stock price, the "precipitous decline" in the price of that stock, and the fiduciary's own "conflicted status" might constitute such a change in circumstances. Id. at 572.
Plaintiffs have stated a claim for breach of ERISA fiduciary duties by alleging that Ebbers, Miller and Merrill Lynch were obligated to but failed to act with prudence regarding the Plan's continued offer of WorldCom stock as a Plan investment. WorldCom stock could have been removed as one of the investments offered under the Plan without amending the Plan and plaintiffs have adequately alleged that these fiduciaries should have, but failed, to consider or recommend doing so.
Second Claim for Relief
Plaintiffs' second claim for relief alleges that Ebbers, as an "Officer and Director Defendant," breached his fiduciary duty under Section 404(a) in two ways: first, by failing "to monitor" the Plan's other fiduciaries in connection with the investment of the Plan's assets and, second, by failing to disclose to the "Investment Fiduciary," that is to WorldCom, and other "investing fiduciaries" material facts he knew or should have known about the financial condition of WorldCom. The plaintiffs argue in this connection that Ebbers had a duty to insure that WorldCom made public disclosures that complied with federal securities laws.*fn13 These allegations state a claim against Ebbers.
Ebbers argues that the second theory — the duty to disclose — arises under the federal securities laws and not under ERISA. He argues that allowing plaintiffs to state an ERISA claim for failure to disclose information that, if material, Ebbers would have been required by the securities laws to disclose impermissibly extends the reach of ERISA and imposes on corporations a duty of continuous disclosure not contemplated by the well-developed regime of securities regulation.
It is undisputed that every participant in WorldCom's ERISA Plan who sold or bought WorldCom securities is a putative member of the class in the companion WorldCom Securities Litigation, and that the Plan itself, like many other pension funds that invested in WorldCom stock, is also a putative class member. Ebbers is one of many defendants in that litigation. In the event of any judgment for plaintiffs or a settlement in the Securities Litigation, the Plan and its participants could share in any recovery.
But Ebbers's potential liability to employees who invested in WorldCom stock through the Plan for violations of the federal securities laws cannot shield him from suit over his alleged failure to perform his quite separate and independent ERISA obligations. When Ebbers wore his ERISA "hat" he was required to act with all the care, diligence and prudence required of ERISA fiduciaries. When a corporate insider puts on his ERISA hat, he is not assumed to have forgotten adverse information he may have acquired while acting in his corporate capacity. Plaintiffs' allegation that Ebbers failed to disclose to the Investment Fiduciary and the other investing fiduciaries material information he had regarding the prudence of investing in WorldCom stock is sufficient to state a claim.
Third Claim for Relief
The plaintiffs' third claim alleges that Ebbers and Miller, as "WorldCom Defendants," breached their fiduciary duties by making material misrepresentations about the soundness of WorldCom stock and the prudence of an investment in WorldCom stock, and by transmitting materials containing the misrepresentations to Plan participants. Plaintiffs allege that by failing to disclose fully and accurately infirmities in WorldCom's stock price, Ebbers and Miller caused plaintiffs to make and maintain investments in WorldCom stock even though Ebbers and Miller knew or should have known that WorldCom securities were not a prudent investment. The misrepresentations are alleged to have been contained in WorldCom's SEC filings, which were attached as required by the federal securities laws to a prospectus given to WorldCom employees.*fn14
An ERISA fiduciary may not knowingly present false information regarding a plan investment option to plan participants. There is no exception to the obligation to speak truthfully when the disclosure concerns the employer's stock.
In arguments that overlap with those made in connection with the Second Claim, Ebbers and Miller argue that the Third Claim imposes a continuous duty of disclosure on ERISA fiduciaries that overwhelms the federal securities law disclosure requirements and compels fiduciaries to violate the prohibitions against insider trading. If an ERISA fiduciary who was also an insider discovers material information affecting the value of the investment in the Plan sponsor's stock, they posit that the fiduciary has one of two choices. If he discloses material information to Plan participants before making it publicly available, he would violate the insider-trading laws by suggesting to Plan participants that they divest stock based on material nonpublic information. See 15 U.S.C. § 78u-1(a)(1)(B) & (b)(1)(A) (2002). If the fiduciary publicly discloses the material information, the Plan participants would be no more protected by virtue of ERISA than they would be as investors protected by the securities laws. They contend that plaintiffs' claim stretches ERISA far beyond its intended scope. They emphasize that the alleged material misstatements were the SEC filings incorporated by reference into the Plan SPDs and that those statements were prepared and published pursuant to the securities laws, not ERISA. Miller, in particular, argues that, if credited, plaintiffs' logic would impose ERISA fiduciary obligations on all authors of corporate SEC filings, a conclusion supported by neither the statute nor caselaw.
Those who prepare and sign SEC filings do not become ERISA fiduciaries through those acts, and consequently, do not violate ERISA if the filings contain misrepresentations. Those who are ERISA fiduciaries, however, cannot in violation of their fiduciary obligations disseminate false information to plan participants, including false information contained in SEC filings. Claim Three adequately pleads that Ebbers and Miller, each of whom is alleged to have been a fiduciary through inter alia his or her administration of the WorldCom Plan, breached their fiduciary obligations under ERISA by at the very least transmitting material containing misrepresentations to Plan participants.*fn15
The defendants have tried to describe a tension between the federal securities laws and ERISA that would require the dismissal of this claim. Their arguments, however, cannot undermine the soundness of the general principle underlying Claim Three that ERISA fiduciaries cannot transmit false information to plan participants when a prudent fiduciary would understand that the information was false. Nor is there anything in Claim Three, despite the defendants' suggestions otherwise, that requires ERISA fiduciaries to convey non-public material information to Plan participants. What is required, is that any information that is conveyed to participants be conveyed in compliance with the standard of care that applies to ERISA fiduciaries.
The difficulties that exist in the analysis of this claim arise principally from the facts that at least one of the defendants, Ebbers, is alleged to be both a corporate insider and an ERISA fiduciary, and that the alleged misrepresentations concern the company itself. The defendants argue that the plaintiffs are imposing a duty of continuous disclosure on ERISA fiduciaries that does not exist under the federal securities laws. While there may be some case in which there will be a conflict between the two statutory schemes, it is not so evident that a conflict exists here. The Complaint alleges that WorldCom's SEC filings contained material misrepresentations regarding WorldCom's financial condition. Having spoken in its periodic SEC filings about the company's financial condition, WorldCom had a duty under the federal securities laws to correct any prior material misrepresentation when it became aware of the falsity. See In re Time Warner, Inc. Sec. Litig., 9 F.3d 259, 268 (2d Cir. 1993). In any event, the existence of duties under one federal statute does not, absent express congressional intent to the contrary, preclude the imposition of overlapping duties under another federal statutory regime. See United States v. Sforza, 326 F.3d 107, 111 (2d Cir. 2003).
In conclusion, the motion to dismiss Claim Three is denied as to defendants Ebbers and Miller. This claim adequately alleges that they transmitted materially false information to Plan participants in breach of their fiduciary obligations.
Fourth Claim for Relief
Plaintiffs' fourth claim alleges that Ebbers, as an "Officer and Director Defendant," breached the ERISA duty of loyalty by allowing WorldCom stock to be offered as a Plan investment while he was participating in compensation programs that gave him a personal interest in maintaining a high price for WorldCom stock. They assert that his personal investments created a conflict of interest that required him to engage an independent fiduciary to make independent judgments about the Plan's investment in WorldCom stock and the information to transmit to participants concerning such investments.
The ERISA duty of loyalty focuses on a fiduciary's discharge of his duty with respect to a plan. See Pegram, 530 U.S. at 223-24, 120 S.Ct. 2143. When administering or managing a plan, a fiduciary must act solely in the interest of beneficiaries. Donovan, 680 F.2d at 271. ERISA acknowledges, however, that a fiduciary
may have financial interests adverse to
beneficiaries. Employers, for example, can be ERISA
fiduciaries and still take actions to the
disadvantage of employee beneficiaries, when they act
as employers . . . or even as plan sponsors (e.g.,
modifying the terms of a plan as allowed by ERISA to
provide less generous benefits).
Pegram, 530 U.S. at 225, 120 S.Ct. 2143. The issue, therefore, is whether the defendant took an action to affect plan participants adversely while performing a fiduciary function. Id. at 226, 120 S.Ct. 2143.
Plaintiffs' allegations that Ebbers's holding of WorldCom stock and participation in its compensation program created a conflict of interest are insufficient by themselves to state a claim under ERISA. Plaintiffs do not allege that Ebbers's personal investments caused him to take or fail to take any actions detrimental to the Plan while he was wearing his "fiduciary hat." Because plaintiffs have not alleged that in carrying out his obligations under the Plan, Ebbers did not act with an "eye single" to the interests of the Plan beneficiaries, Claim Four is dismissed.
Fifth Claim for Relief
Claim Five alleges that as the Plan's auditor, Andersen owed the participants and beneficiaries a duty of due care and that it breached that duty by negligently performing its audits for the Plan and seriously misrepresenting the financial condition of the Plan. Plaintiffs allege that because Andersen served as the auditor for both WorldCom and for the Plan, it knew or should have known that using WorldCom's stock price to assess the value of the Plan's investments in WorldCom securities "was inappropriate and materially false and misleading." Claim Five further alleges that Andersen consented to the inclusion of its audit in communications disseminated to Plan participants and that Andersen "knew or should have known that participants and beneficiaries would rely" on these communications and "would be reasonably foreseeably damaged by the material inaccuracies therein."
Andersen moves to dismiss Claim Five. Andersen argues that the bar contained in the Securities Litigation Uniform Standards Act of 1998, Pub.L. No. 105-353, 112 Stat. 3227 ("SLUSA") (codified in scattered sections of Title 15 of the United States Code) against class action suits alleging state law claims in connection with the sale or purchase of "covered" securities applies to Claim Five. Andersen is correct; Claim Five is preempted by SLUSA and must be dismissed.
SLUSA's preemption provision states:
No covered class action based upon the statutory or
common law of any State or subdivision thereof may be
maintained in any State or Federal court by any
private party alleging — (1) an untrue
statement or omission of a material fact in
connection with the purchase or sale of a covered
security. . . .
15 U.S.C. § 77p(b) ("Section 77p") (emphasis supplied). SLUSA defines a "covered class action" to include a lawsuit in which