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In re American Express Co. Erisa Litigation

November 2, 2010


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


During the recent drop in the stock market, the price of American Express Company ("American Express") stock dropped significantly, although it has since rebounded. The American Express Incentive Savings Plan (the "Plan") required that the Plan include an option to allow employees to invest in the Company Stock Fund, which is invested almost exclusively in American Express stock. The plaintiffs, participants and beneficiaries of the Plan, claim that the various defendants were responsible for the Plan's investments and breached their fiduciary duties by failing to limit the Plan's investments in American Express stock, and otherwise violated their fiduciary duties under the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. § 1001, et seq.

The defendants now move to dismiss the Complaint. They argue, among other things, that the Plan required that the employees be permitted to invest in the Company Stock Fund and that they breached no duties in following the Plan requirements.

More specifically, the plaintiffs, Renee Obester, Charlotte Fairclough, Kam K. Tang, Ida DiLorenzo, and Alan Miner (collectively, "the plaintiffs") are American Express employee participants in or beneficiaries of the Plan. They brought these actions on behalf of themselves and others similarly situated to recover losses suffered by the Plan from April 19, 2007, to the present. The plaintiffs allege that the defendants American Express, American Express Company Compensation and Benefits Committee ("the Compensation Committee"), Employee Benefits Administration Committee of the Company ("the Administration Committee"), Benefits Plans Investment Committee of the Company ("the Benefits Committee"), Retirement Savings Plan Investment Committee ("the Investment Committee"), and individual corporate officers of American Express*fn1 (collectively, "the defendants"), violated their fiduciary duties to the plaintiffs under ERISA.

The Plan is a defined contribution plan or individual account plan consisting of contributions made by employees and the employer, American Express. The Plan offers participants a variety of investment options, and participants are solely responsible for determining how contributions are invested among the available options. The Plan mandates that it shall include the Company Stock Fund, invested exclusively in American Express stock plus limited liquid investments necessary to meet liquidity needs. Beginning July 1, 2007, the Plan has imposed a 10% ceiling on participant investments in the Company Stock Fund.

American Express, a consumer credit card company, has suffered losses as consumer spending declined during a period of economic recession. As has been the case with other companies during economic troubles, the value of American Express stock has decreased from a trading price of $58.50 per share on April 19, 2007, to a closing price of $18.42 per share on December 22, 2008, resulting in a reduction in value of the plaintiffs' vested retirement benefits. American Express announced on October 20, 2008, that it planned to reduce its workforce by 10%. On November 10, 2008, American Express was approved to become a bank-holding company, a status it sought in order to obtain access to Federal Reserve financing.

The plaintiffs allege five separate claims for violations of ERISA. The plaintiffs allege that the defendants violated their fiduciary duties of prudence and loyalty under ERISA by continuing to maintain the Company Stock Fund while failing to warn the plaintiffs that investment in company stock was imprudent. The plaintiffs also allege that the defendants violated ERISA by failing to reallocate Plan assets to reduce the total amount in the Company Stock Fund to no more than 10% of each participant's holdings as well as the overall amount of Plan assets after the 2007 Plan amendment. The plaintiffs bring further claims for failure to inform the plaintiffs adequately, failure of American Express and various defendants to monitor other fiduciaries, and breach of duty by various defendants to avoid conflicts of interest. The defendants now move to dismiss the Second Consolidated Amended Complaint for failure to state a claim upon which relief can be granted pursuant to Federal Rule of Civil Procedure 12(b)(6).


In deciding a motion to dismiss pursuant to Rule 12(b)(6), the allegations in the complaint are accepted as true, and all reasonable inferences must be drawn in the plaintiff's favor. McCarthy v. Dun & Bradstreet Corp., 482 F.3d 184, 191 (2d Cir. 2007); Arista Records LLC v. Lime Group LLC, 532 F. Supp. 2d 556, 566 (S.D.N.Y. 2007). The Court's function on a motion to dismiss is "not to weigh the evidence that might be presented at a trial but merely to determine whether the complaint itself is legally sufficient." Goldman v. Belden, 754 F.2d 1059, 1067 (2d Cir. 1985). The Court should not dismiss the complaint if the plaintiff has stated "enough facts to state a claim to relief that is plausible on its face." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Ashcroft v. Iqbal, 129 S.Ct. 1937, 1949 (2009). While the Court should construe the factual allegations in the light most favorable to the plaintiff, "the tenet that a court must accept as true all of the allegations contained in the complaint is inapplicable to legal conclusions." Id.; see also McKevitt v. Mueller, 689 F. Supp. 2d 661, 665 (S.D.N.Y. 2010).

When presented with a motion to dismiss pursuant to Rule 12(b)(6), the Court may consider documents that are referenced in the complaint, documents that the plaintiff relied on in bringing suit and that are either in the plaintiff's possession or that the plaintiff knew of when bringing suit, or matters of which judicial notice may be taken. See Chambers v. Time Warner, Inc., 282 F.3d 147, 152-53 (2d Cir. 2002); see also Kavowras v. New York Times Co., 328 F.3d 50, 57 (2d Cir. 2003); Taylor v. Vt. Dep't of Educ., 313 F.3d 768, 776 (2d Cir. 2002); Brass v. Am. Film Techs., Inc., 987 F.2d 142, 150 (2d Cir. 1993); Cortec Indus., Inc. v. Sum Holding L.P., 949 F.2d 42, 47-48 (2d Cir. 1991); Kramer v. Time Warner, Inc., 937 F.2d 767, 773 (2d Cir. 1991); McKevitt, 689 F. Supp. 2d at 665.


The Court accepts the following factual allegations for the purposes of the motion to dismiss.


The plaintiffs are individual participants in the Plan who held American Express stock in their individual Plan accounts during the class period. (Second Consol. Am. Compl. ("Compl.") ¶¶ 20-23.) American Express, the Plan Sponsor and named fiduciary, is a New York company that offers consumer and business credit cards among other financial products. (Compl. ¶¶ 25-27, 106.)

The Director or Monitoring Defendants-Chenault, Akerson, Barshefsky, Burns, Chernin, Leschly, Levin, McGinn, Miller, Reinemund, Walter, and Williams-were members of the American Express Board of Directors during the class period. (Compl. ¶¶ 28-40.) The plaintiffs allege that the Director Defendants were fiduciaries of the Plan within the meaning of ERISA § 3(21)(A), 29 U.S.C. § 1002(21)(A), because they allegedly "exercised discretionary authority with respect to the management and administration of the Plan and management or disposition of the Plan's assets" and "were ultimately responsible for monitoring and administering the Plan." (Compl. ¶¶ 41-42.)

The named fiduciaries of the Plan subject to ERISA are the Administration Committee, the Benefits Committee, and the Investment Committee. (Compl. ¶¶ 45-46, 51, 81-85.) The Compensation Committee Defendants-Leschly, McGinn, Miller, Walter, and Chernin-appointed members of the Administration Committee. (Compl. ¶ 44.)

The Administration Committee Defendants-including Christensen and various John Doe defendants-as members of the Administration Committee, were "charged with the operation and administration of the Plan." (Compl. ¶¶ 46, 49-50.) Under the Plan, the Administration Committee had the power, duty, and discretion to administer the Plan, determine Plan eligibility, interpret and supplement the Plan when necessary to pursue the intent and purpose of the Plan, decide claims arising out of a denial of Plan benefits, and to make any filings or reports required by ERISA. (Compl. ¶ 47.) The Administration Committee Charter provides that the powers and duties of the Administration Committee include the reporting and disclosure duties of a plan administrator under ERISA, the power to establish, amend, and terminate administrative rules, the power and duty to oversee the benefits claims process and decide claims and appeals, oversee plan operations, employ accounting, legal, and clerical services needed to discharge its functions, appoint fiduciaries to aid in fulfilling the Committee's duties, access American Express records and meet with company employees, approve clerical Plan amendments, and the power to delegate its duties and authority. (Compl. ¶ 48.) Christensen signed the 2008 11-K on behalf of the Administration Committee and signed the Form 5500 as the Plan Administrator. (Compl. ¶ 49.)

The Investment Committee Defendants-including Dwyer and various John Doe defendants-as members of the Investment Committee have the "fiduciary responsibility to monitor the investment of the Plan's assets solely in the interests of the Plan's participants and beneficiaries," but must do so "[s]ubject to the terms of the Plan requiring that the Company Stock Fund be offered as a retirement savings option." (Compl. ¶¶ 51, 57-59.) Under the Plan, the Investment Committee had the power, duty, and discretion to select and monitor the discretionary funds to be offered as investment options under the Plan, submit reports regarding the assets, liabilities, and performance of Plan investments, maintain appropriate records, and appoint fiduciaries to aid in fulfilling the functions of the Investment Committee. (Compl. ¶ 52.) Under the Statement of Investment Objectives, the Investment Committee is responsible for offering a diversified range of funds, establishing investment objectives, guidelines, and performance standards, monitoring investment fund managers, and monitoring the investment program to ensure that it offers a diversified range of investments. (Compl. ¶ 53.) Investment Managers, appointed by the Investment Committee, are responsible for "[m]anaging the [fund] assets in accordance with the investment policy and guidelines as expressed in the fund prospectus or management agreement with the Plan." (Compl. ¶ 54 & n.6 (first alteration in original).) The Investment Consultant works with the Investment Committee "to evaluate the investment performance of all investment options" by advising the Investment Committee as to the "continuing appropriateness of each investment option" and recommending modifications of "the overall investment program including objectives, guidelines or performance standards for each investment option." (Compl. ¶ 55.) Absent "extraordinary circumstances," the Investment Committee would not monitor Company Stock performance either for recommending levels of Company Stock for the Plan or the elimination of Company Stock as a Plan asset. (Compl. ¶ 56.) Dwyer, the Vice President of Global Benefits at American Express was responsible for strategy and communication of Plan benefits, and signed the Form 5500 as the Plan Sponsor. (Compl. ¶ 60.)

The Plan, first adopted June 11, 1973, is an employee pension benefit plan under ERISA §§ 3(2)(A), 29 U.S.C. § 1002(2)(A) and is intended to be a "source of supplemental retirement income" for participants. (Compl. ¶¶ 61, 63, 68.) The Plan includes a separate individual account for each participant based on that participant's contributions, and therefore is a defined contribution plan or individual account plan under ERISA § 3(34), 29 U.S.C. § 1002(34). (Compl. ¶ 61.) The Plan assets were held in trust in accordance with ERISA § 403(a), 29 U.S.C. § 1103(a) by various entities during the class period. (Compl. ¶ 62.) On April 4, 2002, the Company Stock Fund was designated a stock bonus plan composed of an employee stock ownership plan ("the ESOP"). (Compl. ¶ 65.) The Plan was amended effective July 1, 2007, and January 1, 2008. (Compl. ¶ 66.) As of July 1, 2007, the ESOP principally held Company Stock in the Company Stock Fund. (Compl. ¶ 67.)

Under the Plan, eligible employees are permitted to make elective contributions and receive various American Express matching contributions and profit sharing contributions. (Compl. ¶¶ 69-70.) Plan participants may, on any business day, elect to allocate or change contributions to any combination of funds available under the Plan, including the Company Stock Fund. (Compl. ¶ 71.) The Company Stock Fund consists of American Express stock and cash or short-term fixed income investments. (Compl. ¶ 72.) The Company Stock Fund is provided for in a provision of the Plan that states that the "Trust Fund shall consist in part of the Company Stock Fund." (Compl. ¶ 73 & Ex. C at § 6.2(a).) On July 1, 2007, contributions to the Company Stock Fund were capped at 10% of the total value of a participant's retirement assets under the Plan, although there had been no such cap prior to that date. (Compl. ¶¶ 74-78.) The Plan amendment reads as follows:

Notwithstanding anything herein to the contrary, no Participant, alternate payee or beneficiary may transfer amounts to the Company Stock Fund to the extent that such transfer would result in the aggregate Company Stock holdings of such Participant, alternate payee or beneficiary under the Plan exceeding ten percent (10%) of the total value of his or her Accounts (determined at the time of transfer). Furthermore, no participant may direct that an amount in excess of ten percent (10%) of his or her ongoing contributions be allocated to the Company Stock Fund. (Compl. ¶ 78 & Ex. B at § 6.3.)

Likewise, in the Summary of Material Modifications ("SMM") provided to Plan participants, American Express informed participants of the following:

As of the July 1, 2007 [effective date], your contributions to the American Express Company Stock Fund (the "Fund") will be subject to new limits as follows:

 You will not be permitted to make an investment election to contribute more than 10% of your ...

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