken by these same fiduciaries notwithstanding their continuing breach of fiduciary duty. These actions fall into three broad categories.
7. First, upon information and belief, Enron is currently in the process of laying off employees (by some reports up to 60% of the employees in some units are being laid off), and presenting these departing employees, as part of their severance package, with a release that purports to release any claims they may have for breach of fiduciary duty in connection with the losses they have suffered in the Plan. This is an outrageous breach of fiduciary dutya "fiduciary" soliciting from the participants in whose interests it is obliged to act a release of its own liability for conduct that is only now coming to light.
8. Second, according to reports in the financial press, Enron and Dynergy, Inc., who have been in negotiations over a possible merger for some time, now are considering "an agreement making clear that the merger would not be derailed by litigation over Enrons devastated employee-retirement plan." The New York Times, November 27, 2001. Again, Enron and its insiders obviously have an irreconcilable conflict of interest in representing Enrons interests in the merger negotiations and the interests of the Plan participants with respect to the future of the Plan.
9. Third, Enrons latest filing with the SEC, raises doubts about its future as a going concern. This makes it imperative that decisions about the use of Enron stock as an investment vehicle in the Plan be made by truly independent fiduciaries.
10. Because Enrons conduct with respect to these two issues may seriously jeopardize the interests of the participants in the immediate future, Plaintiffs request for themselves and the Class an immediate preliminary injunction prohibiting Enron from soliciting any releases which would affect the participants rights vis a vis the Plan or from taking any action that would bind the Plan to any course of conduct with respect to the proposed merger. If it is essential that the Plan have a decision maker on these, and other issues that may arise given Enrons currently precarious position, the Court should appoint a neutral fiduciary to manage the Plan, as it is permitted to do pursuant to ERISA § 409 (29 U.S.C.§ 1109).
11. This Court has subject matter jurisdiction over this action pursuant to 28 U.S.C. § 1331 (federal question) and the specific jurisdiction statute for claims of this type, ERISA § 502(e)(1) (29 U.S.C. § 1132(e)(1)).
12. This Court has personal jurisdiction over the Defendants, all but one of whom are residents of the United States, because once a district court has subject matter jurisdiction under ERISA, there is personal jurisdiction throughout the United States. As to the non-United States resident, this Court has personal jurisdiction over him because he has caused events to occur within the United States, and this district, sufficient to permit this Court to constitutionally exercise jurisdiction over him pursuant to Federal Rule of Civil Procedure 4(f) and 4(k).
13. Venue is properly laid in this district pursuant to ERISA § 502(e)(2) ( 29 U.S.C. § 1132(e)(2)) because the Plan was administered in this district, some or all of the fiduciary breaches for which relief is sought occurred in this district, and many of the Defendants reside in this district.
14. The Plan is an "employee pension benefit plan" within the meaning of ERISA § 3(2)(A) (29 U.S.C. § 1002(2)(A)). Further, it is an "eligible individual account plan" within the meaning of ERISA § 407(d)(3) (29 U.S.C. § 1107(d)(3)) and also a "qualified cash or deferred arrangement" within the meaning of I.R.C. § 401(k) (26 U.S.C. § 401(k)). The Plan is not a party to this action. Pursuant to ERISA, however, the relief requested in this action is for the benefit of the Plan.
15. Enron is the sponsor of the Plan. Its Sponsor Identification Number is 47-0255140 and the Plan Number is 333.
16. The participants of the Plan were permitted to contribute from 1% to 15% of their eligible base pay to the Plan. Participants directed the investment of their contributions, in 1% increments, to the various investment options available in the Plan.
17. Most of these options were diversified mutual funds. However, the options also included the Enron Corp. Stock Fund and the Enron Oil & Gas Stock Fund (without distinction, the "Company Stock Funds"). The Company Stock Funds invested solely in company stock (and a small portion in cash equivalents for liquidity).
18. Enron matched participants contributions, at certain specified percentages, by making contributions to the participants account into the Company Stock Funds. These investments were frozen in the Company Stock Funds in most cases until the participant reached age 50.
THE PARTIES TO THIS ACTION
19. Plaintiff Pamela M. Tittle is a resident of Louisiana. For many years she worked for Portland General Corporation, and was a participant in its 401(k) plan, until it was acquired by Enron and merged into a company called Enron Oregon Corp. in 1997. She continued work with Enron until her employment terminated at the end of 1998. She has been a "participant" in the Plan, within the meaning of ERISA § 3(7) (29 U.S.C. § 1002(7)), since 1997 and remains a participant today. Since 1997 she has held approximately 2000 shares of Enron stock in the Company Stock Funds, representing a substantial portion of her total savings in the Plan. In 2001 alone the value of this stock has dropped from approximately $80.00 per share to approximately $10.00 per share, representing a loss to her retirement savings of approximately $140,000.
20. Plaintiff No. 2 Information
21. Plaintiff No. 3 Information
22. Defendant Enron is an Oregon corporation with its principal place of business and chief executive offices located at 1400 Smith Street, Houston, TX 77002. Enrons stock is publicly traded under the symbol ENE.
23. Defendant Mary K. Joyce is a resident of Texas. She is named as the "Plan Administrator" in certain of the Annual Reports of the Plan during times relevant to this action.
24. James S. Prentice, previously named as John Doe No. 1, is also a resident of Texas. He is named as the "Chairman of the Administrative Committee" in certain public filings of Enron. John and Jane Does 2 ­ 20 are residents of the United States and are or were members of "Administrative Committee" of the Plan from January 1, 1997 to the present. Their identity is now unknown to Plaintiffs. Once their identity is discovered, Plaintiffs will seek leave to amend to join them under their true names. These Defendants are referred to collectively as the Administrative Committee Defendants.
25. The remaining non-fictitious Defendants are now or were in 2000 members of the Board of Directors of Enron, as follows: Robert A. Belfer (2000-01), Norman P. Blake (2000-01), Ronnie C. Chan (2000-01), John H. Duncan (2000-01), Wendy L. Gramm (2000-01), Robert K. Jaedicke (2000-01), Kenneth L. Lay (2000-01), Charles A. LeMaistre (2000-01), Jeffrey K. Skilling (2000-01), John A. Urquhart (2000 only), John Wakeman (2000-01), Herbert S. Winokur (2000-01), Ken L. Harrison (2000 only), John Mendelsohn (2000-01), Jerome J. Meyer (2000 only), Rebecca Mark-Jusbasche (2000 only), Paulo V. Ferraz Pereira (2000-01), and Frank Savage (2000-01). They are named here both individually and as constituting the Board of Directors of Enron for those years. These Defendants are referred to collectively as the Director Defendants.
26. Ms. Joyce, the Administrative Committee Defendants, and the Director Defendants are referred to collectively as the Individual Defendants.
APPROPRIATENESS OF CLASS ACTION
27. Plaintiffs bring this action pursuant to Rule 23 of the Federal Rules of Civil Procedure on behalf of themselves and a class (the "Class") of all persons similarly situated. The Class itself consists of all persons who were participants in or beneficiaries of the Plan, excluding the Defendants, at any time from November 1, 2000, to the present (the "Class Period") and who made or maintained investments in the Company Stock Funds.
28. Plaintiffs meet the prerequisites to bring this action on behalf of the Class because:
Numerosity. The Class consists of over 10,000 individuals and is so numerous that joinder of all members as individual plaintiffs is impracticable.
Typicality. Plaintiffs claims are typical of the claims of the class.
Adequacy. Plaintiffs will fairly and adequately protect the interests of the Class. They have no interests that are antagonistic to or in conflict with the interest of the Class as a whole, and they have engaged competent counsel, experienced in ERISA class actions concerning employer securities in 401(k) plans, as well as in other class and complex litigation, to ensure protection of the interests of the Class as a whole.
29. This action is maintainable as a class action for the following four independent reasons:
a. The prosecution of separate actions by the members of the Class would create a risk of inconsistent or varying adjudications with respect to the individual members of the Class, which would establish incompatible standards of conduct for Defendants.
b. The prosecution of separate actions by the members of the Class would create a risk of adjudications with respect to individual members of the Class which would, as a practical matter, be dispositive of the interests of the other members not parties to the adjudications or substantially impair or impede their ability to protect their interests.
c. The Defendants have acted or refused to act on grounds generally applicable to the Class, thereby making appropriate final injunctive, declaratory, or other appropriate equitable relief with respect to the Class as a whole.
d. Questions of law and fact common to members of the Class predominate over any questions affecting only individual members, and the class action is superior to other available methods for the fair and efficient adjudication of the controversy.
FIDUCIARY STATUS OF DEFENDANTS
30. During the Class Period, the Defendants had discretionary authority respecting management of the Plan and/or the management or disposition of the Plans assets and had discretionary authority or responsibility for the administration of the Plan.
31. During the Class Period, all of the Defendants acted as fiduciaries of the Plan pursuant to ERISA § 3(21)(A) (29 U.S.C. § 1002(21)(A)) and the law interpreting that section.
32. ERISA requires every plan to provide for one or more named fiduciaries, who will have "authority to control and manage the operation and administration of the plan." ERISA § 402(a)(1) (29 U.S.C. § 1102(a)(1)). Instead of delegating fiduciary responsibility for the Plan to external service providers, Enron chose to comply with the requirement of section 402(a)(1) by internalizing the fiduciary function. It did so in various ways.
33. First, during the Class Period, Enron designated itself as the Plan Administrator in its Summary Plan Descriptions ("SPDs"), thereby making itself a named fiduciary of the Plan.
34. Second, during the Class Period, Enron also designated Ms. Joyce as the Plan Administrator in its Annual Reports, thereby making her a named fiduciary of the Plan. Ms. Joyce was, however, also an Enron employee acting on behalf of her employer, in the course and scope of her employment, and her fiduciary status is thus attributed to Enron.
35. Third, during the Class Period, Enron also designated an Administrative Committee as the Plan Administrator in its SPDs, thereby making that the members of that committee, the Administrative Committee Defendants (whose names are currently unknown to Plaintiffs), named fiduciaries of the Plan. Since that Committee did not have an independent juridical personality, however, ordinary principles of vicarious responsibility also attribute the fiduciary role of these persons to their principal, Enron, on whose behalf they acted.
36. Fourth, ERISA treats as fiduciaries not only persons explicitly named as fiduciaries under § 402(a)(1), but also persons who act as fiduciaries. ERISA § 3(21)(A)(i) (29 U.S.C. § 1102 (21)(A)(i)) makes a person (including a juridical person such as Enron) a fiduciary "to the extent  he exercises any discretionary authority or discretionary control respecting management of such plan or exercises any authority or control respecting management or disposition of its assets ...." Under this standard, a person who appoints a fiduciary has a fiduciary responsibility to monitor the person appointed. Upon information and belief, during the Class Period, the Board of Directors of Enron, and its individual members, had the fiduciary responsibility to appoint and monitor the members of the Administrative Committee. To that extent, the Board and its members performed fiduciary functions, and thereby also acted as fiduciaries under ERISA.
37. Fifth, an employer also acts in a fiduciary capacity under ERISA when it misleads employees about the character and prospects of the company for the purpose of affecting the employees ERISA plan elections. During the Class period, and before, Enrons communications with Plan participants included material misrepresentations and omissions to induce them to continue to invest in and maintain investments in the Company Stock Funds in the Plan and to accept at face value investments in the Company Stock Funds made with the employer match contributions. Enron thereby also acted as a fiduciary under ERISA.
38. In addition, under ERISA, in various circumstances non-fiduciaries who knowingly participate in fiduciary breaches may themselves be liable. To the extent any of the Defendants are held not to be fiduciaries, they remain liable as non-fiduciaries who knowingly participated in the fiduciary breaches described below.
FACTUAL BACKGROUND TO BREACHES OF FIDUCIARY DUTY
39. Upon information and belief, during the Class Period, and before, Enron and its executive officers were made aware of numerous questionable practices that made Enrons stock an inappropriate Plan investment during the Class Period. These practices, which have now been widely reported in the financial press, included, but are not limited to, the following: a) The creation of various entities by Enron insiders Andrew Fastow, Michael Kopper, Benjamin Glisan, Kristina Mordaunt, Kathy Lynn, Anne Yeager and others for non-arms length transactions with Enron to enrich themselves and their compatriots; b) Transactions between Enron and various partnerships affiliated with Mr. Fastow and other insiders which were designed to, and did, both reap huge rewards for certain Enron insiders and hide the true nature and extent of Enrons debt in connection with the transactions; c) Transactions with the Joint Energy Development Investments LP (JEDI), a partnership known as "Chewco," LJM2 Co. Investment LP, and others which were designed to, and did, hide over $1.0 billion in debt when certain interests in JEDI were sold to Enron in 1997; d) Poor or non-existent oversight by the Board of Directors of these and other transactions; e) Reporting practices which made the discovery of these transactions essentially impossible; and f) Substantial insider sales of Enron stock in 2000 and 2001.
40. With regard to the last item, for example, from October 30 to November 1, 2000, Director Jeffrey K. Skilling exercised options resulting in a paper gain of $43,233,314, surrendered shares having a value of $31,411,665, and sold shares for proceeds of $27,916,149. On a single day, November 1, 2001, Director Kenneth L. Lay exercised options resulting in a paper gain of $234,128, and sold shares for proceeds of $20,849,474.
41. The disclosure of these and other practices in recent months has led to Enrons restatement of its earnings from 1997 to the present, an investigation by the Securities and Exchange Commission, the termination of various Enron officers, including Mr. Fastow, and a fall in the price of Enron common stock from over $80 per share in January 2001 to under $10 per share in November 2001.
42. Since the filing of the original complaint in this matter on November 13, 2001, there have been further revelations of Enrons questionable business practices. On November 19, 2001, Enron reported to the SEC that it faced debt repayments, previously undisclosed, vastly in excess of its available cash and that these debt obligations cast a cloud over Enrons viability: "An adverse outcome with respect to any of these matters would likely have a material adverse impact on Enrons ability to continue as a going concern." Since then, the stock price has fallen to under $5 per share.
43. ERISA section 404(a)(l)(A) imposes on a plan fiduciary a duty of loyalty--that is, a duty to "discharge his duties with respect to a plan solely in the interest of the participants and beneficiaries and  for the exclusive purpose of  providing benefits to participants and their beneficiaries." Section 404(a)(l)(B) also imposes on a plan fiduciary a duty of prudence--that is, a duty to "discharge his duties with respect to a plan solely in the interest of the participants and beneficiaries and 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 in the conduct of an enterprise of a like character and with like aims."
44. A fiduciary is liable not only for his own fiduciary breaches, but also to use reasonable care to prevent his co-fiduciaries from breaching their fiduciary duties. A fiduciary who knows of a co-fiduciarys breach is liable unless he makes reasonable efforts to remedy the breach. ERISA § 405 (29 U.S.C. § 1105).
45. A plan fiduciarys duties of loyalty and prudence include a duty to disclose and inform. This duty entails: 1) a negative duty not to misinform; 2) an affirmative duty to inform when the fiduciary knows or should know that silence might be harmful; and 3) a duty to convey complete and accurate information material to the circumstances of participants and beneficiaries. This duty to disclose and inform recognizes the disparity that may exist, and in this case did exist, between the training and knowledge of the fiduciaries, on the one hand, and the participants and beneficiaries, on the other. In a plan with various funds available for investment, this duty to inform and disclose also includes: 1) the duty to impart to plan participants material information of which the fiduciary has or should have knowledge that is sufficient to apprise the average plan participant of the risks associated with investing in any particular fund; and 2) the duty not to make material misrepresentations.
46. During the Class Period, if not before, the Defendants breached their fiduciary duties to disclose and inform with respect to the Plans use of employer stock as a plan investment. During the Class Period, any investment in employer stock in the Plan was an undiversified investment in a single companys stock. As a result, any such investment carried with it an inherently high degree of risk. These inherent risks made the Defendants duty to provide complete and accurate information about investing in company stock even more important than would otherwise be the case. Rather than providing complete and accurate information to the Plan participants and beneficiaries regarding the risks of investing in the Company Stock Funds in the Plan, Defendants withheld and concealed material information during the Class Period, and before, and instead actively misled the participants and beneficiaries of the Plan about the appropriateness of investing in the Company Stock Funds and about Enrons earnings prospects and business condition, thereby encouraging participants and beneficiaries of the Plan to continue to make and to maintain substantial investments in the Company Stock Funds in the Plan.
47. A fiduciarys duties of loyalty and prudence also entail a duty to conduct an independent investigation into, and continually to monitor, the merits of the investment alternatives in the Plan, including employer securities, to ensure that each investment is a suitable option for the plan. From no later than the inception of the Class Period, Defendants breached this duty of investigation and monitoring with respect to the Company Stock Funds. During the Class period, if not before, none of the Defendants could have reasonably made a determination that company stock was a suitable investment for the Plan. In fact, during the Class Period, company stock was plainly an unsuitable investment option for the Plan.
48. The fiduciary duty of loyalty also entails a duty to avoid conflicts of interest and to resolve them promptly when they occur. A fiduciary must always administer a plan with an "eye single" to the interests of the participants and beneficiaries, regardless of the interests of the fiduciaries themselves or the plan sponsor.
49. Defendants breached their duty to avoid conflicts of interest and to promptly resolve them when they occur by continuing to offer company stock as a Plan investment option during the Class Period, by failing to engage independent fiduciaries who could make independent judgments concerning the Plans investment in company stock and the information to provided to participants and beneficiaries concerning it, and, generally, by failing to whatever steps were necessary to ensure that the fiduciaries of the Plan did not suffer from a conflict of interest, including the notification of the Department of Labor of the questionable transactions which made employer stock an unsuitable investment for the Plan.
50. A fiduciary may not avoid his fiduciary responsibilities by relying solely on the language of the plan documents. While the basic structure of a plan may be specified, within limits, by the plan sponsor, the fiduciary may not blindly follow the plan document if to do so leads to an imprudent result. ERISA § 404(a)(1)(d) (29 U.S.C. § 1104(a)(1)(D)).
51. To the extent that Defendants followed the direction of the Plan documents, for example, in continuing to place the match in the Company Stock Funds during the Class Period, they further breached their fiduciary duties.
52. The Plan suffered a loss, and Plaintiffs and the other Class members were damaged, because substantial assets in the Plan were invested in company stock during the Class Period in violation of Defendants fiduciary duties. As of December 31, 2000, about $1.3 billion of $2.1 billion, or approximately 62% of the assets of the Plan, were in company stock.
53. As fiduciaries, Defendants were responsible for the prudence of investments in the Plan during the Class Period unless participants in the Plan themselves exercised effective and informed control over the assets in the Plan in their individual accounts pursuant to ERISA section 404(c) and the regulations promulgated under it. Those provisions were not complied with here; instead of taking the necessary steps to ensure effective participant control by complete and accurate disclosure and regulatory compliance, Defendants did exactly the opposite. As a consequence, participants in the Plan did not control the Plan assets that were invested in company stock, and Defendants remained entirely responsible for ensuring that such investments were and remained prudent. Defendants liability to Plaintiffs for damages stemming from imprudent Plan investments in the Company Stock Funds is therefore established upon proof that such investments were or became imprudent and resulted in losses in the value of the assets in the Plan during the Class Period, without regard to whether or not the participants relied upon statements, acts, or omissions of Defendants.
54. The Plan also suffered a loss, and Plaintiffs and the other Class members were damaged, by Defendants above-described conduct during the Class Period, and before, because Defendants materially deceptive statements, acts and omission were fundamentally designed to deceive Plaintiffs and the other Class members about the prudence of making and maintaining investments in the Company Stock Funds. Where a breach of fiduciary duty consists of, or includes, misrepresentations and omissions material to a decision by a reasonable participant that results in harm to the participant, the participant is presumed as a matter of law to have relied upon such misrepresentations and omissions to his or her detriment. Here, Defendants above-described statements, acts and omissions constituted misrepresentations and omissions that were fundamentally deceptive concerning the prudence of investments in the Company Stock Funds and were material to any reasonable persons decision about whether or not to invest or maintain any part of their plan assets in the Company Stock Funds during the Class Period. Plaintiffs and the other Class members are therefore presumed to have relied to their detriment on Defendants deceptive statements, acts, and omissions.
55. Plaintiffs further contend that the Plan suffered a loss, and Plaintiffs and the other Class members were damaged, by Defendants above-described conduct during the Class Period, and before, because that conduct fundamentally deceived Plaintiffs and the other Class members about the prudence of making and maintaining investments in the Company Stock Funds, and that, in making and maintaining investments in the Company Stock Funds, Plaintiffs and the other Class members relied to their detriment upon Defendants materially deceptive statements, acts and omissions.
REMEDY FOR BREACHES OF FIDUCIARY DUTY
56. ERISA § 502 (a) (2) (29 U.S.C. § 1132(a)(2)) authorizes a plan participant to bring a civil action for appropriate relief under section 409 (29 U.S.C. § 1109). Section 409 requires "any person who is a fiduciary  who breaches any of the  duties imposed upon fiduciaries  to make good to such plan any losses to the plan ." Section 409 also authorizes "such other equitable or remedial relief as the court may deem appropriate ."
57. With respect to the calculation of the losses to a plan, breaches of fiduciary duty result in a presumption that, but for the breaches of fiduciary duty, the participants and beneficiaries in the plan would not have made or maintained their investments in the challenged investment and, where alternative investments were available, that the investments made or maintained in the challenged investment would have instead been made in the most profitable alternative investment available. In this way, the remedy restores the values of the plans assets to what they would have been if the plan had been properly administered.
58. Plaintiffs and the Class are therefore entitled to relief from the Defendants in the form of: 1) a monetary payment from the Defendants to the Plan to make good to the Plan the losses to the Plan resulting from the breaches of fiduciary duties alleged above in an amount to be proven at trial based on the principles described above, as required by ERISA § 409(a) (29 U.S.C. § 1109(a)); 2) injunctive and other appropriate equitable relief to remedy the breaches alleged above, as provided by ERISA §§ 409(a) and 502(a)(2)&(3) (29 U.S.C. §§ 1109(a) and 1132(a)(2)&(3)); 3) reasonable attorney fees and expenses as provided by ERISA § 502(g) (29 U.S.C. § 1132(g)), the common fund doctrine, and other applicable law; 4) taxable costs; and 5) interest on some or all of these amounts as provided by law.
59. As explained above, the fiduciary duty of loyalty entails a duty to avoid conflicts of interest and to resolve them promptly when they occur. A fiduciary must always administer a plan with an "eye single" to the interests of the participants and beneficiaries, regardless of the interests of the fiduciaries themselves or the plan sponsor.
60. Defendants have breached their duty to avoid conflicts of interest not only in the ways described above, but also, in the brief time since the original complaint in this matter was filed on November 13, 2001, with respect to three issues.
61. First, upon information and belief, Enron is currently in the process of laying off employees. According to recent reports, up to 60% of the employees in some units are being laid off. The New York Times, November 28, 2001. Enron is presenting these departing employees, as part of their severance package, with a release that purports to release any claims they may have for breach of fiduciary duty in connection with the losses they have suffered in the Plan. This is an outrageous breach of fiduciary dutya "fiduciary" soliciting from the participants in whose interests it is obliged to act a release of its own liability for conduct that is only now coming to light.
62. Second, according to reports in the financial press, Enron and Dynergy, Inc., who have been in negotiations over a possible merger for some time, now are considering "an agreement making clear that the merger would not be derailed by litigation over Enrons devastated employee-retirement plan." The New York Times, November 27, 2001. Again, Enron and its insiders obviously have an irreconcilable conflict of interest in representing Enrons interests in the merger negotiations and the interests of the Plan participants with respect to the future of the Plan.
63. Third, in a case involving employer securities, as the financial condition of the plan sponsor deteriorates, the conflict of interest facing fiduciaries who are the company itself or company insiders intensifies. They have less discretion in which to act and the obligation to contract out the fiduciary decisions to an outsider becomes greater.
64. In this case, Enron disclosed in its 10-Q filed on November 19, 2001 that various actions may call into question the viability of the business: "It is not possible to predict whether any or all of the actions described above (including the sale of non-core businesses and assets and the refinancing or waiver of Enron obligations that may become immediately payable upon scheduled maturities or due to an acceleration event) will be adequate to maintain Enrons investment grade credit rating or enable Enron to refinance or otherwise restructure its debt obligations that become due. An adverse outcome with respect to any of these matters would likely have a material adverse impact on Enrons ability to continue as a going concern."
65. Because of these doubts about "Enrons ability to continue as a going concern," it is unthinkable that the decision of whether to continue to offer Enron stock as a Plan investment, or to continue to invest the company match in Enron stock, can continue to be made by Enron itself or Enron insiders.
66. Because Enrons conduct with respect to these issues may seriously jeopardize the interests of the participants in the immediate future, Plaintiffs request for themselves and the Class a preliminary injunction prohibiting Enron and the other Defendants from: 1) soliciting any releases which would affect the participants rights vis a vis the Plan; 2) taking any action that would bind the Plan to any course of conduct with respect to the proposed merger; and 3) making any decisions concerning the role of company stock as a Plan investment offering. If it is essential that the Plan have a decisionmaker on these and other issues that may arise given Enrons currently precarious position, as Plaintiffs believe it is, the Court should appoint a neutral fiduciary to manage the Plan, as it is permitted to do pursuant to ERISA § 409 (29 U.S.C.§ 1109), pending the outcome of this litigation.
WHEREFORE, Plaintiffs and the Class pray for judgment against the Defendants for monetary relief, preliminary and permanent injunctive and other equitable relief, attorney fees, expenses, costs, and interest, and any other relief the Court deems just.
CAMPBELL HARRISON & WRIGHT L.L.P.
(713) 752-2330 (fax)
Dalton Gotto Samson & Kilgard, P.L.C.
National Bank Plaza, Suite 900
(602) 248-2282 (fax)
http://www.enronerisa.com/complaint.html