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PENNSYLVANIA FEDERATION v. NORFOLK SOUTHERN CORPORATION TRIP

February 4, 2004.

PENNSYLVANIA FEDERATION, BROTHERHOOD OF MAINTENANCE OF WAY EMPLOYEES; WILLIAM E. BUCK; THOMAS J. PLUNKETT; STANLEY WOYTOWIEZ; GLEN NOLAN and ROBERT R. HOUSER, individually and on behalf of all persons similarly situated, Plaintiffs,
v.
NORFOLK SOUTHERN CORPORATION THOROUGHBRED RETIREMENT INVESTMENT PLAN OF THE NORFOLK SOUTHERN CORPORATION AND PARTICIPATING SUBSIDIARY COMPANIES; DAVID R. GOODE; HENRY C. WOLF; PAUL N. AUSTIN; JANE M. O'BRIEN; HAROLD W. POTE; J. PAUL REASON; GERALD L. BALILES; CARROLL A. CAMPBELL, JR.; GENE R. CARTER; ALSTON D. CORRELL; LANDON HILLIARD; STEVEN F. LEER; JAMES A. HIXON; THOMAS H. MULLENIX, JR.; L. IKE PRILLAMAN; and VANGUARD FIDUCIARY TRUST COMPANY, Defendants



The opinion of the court was delivered by: RONALD BUCKWALTER, District Judge

MEMORANDUM

Presently before the Court is Defendants' Motion to Dismiss Plaintiffs' Amended Complaint. For the reasons stated below, Defendants' Motion is GRANTED in part and DENIED in part. Page 2

I. BACKGROUND

  This case concerns the Thoroughbred Retirement Investment Plan of the Norfolk Southern Corporation and Participating Subsidiary Companies ("TRIP"). William E. Buck, Thomas J. Plunkett, Stanley Woytowiez, Glen Nolan, Robert Houser, and the Pennsylvania Federation, Brotherhood of Maintenance of Way Employees (collectively referred to as "Plaintiffs") bring this suit on behalf of all similarly situated persons who are participants or beneficiaries of TRIP. This suit is brought against Norfolk Southern Corporation, TRIP, David Goode, the CEO of Norfolk Southern, certain members of Norfolk Southern's Board of Directors, TRIP'S Managers and Vanguard Fiduciary Trust, TRIP'S designated trustee (collectively referred to as "Defendants").

  In April 1995, Norfolk Southern Corporation established TRIP under section 401(k) of the Internal Revenue Code of 1986 to encourage its employees to save for their retirement. These TRIP accounts are governed by the Employee Retirement Income Security Act ("ERISA") 29 U.S.C. § 1001 et seq.

  There are essentially two types of TRIP accounts for each employee. One account holds an employee's individual contributions, the other holds the employer's matching contributions. Both types of TRIP accounts are Employee Individual Account Plans ("EIAPs"). An EIAP is described under ERISA as "an individual account plan which is a profit-sharing, stock bonus, thrift or savings plan; [or] an employee stock ownership plan. . . ." 29 U.S.C. § 1107(d)(3)(A)(i) (2002). Under TRIP's terms, Norfolk Southern would match a certain percentage of employee contributions with funds invested in the Norfolk Southern Stock Fund ("NS Stock Fund"). The NS Stock Fund, one of eight funds offered by TRIP, is made up entirely Page 3 of Norfolk Southern common stock except for small amounts of cash necessary to maintain the fund's liquidity.

  TRIP allows participants to invest their personal contributions in any one of the eight funds offered, and allows them to freely transfer these contributions between funds whenever they choose. Before March 2002, there was no provision allowing transfer of the employer matching contributions from the NS Stock Fund. Norfolk Southern amended TRIP in March 2002 to permit transfer of employer matching contributions from the NS Stock Fund to one of the other funds after an employee had been a member of the plan for at least two years.

  Plaintiffs claim that by requiring matching contributions be invested in the NS Stock Fund, Defendants caused Plaintiffs to lose money. Specifically, Plaintiffs point to a drop in Norfolk Southern's common stock share price between March 1998 and October 2000. On March 20, 1998, Norfolk Southern stock sold at a high of $40 per share and by October 23, 2000 the share price declined to $12 per share. During 1999, the NS Stock Fund did not perform as well as the Vanguard 500 Index Fund, a fund offered to TRIP participants that mirrors the performance of the S&P 500 Index. Plaintiff alleges that the S&P 500, and the Vanguard 500 Index Fund are accurate bellwethers for the stock market as a whole. For the purposes of considering this motion to dismiss, this Court will accept this allegation as true.

  Throughout this period of stock decline in 1999, TRIP managers and Vanguard Fiduciary Trust continued to invest employer matching contributions in the NS Stock Fund and continued to offer the NS Stock Fund as an individual investment option to TRIP participants. In addition to investing matching contributions in the NS Stock Fund, Norfolk Southern paid Page 4 incentives and bonuses into TRIP participants' 401(k) accounts in the form of the NS Stock Fund investments.

  Plaintiffs have not alleged any fraud or misrepresentation on the part of Defendants, only that the Defendants had superior knowledge and information of the present and future business operations, and the present and future weaknesses of Norfolk Southern Stock prices.

 II. STANDARD OF REVIEW

  A motion to dismiss pursuant to Rule 12(b)(6) is granted where the plaintiff fails to state a claim upon which relief can be granted. Fed. R. Civ. P. 12(b)(6). This motion "may be granted only if, accepting all well-pleaded allegations in the complaint as true, and viewing them in the light most favorable to plaintiff, plaintiff is not entitled to relief." Maio v. Aetna. Inc., 221 F.3d 472, 481 (3d Cir. 2000). While the Court must accept all factual allegations in the complaint as true, it "need not accept as true `unsupported conclusions and unwarranted inferences.'" Doug Grant. Inc. v. Greater Bay Casino Corp., 232 F.3d 173, 184-85 (3d Cir. 2000), citing City of Pittsburgh v. West Penn Power Co., 147 F.3d 256, 263 n.13 (3d Cir. 1997). In a 12(b)(6) motion, the defendant bears the burden of persuading the Court that no claim has been stated. Gould Elecs., Inc. v. United States, 220 F.3d 169, 178 (3d Cir. 2000).

 III. DISCUSSION

  Count I of the Plaintiffs' Amended Complaint claims Defendants breached their fiduciary duty of loyalty (also known as the exclusive purpose duty) by seeking to keep a substantial portion of the TRIP Plan assets invested in NS Stock Fund for the purpose of Page 5 artificially inflating Norfolk Southern's common stock's value. (PL Am. Compl. ¶ 65). For the reasons set forth below, in section III(a)(1), this count is dismissed with prejudice.

  Count II of the Plaintiffs' Amended Complaint alleges Defendants breached their duty to provide clear, accurate and understandable information to plan participants. (Pl. Am. Compl. ¶ 68). Taking all factual allegations made by the Plaintiffs in their Amended Complaint, particularly the claims that Norfolk Southern's Directors and Officers were plan fiduciaries, and that they had superior knowledge of the present and future business operations and weaknesses of the company stock prices, in the light most favorable to the Plaintiffs, this Court finds the Plaintiffs have managed to state a claim upon which relief may be granted. This meets the requirements to survive Defendants' Rule 12(b)(6) motion. Therefore, Defendants' motion as to Count II is denied. However, insofar as Count II implicates Plaintiffs' claim that Defendants failed to advise TRIP participants and beneficiaries on whether they had the right to transfer employer contributions out of the NS Stock Fund and into any other fund, such claim is dismissed for the reasons set forth in Section IH(a)(2) of this memorandum opinion.

  Count III of the Plaintiffs' Amended Complaint claims Defendants breached their duty of prudence and duty to diversify by investing assets of the TRIP into the NS Stock Fund. For reasons set forth below in Section IH(a)(3), the Defendant's motion to dismiss is denied as to this count.

  Count IV of the Plaintiffs' Amended Complaint alleges that even if Norfolk Southern and its Officers and Directors, are not fiduciaries, they nevertheless knowingly participated in the above alleged breaches and are therefore liable as non-fiduciaries under ERISA § 502(a)(3) and the holding in Harris Trust & Savings Bank v. Salomon Smith Barney, Page 6 Inc., 530 U.S. 238, 239 (2000). Assuming without deciding that none of the aforementioned Defendants were in fact TRIP fiduciaries, none would incur fiduciary liability under Harris Trust on the facts alleged in the Amended Complaint, as explained further in Section IH(a)(4). This count is dismissed with prejudice.

  Defendants also moved to dismiss the Pennsylvania Federation, Brotherhood of Maintenance of Way Employees, a union, for lack of standing. Defendants argue that the Pennsylvania Federation lacks standing, because unions are not one of the parties granted standing under ERISA. For ...


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