In the
United States Court of Appeals
For the Seventh Circuit
No. 09-1750
IN RE:
M OTOROLA S ECURITIES L ITIGATION
Appeal from the United States District Court
for the Northern District of Illinois, Eastern Division.
No. 03 C 00287—Rebecca R. Pallmeyer, Judge.
A RGUED O CTOBER 5, 2009—D ECIDED M AY 4, 2011
Before E VANS and SYKES, Circuit Judges, and SIMON,
District Judge.
S YKES, Circuit Judge. In 2003 purchasers of Motorola,
Inc., common stock brought a class-action lawsuit
against Motorola and its then-principal officers alleging
violations of federal securities laws. Class members
included investors who purchased publicly traded
Motorola common stock during the class period. Ex-
cepted from the class was any purchaser who was also
an affiliate of Motorola.
The Honorable Philip P. Simon, United States District Judge
for the Northern District of Indiana, sitting by designation.
2 No. 09-1750
The events underlying the securities-fraud case
spawned parallel class-action litigation filed by current
and former Motorola employees under the Employee
Retirement Income Security Act (“ERISA”). See Howell
v. Motorola, Inc., 633 F.3d 552 (7th Cir. 2011). The cases
were eventually assigned to the same district judge, and
the securities-fraud action later settled for $190,000,000.
Before the settlement proceeds were distributed, how-
ever, the Motorola 401(k) Profit-Sharing Plan (“the Plan”)
submitted a claim to share in the settlement. The Plan
is a defined-contribution retirement plan, and its par-
ticipants are current and former Motorola employees
who established individual retirement accounts with the
Plan. During the class period, many Plan participants
acquired beneficial ownership of Motorola common
stock by purchasing units of the Motorola Stock Fund,
one of a limited number of investment options offered
by the Plan Administrator. The Plan requested a share
of the settlement proceeds to distribute among its par-
ticipants who, as beneficial owners of Motorola common
stock, were harmed by Motorola’s allegedly unlawful
conduct. The participants were also the plaintiffs in
the related ERISA class-action litigation. Id. at 557-58.
The district court denied the Plan’s claim to a share of
the settlement. The court offered two reasons for its
decision. First, the court noted that the class definition
was limited to persons who purchased publicly traded
Motorola common stock. Because the Plan’s participants
purchased units of the Motorola Stock Fund, not Motorola
common stock, the court held that the Plan was not a
member of the class. Alternatively, the court relied on
No. 09-1750 3
the exclusion in the class definition for any “affiliate” of
Motorola. The court held that the Plan was an affiliate
of Motorola and therefore was specifically excluded
from the class. The Plan appealed.
We affirm, although on somewhat different reasoning.
We disagree that the Plan is excluded from the class
because the participants did not themselves purchase
Motorola common stock. It is true that the Plan’s partici-
pants purchased units of the Motorola Stock Fund, not
Motorola common stock. But the claim was filed by the
Plan, and it is undisputed that the Plan regularly pur-
chased publicly traded Motorola common stock on the
open market.
We agree, however, that the Plan is an affiliate of
Motorola and on this basis is excluded from the class,
although we arrive at this conclusion by a slightly
different analysis. The district court applied the ordinary
meaning of the term “affiliate,” but we think the term
must be understood in light of the specialized context
in which it is used here. This is a securities-fraud case,
and under federal securities law, an “affiliate” is defined
by reference to control; one who controls, is controlled
by, or is under common control with an issuer of a
security is an affiliate. Motorola appoints the Plan’s
administrator—the Motorola 401(k) Profit-Sharing Com-
mittee—and the members of this Committee serve at
the pleasure of Motorola’s Board of Directors. This struc-
tural organizational control is sufficient to render the
Plan an affiliate of Motorola. Accordingly, the Plan is
excluded from the class definition, and the district court
4 No. 09-1750
properly denied its claim to a share of the settlement
proceeds.
I. Background
A. The Motorola 401(k) Profit-Sharing Plan and the
Motorola Stock Fund
The Plan is a participant-directed, defined-contribution
retirement plan established for the benefit of current
and former Motorola employees and administered pur-
suant to Section 404(c) of ERISA. See 29 U.S.C. § 1104. The
Motorola 401(k) Profit-Sharing Committee is the Plan
Administrator. Members of the Profit-Sharing Commit-
tee are appointed by Motorola’s Board of Directors, and
the Board retains the power to remove Committee mem-
bers at any time and without cause. The Plan’s
charter states that the Profit-Sharing Committee is
charged with the “authority and discretion to control
and manage the operation and administration of the
Plan.” The Committee may delegate its operating author-
ity, and it has done so by appointing a Trustee to
manage the Plan’s day-to-day operations.
The Plan is structured as follows: Plan assets are held
in the Motorola Profit-Sharing and Investment Trust (“the
Trust”), which is managed by the Trustee. Plan partici-
pants defer wages from their paychecks into the Trust
and may choose to invest their contributions among
several preselected investment funds offered by the
Committee. Prior to July 1, 2000, participants could
choose among four investment options; after that date
No. 09-1750 5
participants had nine options. At all pertinent times, one
available investment option was the Motorola Stock
Fund. The Motorola Stock Fund is a unitized invest-
ment vehicle that allows Plan participants to acquire
beneficial ownership of Motorola common stock by
purchasing units of the Fund. The Fund’s assets consist
almost entirely of Motorola common stock (about 99%),
along with a nominal amount of cash (about 1%). When
a participant purchases units of the Motorola Stock
Fund, he acquires a pro rata interest in the Motorola
common stock held by the Fund. The Trustee, not the
participants, holds title to the Motorola common stock
in the Fund. As participants buy or sell Fund units, the
Trustee reallocates the Motorola common stock to the
participants’ accounts in amounts corresponding to
each participant’s unit ownership interest. If there is not
enough Motorola common stock in the Fund to satisfy
all of the participants’ purchase orders for units in the
Fund, the Trustee purchases additional stock on the
open market and allocates it accordingly.
The stock in the Motorola Stock Fund is voted by the
Trustee in accordance with instructions from the partici-
pants. As to shares for which no participant instructions
are received, the Trustee votes those shares “proportion-
ately,” in the same manner as the shares for which he
has received voting instructions. The value of a partici-
pant’s interest in the Motorola Stock Fund fluctuates as
the market price for Motorola common stock changes.
6 No. 09-1750
B. The Motorola Litigation
In 2003 the State of New Jersey, Department of Treasury,
Division of Investment, initiated a securities-fraud class
action against Motorola and its then-principal officers,
Christopher Galvin (Chairman and Chief Executive
Officer), Carl Koenemann (Chief Financial Officer), and
Robert Growney (Chief Operating Officer). The factual
basis for this litigation is described in more detail in an
opinion recently issued by a different panel of this court
in the related ERISA class-action litigation. See Howell,
633 F.3d at 555-56. Briefly, New Jersey alleged violations
of Sections 10(b) and 20(a) of the Securities Exchange
Act of 1934, 15 U.S.C. §§ 78a et seq., claiming that from
February 3, 2000, to May 14, 2001, Motorola artificially
inflated the prices of its securities, including Motorola
common stock, by making materially false and mis-
leading statements regarding a deal with Telsim, a
Turkish wireless provider. New Jersey alleged that
Motorola issued press releases claiming that the Telsim
transaction could yield billions of dollars but never dis-
closed information about certain high-risk loans that
were part of the deal. Id.
The district court certified the securities suit for class
treatment and defined the class as follows:
[A]ll persons who purchased publicly traded Motorola,
Inc. common stock or registered debt securities
during the period from February 3, 2000 through
May 14, 2001 . . . and who allegedly were damaged
thereby. Excluded from the Class are the Defendants
herein, members of the Individual Defendants’ im-
No. 09-1750 7
mediate families, any subsidiary, affiliate, or control
person of any such person or entity, the officers of
Motorola and the legal representatives, heirs, succes-
sors or assigns of any such excluded party.
(Emphasis added.) This class definition was reproduced
in several subsequent court documents, including the
notice alerting putative class members to the litigation.
The parties eventually settled the securities action for
$190,000,000, and the terms of the settlement agreement
were memorialized in a Stipulation of Settlement. The
Stipulation incorporated by reference the class definition
as it appeared in prior court orders and in the class
notice. The district court approved the Stipulation and
designated a claims administrator to oversee disburse-
ment of the settlement proceeds, subject to the district
court’s supervision.
Shortly thereafter, the Plan filed a claim with the claims
administrator seeking a share of the settlement pro-
ceeds. The Plan asserted that during the class period,
76,954 Plan participants acquired beneficial ownership of
21,113,303 shares of Motorola common stock via their
purchases of units in the Motorola Stock Fund and
were therefore entitled to a portion of the settlement.
New Jersey recommended that the administrator deny
the claim because the Plan was an affiliate of Motorola
and therefore was excluded from the class. Following
New Jersey’s advice, the administrator denied the Plan’s
claim. New Jersey subsequently moved the court to
distribute the proceeds of the settlement to approved
class members.
8 No. 09-1750
The Plan promptly objected to New Jersey’s distribu-
tion motion and asked the district court to review the
administrator’s decision disallowing its claim. The dis-
trict court reaffirmed the administrator’s decision and
overruled the Plan’s objection to New Jersey’s motion for
distribution. The court offered two independent reasons
for rejecting the Plan’s claim. First, the court determined
that the Plan participants did not purchase Motorola
common stock through open-market transactions and
therefore were not purchasers of “publicly traded
Motorola, Inc. common stock” as required by the class
definition. Second, the court determined that the Plan
was an “affiliate” of Motorola. The Plan then formally
moved to intervene pursuant to Federal Rule of Civil
Procedure 24 for purpose of taking this appeal. The
district court granted the motion and ordered a distribu-
tion of the settlement funds, but held back an amount
sufficient to satisfy the Plan’s claims pending resolution
of the appeal.
As we have noted, the Plan’s participants also filed an
ERISA class action (two cases, actually) against Motorola,
some of its officers and directors, and the Profit-Sharing
Committee. See Howell, 633 F.3d at 557-58. They alleged
that the defendants breached their fiduciary duties
under ERISA by continuing to offer the Motorola Stock
Fund as an investment option when they knew about
the problems associated with the Telsim deal and the
effect the high-risk loans would have on the value of
Motorola common stock. Id. at 555-56. The cases were
assigned to the same district judge who was presiding
over the securities-fraud class action. The judge eventu-
No. 09-1750 9
ally granted summary judgment for the defendants, a de-
cision recently affirmed by another panel of this court.
Id. at 573. In that appeal there were some threshold ques-
tions about whether the defendants were ERISA fiducia-
ries; on most of these questions, the Howell panel assumed
for the sake of argument that they were. Id. at 562-65.
This part of Howell has some relevance here, though not
as much as the Plan contends. The court in Howell went
on to conclude that the record was insufficient to raise
a material issue for trial regarding whether ERISA duties
had been breached. Id. at 573.
II. Discussion
At the outset the parties dispute the standard of review.
In rejecting the Plan’s claim, the district court issued
two separate holdings: It held that the Plan was ex-
cluded from the class because (1) the participants did not
purchase publicly traded Motorola common stock, and
(2) the Plan was a Motorola affiliate. New Jersey con-
tends these are factual findings that should be reviewed
under a clearly erroneous standard. See, e.g., Contempo
Design, Inc. v. Chi. & Ne. Ill. Dist. Council of Carpenters, 226
F.3d 535, 544 (7th Cir. 2000) (en banc) (findings of facts
are reviewed for clear error). The Plan contends they
are legal conclusions because the court engaged in an
interpretation of the class definition in the Stipulation
of Settlement. Both sides are partly right. The district
court’s decision was based in part on its interpretation
of the class definition—in particular, the meaning of the
term “affiliate” and the proper understanding of the
10 No. 09-1750
“publicly traded” requirement. The interpretation of a
class definition is a question of law that we review de
novo. See Williams v. Gen. Elec. Capital Auto Lease, Inc., 159
F.3d 266, 272 (7th Cir. 1998). Once the meaning of these
terms is settled, we defer to the district court’s factual
findings unless they are clearly erroneous. See Contempo
Design, 226 F.3d at 544.
The district court first determined that the Plan was not
a member of the class because the participants did not
purchase publicly traded Motorola common stock, as
required by the class definition. In this part of its order,
the court focused on the actions of the Plan’s participants
and not of the Plan, noting later, however, that “[i]t is
the Plan, not the individual participants, who filed a
claim for recovery against the settlement fund.” This
mixed approach inadvertently introduced some confu-
sion into the analysis. The Plan is the claimant here. That
the individual participants did not purchase publicly
traded Motorola stock does not take the Plan outside
the class definition if the Plan itself purchased the
stock. And the record is clear that the Plan regularly
purchased publicly traded Motorola common stock and
is not categorically excluded from the class on this basis.
More specifically, the Plan acts through its admini-
strator, the Profit-Sharing Committee, 29 U.S.C. § 1102(a)(1)
(ERISA fiduciaries have “authority to control and man-
age the operation and administration of the plan”), and
the Committee delegated the operating management of
the Plan’s assets to the Trustee, id. § 1103(a) (requiring
ERISA fiduciaries to hold plan assets in trust). Accord-
No. 09-1750 11
ingly, we attribute the actions of the Trustee to the Plan.
It is undisputed that the Trustee periodically purchased
Motorola common stock on the open market to ensure
that the Motorola Stock Fund held a sufficient quantity
of Motorola stock to account for the participants’ unit
transactions in the Fund. At oral argument New Jersey’s
counsel conceded this point:
Counsel: And as Your Honors have, I think, pointed
out, there is a great deal of evidence in
support of the fact that it is the Plan that
is the actor that is at issue here. The Plan
filed the claim, it signed the claim, and the
claim never purported on its face to be
filed on behalf of the participants.
Q: That defeats your argument under the
publicly traded part of the definition.
[Crosstalk] . . . .
Q: But if the Plan is the claimant here,
the Plan purchased publicly traded shares
of Motorola stock.
Counsel: I do not contest that the Plan goes into
the market and purchases common stock.
Q: So you’re conceding that?
Counsel: Yes.
This concession was prudent in light of the record.
Thus, the primary question on appeal is whether the
Plan is an affiliate of Motorola, and this in turn depends
on the meaning of “affiliate” as that term is used in the
12 No. 09-1750
class definition. “Affiliate” has both a plain meaning in
ordinary usage and a more specialized definition in
federal securities law. The district court opted for an
ordinary-meaning definition of “affiliate,” using the
Sixth Edition of Black’s Law Dictionary, which defines
“affiliate” as “a condition of being united; being in close
connection, allied, associated, or attached as a member
or branch.” B LACK’S L AW D ICTIONARY 58 (6th ed. 1990).
The court noted the “close connection” between Motorola
and the Plan: The Plan’s administrators were either
Motorola directors or appointed by Motorola directors,
and for a period of time, both Motorola and the Plan
were represented by the same attorneys. The court con-
cluded as follows: “Given this substantial overlap in
personnel and duties between the Plan and the directors,
overlap so substantial that they shared the same
lawyers, the court has no difficulty concluding that the
Plan is so ‘allied, associated, or attached’ to Motorola as
to be considered an affiliate.”
The Plan argues that the district court should have
read the term “affiliate” according to its more specialized
meaning under federal securities law. We agree. The
term is used in the class definition, and as a general rule,
a class definition is interpreted according to the substan-
tive law that provides the basis for the class action. See
In re Am. Cont’l Corp./Lincoln Sav. & Loan Sec. Litig., 49 F.3d
541, 543 (9th Cir. 1995). This is a securities-fraud action,
and as such, federal securities law should inform the
meaning of the term “affiliate” as it appears in the
class definition.
No. 09-1750 13
Before proceeding further down this analytical path,
we pause to address one potential complication in the
analysis. The class definition, of course, originally ap-
peared in the district court’s class-certification order,
which was later incorporated by reference into the Stipu-
lation of Settlement. A settlement agreement is a con-
tract, and contracts are interpreted according to the law
of the jurisdiction in which the contract was created. See
Newkirk v. Vill. of Steger, 536 F.3d 771, 774 (7th Cir. 2008).
That means Illinois law applies. This creates a potential
interpretive dilemma: It is possible for the class defini-
tion to have one meaning under federal securities law and
another meaning under Illinois law. This might occur,
for example, if Illinois rules of contract interpretation
required us to use the ordinary meaning of the term
“affiliate” rather than its more particularized meaning
under federal securities law. See generally Outboard Marine
Corp. v. Liberty Mut. Ins. Co., 607 N.E.2d 1204, 1215 (Ill.
1993) (discussing that as a general principle of Illinois
law, an undefined contractual term is normally afforded
its “plain, ordinary, and popular meaning” as derived
from the dictionary definition); Frederick v. Prof’l Truck
Driver Training Sch., Inc., 765 N.E.2d 1143, 1152 (Ill. App.
Ct. 2002) (“Unless the agreement unequivocally specifies
special meanings, the court must interpret the words of
the contract with their common and generally accepted
meanings.” (quotation marks omitted)); but see R ESTATE-
MENT (S ECOND ) OF C ONTRACTS § 202(3)(b) (2010) (“[T]ech-
nical terms and words of art are given their technical
meaning when used in a transaction within their tech-
nical field.”).
14 No. 09-1750
This difficulty does not materialize here, for a couple
of reasons. First, as we will explain, the result is the same
under either definition. Second, a district court has the
authority to modify a class definition at different stages
in litigation, see Schorsch v. Hewlett-Packard Co., 417 F.3d
748, 750 (7th Cir. 2005) (noting that judges and litigants
regularly modify class definitions); Powers v. Hamilton
Cnty. Pub. Defender Comm’n, 501 F.3d 592, 619 (6th Cir.
2007) (courts have broad powers to modify class defini-
tions); 32B A M . JUR. 2D Federal Courts § 1601 (2007), and the
litigants are free to modify a class via a court-approved
settlement agreement, see, e.g., Mehling v. N.Y. Life Ins. Co.,
246 F.R.D. 467, 473-74 (E.D. Pa. 2007) (approving a settle-
ment that modified the class definition); see also F ED. R.
C IV. P. 23(e) (class claims may be “settled, voluntarily
dismissed, or compromised only with the court’s ap-
proval”). But it does not follow that the class defini-
tion should be interpreted differently simply by virtue
of having been incorporated into a settlement agreement
enforceable as a contract under state law.
The Stipulation of Settlement was approved by the
district court, and there is nothing to indicate that
either the court or the parties intended it to modify the
original class definition. Federal securities law governed
the interpretation of the class definition at the time the
class was certified, and unless modified, that meaning
should prevail notwithstanding the incorporation of the
class definition into a settlement agreement enforceable
under Illinois contract law. Moreover, the choice-of-law
clause in the Stipulation specifically reserves a role for
federal law. It provides that the Stipulation “shall be
No. 09-1750 15
governed by the internal laws of the State of Illinois
without regard to conflicts of laws, except to the extent
that federal law . . . governs.” Because the interpreta-
tion of a class definition ordinarily turns on the substan-
tive law that governs the claim, federal securities law
controls.
This brings us back to the question of the securities-law
meaning of “affiliate,” and we, like the district court,
begin by consulting Black’s Law Dictionary. But we refer
to the ninth and most recent edition of Black’s, which
(unlike the earlier edition relied on by the district court)
specifically includes a securities-law referent for the term
“affiliate.” 1 An “affiliate” is “[o]ne who controls, is con-
trolled by, or is under common control with an issuer
of a security.” B LACK’S L AW D ICTIONARY 67 (9th ed. 2009).
On this more appropriate contextual definition, “control”
by or in common with the issuer of a security is the
key inquiry in assessing whether an entity is an affiliate.
This requirement is also reflected in the Securities
and Exchange Commission rules promulgated under the
1
The district court used the sixth edition of Black’s Law Dictio-
nary, which only contains a plain-language definition of the
term “affiliate.” However, the sixth edition also includes
a definition for the related term “affiliate company,” which is
defined as a company “controlled” by another company.
B LACK ’S L AW D ICTIONARY 58 (6th ed. 1990). This focus on
control is important for purposes of securities law and is the
dispositive inquiry in determining whether or not an entity is
an affiliate.
16 No. 09-1750
authority of the Securities Act of 1933 and the Securities
Exchange Act of 1934. For example, S.E.C. Rule 144 defines
an “affiliate” of an issuer of securities as “a person that
directly, or indirectly through one or more intermediaries,
controls, or is controlled by, or is under common control
with, such issuer.” 17 C.F.R. § 230.144(a)(1). Similarly,
Rule 12b-2 of S.E.C. Regulation 12B, which governs the
registration and reporting of securities, defines an “affili-
ate” as a “person that directly, or indirectly through one
or more intermediaries, controls, or is controlled by, or
is under common control with, the person specified.” Id.
§ 240.12b-2.
“Control,” in turn, is defined as the “direct or indirect
power to govern the management and policies of a person
or entity, whether through ownership of voting securities,
by contract, or otherwise; the power or authority to
manage, direct, or oversee.”2 B LACK’S L AW D ICTIONARY
378 (9th ed. 2009). This definition is almost identically
replicated in Rule 12b-2, which defines “control” as “the
possession, direct or indirect, of the power to direct or
2
The quoted definition is for the noun form of “control.”
Black’s Law Dictionary also contains a definition for the verb
form that is substantially similar to the noun definition, but
speaks in slightly more general language. Accordingly, “control”
as a verb means: “1. To exercise power or influence over . 2. To regulate or govern
. 3. To have
a controlling interest in .” B LACK ’S L AW D ICTIONARY 378 (9th ed. 2009).
No. 09-1750 17
cause the direction of the management and policies of a
person, whether through the ownership of voting securi-
ties, by contract, or otherwise.” 17 C.F.R. § 240.12b-2.
On this securities-law understanding of “affiliate” and
the concept of “control,” Motorola, acting through its
Board of Directors, controlled the Profit-Sharing Com-
mittee, the designated Plan Administrator. Because
Motorola appointed and removed Committee members
at will, it had structural organizational control over the
management and policies of the Committee. But does
this mean Motorola controlled the Plan? The answer
depends on whether the Committee controlled the Plan;
if it did, then because of Motorola’s organizational
control over the Committee, it also controlled the Plan.
Based on the Plan’s structure and the requirements of
ERISA, the Profit-Sharing Committee, as Plan Admin-
istrator, had managerial control over the policies and
operation of the Plan. ERISA defines a fiduciary as one
who either “exercises any authority or control respecting
management or disposition of its assets,” “renders in-
vestment advice for a fee,” or “has any discretionary
authority or discretionary responsibility in the admin-
istration of such plan.” 29 U.S.C. § 1002(21)(A). The
Howell panel assumed for the sake of argument that the
Committee was a fiduciary under ERISA. Howell, 633 F.3d
at 564. ERISA fiduciaries are bound by a duty of “pru-
dence” in designing investment plans and must give
“appropriate consideration to those facts and circum-
stances that . . . the fiduciary knows or should know are
relevant to the particular investment or investment
18 No. 09-1750
course of action involved.” 29 C.F.R. § 2550.404a-1(b)(1)(i);
see also 29 U.S.C. § 1104(a)(1)(B) (defining the “prudent
man standard of care” that must be exercised by ERISA
fiduciaries); 29 C.F.R. § 2550.404a-1(b)(2) (explaining the
requirements of “appropriate consideration”).
But the question of control for purposes of being consid-
ered an “affiliate” does not require that the Committee
had the kind or degree of control necessary to be
deemed an ERISA fiduciary.3 As the Plan Administrator,
3
We note that the Plan participants, as the plaintiffs in Howell,
necessarily took the position that the Committee is an ERISA
fiduciary. Howell v. Motorola, Inc., 633 F.3d 552, 562-64 (7th
Cir. 2011). This is an implicit acknowledgment that the Com-
mittee exercised control over the Plan. The question whether
Motorola controlled the Plan is somewhat more complicated. In
a Rule 28(j) letter submitted after Howell was decided, the
Plan asserted that the opinion in Howell requires that
we conclude it did not. More specifically, the Plan cites this
statement from Howell: “[T]here is no evidence in this record
that Motorola did anything more than appoint Committee
members to administer the Plan. No evidence suggests that
the company exercised de facto control over Plan decisions
through those Committee members.” Id. at 562-63. The
Plan argues that this passage compels the conclusion that
Motorola’s control over the Committee was insufficient to
make the Plan an affiliate. We disagree. This part of Howell
must be read in context of the question before the court in
Howell. The question there was whether Motorola and the
other defendants were ERISA fiduciaries for purposes of the
(continued...)
No. 09-1750 19
the Committee had general operational and administra-
tive authority over the management of the Plan.4 And
since “control” includes the power to direct the manage-
ment of an entity, see B LACK’S L AW D ICTIONARY 378
(9th ed. 2009); 17 C.F.R. § 240.12b-2, we conclude that the
Profit-Sharing Committee controlled the Plan.
The Plan sees things differently; it counters that even
if the Committee exercised administrative control
over plan assets, this administrative authority did not
amount to control sufficient to make the Plan an affiliate
3
(...continued)
participants’ breach-of-fiduciary-duty claims. Here, in con-
trast, the Plan’s status as an affiliate of Motorola turns on the
question of control but does not require the degree of control
necessary for fiduciary status; the “control” inquiries in the
two contexts are not coextensive. In any event, Howell side-
stepped the fiduciary-status question; as we have noted, the
court assumed for the sake of argument that the defendants
were fiduciaries and affirmed the summary judgment based
on the lack of evidence of a breach of fiduciary duty. Id. at 563-
64, 573.
4
Article 7 of the Plan’s governing document reiterates these
responsibilities. The Plan states that “[t]he Profit Sharing
Committee shall have authority and discretion to control and
manage the operation and administration of the Plan” and
then lists a nonexhaustive set of specific powers belonging to
the Committee. Included are the powers to “construe and
interpret the provisions of the Plan . . . [and] decide all ques-
tions arising thereunder,” “prescribe procedures to be fol-
lowed by Participants,” and “rule on claims.”
20 No. 09-1750
of Motorola. In particular the Plan contends that under
federal securities law, “control” is the power to make
normal investment decisions—such as the determination
to acquire or dispose of securities—as well as the power
to vote those securities. The Plan observes that the par-
ticipants themselves controlled decisions to buy or sell
units in the Motorola Stock Fund and retained voting
control over the Motorola common stock allocated to
their accounts. These key aspects of control, the Plan
argues, suggest that the participants, and not the Profit-
Sharing Committee, controlled the Plan.
We are not persuaded. Although it is true as a general
matter that the Plan participants could direct their own
investment decisions, their choices were severely cir-
cumscribed by Plan administrators; investment options
were limited to the small number of funds selected by
the Committee. Title to the stock was held by the
Trustee, not the participants. The Trustee voted the
stock according to instructions from the participants; if
a participant did not provide the Trustee with voting
instructions for the stock allocated to his account, the
Plan’s bylaws required the Trustee to vote those shares
“proportionately[,] in the same manner as the Trustee
votes shares as to which Trustee has received voting
instructions.” The Committee also had the discretion
to limit, by percentage, the amount of money any one
participant could contribute to any single investment
fund and could restrict the frequency with which partici-
pants could reallocate their assets among the different
funds.
No. 09-1750 21
In the end, the Profit-Sharing Committee had managerial
and operational control over the Plan—albeit for the
benefit of the participants—and because Motorola con-
trolled the Committee through appointment and removal
of its members, Motorola had structural organizational
control over the Plan.5 This degree of control is sufficient
to make the Plan an affiliate of Motorola, and as an
affiliate of Motorola, the Plan is specifically excluded
from the class.
5
The Plan cites several S.E.C. No-Action Letters interpreting
Rule 144, 17 C.F.R. § 230.144, as applied to certain securities
transactions by retirement plans. See Conextant Sys., Inc., S.E.C.
No-Action Letter, 1998 WL 823726, at *1, *9 (Nov. 27, 1998);
Rockwell Int’l Corp., S.E.C. No-Action Letter, 1996 WL 700547, at
*1, *7 (Dec. 6, 1996); Charles Schwab Corp., S.E.C. No-Action
Letter, 1993 WL 214828, at *6 (made available June 10, 1993);
Terminal Data Corp., S.E.C. No-Action Letter, 1992 WL 217852,
at *1-2 (Sept. 3, 1992). These letters reflect that for purposes
of determining Rule 144 exemptions to registration require-
ments for transactions made by company retirement plans in
the company’s own stock, the S.E.C. has adopted a practice
of examining whether the plan participants (not the retire-
ment plan itself) are affiliates of the issuer of securities. E.g.,
Rockwell Int’l Corp., 1996 WL 700547, at *1, *7. In other words,
the S.E.C. “looks through” the retirement plan and considers
the affiliate status of the participants to determine the applica-
bility of an exemption from the registration requirements of
the Securities Act of 1933. See, e.g., id. This “look through” policy
has no application here; these S.E.C. No-Action Letters
assume that a company retirement plan that trades in the
company’s stock is an affiliate of the company for general
securities-law purposes.
22 No. 09-1750
Accordingly, for the foregoing reasons, the district
court’s order disallowing the Plan’s claim to a share of
the Motorola settlement proceeds is A FFIRMED.
5-4-11