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In re Bausch & Lomb Incorporated Erisa Litigation

December 12, 2008


The opinion of the court was delivered by: Michael A. Telesca United States District Judge


Participants in employer-sponsored investment plan sued employer, Bausch & Lomb ("B&L") members of its board of directors, and members of plan's investment committee, alleging that defendants breached their fiduciary duties to the plan in violation of the Employee Retirement Income Security Act ("ERISA"). Specifically, plaintiffs allege in Count I of the Consolidated Class Action Complaint For Violations Of The Employee Retirement Income Security Act (the "CEC" and/or "Complaint") that defendants allegedly breached their fiduciary duty of prudence because they did not remove the company stock fund ("B&L Stock Fund") from the Bausch & Lomb 401(k) Account Plan (the "Plan") when the price of B&L stock allegedly became artificially inflated through fraud. In the Second Count, plaintiffs allege that defendants allegedly breached their fiduciary duty to disclose by engaging in and/or failing to alert participants to alleged material misrepresentations regarding B&L's business and financial conditions that artificially inflated the price of B&L stock. The Complaint alleges in Count III that certain defendants are alleged to have breached their fiduciary duty to monitor by their failure to remove those fiduciaries who allegedly breached their fiduciary duties of prudence and disclosure. In addition, Count IV alleges that defendants are liable as co-fiduciaries to the extent they are not liable directly for the other-mentioned breaches. Further, plaintiffs allege in Count V that B&L is liable as a knowing participant in the alleged breaches of fiduciary duty of other defendants. B&L is also alleged to be liable as a de facto fiduciary or via respondeat superior theory for the alleged breaches of fiduciary duty by agents of B&L who were Plan fiduciaries.

By motion dated April 7, 2008, defendants moved to dismiss plaintiffs' Complaint pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure. Defendants claim that the plaintiffs' Complaint fails to state a claim upon which relief may be granted. For the reasons set forth below, I hereby grant defendants' motion to dismiss, and dismiss plaintiffs' Complaint with prejudice.


Unless otherwise noted, the following facts are taken from plaintiffs' Complaint, including documents incorporated by reference therein. See McCarthy v. The Dun & Bradstreet Corp., 482 F.3d 184, 191 (2d Cir. 2007) (On a motion to dismiss, a court may consider the complaint, attached exhibits and undisputed authentic documents upon which plaintiff's claims are based).*fn1

I. Plaintiffs and Defendants Named in the Complaint

Plaintiffs allege that they participated in the Plan and invested in the B&L Stock Fund. They bring this action to recover losses suffered by the Plan on behalf of a putative class that consists of all persons, other than defendants, who were participants in, or beneficiaries of, the Plan from May 25, 2000 to May 3, 2006 (the "Class Period"), and whose accounts included investments in the B&L Stock Fund. Defendants named in the Complaint are certain Plan committees and current and former members of those committees.*fn2

II. The Plan

The Plan is an "employee pension benefit Plan" within the meaning of ERISA § 3(2)(A), 29 U.S.C. § 1002(2)(A). See CEC, ¶ 33. It is also an "eligible individual account plan" ("EIAP"), which is a contribution plan as defined under ERISA § 3(34), 29 U.S.C. § 1002(34), in which each employee has his own account, chooses his own investment options for contributions and bears the risk of investment gain or loss. See Declaration of Nicole A. Eichberger ("Eichberger Decl."), Exs. A, B, and C. The Complaint alleges that the Plan's Investment Policy sets forth the purpose of the Plan to facilitate and promote retirement savings: "The Plan was established for the purpose of providing retirement income to eligible employees of [B&L]." See CEC, ¶ 34. In addition, the Complaint asserts that the "Plan did not require that the [B&L] Stock Fund be included as an investment option." See id., ¶ 37.

The Plan is funded through both voluntary employee contributions and employer contributions. See Eichberger Decl., Ex. B. The Plan Participants were provided with a Summary Plan Description (the "SPD") describing the terms of the Plan. The SPD notified participants that they were responsible for the investment of funds in their accounts that were attributable to their contributions, and commencing in 2005, the employer contributions as well. See Eichberger Decl., Ex. A and B. In addition, the SPD informed participants of the risk ratings of each investment option under the Plan. See id. In this regard, the SPD advised that the B&L Stock Fund was undiversified and accordingly it was the riskiest investment option offered. See id.

Moreover, the Plan offered 14 investment options, one of which was the B&L Stock Fund, which functioned as an Employee Stock Ownership Plan ("ESOP"). See Eichberger Decl., Ex. B. During the Class Period, participants had the option of moving their contributions in and out of all 14 investment options, including the B&L Stock Fund, at any time. See id. Further, both the base and matching employer contributions were made in B&L stock and invested in the B&L Stock Fund. See id. As of January 1, 2005, Plan participants were allowed to trade employer contributions out of the B&L Stock Fund at any time. See id.; see also CEC, ¶ 44.*fn3 Prior to that time, employer contributions remained in the B&L Stock Fund until a participant reached age 55 and/or terminated his/her employment with the company. See id. In December 2005, when B&L announced that it would restate its financials, federal securities laws required that restrictions be placed on employees' abilities to acquire B&L stock, including stock offered for purchase through a 401(k) plan. See CEC, ¶ 55; Eichberger Decl., Ex. K. As a result, as of December 22, 2005, participants were no longer able to direct voluntary contributions into the B&L Stock Fund.

Pursuant to the Plan and the Plan of Delegation of Fiduciary Responsibility (the "Delegation"), the Employee Benefits Administrative Committee ("EBAC") who is the Plan Administrator and is a named fiduciary to the Plan, is charged with all the Plan's day-to-day administration, maintenance and communication functions. See Eichberger Decl., Ex. A. The Employee Benefits Investment Committee ("IC") is a named fiduciary and is in charge of overseeing the investment funds, choosing investment options for the Plan, and selecting and overseeing the Plan's trustee. See id.

III. Accounting Practices of B&L's Foreign Subsidiaries

On October 26, 2005, B&L announced in a press release that its Audit Committee began an independent investigation into alleged misconduct by local managers at B&L Industria Otica, Ltda. in Brazil ("BLIO"). See CEC, ¶¶ 101-102. B&L reported in its 8-K disclosure that BLIO's general manager, controller and other employees had mischaracterized $600,000 in expenses to fund an unauthorized pension arrangement for themselves; avoided payroll tax obligations; and misused corporate assets for personal benefit. See Eichberger Decl., Ex. N. The BLIO general manager and controller were terminated and B&L voluntarily reported these matters to the Securities and Exchange Commission ("SEC"). See id. As indicated in the press release, BLIO's sales accounted for just 0.9% of B&L's $2,223 million restated net sales for 2004. See id., Ex. O. In addition, B&L's December 22, 2005 press release also revealed that the Audit Committee started investigating revenue recognition practices at B&L Korea Ltd. ("BL Korea"). See CEC, ¶¶ 104-106. Similar to BLIO, BL Korea represented only a small portion of B&L's consolidated business, generating approximately 1.5% of B&L's 2004 net sales of $2,233 million, as restated. See Eichberger Decl. Ex. O. Nevertheless, B&L concluded that certain prior period financial statements were required to be restated. See CEC, ¶ 104. On February 7, 2007, B&L filed its Form 10-K for 2005. The 10-K presented restated financial data for 2001 through 2004.

IV. ReNu with MoistureLoc ("MoistureLoc")

B&L received clearance from the U.S. Food and Drug Administration ("FDA") for a new contact lens solution called MoistureLoc, which was introduced in the U.S. market in September 2004 and later in selected markets in Europe and Asia. See CEC, ¶ 135. On November 11, 2005, the Hong Kong Department of Health ("HKDH") notified B&L of a rise in the number of incidents of contact lens related fungal keratitis and that approximately 40% of patients interviewed reported using MoistureLoc. See id., ¶ 143. Moreover, in February 2006, the Singapore Ministry of Hospitals ("SMOH") advised B&L of a spike in fungal keratitis cases involving MoistureLoc users. See id., ¶ 148. Within days, B&L voluntarily suspended sales of all ReNu products, including MoistureLoc, in Singapore and Hong Kong. See id., ¶ 150.

In March 2006 the first reports of eye infections in contact lens wearers were reported in the U.S. See id., ¶ 155. Following these reports, B&L carried out an investigation to determine the cause of the infections in collaboration with U.S. government agencies, public health authorities including the HKDH and SMOH and the U.S. Centers for Disease Control and Prevention ("CDC"). See id., ¶ 159. On April 10, 2006, B&L announced that it was voluntarily suspending shipments from the plant that manufactured the MoistureLoc sold in the U.S., Singapore and Hong Kong pending completion of the investigation. See id., ¶ 163. On May 15, 2006, B&L concluded that some aspect of the MoistureLoc formula increased the risk of fungal infection in unusual circumstances and it announced a permanent global recall of MoistureLoc.


I. Defendants' Motion to ...

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