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