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Gerald Alderfer, et al v. Clemens Markets

December 23, 2010


The opinion of the court was delivered by: Schiller, J.


Plaintiff Gerald Alderfer, on behalf of himself and others similarly situated, alleges Defendants breached their fiduciary duties under the Employee Retirement Income Security Act of 1974 ("ERISA") in their management of an employer stock fund. Defendants move to dismiss Alderfer's Complaint under Federal Rule of Civil Procedure 12(b)(6). This motion will be denied in part and granted in part for the reasons stated below.


A. The Parties and Plan

Gerald Alderfer is a former employee of Clemens Markets, Inc., ("CMI") a defunct Pennsylvania supermarket chain. (Compl. ¶¶ 34-36.) CMI maintained a defined contribution benefits plan which included the Clemens Market, Inc. Retirement Savings and Profit Sharing Plan 003 ("Plan"). (Id. at ¶¶ 4, 34.) Alderfer became a Plan participant in 1975 and has held CMI stock as a portion of his Plan investments since 1980. (Id. at ¶¶ 3, 35.)

CMI converted the Plan from a traditional pension plan into a 401(k) in the spring of 1998. (Id. at ¶ 18.) CMI subsequently amended the Plan's terms a number of times. (Id.) In September of 2006, CMI divided the Plan into two separate trusts, each with its own set of trustees. (Id. at ¶¶ 25, 27.) Trust A held CMI's company stock through its holdings in the Clemens Stock Fund, while Trust B held shares in mutual funds. (Id.; Defs.' Mot. to Dismiss Compl. 4.) CMI appointed five individuals to serve as trustees of Trust A: Jack Clemens, Robert Derstine, Robert Lavin, Douglas Moyer and Gerald Spencer (collectively, "the Individual Trustees"). (Compl. ¶ 26.) Vanguard, a trust company, served as trustee of Trust B. (Id.)

According to a Summary Plan Description issued in March of 2010 ("2010 SPD"), the Plan permitted participants to "direct the investment of the contributions to the Plan . . . among the investment options contained in the Appendix." (Pl.'s Reply Br. Ex. 8 [2010 SPD] 12, 14.) The appendix in this document is blank. (Id. at 28.) The 2010 SPD also noted that Plan participants were entitled to "comprehensive information about the investment options available in the Plan, including an explanation of the investment objectives and policies, risk and return characteristics, past and current investment performance . . . and the type and diversification of assets comprising the portfolio of each fund." (Id. at 13.)

Based on the material currently available to the Court, two documents appear to govern the Plan: a boilerplate Vanguard Fiduciary Trust Company Prototype Basic Plan Document, and an Adoption Agreement executed by CMI. (See Defs.' Mot to Dismiss Compl. 11 n.5). Defendants submitted three versions of these documents, which reflect periodic updates to the Plan. (Id.) Each iteration of the Plan documents provides that:

There are presently two trusts which have been established by [CMI] for the purpose of funding benefits under the Plan, Trust A and Trust B, both of which are for the exclusive benefit of Participants in the Plan and their Beneficiaries. Trust A holds the assets invested in the Clemens Markets Company Stock Fund, and Trust B holds the remaining Plan assets. (See, e.g., Defs.' Mot. to Dismiss Compl. Ex. 5 [2009 Adoption Agreement] 38; Compl. ¶ 25.) The Plan documents also provide that CMI was responsible for establishing a "funding policy" to direct the Plan trustees' investment decisions. (Defs.' Mot to Dismiss Compl. Ex. 4 [2009 Prototype Basic Plan Document] § 7.22.) Plaintiff contends that Defendants have produced no such funding policy statement. (Pl.'s Reply Br. 10.)

B. The CMI Liquidation

CMI decided to sell its operating assets to another supermarket chain in 2006. (Compl. ¶ 36; Defs.' Mot. to Dismiss Compl. 1.) Prior to liquidating those assets, CMI sent Plan participants a "Sarbanes Oxley Notice" that announced "a blackout of the Clemens Stock Fund," though this notice did not identify or differentiate between the assets in Trust A and Trust B. (Compl. ¶ 40.) The notice also informed Plan participants that CMI's "Clemens Stock Fund" would be converted to cash as a result of CMI's liquidation, and that CMI would make periodic payments to CMI stockholders until the fund was exhausted. (Id. at ¶ 42.) No Plan participants would be permitted to withdraw or modify their Plan investments between the date of the notice and the projected completion of CMI's liquidation in 2009. (Id. at ¶ 43.)

CMI's board and voting shareholders approved a liquidation plan on December 21, 2006. (Id. at ¶ 47.) Pursuant to this plan, the Board planned to sell CMI's real property holdings "during calendar year 2007 or 2008." (Id.) These holdings included CMI's offices in Kulpsville, Pennsylvania (the "Kulpsville Property"). (Id. at ¶ 50.) Jack Clemens, CMI's president and a Plan trustee, received a "multi-million dollar offer" for the Kulpsville Property from Hatfield Packing in 2007. (Id. at ¶ 53.) Clemens rejected this offer "as too low." (Id.)

CMI's liquidation proceeded. CMI had sold substantially all of the assets of CMI to other corporations by late 2006. (Id. at ¶ 36.) During CMI's liquidation, Plan participants received periodic payments on their company stock representing their share of the sale of CMI's operating assets. (Id. at ¶ 54.) However, the bankruptcy of one of CMI's tenants at the Kulpsville Property complicated the valuation and sale of CMI's real estate holdings. (Id. at ¶ 69.) A federal income tax refund also prompted CMI to revisit its original share value calculations. (Pl.'s Reply Br. Ex. 10 [Apr. 5, 2010 Trustees' Letter to Plan Participants].) Meanwhile, the value of the CMI stock held by Trust A had declined to $1.831 million in March of 2010 ...

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