the SEC in which it warned that its sales would suffer if one
or more of its key customers reduced orders for products. Plaintiff
alleges that the statements were materially false and misleading
because, at the time they were made, demand for Corning's products had
already slowed, which was already having an adverse impact on Corning's
results and operations. Further, plaintiff alleges that Corning's
statement, "as our customers' needs for our products increase, we must
increase our manufacturing volumes to meet these needs," was false and
misleading, since need for Corning's products was not increasing and the
risk faced by Corning was not the inability to manufacture sufficient
volume, but rather, that supply would far outstrip demand, resulting in a
sharp decline in the price of Corning's products and Corning's revenues
Plaintiff further alleges in his amended complaint that on July 10,
2001, Corning announced: that it was taking a $5.1 billion charge
primarily related to the acquisitions of Pirelli and NetOptix; that it
would write off $300 million in excess and obsolete inventory; and that
it would cut 1,000 jobs and close three plants. Plaintiff also refers to
a July 10, 2001, article in THE WALL STREET JOURNAL which reported that
despite having made increasingly conservative earnings projections during
the previous six months, Corning "continued to overestimate customer
demand for the gear that powers telecommunications networks." Am. Compl.
¶ 39. Plaintiff maintains that on July 10, 2001, Corning's shares
were trading as low as $14.12. See Am. Compl. ¶ 40, and that on July
25, 2001, Corning reported a second-quarter loss of $4.76 billion, or
$5.13 per share, which included a $4.8 billion charge related to
absorbing inventory, goodwill write-downs and factory shutdowns in its
photonics division. According to plaintiff, Corning stock closed on July
25 at $13.77 per share, a decrease of approximately 80% from the start of
the alleged class period (September 26, 2000 through July 25, 2001).
Plaintiff alleges that defendants breached their fiduciary duties to
the Plan, including those set forth in ERISA, by: (1) permitting the Plan
to purchase Corning stock when it was improvident to do so; (2)
misrepresenting and failing to disclose material facts to the Plan and
the Participants in connection with the administration of the Plan; (3)
failing to exercise their fiduciary duties to the Plan and the
Participants solely in the interests of the Participants and their
Beneficiaries for the exclusive purpose of providing benefits to
Participants and their Beneficiaries; and (4) failing to manage the
Plan's assets with the care, skill, prudence or diligence of a prudent
man under the circumstances and imprudently failing to diversify the
investments in the Plan so as to minimize the risk of large losses. Am.
Compl. ¶ 2.
Plaintiff's complaint raises four causes of action under ERISA. In his
memorandum of law filed in opposition to defendant's motion, plaintiff
withdrew the Third cause of action. In the three remaining causes of
action, plaintiff alleges that defendants breached their fiduciary duties
under ERISA § 404, 29 U.S.C. § 1104 (1999) and 29 C.F.R. Part
2550 (July 1, 2002), by: (1) continuing to offer Corning stock as an
investment alternative under the Plan; (2) making material
misrepresentations and nondisclosures about Corning stock, which resulted
in the Plan suffering losses; and (3) over allocating assets into Corning
stock, thereby failing to diversify assets so as to minimize the risk of
Defendant's motion is premised on its argument that plaintiff's claims
insufficient, that is, that each cause of action in the
amended complaint fails to state a claim. The Court agrees.
1. Claims against Corning
Plaintiff alleges in his amended complaint that Corning was a plan
administrator, and as such had a fiduciary responsibility to Plan
participants.*fn5 However, the Plan provisions to which plaintiff refers
directly contradict this contention. The responsibility to administer the
Plan belongs to the Committee. Plan § 7.3; ERISA § 3(16)(A)(1),
29 U.S.C. § 1002(A)(1). Corning, as settlor or sponsor of the Plan,
does not act as a fiduciary. Lockheed v. Spink, 517 U.S. 882, 890
(1996). As the Supreme Court wrote in Spink,
Plan sponsors who alter the terms of a plan do not
fall into the category of fiduciaries. As we said with
respect to the amendment of welfare benefit plans in
Curtiss-Wright Corp. v. Schoonejongen, 514 U.S. 73
(1995), "employers or other plan sponsors are
generally free under ERISA, for any reason at any
time, to adopt, modify, or terminate welfare plans."
Id., at 78 (citing Adams v. Avondale Industries,
Inc., 905 F.2d 943, 947 (6th Cir. 1990)). When
employers undertake those actions, they do not act as
fiduciaries, 514 U.S. at 78, but are analogous to the
settlors of a trust, see Johnson v. Georgia-Pacific
Corp., 19 F.3d 1184, 1188 (7th Cir. 1994).
As to Corning, plaintiff's first claim that defendants imprudently
continued to offer participants the ability to invest in Corning stock
must fail, since it is clear from the amended complaint*fn6 that Corning
could not control investment options. Similarly, plaintiff's second cause
of action, that defendants made material misrepresentations and
nondisclosures concerning Corning's future performance and that the
fiduciaries of the Plan were charged with operating the Plan in the best
interest of the beneficiaries, fails, since it is apparent from the
amended complaint that such statements, regardless of truth or falsity,
were not made by Corning in any fiduciary capacity regarding the Plan. On
this point, plaintiff's reliance on Varity Corp v. Howe, 516 U.S. 489
(1996) is misplaced. Variety Corp. was the plan administrator in that
case, and here Corning is clearly not the Plan administrator. See Hull
v. Policy Management Systems Corporation, No. 3:00-778-17, 2001 U.S.
Dist. LEXIS 22343 (D.S.C. Feb. 9, 2001) (distinguishing Variety Corp.
case in a situation analogous to the one at bar). Finally, plaintiff's
third claim that defendants mismanaged Plan assets can not be maintained
against Corning, since the amended complaint makes that Corning was not
charged with this function. To the extent that plaintiff is making
respondeat superior argument, the Court rejects it. See Bannistor v.
Ullman, 287 F.3d 394, 408 (5th Cir. 2002) (ERISA liability imposed on a
principal only when it had de facto control of agent in order to control
disposition of plan assets). The Amended Complaint contains no factual
allegations which support a claim that Corning had de facto control over
the Committee members.
Viewing the complaint and drawing all reasonable inferences in the
favorable to the non-moving party, the Court finds that
plaintiff can prove no set of facts in support of his claims against
Corning that would entitle him to relief. Thus, the causes of action
against Corning must be dismissed.
2. Claims against the Board of Directors
While the Board of Directors does have a fiduciary responsibility with
respect to the Plan, it is a limited one. A fiduciary is defined as
A person is a fiduciary with respect to a plan to the
extent (i) he exercises any discretionary authority or
discretionary control respecting management of such
plan or exercises any authority or control respecting
the management or disposition of its assets, (ii) he
renders investment advice for a fee or other
compensation, direct or indirect, with respect to any
monies or other property of such plan, or has any
authority or responsibility to do so, or (iii) he has
any discretionary authority or discretionary
responsibility in the administration of such plan.
ERISA § 3(21)(A), 29 U.S.C. § 1002(21)(A) (1999) (emphasis
added). Spink, 517 U.S. at 890. The only power the Board had under the
Plan was to appoint, retain, or remove members of the Committee. Plan
§ 7.1. Thus, the Board's fiduciary obligations can extend only as to
those acts. See Independent Association Of Publishers' Employees, Inc.
v. Dow Jones & Company, Inc, 671 F. Supp. 1365, 1367 (S.D.N.Y. 1987)
("[t]he only power that Dow Jones retains with respect to managing, or
administering the Plan is the authority to appoint, retain and remove
members of the Advisory Committee. . . . Therefore, Dow Jones' fiduciary
obligations can extend only to those acts"); ERISA § 3(21)(A),
29 U.S.C. § 1002(21) (defining fiduciary). In that regard,
plaintiff's amended complaint makes no allegation that the Board of
Directors breached any fiduciary duty when it appointed members of the
Committee under Plan § 7.1, or when it acted, if it did, to appoint
an Investment Advisor under Plan § 1.28.
Plaintiff's first claim that defendants imprudently continued to offer
participants the ability to invest their plan funds in Corning stock fails
as to the Board, as is apparent from plaintiff's amended complaint, the
Board did not control investment options.
Plaintiff's second claim that defendants made material
misrepresentations and nondisclosures concerning Corning's future
performance and that the fiduciaries of the Plan were charged with
operating the Plan in the best interest of the beneficiaries fails, based
upon a reading of the amended complaint, since the Board was not charged
under the Plan with the duty of communicating information to the Plan
participants or beneficiaries as to plaintiff's third claim that
defendants mismanaged Plan assets, this is like wise without merit as to
the Board, since the amended complaint establishes that the Board did not
control the management of the Plan's assets, thus, this claim must fail
as against them. As with Corning, the Court rejects any respondeat
superior argument relating to the Board. See Bannistor v. Ullman, 287
F.3d at 408. The Amended Complaint contains no factual allegations which
support a claim that the Board had de facto control over the Committee
Viewing the complaint and drawing all reasonable inferences in the
light most favorable to the non-moving party, the Court finds that
plaintiff can prove no set of facts in support of his claims against the
Board of Directors that would entitle him
to relief. Thus, the causes of
action against the Board must be dismissed.
3. Claims against the Committee
Plaintiff's claims against the Committee are premised on his allegation
that the Committee members failed to disclose material non-public
information about Corning that they were permitted to disclose under
law, or failed to independently investigate Corning's earnings
statements, and thereby failed act to avoid the loss experienced by Plan
participants when Corning stock fell in value. See Am. Compl. ¶ 46.
Plaintiff does not name the Committee members in his Amended Complaint,
other than as John Does 1-30. Am. Compl. ¶ 9. Nor, does plaintiff
allege that the John Does knew that information promulgated by Corning,
through the media or its filings with the SEC, was false or misleading,
other than to allege in conclusory terms, "they knew or should have known
the facts alleged above and knew or should have known that the Plan
should not have invested in Corning stock." Am. Compl. ¶ 47.
Further, plaintiff has made only conclusory allegations insufficient to
show that following the ESOP portions of the Plan was imprudent under the
circumstances. See In re McKesson HBOC, Inc. ERISA Litigation, No.
C00-20030RMW, 2002 WL 31431588, 29 Employee Benefits Cas. 1229 (N.D.Cal.
Sep. 30, 2002) ("In order to plead such a claim, however, it is fitting
to require plaintiffs to allege underlying facts that demonstrate that
the fiduciaries abused their discretion in continuing to hold such a high
percentage of company stock").
Even if the Committee could have used non public inside information to
the plan participants' benefit, all of plaintiff's causes against the
Committee members rest on the assumption that the they possessed the
"adverse information" outlined in the Amended Complaint at paragraph 36.
However, the Court repeats that the Amended Complaint makes no specific
allegation that the Committee members actually possessed the "adverse
information." A complaint that contains only conclusory allegations and
lacking any factual assertions for support fails even the liberal
standard of Federal Rule of Civil Procedure 12(b)(6). DeJesus v. Sears
Roebuck & Co., Inc., 87 F.3d 65, 70 (2d Cir. 1996). Further, the
Court must view the Committee's actions as of the time of their actions,
not with perfect hindsight. Katsaros v. Cody, 744 F.2d 270, 279 (2d Cir.
1984). Here, plaintiff makes no allegation that Committee members
themselves "had any actual knowledge of any misinformation or that they
participated in the dissemination of information they knew or should have
known was misleading . . . [or] ever made any purchases of [Corning]
stock at more than market price, or that they purchased or held stock in
contravention of information generally available to investors and the
then existing advice of market experts." Hull, 2110 U.S. Dist. LEXIS
22343 at *25 (footnote omitted). Rather, plaintiff's allegations are made
against all defendants, without specifying when the "adverse information"
was available, or known, to Committee members, or any single one of
them. See Am. Compl. at ¶ 47 (alleging generally that "defendants"
knew or should have known not to invest in Corning stock).
The Court is not imposing the higher pleading standard of Federal Rule
of Civil Procedure 9(b) to this case. Rule 9(b) requires in "all
averments of fraud or mistake" that the pleader state "the circumstances
constituting fraud or mistake . . . with particularity." Plaintiff is
the Committee*fn7 breached its fiduciary duties, not that it
committed fraud. Nevertheless, even under Federal Rule of Civil Procedure
8, plaintiff must make a "short and plain statement of the claim showing
that the pleader is entitled to relief," and plaintiff has failed to do
so in his Amended Complaint.
In view of the foregoing, the Third cause of action is dismissed as
withdrawn, and the Fourth cause of action is renumbered as the Third.
Defendants' motion (docket # 8) is granted and the Amended Complaint
(docket # 3) is dismissed with respect to all defendants.
IT IS SO ORDERED.