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holding that "[b]ecause the scope and practical effect of this duty will not be determined on a motion to dismiss, it is premature to absolve the [defendants] of liability for imprudent investments
Summary of this case from Johnson v. Evangelical Lutheran Church in AmericaOpinion
Master File No. 03-2989 ADM/FLN.
July 26, 2004
Joseph H. Meltzer, Esq., and Edward W. Chang, Esq., Schiffrin Barroway, LLP, Bala Cynwyd, PA, Vernon J. Vander Weide, Esq., Head, Seifert Vander Weide, Minneapolis, MN, Erin Green Comite, Esq., Scott Scott, LLC, Colchester, CT, and Scott E. Poynter, Esq., Emerson Poynter, LLP, Little Rock, AR, appeared for and on behalf of Plaintiffs.
Stephen P. Lucke, Esq., and Heather J. Klaas, Esq., Dorsey Whitney, LLP, Minneapolis, MN, appeared for and on behalf of Defendants.
MEMORANDUM OPINION AND ORDER
I. INTRODUCTION
On May 28, 2004, this matter came before the undersigned United States District Judge on Defendants' Motion to Dismiss [Docket No. 33] Plaintiffs' allegations of breach of fiduciary duty. Defendants argue that Plaintiffs' Complaint fails to meet the particularity required for allegations of fraud or to state any valid claims under the Employee Retirement Income Securities Act ("ERISA"), 29 U.S.C. § 1001 et seq. For the reasons set forth as follows, Defendants' Motion is denied.
II. BACKGROUND
Defendant ADC Telecommunications, Inc. ("ADC"), based in Eden Prairie, Minnesota, supplies network equipment and software and integration services for telecommunications networks. Plaintiffs were ADC employees and participants in ADC's Retirement and Savings Plan ("the Plan"), which the company offers to its employees for retirement investment. Consolidated Compl. Ex. A. ADC is sponsor and administrator of the Plan, which was established under section 401(k) of the Internal Revenue Code and is an eligible individual account plan ("EIAP"), as defined by ERISA. See 29 U.S.C. § 1107(d)(3). Among other investment options, the Plan offers an ADC Stock Fund that consists primarily of ADC's own common stock. Employees designate the percentage of their earnings, within the specified limit, they wish to invest in the Plan and ADC provides matching contributions up to 6% of a participant's total compensation.
The named Plaintiffs of the consolidated actions bring this suit on behalf of all participants in or beneficiaries of the ADC Retirement and Savings Plan "between February 24, 2000 and the present . . . whose accounts included investments in ADC stock." Consolidated Compl. ¶ 50.
The Consolidated Complaint ("Complaint") [Docket No. 30] divides the Defendants into four groups: ADC, the Board of Directors ("Director Defendants"), the members of the Retirement Savings Plan Committee ("Retirement Committee"), and various individual employees alleged to have performed fiduciary functions with respect to the Plan ("Employee Defendants"). Compl. ¶¶ 10-39. Director Defendants include: William Cadogan, President and CEO from 1991-2001, current President and CEO Richard R. Roscitt, John P. Blanchard III, John J. Boyle III, James C. Castle, B. Kristine Johnson, Jean-Pierre Rosso, John D. Wunsch, Charles D. Yost, Mickey P. Foret, Robert Annunziata, and Larry W. Wangberg. The Retirement Committee Defendants include: Chief Financial Officer Robert E. Switz, Charles T. Roehrick, Laura Owen, Gokul Hemmady, Jeffrey D. Pflaum and Bradley V. Crary. The named Employee Defendants are: Patricia Gilroy, Teresa Lund, Debra L. Raths, Mark Veldey, Scott Johnson and Shelby Nelson.
Director Defendants John W. Sidgmore, Thomas E. Holloran, and Alan E. Ross have been dismissed. Notice of 1/30/04 [Docket No. 32]. All remaining Defendants jointly bring this Motion, with the exception of Employee Defendants Mark Veldey and Shelby Nelson, who may not have been served with the Complaint. Defs.' Mem. at 5 n. 2.
The Complaint alleges four counts: failure to prudently and loyally manage plan assets, failure to monitor, failure to provide complete and accurate information, and breach of the duty to avoid conflicts of interest. As bases for these claims, the Complaint avers that despite a general downturn in the telecommunications industry, and specifically in ADC's business, ADC disseminated optimistic and unrealistic predictions that concealed the company's true financial woes. Plaintiffs assert that "Defendants imprudently permitted the Plan to invest in ADC stock while ignoring ADC's (i) own internally generated negative forecasts; (ii) improper shifting of revenues from future quarters into current quarters in order to meet earnings forecasts; and (iii) dramatically rising inventory levels." Pls.' Mem. at 2; Compl. ¶ 91. They contend that in order to artificially inflate the price of ADC stock, the company engaged in accounting practices violative of internal and professional standards, and hid excess inventory. The Complaint also alleges that several of the Defendants sold their own shares of ADC stock for large financial gains while continuing to invest employees' earnings in the Plan. Eventually, on March 28, 2001, ADC issued a press release announcing the lowering of its expectations for fiscal 2001, a large scale worldwide layoff and other cost cutting measures.
As of December 31, 2000, ADC stock comprised 58% of the holdings of the Plan, with the percentage steadily decreasing since that time. Between February 2000 and November 2003 the company stock price plummeted, losing almost 95% of its value. Plaintiffs allege that continued investment of Plan funds in ADC under such circumstances constituted a breach of various fiduciary duties by Defendants.
III. DISCUSSION
Rule 12 of the Federal Rules of Civil Procedure provides that a party may move to dismiss a complaint for failure to state a claim upon which relief can be granted. Fed.R.Civ.P. 12(b)(6). In considering a motion to dismiss, the pleadings are construed in the light most favorable to the nonmoving party, and the facts alleged in the complaint must be taken as true. Hamm v. Groose, 15 F.3d 110, 112 (8th Cir. 1994); Ossman v. Diana Corp., 825 F. Supp. 870, 879-80 (D. Minn. 1993). Any ambiguities concerning the sufficiency of the claims must be resolved in favor of the nonmoving party. Ossman, 825 F. Supp. at 880. "A motion to dismiss should be granted as a practical matter . . . only in the unusual case in which the plaintiff includes allegations that show on the face of the complaint that there is some insuperable bar to relief." Frey v. City of Herculaneum, 44 F.3d 667, 671 (8th Cir. 1995).
In addition to the contents of the pleadings, on a motion to dismiss a court may properly consider documents that are referenced in and central to the allegations of the complaint.E.g., In re Sears Roebuck Co. ERISA Litigation, No. 02 C 8324, 2004 U.S. Dist. LEXIS 3241, at *10-11 (N.D. Ill. Mar. 3, 2004).
A. Rule 9(b)
Defendants argue that although ERISA actions are not generally subject to heightened pleading requirements, the basis for the alleged breaches of fiduciary duty "sound in fraud" and therefore must conform to Federal Rule of Civil Procedure 9(b). Vivien v. Worldcom, Inc., No. C 02-01329, 2002 WL 31640557, at * 7 (N.D. Cal. July 26, 2002). Plaintiffs respond that the majority of courts to decide this issue have applied the liberal standard of Rule 8 and have required the fraud particularity standard be met only when the purported breach is the misrepresentation itself.
Parties must plead all averments of fraud with particularity, even if the claims are not expressly labeled as "fraud." See Fed.R.Civ.Pro. 9(b); e.g., Vess v. Ciba-Geigy Corp. USA, 317 F.3d 1097, 1103-08 (9th Cir. 2003). Several recent suits that similarly allege ERISA breaches of fiduciary duty for maintaining employer stock in pension plans when the business is making positive announcements in the face of hidden financial difficulties, reveal varying approaches to Rule 9's applicability. Although a split in authority exists on this issue, multiple cases, including one from this district, have held that when the actual breach alleged is imprudent investment choices, rather than a straightforward claim of breach by misrepresentation, Rule 9 need not be invoked. See, e.g., LaLonde v. Textron, Inc., No. 03-2033, No. 03-2039, 2004 U.S. App. LEXIS 8977, at * 13-15 (1st Cir. May 7, 2004); In re Xcel Energy, Inc. Sec., Derivative and "ERISA" Litig., Master File: Civil 02-2677, MDL No. 1511 (D. Minn. Mar. 10, 2004) ("Xcel"), at 20 (Vander Wiede Aff. Ex. A); Vivien, 2002 WL 31640557, at * 4-5; cf. Sears, 2004 U.S. Dist. LEXIS 3241, at *16 (applying Rule 9 to concealment allegations).
Rule 9(b), by its terms, applies to allegations, rather than causes of action, of fraud. As such, Plaintiffs' non-specific claims that certain Defendants engaged in "a scheme to deceive" by improperly booking revenues to inflate stock value do not supply adequate detail to meet the particularity requirements of who, what, when, where, and how. See Parnes v. Gateway 2000, Inc., 122 F.3d 539, 549-50 (8th Cir. 1997). Although courts have separated alleged breaches by failure to act in the face of fraudulent or improper conduct from alleged breaches "by making false . . . disclosures," this distinction does not save Plaintiffs' averments that Defendants themselves artificially inflated ADC stock, which, without some objective corroborating evidence to render particularity unnecessary, must be plead with specificity. Vivien, 2002 WL 31640557, at *4-5, *6-7 (emphasis added).
As Defendants note, many cases in which Rule 9 was not applied to claims of securities inflation or other misconduct involved public acknowledgments of wrongdoing or complete collapse of the corporation. See In re Enron Corp. Sec., Derivative ERISA Litig., 284 F. Supp. 2d 511, 535 n. 11, 652-53 (S.D. Tex. 2003); In re Worldcom, Inc. ERISA Litig., 263 F. Supp. 2d 745, 752 (S.D.N.Y. 2002); see also Xcel at 5-6 (noting public disclosure of SEC investigation of round-trip trading).
However, in the context of an ERISA suit, "where a fraud, misrepresentation or omission is alleged to have occurred but is not itself the basis for the alleged breach, Rule 9(b) is not applied." Xcel at 20. Thus, even stripping Plaintiffs' allegations of direct fraudulent conduct by Defendants, the Complaint's assertions that Defendants breached their duty of prudence by continuing investment in ADC stock despite knowledge of substantial cuts in large customer accounts, rising inventories and premature revenue recognition pass muster at this juncture. See In re Electronic Data Sys. Corp. "ERISA" Litig., 6:03-MD-1512, 2004 U.S. Dist. LEXIS 2631, at *23-30 (E.D. Tex. Feb. 2, 2004); see also LaLonde, 2004 U.S. App. LEXIS 8977, at * 3-4, 16. Because the fundamental basis for Defendants' breach of their fiduciary duty is "failure to act in light of the adverse circumstances," allegations of failing to investigate and evaluate "and failing to monitor the appropriateness of [ADC] stock as an investment" state a cognizable claim under the ERISA duty of prudence. Xcel at 20;Vivien, 2002 WL 31640557, at *5.
"[N]ot every [omission in] breach of a fiduciary duty to inform is a scheme to defraud," and Count III, failure to provide information, likewise does not depend on the Defendants themselves perpetrating the alleged fraud. Electronic, 2004 U.S. Dist. LEXIS 2631, at *39; see infra part E.
While the knowledge of fraud/commission of fraud distinction may be more of form than substance, it is the approach courts have recently accepted for preliminary motion to dismiss assessments of the sufficiency of ERISA, as opposed to securities, claims. Notably, many of the cases on which Defendants rely involve claims of misrepresentation, rather than imprudent investment, as the alleged breach of ERISA fiduciary duty. See Adamczyk v. Lever Bros. Co., 991 F. Supp. 931, 939 (N.D. Ill. 1997) (misrepresentation regarding retirement package benefits);Torchetti v. IBM Corp., 986 F. Supp. 49, 50 (D. Mass. 1997) (fraudulent benefits denial); see also Vivien, 2002 WL 31640557, at *5, 7 (applying Rule 9(b) only to claim of "making false, misleading, incomplete and inaccurate disclosures," not to claim of purchasing employer stock with knowledge of fraud). By contrast, Plaintiffs' authority includes several analogous cases in which companies allegedly hid adverse circumstances from plan participants and the public, and despite the inevitable drop in stock value, continued to invest too heavily in employer stock.In re Sprint Corp. ERISA Litig., No. 03-2202, 2004 U.S. Dist. LEXIS 9622, at *28, *35-41 (D. Kan. May 27, 2004); Xcel at 6, 20 (stating that "plaintiffs allege that defendants failed to disclose material information and . . . misled and ultimately defrauded the investment community, including plaintiffs and other plan participants"; rejecting application of Rule 9(b));Electronic, 2004 U.S. Dist. LEXIS 2631, at *23-33. Though the majority of these cases involved publicly disclosed accounting errors, bankruptcy, or a companion securities action, Plaintiffs should not be denied an opportunity to pursue their allegations merely because they have more limited access to the facts surrounding the purported stock manipulation. Cf. In re Ikon Office Solutions, Inc. Sec. Litig., 86 F. Supp. 2d 481, 489 (E.D. Pa. 2000) (applying Rule 9(b) flexibly given that the relevant information was "largely in the defendants' control").
The related securities action brought against ADC was recently dismissed as untimely. See In re ADC Secs. Litig., United States District Court District of Minnesota, No. 03-1194.
As alluded to in other similar cases, there is admittedly a potential discord between securities and ERISA causes of action premised on or involving the same averments of corporate malfeasance. See Stein v. Smith, 270 F. Supp. 157, 167 (D. Mass. 2003). However, they are distinct causes of action premised on different misconduct and relationships, and underlying fraud is not an essential element of a prima facie ERISA action. See Rankin v. Rots, 278 F. Supp. 2d 853, 865-66 (E.D. Mich. 2003) (citing Concha v. London, 62 F.3d 1493, 1503 (9th Cir. 1995)). ERISA fiduciary protections are to be broadly construed, and at this stage of the pleadings the law requires only allegations that Defendants were fiduciaries of the Plan and that they breached a fiduciary duty imposed by ERISA and "related to matters within his or her discretion and control." Stein, 270 F. Supp. at 166; Xcel at 8 (citing 29 U.S.C. § 1109); see In re Enron Corp. Sec., Derivative ERISA Litig., 284 F. Supp. 2d 511, 544 (S.D. Tex. 2003). "The odds of [P]laintiffs succeeding on their breach of fiduciary claims . . . might be very long, but `that is not the test,'" and, of course, Plaintiffs must substantiate their numerous allegations to survive summary judgment. LaLonde, 2004 U.S. App. LEXIS 8977, at *16.
B. Fiduciary Status
Defendants contend the Complaint improperly merges the groups of Defendants and makes general, conclusory assertions of fiduciary status without specifying individual duties, actions or omissions that show each Defendant's responsibility for the fiduciary obligation in question. They concede the Retirement Committee managed and administered the Plan, but contend the other Defendants are absolved from liability for the actions at issue because the Plan delegated the selection of investments exclusively to the Retirement Committee. Compl. ¶¶ 69-70; Plan § 4.1. Therefore, Defendants argue Count I must be dismissed as to ADC, the Director Defendants and the Employee Defendants.
An entity or individual is deemed a fiduciary within the parameters of ERISA either by express designation in the Plan or by assuming control or authority over plan or asset management.In re Enron, 284 F. Supp. 2d at 543. Thus, to proceed against a defendant who is not a named fiduciary, a plaintiff may allege de facto, or functional, fiduciary status. See id.; 29 U.S.C. § 1002(21)(A).
As relevant here, a person acquires functional fiduciary status under ERISA 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).
Although this Complaint is not a model of specificity, it explicitly pleads that ADC, the Board Defendants, the chief executive officer and the Retirement Committee are all named fiduciaries under the Plan. Compl. ¶¶ 10, 59, 63, 67 (citing Plan §§ 4.1, 12.7). While the Plan expressly empowers the Retirement Committee to "determine the general investment characteristic and objectives of each Subfund" for investment of participants' accounts, Defendants' delegation argument does not excuse all other named fiduciaries. Plan § 4.1.1. In addition to reciting the Plan's designation of fiduciaries, the Complaint avers that the individual Defendants exercised discretionary authority over Plan administration and/or management and disposition of the Plan's assets, such that they functioned as fiduciaries and maintained de facto control over the actions of the Retirement Committee. Compl. ¶¶ 11-23, 28-39.
To set forth the de facto fiduciary status of ADC, the Director and the individual Defendants, the Complaint merely parrots the language of ERISA without much factual elaboration. However, recent cases permit such basic allegations to defeat dismissal. Sears, 2004 U.S. Dist. LEXIS 3241, at *10-11; Vivien, 2002 WL 31640557, at *4. Additionally, the Complaint avers that ADC is the designated overall Plan administrator and that the Retirement Committee is to "serve at the pleasure of" ADC, and the parties cite no complete relinquishment of power or prohibition from ADC directing or advising the actions of the Retirement Committee. Plan § 12.2.1. Plaintiffs also allege that the Plan gave the Director Defendants the power to appoint and remove members of the Retirement Committee and therefore established the concomitant duty to monitor the appointees, the breach of which is averred in Count II. Compl. ¶¶ 11, 65, 145, 148. Because the scope and practical effect of this duty will not be determined on a motion to dismiss, it is premature to absolve the Directors of liability for imprudent investments. See infra part D. Furthermore, the Plan provides the CEO with broad authority to allocate and delegate administrative functions. Plan § 12.1.2; Compl. ¶ 64. With respect to the Employee Defendants, Plaintiffs aver that the Retirement Committee delegated certain of its functions to them and, with the exception of Lund, that each had authority to direct the Plan's trustee. Compl. ¶¶ 34-39, 79.
However, to the degree that Plaintiffs rely on the Plan's assignment to the Director Defendants to terminate, merge or amend the Plan, such obligations are not fiduciary in nature and cannot support a breach of fiduciary duty. See Hughes Aircraft Co. v. Jacobson, 525 U.S. 432, 443-44 (1999); Compl. ¶ 65 (quoting Plan § 12.1.3).
Plaintiffs concede that ADC employees who did nothing more than engage in ministerial duties are not fiduciaries and counsel represented at oral argument that certain Human Resource Department Defendants may properly be dismissed if the evidence shows such a lack of involvement in Plan and asset management.See 29 C.F.R. § 25.09-8, D-2.
On a 12(b)(6) motion, the court should not endeavor to interpret the extent of delegation or the fiduciary interrelationships under the Plan. See Electronic, 2004 U.S. Dist. LEXIS 2631, at *19. At this stage, given the mixed factual and legal questions involved in the determination and the liberal interpretation of ERISA fiduciary status, such allegations of named and functional status suffice. Id. at *17-18, 25-26; see also Sears, 2004 U.S. Dist. LEXIS 3241, at *10-11; Xcel at 17-19; Enron, 284 F. Supp. 2d at 544;Vivien, 2002 WL 31640557, at *4. Without the opportunity for discovery, Plaintiffs cannot fairly be expected to ascertain all the factual details of Defendants' precise responsibilities and actions. See Rankin, 278 F. Supp. 2d at 879. "[W]hether the evidence will bear out the allegations . . . will be a separate question addressable on summary judgment." Vivien, 2002 WL 31640557, at *4.
C. Failure to Allege Breach of Duty
Defendants allege that without a detailed showing of fraud or allegations of impending collapse of the company, Plaintiffs cannot state a claim for breach of duty. They attempt to invoke the presumption of prudence that attaches to an EIAP's investment in employer securities. Additionally, Defendants contend the Complaint fails to show the individual Defendants knew of the purported adverse conditions at ADC that rendered its stock an imprudent investment.
These arguments do not presently warrant dismissal. First, there exists no uniform rule that a plaintiff must plead that the defendant company's viability was in jeopardy to state a claim for imprudent investment in company stock. See Sprint, 2004 U.S. Dist. LEXIS 9622, at *40-41. As Defendants concede, where fraudulent practices are alleged there is no need to plead impending collapse of the corporation. Defs.' Reply Mem. at 1. Accordingly, Plaintiffs' inability to show ADC filed bankruptcy or was on the verge of imploding does not preclude the present suit.
Second, although ERISA exempts EIAPs from the duty to diversify plan assets with respect to employer stock, the overriding fiduciary duties of prudence and loyalty still apply and "when the failure to [divest] is not in the best interests of beneficiaries" a breach may occur despite the statutory exemption. Xcel at 24.
ERISA's general fiduciary obligation to diversify investments does not apply to EIAP's acquisition and holdings of employer securities. 29 U.S.C. § 1104(a)(1)(c), (a)(2). To give effect to this exemption and balance the competing interests at stake, several courts have endorsed a presumption of prudence regarding employer stock funds, requiring plaintiffs to establish an abuse of discretion by the fiduciaries. See Moench v. Robertson, 62 F.3d 553, 569-71 (3d Cir. 1995); In re McKesson HBOC, Inc. ERISA Litig., 2002 U.S. Dist. LEXIS 19473, at *6 (N.D. Cal. Sept. 30, 2002). While the Court is sensitive to the danger of deterring the very type of investment in employer stock Congress intended to foster, recent decisions have refrained from applying the presumption at this procedural juncture, finding that such evidentiary rules should not be applied on a motion to dismiss.Xcel at 24; Electronic, 2004 U.S. Dist. LEXIS 2631, at * 32-33. But see Wright v. Or. Metallurgical Corp., 360 F.3d 1090, 1097-99 (9th Cir. 2004) (affirming grant of motion to dismiss based in part on presumption of prudence). Determination of whether Defendants "could not have believed reasonably that continued adherence" to heavy investment in ADC stock was prudent under the circumstances is better decided after greater elucidation of the facts. Moench, 62 F.3d at 571.
Finally, Plaintiffs sufficiently allege Defendants knew or should have known of the actual financial condition of ADC and resultant risk in heavy investment in its stock. Unlike the pleadings cited in the cases referenced by Defendants, the instant Complaint states that ADC's Chief Financial Officer, Defendant Switz, was a member of the Retirement Committee and had "substantial knowledge of the business plans, operations, and finances" of ADC. Sears, 2004 U.S. Dist. LEXIS 3241, at *13-14. As Plaintiffs emphasize, at this early phase of the litigation it would be unjust to allow Defendants to disclaim all fiduciary responsibility except with regard to the Retirement Committee, and simultaneously disavow any knowledge by Committee members of the economic difficulties the company faced. Accordingly, Plaintiffs have adequately asserted breach of the fiduciary duty of prudence.
D. Breach of Duty to Monitor
Defendants next contend Plaintiffs cannot state a claim for breach of duty to monitor because such a claim is limited to situations of known wrongdoing by or unfitness of a delegate, and there is no duty to disclose adverse information to administering fiduciaries.
ERISA opinions and the position of the Department of Labor make clear that the power to appoint and remove plan fiduciaries implies the duty to monitor appointees "to ensure that their performance is in compliance with the terms of the plan and statutory standards." Sears, 2004 U.S. Dist. LEXIS 3241, at *22 (citing 29 C.F.R. § 2509.75-8, FR-17); In re Worldcom, Inc. ERISA Litig., 263 F. Supp. 2d 745, 765 (S.D.N.Y. 2002). Though Plaintiffs make broad allegations under the rubric of the ill-defined and limited duty to monitor, courts have been unwilling to delineate and probe the scope of defendants' monitoring duties on motions to dismiss, and have permitted such claims to proceed forward to discovery. Sears, 2004 U.S. Dist. LEXIS 3241, at *22-23; Electronic, 2004 U.S. Dist. LEXIS 2631, at *35-36. Plaintiffs offer no legal support for the assertions in the Complaint that ADC and the Director Defendants' duty to monitor includes a duty to provide information and make certain disclosures separate from the actions required by the general duty to act with prudence and loyalty. However, for present purposes they "have sufficiently pled a possible cause of action" for duty to monitor, to be tested by further factual development. Electronic, 2004 U.S. Dist. LEXIS 2631, at * 36.
E. Duty to Inform
Count III asserts a breach of the duty to inform plan participants with accurate and complete disclosures. The obligation to inform has been recognized as a component of the duties of prudence and loyalty. Xcel at 27-28; Electronic, 2004 U.S. Dist. LEXIS 2631, at *37-41. In this case the Complaint also references the Plan's internal requirement that the Retirement Committee communicate periodically with Plan participants to provide beneficial and helpful information. Compl. ¶ 76 (quoting Investment Policy Statement); see Electronic, 2004 U.S. Dist. LEXIS 2631, at *40.
Defendants' argument that they are immune from this type of claim because they were acting in a corporate, rather than a fiduciary, capacity, is not supported by case law. See, e.g., Electronic, 2004 U.S. Dist. LEXIS 2631, at *41-42. Company officers who act as plan fiduciaries may be required to draw upon their "corporate" knowledge to properly fulfill their obligations to protect and prioritize the interests of plan beneficiaries.Worldcom, 263 F. Supp. 2d at 765; see also 29 U.S.C. § 1104(a)(1) (a fiduciary officer must discharge his or her duties "solely in the interests" of the plan); Enron, 284 F. Supp. 2d at 550-51. Additionally, courts have held that fiduciary liability may attach based upon public disclosures, such as Securities and Exchange Commission filings. Sears, 2004 U.S. Dist. LEXIS 3241, at *18; Worldcom, 263 F. Supp. 2d at 767.
Plaintiffs assert Defendants failed to adequately and accurately inform ADC employee/investors of the significant risks and perils involved with ADC stock and that they concealed important facts necessary for making informed investment decisions. The Complaint sufficiently apprises Defendants of how they allegedly breached their duty to disclose. E.g., Compl. ¶¶ 108, 114-16. Like most areas of contention in the present Motion, this issue has been subject to divergent rulings and evolution, and is "more amenable to resolution on a motion for summary judgment" with the benefit of further factual detail and determination. Xcel at 27. As such, dismissal of Count III at this time is not warranted. See Electronic, 2004 U.S. Dist. LEXIS 2631, at *40.
F. Conflict of Interest
Defendants offer little challenge to Count IV, which alleges violation of ERISA due to conflict of interest. Their argument that mere ownership of company stock by a fiduciary does not amount to conflict of interest is inapposite to Plaintiffs' allegations that the compensation of the Director and other individual Defendants was tied to the value of ADC stock so as to create a strong incentive for their continued investment of Plan assets in the company. Compl. ¶¶ 124-27. Plaintiffs also assert that several executives sold their own ADC holdings for large gains based on information that should have been, but was not, shared with Plan participants. Id. ¶¶ 12, 15, 17, 18, 29, 126-28. The averments that because of this inherent conflict, Defendants breached their fiduciary responsibilities by failing to engage independent advisors and otherwise protect Plan funds state a claim for breach of the duty of loyalty. See Sears, 2004 U.S. Dist. LEXIS 3241, at *15; Electronic, 2004 U.S. Dist. LEXIS 2631, at *43-44.
G. Co-fiduciary Allegations
Lastly, Defendants argue the co-fiduciary claims should be dismissed for failure to establish primary breaches. Based on the above analysis finding sufficient preliminary averments to maintain the ERISA breaches alleged, the co-fiduciary allegations also survive for the time being. See In re CMS Energy ERISA Litig., No. 02-CV-72834, 2004 U.S. Dist. LEXIS 8713, at *28 (Mar. 31, 2004).
IV. CONCLUSION
Based on the foregoing, and all the files, records and proceedings herein, IT IS HEREBY ORDERED that Defendants' Motion to Dismiss [Docket No. 33] is DENIED.