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Cress v. Wilson

December 29, 2008


The opinion of the court was delivered by: John G. Koeltl, District Judge


The plaintiffs, a number of participants in Northwest Airlines' defined benefit pension plans for pilots and for contract employees, bring this purported class action pursuant to section 502 of the Employee Retirement Income Security Act ("ERISA"), 29 U.S.C. § 1132, against various defendants alleged to be fiduciaries of the airline's pension plans. The defendants include members of Northwest's Board of Directors and the Board's Compensation Committee; Northwest's Pension Investment Committee (whose individual members are unknown to the plaintiffs); several employees who are alleged to have been fiduciaries of the plans; and the placeholder defendants "Unknown Fiduciaries 1-100."

The core of the plaintiffs' allegations is that the defendants breached their fiduciary duties in violation of ERISA by failing to fund the pension plans properly. The plaintiffs allege that the pension plans were under-funded by approximately $5.7 billion during the period from October 1, 2000 until September 14, 2005, when Northwest filed for Chapter 11 bankruptcy (the "pre-bankruptcy period"). The allegations pertain to the funding of three defined benefit pension plans: one for pilot employees, one for contract employees, and one for salaried employees (collectively the "Plans").

Based on this predicate claim that the Plans were under-funded, the plaintiffs assert the following six causes of action under ERISA, against all of the defendants unless otherwise specified: (1) breach of fiduciary duties for failing to ensure that Northwest properly funded the Plans; (2) breach of fiduciary duties by only the director and Compensation Committee defendants for failing to monitor other fiduciaries; (3) breach of fiduciary duties for failing to provide complete and accurate information regarding Northwest's financial condition to the Plans' participants and beneficiaries; (4) breach of the fiduciary duty to avoid conflicts of interest; (5) participating in or aiding and abetting Northwest's under-funding of the Plans; and (6) participating in or aiding and abetting Northwest's failure to notify the Plans and their participants of Northwest's under-funding of the Plans.

Earlier in this litigation, the defendants moved to dismiss this action pursuant to Fed. R. Civ. P. 12(b)(6). The defendants argued that the plaintiffs had not identified any violation of ERISA's minimum funding standards, which were defined by statute during the pre-bankruptcy period using a "funding standard account," because they had not alleged any specific failure by Northwest to make an ERISA annual or quarterly installment as required by section 302 of ERISA, 29 U.S.C. § 1082, during the pre-bankruptcy period. On June 6, 2007, this Court denied the motion, reasoning that the plaintiffs had alleged significant deficiencies in the Plans' funding in violation of ERISA, and that there was an issue of fact that could not be resolved on a motion to dismiss as to whether there was any under-funding with respect to the minimum funding standards. The Court explained further that under the Rule 8 pleading standard, which applies to ERISA breach of fiduciary duty actions, the plaintiffs had been under no obligation to plead funding delinquencies with particularity. See Cress v. Wilson, No. 06 Civ. 2717, 2007 WL 1686687, at *6 (S.D.N.Y. June 6, 2007).

Because of the centrality of the issue of whether the Plans had any funding delinquency in the pre-bankruptcy period, the Court ordered phased discovery which would be focused initially on whether there was a funding delinquency in the Plans. On September 5, 2007, the Court issued a scheduling order for discovery to determine the Stage One Question: whether there was an actionable delinquency in the contributions required to be made to the Plans at any time during the pre-bankruptcy period under 29 U.S.C. § 1082, or any other funding delinquency in the Plans. The Court set a deadline of January 31, 2008 for Stage One discovery, and deadlines of February 15, 2008 and February 29, 2008 for the plaintiffs and defendants, respectively, to make any Stage One expert disclosures. The Court set March 21, 2008 as the date for the completion of expert discovery. The Court authorized motions for summary judgment to be filed thereafter on the Stage One issue.

The defendants now move for Stage One summary judgment. The plaintiffs oppose the motion and request a continuance pursuant to Fed. R. Civ. P. 56(f).



The standard for granting summary judgment is well established. Summary judgment may not be granted unless "the pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(c); see also Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986); Gallo v. Prudential Residential Servs. Ltd. P'ship, 22 F.3d 1219, 1223 (2d Cir. 1994). "[T]he trial court's task at the summary judgment motion stage of the litigation is carefully limited to discerning whether there are genuine issues of material fact to be tried, not to deciding them. Its duty, in short, is confined at this point to issue-finding; it does not extend to issue-resolution." Gallo, 22 F.3d at 1224. The moving party bears the initial burden of informing the district court of the basis for its motion and identifying the matter that it believes demonstrates the absence of a genuine issue of material fact. Celotex, 477 U.S. at 323. The substantive law governing the case will identify those facts that are material, and "[o]nly disputes over facts that might affect the outcome of the suit under the governing law will properly preclude the entry of summary judgment." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986).

Summary judgment is appropriate if it appears that the nonmoving party cannot prove an element that is essential to the nonmoving party's case and on which it will bear the burden of proof at trial. See Cleveland v. Policy Mgmt. Sys. Corp., 526 U.S. 795, 805-06 (1999); Celotex, 477 U.S. at 322; Powell v. Nat'l Bd. of Med. Exam'rs, 364 F.3d 79, 84 (2d Cir. 2004). In determining whether summary judgment is appropriate, a court must resolve all ambiguities and draw all reasonable inferences against the moving party. See Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986) (citing United States v. Diebold, Inc., 369 U.S. 654, 655 (1962)); Gallo, 22 F.3d at 1223. Summary judgment is improper if there is any evidence in the record from any source from which a reasonable inference could be drawn in favor of the nonmoving party. See Chambers v. T.R.M. Copy Ctrs. Corp., 43 F.3d 29, 37 (2d Cir. 1994). If the moving party meets its initial burden of showing a lack of a material issue of fact, the burden shifts to the nonmoving party to come forward with "specific facts showing a genuine issue for trial." Fed. R. Civ. P. 56(e)(2). The nonmoving party must produce evidence in the record and "may not rely simply on conclusory statements or on contentions that the affidavits supporting the motion are not credible." Ying Jing Gan v. City of New York, 996 F.2d 522, 532 (2d Cir. 1993); see also Scotto v. Almenas, 143 F.3d 105, 114-15 (2d Cir. 1998).


All of the claims in this action are based on breaches of the duties ERISA imposes on the fiduciaries of a pension plan. "ERISA is designed to protect employee pensions and benefit plans by, among other things, 'setting forth certain general fiduciary duties applicable to the management of both pension and nonpension benefit plans.'" In re Worldcom, Inc., 263 F.Supp.2d 745, 756-57 (S.D.N.Y. 2003) (quoting Varity Corp. v. Howe, 516 U.S. 489, 496 (1996)). ERISA defines a fiduciary functionally, providing in relevant part: "[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 management or disposition of its assets, . . . or (iii) he has any discretionary authority or discretionary responsibility in the administration of such plan." 29 U.S.C. § 1002(21)(A); see also Bouboulis v. Transp. Workers Union of Am., 442 F.3d 55, 63 (2d Cir. 2006); Worldcom, 262 F.Supp.2d at 757 ("ERISA defines a fiduciary in functional terms of control and authority over the plan." (internal quotation marks omitted)).

ERISA defines the standard to which fiduciaries of a plan are held as that of a "prudent man." Worldcom, 263 F.Supp.2d at 758. Section 404(a)(1) provides:

[A] fiduciary shall discharge his duties with respect to a plan solely in the interest of the participants and beneficiaries and

(A) for the exclusive purpose of: (i) providing benefits to participants and their beneficiaries; and

(ii) defraying reasonable expenses of administering the plan;

(B) 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 . . . .

29 U.S.C. § 1104(a)(1).

Section 404(a)(1) of ERISA thus imposes three "overlapping standards": to act "solely in the interests of the participants and beneficiaries," to act "for the exclusive purpose" of providing benefits to them, and to act with the care of a "prudent man." Donovan v. Bierwirth, 680 F.2d 263, 271 (2d Cir. 1982) (Friendly, C.J.). These duties, which are drawn from the common law of trusts, have been described as "the highest known to the law." Worldcom, 263 F.Supp.2d at 758 (quoting Flanigan v. Gen. Elec. Co., 242 F.3d 78, 86 (2d Cir. 2001)). ERISA fiduciaries must manage the plan with "an eye single" to the interests of the plan's participants and beneficiaries.

Worldcom, 263 F.Supp.2d at 758 (quoting Donovan, 680 F.2d at 271).

Section 409(a) of ERISA imposes liability on a plan fiduciary who "breaches any of the responsibilities, obligations, or duties imposed upon fiduciaries by this subchapter." 29 U.S.C. § 1109(a). A breaching fiduciary is "personally liable to make good to such plan any losses to the plan resulting from each such breach, and to restore to such plan any profits of such fiduciary which have been made through use of assets of the plan by the fiduciary, and shall be subject to such other equitable or remedial relief as the court may deem appropriate, including removal of such fiduciary." Id. In addition, section 405(a) imposes liability on a plan fiduciary for a breach of fiduciary responsibilities by a "co-fiduciary" (1) where the first fiduciary "participates knowingly in, or knowingly undertakes to conceal, an act or omission of such other fiduciary, knowing such act or omission is a breach," (2) where the first fiduciary's own breach enables the co-fiduciary to commit a breach, or (3) where the first fiduciary "has knowledge of a breach by such other fiduciary, unless he makes reasonable efforts under the circumstances to remedy the breach." 29 U.S.C. § 1105(a).

In addition to the broadly worded fiduciary obligations outlined above, ERISA imposes specific minimum funding standards on the sponsors of a pension plan. It should be noted at the outset that Congress has recently amended these minimum funding standards in the Pension Protection Act of 2006, Pub. L. No. 109-280, 120 Stat. 780. However, these amendments are not relevant to this case, because they occurred and apply only after the pre-bankruptcy period. Thus all ensuing discussion of and citations to ERISA and the minimum funding standards imposed thereby refer to ERISA as it existed during the pre-bankruptcy period, prior to the 2006 amendments.

During the pre-bankruptcy period, pension plan administrators were required to provide certain information about a plan to the participants and beneficiaries of the plan, including notification of a failure to make a required payment to meet the minimum funding standards imposed by § 1082. See 29 U.S.C. § 1021(d). ERISA's minimum funding standards were set forth in sections 302-306 of ERISA, 29 U.S.C. §§ 1082-1086, and in parallel and overlapping provisions of the Internal Revenue Code, citations to which are omitted here. The standards operated through an accounting device called a "funding standard account." See ERISA §§ 302(a), (b), 29 U.S.C. §§ 1082(a), (b). Each pension plan to which the minimum funding standards applied had to establish and maintain such a funding standard account. ERISA § 302(b)(1), 29 U.S.C. § ...

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