Gedek v. Perez
66 F. Supp. 3d 368
W.D.N.Y.2014Background
- Seven consolidated ERISA class actions by SIP and ESOP participants against Kodak plan committees (SIPCO, SOPCO) and BNY Mellon (successor to Boston, SIP trustee), alleging imprudent management of plan assets by continuing to buy/offer Kodak stock while Kodak’s prospects deteriorated.
- SIP and ESOP are defined-contribution, eligible individual account plans; ESOP funded entirely by Kodak and the plan documents direct that the ESOP “will be invested primarily in Employer Securities.”
- Plaintiffs allege publicly available reports and analyst warnings throughout the class period showed Kodak’s core business was failing, liquidity was eroding, and bankruptcy was likely, culminating in Kodak’s Chapter 11 filing on January 19, 2012.
- Counts: breach of ERISA fiduciary duty (prudence) for SIP and ESOP, co-fiduciary liability, and requests for monetary restoration to the plans and fees; motions to dismiss by Kodak defendants and Mellon were filed.
- At the pleading stage the court accepts plaintiffs’ factual allegations as true and must decide plausibility under Iqbal/Twombly and the standards clarified by Supreme Court precedent in Dudenhoeffer.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Kodak fiduciaries breached ERISA prudence by continuing to invest in/offer Kodak stock | Kodak fiduciaries knew or should have known Kodak was on an inexorable decline and therefore continued investment was objectively imprudent | Fiduciaries complied with plan terms that required or permitted employer-stock investments; reliance on market prices is presumptively prudent | Denied dismissal: allegations plausibly plead that continued investments became imprudent despite plan language and market pricing; claim survives pleading stage |
| Applicability of Moench presumption / effect of Dudenhoeffer | Plaintiffs argue Dudenhoeffer removes any special presumption for ESOPs; must plead plausible imprudence based on facts | Kodak invokes prior Moench-style deference and argues plan language and market valuations shield fiduciaries | Court applies Dudenhoeffer: no special presumption; ESOP exemption from diversification does not eliminate prudence duty; plaintiffs plausibly alleged special circumstances (dire, public decline) |
| Liability of directed trustee (BNY Mellon) for following SIPCO directions to maintain Kodak stock | Mellon had duties to disobey instructions that were plainly imprudent; public evidence made directions suspect so Mellon may have had to inquire or refuse | Mellon contends it was a directed trustee acting solely on SIPCO directions and thus not liable | Denied dismissal: factual dispute whether Mellon knew or should have known directions were imprudent; claim permitted to proceed |
| Co‑fiduciary liability under 29 U.S.C. §1105(a) | Kodak and Mellon knowingly participated in or failed to remedy co‑fiduciary breaches | Defendants argue no primary breach was plausibly alleged and no knowledge of breach | Denied dismissal: given plausibly alleged primary breaches and mutual knowledge, co‑fiduciary claim is facially plausible |
Key Cases Cited
- St. Vincent Catholic Medical Centers Retirement Plan v. Morgan Stanley Inv. Mgmt. Inc., 712 F.3d 705 (2d Cir.) (states ERISA’s prudent-man standard for fiduciaries)
- Moench v. Robertson, 62 F.3d 553 (3d Cir.) (recognized presumption of prudence for employer stock investments pre-Dudenhoeffer)
- In re Citigroup ERISA Litig., 662 F.3d 128 (2d Cir.) (applied Moench presumption; discussed limits when company viability is in doubt)
- White v. Marshall & Ilsley Corp., 714 F.3d 980 (7th Cir.) (employee stock fund imprudence framework and limits of fiduciary as investment adviser)
- Lanfear v. Home Depot, Inc., 679 F.3d 1267 (11th Cir.) (plan language that stock fund need only be "primarily" employer securities gives some trustee discretion)
- Summers v. State Street Bank & Trust Co., 453 F.3d 404 (7th Cir.) (directed trustee may be liable where it knowingly lets trust assets be imprudently invested)
- Peabody v. Davis, 636 F.3d 368 (7th Cir.) (upholding finding that remaining heavily invested in employer stock while fortunes declined can be imprudent)
- Kirschbaum v. Reliant Energy, Inc., 526 F.3d 243 (5th Cir.) (Moench did not immunize fiduciaries from liability where employer stock lost nearly all value and fiduciaries knew collapse was likely)
- Pfeil v. State Street Bank and Trust Co., 671 F.3d 585 (6th Cir.) (courts should consider Moench presumption in light of fuller record rather than pleadings)