Source: http://openjurist.org/369/f3d/1/lalonde-v-textron-inc
Timestamp: 2013-12-07 20:34:41
Document Index: 88311557

Matched Legal Cases: ['§ 1104', '§ 1103', '§ 1132', '§ 1002', '§ 1103', '§ 4975', '§ 1107']

369 F3d 1 Lalonde v. Textron Inc | OpenJurist
369 F. 3d 1 - Lalonde v. Textron Inc	Home369 f3d 1 lalonde v. textron inc
369 F3d 1 Lalonde v. Textron Inc 369 F.3d 1
Linda L. LALONDE, et al., Plaintiff, Appellant,v.TEXTRON, INC.; Textron Savings Plan; Textron Savings Plan Committee; Putnam Fiduciary Trust Company and John Does 1-10, Defendants, Appellees.Machelle A. Simon-Grech, et al., Plaintiff, Appellant,v.Textron, Inc.; Textron Savings Plan; Textron Savings Plan Committee; Putnam Fiduciary Trust Company and John Does 1-10, Defendants, Appellees.
No. 03-2033.
No. 03-2039.
Heard January 9, 2004.
Lee Squitieri, with whom Squitieri & Fearon, LLP, David J. Strachman, McIntyre, Tate, Lynch & Holt, LLP, Charles J. Piven, Law Offices of Charles Piven P.A., Joe R. Whatley, Jr., Whatley Drake LLC, Kenneth A. Wexler, and The Wexler Firm, were on brief, for appellants.
Karl G. Nelson, with whom William J. Kilberg, Mitchell A. Karlan, Gibson, Dunn & Crutcher LLP, John A. Tarantino, Paul V. Curcio, and Adler, Pollock & Sheehan P.C., were on brief, for Textron Inc., Textron Savings Plan, and Textron Savings Plan Committee.
James S. Dittmar, P.C., with whom James O. Fleckner, John J. Cleary, P.C. (Of Counsel), Daniel P. Condon (Of Counsel), and Goodwin Procter, LLP, were on brief, for Putnam Fiduciary Trust Company.
Before TORRUELLA, LOURIE* and HOWARD, Circuit Judges.
Linda L. Lalonde and Machelle A. Simon-Grech, acting on behalf of a putative class of participants in and beneficiaries of an employee stock ownership plan ("ESOP") known as the Textron Savings Plan, brought lawsuits (that were eventually consolidated) against the plan; Textron, Inc. (the plan's sponsor); the Textron executives who allegedly administered the plan (the "Textron Savings Plan Committee"); and the plan's trustee, the Putnam Fiduciary Trust Company. Insofar as is relevant,1 the operative complaint asserts that, between January 1, 2000, and December 31, 2001, defendants violated the Employee Retirement Income Security Act (ERISA) by breaching fiduciary duties owed to the class, see 29 U.S.C. § 1104(a), and by violating ERISA's anti-inurement provision, see 29 U.S.C. § 1103(c)(1).2 Plaintiffs seek to remedy these statutory lapses through ERISA's enforcement provisions, 29 U.S.C. § 1132(a)(1) and (3), which authorize certain actions by plan participants and beneficiaries.
Throughout the class period, defendants directed 50% of employee contributions and 100% of employer matching contributions3 into a stock fund that held only Textron common stock. Plaintiffs claim that, in investing so much of the class's funds in Textron stock during the class period, defendants violated duties of loyalty owed to the class and acted in an unlawfully self-aggrandizing manner because defendants knew or had reason to know that Textron faced troubles that were certain to cause (and did in fact cause) a significant decline in the value of its stock. In support of these claims, plaintiffs allege (with varying degrees of specificity) that, during the class period, defendants were fiduciaries within the meaning of 29 U.S.C. § 1002(21)(A); Textron's earnings per share declined by over 70%; Textron initiated a restructuring that was expected to culminate in the termination of over 10% of its workforce; Textron artificially inflated the price of its stock by concealing internal problems that led to its lost earnings and restructuring (malfeasance that was alleged to have been the subject of a federal securities lawsuit brought by Textron's shareholders); and Textron common stock significantly underperformed in comparison to the market as a whole (measured in terms of the Standard & Poor's 500) and Textron's peer group. Despite this bleak scenario and in dereliction of their duties, plaintiffs say, defendants continued to fund the Textron stock fund and prohibited the class from diversifying its retirement accounts.4
Defendants elected to challenge these claims under Fed.R.Civ.P. 12(b)(6). In support of their arguments that the claims were not viable, defendants asserted that plaintiffs had pleaded insufficient facts to establish that any one of them was an ERISA fiduciary and/or that any one of them breached any fiduciary duties owed to the class.5 Putnam additionally argued that, as a so-called "directed fiduciary," see 29 U.S.C. § 1103(a)(1), it lacked the investment discretion that must be found to have been abused if a viable breach of fiduciary duty claim is to lie. Central to defendants' arguments was the fact that the plan was an ESOP and, as such, designed to invest primarily in qualifying employer securities. See 26 U.S.C. § 4975(e)(7)(A); 29 U.S.C. § 1107(d)(6)(A). In essence, defendants' pleading rhetorically asked, how can defendants be found to have violated ERISA in connection with the Textron ESOP when they did nothing more than what Congress contemplated would happen when an employer establishes an ESOP?
In a thorough opinion and order, the district court granted defendants' motions to dismiss. With respect to the breach of fiduciary duty claims against the Textron defendants, the court adopted the reasoning of Moench v. Robertson, 62 F.3d 553, 571 (3d Cir.1995), and Kuper v. Iovenko, 66 F.3d 1447, 1459 (6th Cir.1995), and held that an ESOP fiduciary6 "is entitled to a presumption that its decision to remain invested in employer securities was reasonable." 270 F.Supp.2d at 279. "Accordingly," the court continued, "in order to state a viable claim, Plaintiffs must plead facts that, if proven at trial, would establish that [the Textron defendants] abused their discretion in failing to diversify Textron stock during the years 2000 and 2001." Id.
In defining the boundaries of the Textron defendants' discretion, the district court attempted to reconcile Congress's concern that ERISA-plan fiduciaries must always act in the interests of plan beneficiaries with Congress's endorsement of employee stock ownership through the ESOP mechanism. See id. at 278-79.7 In doing so, the district court looked to Moench, Kuper, and Wright v. Oregon Metallurgical Corp., 222 F.Supp.2d 1224, 1233-34 (D.Or.2002), aff'd 360 F.3d 1090 (9th Cir.2004), all of which grappled with this same problem. See 270 F.Supp.2d at 280. Building from the facts and holdings of these cases, the court concluded that, in exercising its discretion to continue purchasing company stock, an ESOP fiduciary enjoys a presumption of reasonableness that "may be overcome when a precipitous decline in the employer's stock is combined with evidence that the company is on the brink of collapse or is undergoing serious mismanagement." Id. The court then granted the Textron defendants' motion to dismiss because "[t]his is not one of those cases." Id. In support of its ruling, the court stated that the complaint had alleged only a drop in stock price, a decline in corporate profits, and a restructuring of the company during the class period. See id. The court also speculated that, had the Textron defendants decided not to remain fully invested in Textron stock per the terms of the plan, they might have triggered an even steeper sell-off and/or invited a lawsuit when