United States District Court, S.D. New York
For Mark Geroulo, Individually, on behalf of the Citigroup 401(k) Plan, the Citibuilder 401 (K) Plan For Puerto Rico and on behalf of all others similarly situated, Plaintiff: Ronen Sarraf, LEAD ATTORNEY, Joseph Gentile, Sarraf Gentile, LLP, New York, NY; Andrew Eugene Lencyk, Wolf Popper LLP, New York, NY; Karen L. Handorf, Matthew Alexander Smith, PRO HAC VICE, Cohen Milstein Sellers & Toll PLLC, Wachington, DC; Michelle Celia Yau, PRO HAC VICE, Cohen Milstein Sellers & Toll PLLC (DC), Washington, DC; Nancy A. Kulesa, Robert A. Izard, PRO HAC VICE, William Edward Bernarduci, Izard Nobel LLP, West Hartford, CT; Robert I. Harwood, Harwood Feffer LLP, New York, NY.
For Sherri M Harris, Chad D Meisner, Movants: Robert I. Harwood, Harwood Feffer LLP, New York, NY.
For Steven Goldstein, Movant: Edwin J. Mills, Stull Stull & Brody, New York, NY; Robert I. Harwood, Harwood Feffer LLP, New York, NY.
For Citigroup, Inc., Citibank, N.A., Administration Committee Of Citigroup, Inc., Richard Tazik, Jorge Bermudez, Michael Burke, Larry Jones, Thomas Santagelo, The Citigroup 401(K) Plan Investment Committee, Leo Viola, Donald Young, Robert Grogan, Robin Leopold, Glenn Regan, Christine Simpson, Timothy Tucker, Marcia Young, Sir Winfried F.W. Bischoff, Kenneth Derr, Roberto Hernandez, Robert Rubin, Franklin Thomas, C. Michael Armstrong, Alain J.P. Belda, John M. Deutch, Andrew N. Liveris, Anne M. Mulcahy, Vikram S. Pandit, Richard D. Parsons, Judith Rodin, Lawrence R. Ricciardi, Robert L. Ryan, Defendants: Brad Scott Karp, Lewis Richard Clayton, Susanna Michele Buergel, LEAD ATTORNEYS, Paul, Weiss, Rifkind, Wharton & Garrison LLP (NY), New York, NY.
For Steven Muehlgay, ADR Provider: Robert I. Harwood, Harwood Feffer LLP, New York, NY.
For Frederick Winfield, All Plaintiffs: Robert I. Harwood, Harwood Feffer LLP, New York, NY.
All Plaintiffs, All Plaintiffs, Pro se.
OPINION AND ORDER
John G. Koeltl, United States District Judge.
During the subprime mortgage crisis of 2008, the price of Citigroup Inc. (" Citigroup" ) stock dropped precipitously. The Citigroup 401(k) Plan (the " Citigroup Plan" ) and the Citibuilder 401(k) Plan for Puerto Rico (the " Citibuilder Plan" ) required that the Plans include an option to allow employees to invest in the Citigroup Common Stock Fund, which is invested in Citigroup common stock. The plaintiffs, participants and beneficiaries of the Plans, claim that the various defendants were responsible for the Plans' investments and breached their fiduciary duties by failing to limit the Plans' investments in Citigroup common 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 this action is time-barred by ERISA's statute of limitations, 29 U.S.C. § 1113, and that there is no plausible claim that they breached any duties in following the Plans' requirements to make Citigroup stock available as an investment option for employees.
More specifically, the plaintiffs, Steven Muehlgay, Sherri M. Harris, Chad D. Meisner, Frederick L. Winfield, Thomas Ehrbar, and Mark Geroulo (collectively, " the plaintiffs" ) are employee participants or beneficiaries of the Citigroup Plan. They sue on behalf of themselves and others similarly situated to recover losses suffered by the Plans from January 16, 2008, to March 5, 2009. The plaintiffs allege that the defendants Citigroup, Citibank, N.A., the Plan Administration Committee of Citigroup Inc. (" the Administration Committee" ), the 401(k) Plan Investment Committee of Citigroup Inc. (" the Investment Committee" ), and individual corporate directors and officers of Citigroup (collectively, " the defendants" ), violated their fiduciary duties to the plaintiffs under ERISA.
The Plans are defined contribution plans or individual account plans consisting of contributions made by employees and the employer, Citigroup. The Plans offer participants a variety of investment options, and participants are solely responsible for determining how contributions are invested among the available options. The Plans require that they include as an investment option the Citigroup Common Stock Fund, invested exclusively in Citigroup common stock plus limited liquid investments necessary to meet liquidity needs. Participants in the Citigroup Plan and the Citibuilder Plan are allowed to contribute up to 50% of their eligible pay, up to annual statutory limitations. In certain circumstances, Citigroup makes matching contributions into the Plans in the form of Citi stock, although participants are able to convert that stock into any other investment. Third Am. Consol. Compl. (" Compl." ) ¶ 67; Paterson Decl. Ex. 5 (Citigroup 401(k) Plan As Amended and Restated Effective January 1, 2009 (" Citigroup Plan" )) § 7.02; Citigroup Plan § 5.04; Paterson Decl. Ex. 4 (Citibuilder 401(k) Plan for Puerto Rico As Amended and Restated Effective January 1, 2009 (" Citibuilder Plan" )) § 7.02.
This is the second consolidated action against the defendants asserting ERISA claims based on the decline in Citigroup's stock price during the subprime mortgage crisis. The first consolidated action was based on a drop in the price of Citigroup stock from $55.70 per share on January 1, 2007, to $26.94 per share on January 15, 2008. On August 31, 2009, Judge Stein granted the defendants' motion to dismiss that action, and on October 19, 2011, the Second Circuit Court of Appeals affirmed. Following the decision by the Court of Appeals, numerous class actions were filed and consolidated. In the current Third Consolidated Amended Complaint, the plaintiffs seek recovery based on a drop in the price of Citigroup stock from $27.23 per share on January 16, 2008, to $0.97 per share on March 5, 2009.
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 allowing the Plans to continue to hold and purchase Citigroup stock despite abundant public information regarding Citigroup's precarious condition and the riskiness of Citigroup stock. The plaintiffs also allege a duty of prudence claim based on the defendants' failure to respond prudently to nonpublic information. The plaintiffs bring further claims for the failure of Citigroup, Citibank, and the Director Defendants to monitor and adequately inform other fiduciaries, and a claim for co-fiduciary liability against all defendants. The defendants now move to dismiss the Third 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 plaintiffs' 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 plaintiffs have stated " enough facts to state a claim to relief that is plausible on its face."
Bell A. Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). " A claim has facial plausibility when the plaintiff[s] plead factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009). While the Court should construe the factual allegations in the light most favorable to the plaintiffs, " the tenet that a court must accept as true all of the allegations contained in the complaint is inapplicable to legal conclusions." Id.
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 plaintiffs relied on in bringing suit and that are either in the plaintiffs' possession or that the plaintiffs 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 In re Am. Exp. Co. ERISA Litig., 762 F.Supp.2d 614, 618 (S.D.N.Y. 2010).
The Court accepts the following factual allegations for the purposes of the motion to dismiss.
The plaintiffs are individual participants in the Citigroup Plan who held Citigroup stock in their individual Plan accounts during the class period. Compl. ¶ ¶ 35-38. Citigroup and Citibank are named sponsors of the Citigroup Plan and Citibuilder Plan, respectively. Compl. ¶ ¶ 41-42. The plaintiffs allege that under the terms of the Plans and various trust agreements, Citigroup had the authority to appoint trustees for the Plans and to appoint members of the Administration and Investment Committees. Compl. ¶ ¶ 89-93. During a portion of the class period, Citigroup appointed Citibank as a trustee of the Citigroup Plan. Compl. ¶ 99. Although Citigroup and Citibank delegated management and administrative duties to the Administrative and Investment Committees, the plaintiffs allege that Citigroup and Citibank retained some of these duties. Compl. ¶ ¶ 94, 100. Accordingly, the plaintiffs allege that Citigroup and Citibank are both named and de facto fiduciaries of the Plans within the meaning of ERISA § 3(21)(A), 29 U.S.C. § 1002(21)(A), because they exercise " authority or control respecting management or disposition of [Plan] assets," and exercise " discretionary authority or discretionary control respecting management" of the plan. Compl. ¶ ¶ 98, 102 (alteration in original) (quoting ERISA § 3(21)(A)).
The Director Defendants--Bischoff, Pandit, and Rubin--were members of the Citigroup Board of Directors during the class period. Compl. ¶ ¶ 45-47. The plaintiffs allege that the Director Defendants appointed the Administration and Investment Committee Members, had a duty to monitor and provide necessary information to their appointees, and consequently are de facto fiduciaries of the Plans within the meaning of ERISA § 3(21)(A).
The named fiduciaries of the Plans subject to ERISA are the Administration Committee and the Investment Committee. Compl. ¶ ¶ 107, 112. The Administration Committee was the administrator of the Plans and was " charged with managing the operation and administration of the Plans." Compl. ¶ 106. The Plans confer upon the Administration Committee " the power and the duty to take all actions and to make all decisions that shall be necessary or proper to carry out the provisions of the Plan." Compl. ¶ 108. These powers include, among others, the authority to " make and enforce . . . rules and regulations," to modify, change, establish, or terminate such rules and regulations, and to " construe the Plan[s] and to determine all questions of fact and law that may arise hereunder." Compl. ¶ 109. The Administration Committee also has the power and duty to establish any " timing or frequency limitations" on investments after those limitations have been approved by the Investment Committee. Compl. ¶ 110.
The Investment Committee is authorized by the Plans to " manage and control the appointment and removal of investment managers and retain advisors for the Plans as well as establish or remove investment funds for the Plans." Compl. ¶ 112. The Investment Committee has the power to approve " any timing or frequency limitations" on accounts within the Plans, including the Citigroup Stock Fund. Compl. ¶ 113. Section 7.09(e) of the Citigroup Plan provides that in the event that a duty exists to determine whether the provisions that require investment in the Citigroup Stock Fund should be modified, " such duty shall be that of the Investment Committee." Compl. ¶ 114; see also Citigroup Plan § 7.09(e). Pursuant to a sub-trust agreement appointing the Investment Committee to manage the Plans, the Investment Committee " shall not issue any directions that are in violation of the terms of the Plan . . . or prohibited by ERISA." Compl. ¶ 115.
The two Plans are both employee pension benefit plans under ERISA § 3(2)(A), 29 U.S.C. § 1002(2)(A), and include a separate individual account for each participant based on that participant's contributions, and therefore are also defined contribution plans under ERISA § 3(34), 29 U.S.C. § 1002(34). Compl. ¶ 57. The Citigroup Plan was initially established effective January 1, 1987, and the Citibuilder Plan was initially established effective January 1, 2001. Compl. ¶ 60. The Plans' 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. ¶ 61. The Citigroup Plan is designated as a stock bonus plan, a portion of which is designated as an employee stock ownership plan (" ESOP" ). Compl. ¶ 58. The Citibuilder Plan is a profit sharing plan, and it is only available to employees who are " bona fide resident[s] of Puerto Rico or who perform services primarily in Puerto Rico." Id.
Under the Citigroup Plan, eligible employees are permitted to make elective contributions and receive Citigroup matching contributions to put towards various investments. Participants in the Citigroup Plan are allowed to contribute up to 50% of their eligible pay, up to annual statutory limitations. Compl. ¶ 65. Citibuilder Plan participants were allowed to contribute up to 10% of their eligible pay, until the Citibuilder Plan was amended effective January 1, 2009, so that Citibuilder Plan participants could contribute up to 50%, subject to annual statutory limitations. Id. Pursuant to the Plans, ...