HOWELL v. MOTOROLA (January 21, 2011)
Motorola has a ERISA defined-contribution pension plan that it offers its employees. The Plan Administrator, called the Profit Sharing Committee, was appointed by the Board of Directors. The Committee selected the investments that the plan offered and monitored the plan. The participants in the plan had complete authority over their investment choices. Before 2000, the plan offered four investment options, one of which was a Motorola Stock Fund. After 2000, nine options were available, still including a Motorola Stock Fund. Motorola stock had done quite well in the 1990s, increasing in value tenfold. It was trading around $30 in May 2000. It was in May 2000 that Motorola filed an SEC report in which it reported a significant agreement with a Turkish company. The report failed to mention that Motorola had provided almost $2 billion in financing to the company. The Turkey project did not go well. By May 2001, Motorola stock was trading at about $15 a share. Bruce Howell, a former Motorola employee and plan member, filed suit in 2003. Stephen Lingis and others later intervened. The suit alleges three breaches of fiduciary duty: a) imprudence in offering the Motorola Stock Fund, b) misrepresentation or failure to disclose information about the Turkey project, and c) failure to appoint and monitor competent fiduciaries. The defendants included Motorola, the Profit Sharing Committee, and a number of individual defendants. Judge Pallmeyer (N.D. Ill.) certified a class, dismissed Howell's claims on the grounds that he signed an enforceable release, and granted summary judgment to the defendants. She concluded that no defendant breached an ERISA duty and that the defendants were entitled to the section 404(c) safe harbor. Howell and the plaintiff class appeal.
In their opinion, Judges Bauer, Wood, and Tinder affirmed. The Court first addressed Howell's appeal. He had signed a General Release as part of a severance program in 2001. The release specifically included ERISA claims but excluded claims under the "employee benefits plan" and claims which could not be released by law. Howell claimed that the release was either not voluntary or fit within one of the exclusions. On the voluntariness point, the Court concluded that Howell failed to create an issue of fact. The Court addressed the "benefits plan" exclusion as a contract matter and concluded that the only rational reading of the clause was that Howell reserved the right to assert a claim for benefits already accrued but waived the right to challenge the plan as a whole. Finally, the Court rejected the argument that the release was an agreement that purported to relieve a fiduciary from responsibility prohibited under ERISA § 410(a). The release does not relieve any fiduciary of responsibility, it merely settles claims he might have. Turning to the merits of the class appeal, the Court identified three issues: a) which of the defendants were fiduciaries, b) whether there was a breach of a fiduciary duty, and c) whether the class was harmed. On the question of which defendants were fiduciaries, the Court addressed them in categories. With respect to Motorola and the Committee, as entities, the Court identified some thorny issues. Since it would later conclude that there was no breach, it assumed that both the company and the Committee fiduciaries. The Court then concluded that each of the individual defendants was an ERISA fiduciary, either as a Committee member, a Board member responsible for selecting Committee members, or as the Vice President of benefits. The Court thus turned to the evidence of a breach. It addressed each of the three theories of liability separately. On the theory that the fiduciaries were imprudent in even offering the Motorola Stock Fund, the Court found that the “safe harbor" did not apply. The safe harbor only protects a fiduciary from responsibility as a result of choices made by someone beyond his control. The choice of funds to offer, however, is exclusively within the fiduciary's control -- the safe harbor is unavailable. It found the class' evidence on the imprudence theory quite thin, however. The participants were always provided with other options, they were almost always allowed to move investment money out of the Motorola Stock Fund, and Motorola was a fundamentally sound company. It concluded that offering a Motorola Stock fund was not a breach. The class’ failure to disclose theory is that the fiduciaries breached a duty by failing to provide information on the Turkey project to the plan participants. The same failure to provide information, argued the class, defeats their safe harbor argument. In fact, the Court accepted the district court's approach that basically equated the two standards. The Court concluded, however, that the class presented insufficient evidence of an intentionally misleading statement or material omission. Therefore, the defendants did not violate a fiduciary duty and were entitled to the safe harbor. Finally, on the failure to monitor allegations, the Court found that the same safe harbor analysis it undertook with respect to disclosure theory applied. Even without safe harbor, there would be no liability as the Court thought the allegations were close to frivolous.