Harris v. Koenig

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
______________________________
WILLIAM S. HARRIS, et al., )
)
)
Plaintiffs, )
)
v. ) Civil Action No. 02-618 (GK)
)
JAMES E. KOENIG, et al., )
)
Defendants. )
______________________________)

MEMORANDUM OPINION

Plaintiffs William S. Harris, Reginald E. Howard, and Peter M.

Thornton, Sr. are former employees of Waste Management Holdings,

Inc. (“Old Waste”) and participants in the Waste Management Profit

Sharing and Savings Plan (“Old Waste Plan” or “Plan”). They bring

this action on behalf of the Plan’s approximately 30,000

participants under the Employee Retirement Income Security Act of

1974 (“ERISA”), 29 U.S.C. §§ 1001, et seq., against Defendants,1

1
Defendants include the “Old Waste Fiduciaries,” which are
Old Waste (the Plan’s sponsor), the Waste Management, Inc. Profit
Sharing and Savings Plan Investment Committee (“Old Waste
Investment Committee”), the Waste Management, Inc. Profit Sharing
and Savings Plan Administrative Committee (“Old Waste
Administrative Committee”), the individual Trustee Members of the
Committees, the Old Waste Board of Directors and its individual
members, and fifteen unidentified fiduciaries; and the “New Waste
Fiduciaries,” which are the Waste Management Retirement Savings
Plan (“New Waste Plan”), the Investment Committee of the Waste
Management Retirement Savings Plan (“New Waste Investment
Committee”) and its individual Trustee Members, the State Street
Bank and Trust Company (“State Street”), and fifteen unidentified
fiduciaries.
all of whom were fiduciaries of the Old Waste Plan2 or of its

successor plan, the Waste Management Retirement Savings Plan (“New

Waste Plan”).3

This matter is now before the Court on the portions of

Plaintiffs’ Motion for Partial Summary Judgment that address Counts

VI and VII against Defendants State Street Bank and Trust Company

(“State Street”) and Old Waste [Dkt. No. 435], and on State

Street’s Motion for Summary Judgment [Dkt. No. 442].4 Upon

consideration of the Motions, Oppositions, Replies, and the entire

record herein, the Court concludes that Plaintiffs’ Motion for

2
From at least January 1, 1989, Old Waste also sponsored an
employee stock ownership plan (the “ESOP”). In May 1998, the ESOP
was merged into the Old Waste Plan, and its assets were held by the
Old Waste Plan in a fund called the “ESOP Fund.”
3
On January 16, 1998, Old Waste and Waste Services, Inc.,
merged to become New Waste. On January 1, 1999, the Old Waste Plan
merged with the USA Waste Services, Inc. Employee’s Savings Plan to
become the New Waste Plan.
4
Because Old Waste is also named in Count Seven and has filed
a Notice of Joinder in Co-Defendants’ Motions for Summary Judgment
[Dkt. No. 443] and a Notice of Joinder in Co-Defendants’
Oppositions to Plaintiffs’ Motion for Partial Summary Judgment
[Dkt. No. 482], the Court will treat State Street’s filings as
applying to both State Street and Old Waste as to Count VII.
Oddly, the Notice of Joinder in Co-Defendants’ Motions for Summary
Judgment does not specify Old Waste’s joinder in State Street’s
Motion for Summary Judgment, but rather indicates that Old Waste
joins in the Second Period Individual Defendants’ Motion for
Summary Judgment based on “Plaintiffs’ inability to show . . . that
State Street acted imprudently or breached any of its fiduciary
duties by causing the Plan to participate in the Illinois
Settlement.” Since that topic was addressed in State Street’s
Motion, and not in the Second Period Individual Defendants’ Motion,
the Court will treat Old Waste as having joined in State Street’s
Motion as well.

-2-
Partial Summary Judgment is denied as to Counts VI and VII. State

Street and Old Waste’s Motion for Summary Judgment is granted.

I. Background5

This action arises from Old Waste’s announcement on February

24, 1998, that, prior to 1992 and continuing through the first

three quarters of 1997, it had materially overstated its reported

income by approximately $1.3 billion, and that it was therefore

restating several of its financial statements for periods between

1991 and 1997. That announcement led to the filing of a securities

class action in the United States District Court for the Northern

District of Illinois, which settled on September 17, 1999 (the

“Illinois Litigation”).

Earlier, on July 15, 1999, the Illinois district court

entered a Preliminary Approval Order approving a proposed

settlement and provisionally certifying a class, for settlement

purposes only, of all persons (other than Defendants and their

affiliates) who had acquired Old Waste common stock between

November 3, 1994, and February 24, 1998. See Fifth Amended

Complaint (“FAC”) ¶ 138 [Dkt. No. 408]. Pursuant to the Preliminary

Approval Order, “a Notice of Pendency and Proposed Settlement of

Class Action, dated July 20, 1999 (the ‘Illinois Class Notice’),

was sent to [all] members of the [Illinois settlement class],

5
Unless otherwise noted, the facts set forth herein are drawn
from the parties’ Statements of Material Facts Not in Dispute
submitted pursuant to Local Rule 7(h).

-3-
including the Plan and its fiduciaries.” Id. The Illinois Notice

described the scope of the release that would be given by members

of the Illinois settlement class in exchange for the settlement

consideration, and advised class members of their right to object

to or opt out of the proposed settlement by September 2, 1999. See

id.

At the time of the Illinois settlement, State Street served as

Trustee and Investment Manager for the New Waste Plan.6 State

Street Bank and Trust Co.’s Statement of Undisputed Material Facts

(“Def.’s SoF”) ¶ 4 [Dkt. No. 442]; Pls.’ Counter-Statement in

Response to State Street Bank and Trust Co.’s Statement of

Undisputed Material Facts (“Pls.’ CSoF”) ¶ 4 [Dkt. No. 470-1]. As

Trustee and Investment Manager, State Street received the Illinois

Class Notice on or about July 27, 1999. Def.’s SoF ¶ 13; Pls.’ CSoF

¶ 13. State Street then forwarded the Notice to Monet Ewing, an

attorney in its legal department. Def.’s SoF ¶ 14; Pls.’ CSoF ¶ 14.

At that time, it was State Street’s practice to review the terms of

a securities class action settlement and to prepare and submit

claims on behalf of benefit plans for which it served as trustee.

6
On January 1, 1999, State Street was appointed Trustee of
the New Waste Plan. Effective February 1, 1999, the New Waste
Investment Committee appointed State Street to also serve as the
Investment Manager for the New Waste Plan. See FAC ¶¶ 47, 50.
Pursuant to the terms of the Investment Manager Agreement between
State Street and the New Waste Investment Committee, State Street
had “full discretionary authority to manage” the New Waste Plan’s
assets and funds. Id. ¶ 50.

-4-
Def.’s SoF ¶ 16; Pls.’ CSoF ¶ 16. Under the terms of the settlement

in the Illinois Litigation, Old Waste and its agents were released

from liability for any claims--including unknown claims--brought by

members of the Illinois Settlement Class in exchange for $220

million. Def.’s SoF ¶ 12; Pls.’ CSoF ¶ 12; Notice of Pendency and

Proposed Settlement of Class Action 7-8, July 20, 1999 [Dkt. No.

440-16]. On December 1, 1999, State Street submitted a claim on

behalf of the New Waste Plan, resulting in a recovery of

$86,609.76. Def.’s SoF ¶ 28; Pls.’ CSoF ¶ 28.

On April 1, 2002, Plaintiffs filed suit in this Court,

alleging ten counts of ERISA violations pursuant to ERISA §

502(a)(2), codified as 29 U.S.C. § 1132(a)(2). Plaintiffs’ claims

were originally divided into three periods. First, Plaintiffs

alleged five ERISA violations related to the Plan’s purchase of

inflated shares of Company Stock in the first claim period between

January 1, 1990, and February 24, 1998 (Counts I-V, the “First

Period Claims”). Second, Plaintiffs alleged four ERISA violations

related to the release of claims by the Plan’s fiduciaries in the

Illinois Litigation in the second claim period between July 15,

1999, and December 1, 1999 (Counts VI-IX, the “Second Period

Claims”). Third, Plaintiffs alleged one ERISA violation related to

the release of claims by State Street in the Texas Litigation in

the third claim period between February 7, 2002, and July 15, 2002

(Count X).

-5-
 While there has been a significant amount of litigation

regarding the various counts, the only counts relevant to the

pending Motions are Counts VI and VII, which are also the only

remaining counts specific to State Street.7 Pursuant to Plaintiffs’

Fifth--and final--Amended Complaint, Count VI alleges that, during

the second claim period, from July 15, 1999, to December 1, 1999,

State Street breached its fiduciary duty by failing to adequately

investigate and preserve claims of breach of fiduciary duty under

ERISA § 404 in the Illinois Litigation and by causing those claims

to be released.8 Count VII alleges that, during the same time

7
Plaintiffs withdrew Count X against State Street in the
Fifth Amended Complaint on the basis that the evidence obtained in
discovery was insufficient to prove the claim. See FAC ¶¶ 224-69.
State Street is also named in Count IX, which has survived a Motion
to Dismiss. Harris v. Koenig, 602 F. Supp. 2d 39, 61-62 (D.D.C.
2009) (“Harris I”). That Count alleges, in part, that State Street
should be held liable as a co-fiduciary for breaches of duty by
other Defendants. See FAC ¶¶ 220-23. Plaintiffs’ Motion for Summary
Judgment includes arguments directed toward Count X, which will be
addressed in a separate order and memorandum opinion.
8
Specifically, Plaintiffs allege that State Street should
have investigated and preserved claims that, between January 1,
1990, and February 24, 1998, (1) the Old Waste Investment Committee
and certain individuals who are or were members of that Committee
breached their fiduciary duties under ERISA § 404 by failing to
prudently manage the assets of the Plan; (2) the Old Waste
Administrative Committee and certain individuals who are or were
members of that Committee breached their fiduciary duties under
ERISA § 404 by failing to provide complete and accurate information
to Plan participants and beneficiaries; (3) Old Waste, the Old
Waste Administrative Committee, the Old Waste Investment Committee,
and certain individuals who are or were members of those Committees
engaged in prohibited exchanges of stock between the Plan and Old
Waste in violation of ERISA § 406(a)(1)(A); (4) Old Waste, its
Board of Directors, and certain individuals on the Old Waste Board
(continued...)

-6-
period, Old Waste and State Street engaged in a prohibited

transaction in violation of ERISA § 406(a)(1)(A) by releasing

claims in the Illinois Litigation.9

On March 30, 2011, Plaintiffs filed their Motion for Partial

Summary Judgment, which addressed, in part, Counts VI and VII

against State Street and Old Waste (“Pls.’ Mot.”). On the same

date, State Street filed its Motion for Summary Judgment (“Def.’s

Mot.”). On May 2, 2011, State Street filed a Response to

Plaintiffs’ Motion for Partial Summary Judgment (“Def.’s Opp’n”)

[Dkt. No. 467], and Plaintiffs filed their Opposition to State

Street’s Motion for Summary Judgment (“Pls.’ Opp’n”) [Dkt. No.

470]. On June 8, 2011, Plaintiffs (“Pls.’ Reply”) [Dkt. No. 497]

and State Street (“Def.’s Reply”) [Dkt. No. 506] filed their

respective Replies.

II. Standard of Review

Summary judgment may be granted “only if” the pleadings, the

discovery and disclosure materials on file, and any affidavits show

that there is no genuine issue as to any material fact and that the

8
(...continued)
breached their fiduciary duties under ERISA § 404 by failing to
monitor the fiduciaries of the Plan; and (5) all Old Waste
Fiduciaries breached their fiduciary duties under ERISA § 405(a)(2)
and (3) by enabling their co-fiduciaries to commit the ERISA
violations cited above, and by failing to remedy them.
9
On March 12, 2009, the Court denied Defendants’ Motion to
Dismiss, which included Counts VI and VII. Harris I, 602 F. Supp.
2d at 54-59.

-7-
moving party is entitled to judgment as a matter of law. See Fed.

R. Civ. P. 56(c), as amended Dec. 1, 2007; Arrington v. United

States, 473 F.3d 329, 333 (D.C. Cir. 2006). In other words, the

moving party must satisfy two requirements: first, that there is no

“genuine” factual dispute and, second, if there is, that it is

“material” to the case. “A dispute over a material fact is

‘genuine’ if ‘the evidence is such that a reasonable jury could

return a verdict for the non-moving party.’” Arrington, 473 F.3d at

333 (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248

(1986)). A fact is “material” if it might affect the outcome of the

case under the substantive governing law. Liberty Lobby, 477 U.S.

at 248.

As the Supreme Court stated in Celotex Corp. v. Catrett, “the

plain language of Rule 56(c) mandates the entry of summary

judgment, after adequate time for discovery and upon motion,

against a party who fails to make a showing sufficient to establish

the existence of an element essential to that party's case, and on

which that party will bear the burden of proof at trial.” 477 U.S.

317, 322 (1986). The Supreme Court has further explained,

[a]s we have emphasized, “[w]hen the moving
party has carried its burden under Rule 56(c),
its opponent must do more than simply show
that there is some metaphysical doubt as to
the material facts. . . . Where the record
taken as a whole could not lead a rational
trier of fact to find for the nonmoving party,
there is no ‘genuine issue for trial.’”
Matsushita Elec. Industrial Co. v. Zenith
Radio Corp., 475 U.S. 574, 586-87, 106 S. Ct.

-8-
 1348, 89 L.Ed.2d 538 . . . (1986) (footnote
omitted). “‘[T]he mere existence of some
alleged factual dispute between the parties
will not defeat an otherwise properly
supported motion for summary judgment; the
requirement is that there be no genuine issue
of material fact.’”

Scott v. Harris, 550 U.S. 372, 380 (2007) (quoting Liberty Lobby,

477 U.S. at 247-48) (emphasis in original).

However, the Supreme Court has also consistently emphasized

that “at the summary judgment stage, the judge’s function is

not . . . to weigh the evidence and determine the truth of the

matter, but to determine whether there is a genuine issue for

trial.” Liberty Lobby, 477 U.S. at 249. In both Liberty Lobby and

Reeves v. Sanderson Plumbing Products, Inc., 530 U.S. 133, 150

(2000), the Supreme Court cautioned that “[c]redibility

determinations, the weighing of the evidence, and the drawing of

legitimate inferences from the facts, are jury functions, not those

of a judge” deciding a motion for summary judgment. Liberty Lobby,

477 U.S. at 255.

III. Analysis

A. Count VI: Failure to Investigate and Preserve Claims

In Count VI, Plaintiffs allege that State Street, in its

capacity as Trustee and Investment Manager, breached its fiduciary

duty to the New Waste Plan. FAC ¶¶ 205-09. Specifically, Plaintiffs

claim that State Street failed to adequately review and investigate

the claims in the Illinois litigation and appropriately consider

-9-
whether Plaintiffs’ ERISA claims in that case should have caused

State Street to opt out of the settlement. Id. ¶ 207.

Plaintiffs now move for summary judgment on the ground that

“under the undisputed facts and circumstances presented here, State

Street’s mere reading of the class notice [did not] satisf[y] State

Street’s duty to investigate and recover on the Plan’s potential

ERISA claims.”10 Pls.’ Mot. 45. State Street argues that “it

satisfied its fiduciary duties as a matter of law” because “there

is no evidence, expert or otherwise, that participation in the

Illinois settlement was an imprudent decision, i.e., that a

reasonable fiduciary in the same or similar circumstances would

have followed a different process or made a different decision.”

Def.’s Mot. 14.

Under ERISA Section 404(a)(1), “a fiduciary shall discharge

his [or her] duties with respect to a plan . . . with the care,

prudence, and diligence under the circumstances then prevailing

that a prudent [person] acting in a like capacity and familiar with

such matters would use in the conduct of an enterprise of a like

character and with like aims.” 20 U.S.C. § 1104(a)(1). As this

Court has previously explained:

The duties of loyalty and prudence mandated in
Section 404(a) of ERISA include the “duty to
take reasonable steps to realize on claims

10
As previously noted, supra Part I, what Plaintiffs refer to
as “mere reading,” did include review by State Street’s legal
department.

-10-
 held in trust.” Donovan v. Bryans, 566 F.
Supp. 1258, 1262 (E.D. Pa. 1983). When, as in
this case, a plan has potential claims against
a third party, the “trustees have a duty to
investigate the relevant facts, to explore
alternative courses of action and, if in the
best interests of the plan participants, to
bring suit . . . .” McMahon v. McDowell, 794
F.2d 100, 112 (3d Cir. 1986).

Harris v. Koenig, 602 F. Supp. 2d 39, 54-55 (D.D.C. 2009) (“Harris

I”).

Notably, however, Section 404 requires a fiduciary to act

“with the care, prudence, and diligence” a prudent person would use

“under the circumstances then prevailing.” 20 U.S.C. § 1104(a)(1)

(emphasis added). The question now before the Court is not whether

State Street’s conduct appears prudent as of this time, i.e. 2011,

but whether State Street acted with the type of care and engaged in

the type of investigation that would reasonably be expected of

someone acting as a Trustee during the second half of 1999. See

Chao v. Merino, 452 F.3d 174, 182 (2d Cir. 2006) (a fiduciary’s

“actions are not to be judged ‘from the vantage point of

hindsight’”) (quoting Katsaros v. Cody, 744 F.2d 270, 279 (2d Cir.

1984)); Henry v. Champlain Enters., Inc., 445 F.3d 610, 620 (2d

Cir. 2006) (“The focal point of our inquiry under ERISA is . . .

whether [the fiduciary] acted with the prudence required of a

fiduciary under the prevailing circumstances at the time of the

transaction.”); Bussian v. RJR Nabisco, Inc., 223 F.3d 286, 299

(5th Cir. 2000) (“In determining compliance with ERISA's prudent

-11-
man standard, courts objectively assess whether the fiduciary, at

the time of the transaction, utilized proper methods to

investigate, evaluate and structure the investment; acted in a

manner as would others familiar with such matters; and exercised

independent judgment when making investment decisions. [ERISA's]

test of prudence . . . is one of conduct, and not a test of the

result of performance of the investment.”) (quoting Laborers Nat’l

Pension Fund v. Northern Trust Quantitative Advisors, Inc., 173

F.3d 313, 317 (5th Cir.), cert. denied sub nom, Laborers Nat’l

Pension Fun v. American Nat’l Bank & Trust Co., 528 U.S. 967

(1999)). Indeed, “so long as the ‘prudent person’ standard is met,

ERISA does not impose a ‘duty to take any particular course of

action if another approach seems preferable.’” Merino, 452 F.3d at

182 (quoting Diduck v. Kaszycki & Sons Contractors, Inc., 874 F.2d

912, 917 (2d Cir. 1989)).

In support of their Motion, Plaintiffs point to a litany of

shortcomings in State Street’s process for dealing with the

Illinois litigation. For example:

• “no one at State Street reviewed any complaint in the
Illinois Litigation”;
• “State Street also failed to determine whether the
Illinois plaintiffs were pursuing ERISA claims”;
• “State Street similarly failed to consider whether any
Old Waste Plan or New Waste Plan fiduciaries had engaged
in the misconduct at issue”;
• “State Street did not ask New Waste for any information
about the Illinois allegations”;
• “State Street likewise reviewed no facts”;

-12-
 • “State Street also did not ask New Waste for any
information about the amount of Company Stock purchased
for the Plan;”
• “State Street never contacted counsel representing the
Illinois Plaintiffs”;
• “[t]he only people who reviewed the Class Notice in the
Illinois Litigation were State Street’s in-house lawyers
Monet Ewing and Denise Sisk.”

Pls.’ Mot. 36-39. In essence, Plaintiffs contend that without

undertaking some or all of these proposed actions, State Street

breached its fiduciary duty under Section 404.

State Street responds that because it took into account

relevant factors such as “the cost of enforcing the claim, the

chance of success and the likelihood of collecting a judgment . .

. State Street’s handling of the Illinois settlement in 1999 was

both sound and consistent with industry standards,” notwithstanding

any omissions identified by Plaintiffs. Def.’s Mot. 8-9 (citing

Scott & Ascher, Trusts § 17.9 (5th Ed. 2007)).

State Street explains that “[f]ollowing its standard practice,

State Street sent the notice of the Illinois settlement to the

lawyers for its company stock group,” who “were well aware of the

laws and regulations applicable to company stock plans and followed

developments in benefits litigations.” Id. at 9. These attorneys

considered the notice and determined that “the proposed settlement

was the result of contested litigation and there were no reasonable

concerns suggested by the notice with respect to issues such as the

independence or qualifications of plaintiffs’ counsel in the

-13-
Illinois class actions.” Id. at 10. Therefore, State Street did not

object to the settlement and filed a claim for the Plan. Id.

State Street argues that it was justified in not expending the

resources required by the additional steps described by Plaintiffs

because “[t]here is no evidence that a prudent fiduciary acting in

similar circumstances at the time of the Illinois settlement would

have taken a different approach, let alone made a different

decision than State Street.” Id. at 12. State Street explains that

its standard approach at the time was to participate in securities

class action settlements because it “was not aware of any company

stock plan that had ever recovered money by pursuing an ERISA

fiduciary breach claim separate from a recovery for securities law

violations” and it would therefore not have been prudent to incur

additional costs in pursuing such claims. Id. at 13.

In support of its position, State Street points to the

statements of Plaintiffs’ own experts who acknowledge that, in

1999, it was the standard practice of ERISA plans to accept

securities class action settlements and file the appropriate

claims. Plaintiffs’ expert Alan D. Biller, who served as an

independent consultant advising between 50 and 100 ERISA plans

prior to 2000 regarding the filing of claims as part of securities

class action settlements, stated that none of those plans opted out

of a proposed settlement. Biller Dep., Jan 21, 2011, Curto Decl.,

Ex. 13, at 170-81 [Dkt. No. 442-19]. Biller also admitted that he

-14-
could not recall ever calculating the potential recovery for any

plan under a proposed settlement and that “generally we didn’t even

try to estimate that.” Id. at 179. Nor could Biller recall ever

calculating the potential value of a carve-out for ERISA claims.

Id. at 180.

Marcia Wagner, an ERISA compliance attorney retained by

Plaintiffs to provide expert testimony, similarly was not aware of

any ERISA plan that opted out of a settlement to pursue ERISA

claims or that carved ERISA claims out of a settlement prior to

2000. Wagner Dep. Jan 27, 2011, Curto Decl., Ex. 14, at 47-48 [Dkt.

No. 442-20]. She knew of no cases in which an ERISA plan trustee

had “obtained substantial recoveries under alternative claims for

relief under ERISA next door to a piece of securities litigation by

1999.” Id. at 51-52.

Plaintiffs offer absolutely no countervailing evidence

suggesting that a prudent person in State Street’s position at the

time of the settlement would have made greater efforts to pursue a

carve-out of ERISA claims or otherwise opt out of the settlement.

Instead, Plaintiffs identify twenty-eight decisions, opinion

letters, amicus curiae briefs, and articles that they label as

“pertinent legal precedent that predates September 1999.” Pls.’

Opp’n 21-27. Not a single one of these citations support

Plaintiffs’ position.

-15-
 First, Plaintiffs offer fifteen cases which simply have

nothing to do with ERISA litigation claims based on a drop in

company stock price analogous to the ERISA claims that Plaintiffs

argue deserved additional attention by State Street. Pls.’ Opp’n

21-26. None suggest that an ERISA plan would be successful in

opting out of a securities class action settlement and pursuing its

own claims.

Second, Plaintiffs cite to two cases which do involve ERISA

stock drop litigation. Pls.’ Mot. 25. These cases stand for the

well established principle, which does not support Plaintiffs’

claims in this case, that “an ESOP fiduciary who invests the assets

in employer stock is entitled to a presumption that it acted

consistently with ERISA by virtue of that decision.” Moench v.

Robertson, 62 F.3d 553, 571 (3d Cir. 1995); Kuper v. Iovenko, 66

F.3d 1447, 1459 (6th Cir. 1995).

Third, Plaintiffs quote from a smattering of Department of

Labor Advisory Opinion Letters, Amicus Curiae briefs, and articles.

Pls.’ Mot. 20-27. These items are not only unhelpful in resolving

the question of whether State Street’s conduct was prudent but also

do not provide a source of persuasive authority upon which the

Court may rely.

Fourth, and finally, Plaintiffs cite to cases decided after

1999, which, once again, for the reasons given above, are not

relevant to whether State Street’s conduct was prudent at the time

-16-
in question. Id. at 25-27.11 Even crediting their own descriptions

of the materials they cite, Plaintiffs’ twenty-eight sources stand

for nothing more than the fact that “ERISA itself was adopted in

1974” and that State Street owed the Plan a duty of care under

Section 404. Id. at 20.

Plaintiffs present no evidence whatsoever that there was any

“history of success in ERISA ‘stock drop’ litigation of the kind

[P]laintiffs say State Street should have pursued” or that a

prudent fiduciary would have taken the steps suggested by

Plaintiffs. Def.’s Mot. 4. Instead, as discussed above, Plaintiffs

have merely presented a long list of additional steps they believe

State Street should or could have undertaken that may or may not

have yielded a preferable settlement for the Plan. But “ERISA does

not impose a duty to take any particular course of action,” nor

does it allow a fiduciary’s “actions to be judged from the vantage

point of hindsight.” Merino, 452 F.3d at 182 (internal quotations

omitted).

In short, Plaintiffs have submitted no evidence that a prudent

person acting in a like capacity and familiar with such matters

would have taken a different course of action under the conditions

11
The Court cannot help but note that in citing these cases,
Plaintiffs followed the curious--and unusual--practice of giving
the date of filing instead of the usual practice of giving the date
of decision. Id. at 25-27. One can only wonder if this was done to
obscure the fact that these cases were decided--not filed--after
the time period which is relevant in this case.

-17-
prevailing at that time. 20 U.S.C. § 1104(a)(1). Without any such

evidence, Plaintiffs “fail[] to make a showing sufficient to

establish the existence of an element essential to [their] case,

and on which [they] will bear the burden of proof at trial.”

Celotex Corp., 477 U.S. at 322. Therefore, Plaintiffs’ Motion for

Summary Judgment as to Count VI is denied and State Street’s Motion

for Summary Judgment is granted.12

B. Count VII: Prohibited Transaction

Both parties also seek summary judgment on Plaintiffs’ claim

that State Street engaged in a prohibited transaction under ERISA

Section 406 by agreeing to a settlement in the Illinois Litigation

that released the Plaintiffs’ claims. Section 406 forbids a plan’s

fiduciary from “caus[ing] the plan to engage in a transaction, if

he [or she] knows or should know that such transaction constitutes

a direct or indirect . . . sale or exchange, or leasing, of any

property between the plan and a party in interest.” 29 U.S.C. §

1106(a)(1). The Section “categorically bar[s] certain transactions

deemed likely to injure the pension plan.” Harris Trust & Sav. Bank

12
It is immaterial to the ruling on this Motion that the Court
has, on this date, denied State Street’s Motion to Reconsider June
20, 2011 Memorandum Order [Dkt. No. 542]. Pursuant to the Order
denying that Motion as well as the Court’s June 20, 2011,
Memorandum Order [Dkt. No. 521], State Street has lost its expert,
Wilson H. Ellis. Of course, for the reasons given above, State
Street has nonetheless demonstrated that it is entitled to judgment
as a matter of law because of Plaintiffs’ failure to establish the
existence of an essential element of their claim.

-18-
v. Salomon Smith Barney, 530 U.S. 238, 242 (2000) (internal

quotation omitted).

In concluding that Plaintiffs had adequately stated a claim

and therefore denying State Street’s Motion to Dismiss Count VII,

this Court stated that “it is a prohibited exchange of property

under ERISA Section 406 for State Street, a Plan fiduciary, to

enter into the Illinois Securities Settlement on behalf of the New

Waste Plan against Old Waste, the Plan sponsor and a party in

interest, unless the transaction is exempted from the proscriptions

of ERISA Section 406.” Harris I, 602 F. Supp. 2d at 56-57 (emphasis

added).

As the Court also noted at that early point in the litigation,

State Street’s participation in the settlement might be exempted

from the strictures of Section 406 by Prohibited Transaction

Exemption (“PTE”) 2003-39, 68 Fed. Reg. 75,632. Id. at 57. PTE

2003-39 “permits transactions engaged in by a plan, in connection

with the settlement of litigation” and “affects all employee

benefit plans, the participants and beneficiaries of such plans,

and parties in interest with respect to those plans engaging in the

described transactions.” 68 Fed. Reg. 75,632. In order to qualify

for the exemption, the settlement must be “reasonable in light of

the plan's likelihood of full recovery, the risks and costs of

litigation, and the value of claims foregone.” Id. at 75,639. As

the Department of Labor explained, this requirement demands that

-19-
any exempted settlement “involve a prudent decision-making process,

given the facts and circumstances of the particular situation.” Id.

at 75,636.

State Street devotes a great deal of its briefing to rearguing

whether a settlement of the type in question is a prohibited

transaction under ERISA Section 406, noting in particular that no

other court has examined some of the issues implicated by that

question.13 Def.’s Reply 15. However, it is unnecessary to reach

that issue at this time.

Regardless of whether State Street’s participation in the

settlement is subject to Section 406, it is clear that, even

assuming Section 406 does apply, PTE 2003-39 covers the release of

claims included in the Illinois settlement. The language used by

the Department of Labor demonstrates that exactly the same level of

prudence is required to obtain an exemption under PTE 2003-39 as is

13
PTE 2003-39 itself reads:

As the Department noted in proposing this
exemption, the fact that a transaction is
subject to an administrative exemption is not
dispositive of whether the transaction is, in
fact, a prohibited transaction. Rather, the
exemption is being granted in response to
uncertainty expressed on the part of plan
fiduciaries charged with the responsibility
under ERISA for determining whether it is in
the interests of a plan's participants and
beneficiaries to enter into a settlement
agreement with a party in interest.

68 Fed. Reg. 75,633.

-20-
required by the fiduciary duties outlined in ERISA Section 404.

Compare id. at 75,636 (an exempted settlement “will always involve

a prudent decision-making process, given the facts and

circumstances of the particular situation.”), with 20 U.S.C. §

1104(a)(1) (“a fiduciary shall discharge his [or her] duties with

respect to a plan . . . with the care, prudence, and diligence

under the circumstances then prevailing that a prudent [person]

acting in a like capacity and familiar with such matters would use

in the conduct of an enterprise of a like character and with like

aims.”).

Indeed, Plaintiffs’ arguments attempting to demonstrate why

State Street’s conduct should not be covered by PTE 2003-39 are

indistinguishable from those raised by Plaintiffs under Count VI

and already rejected by the Court, supra Part III.A. See Pls.’ Mot.

49-51. As State Street argues, albeit briefly, its “approach to

litigation settlements in 1999 already included the steps called

for by PTE 2003-39 for settlements entered into before January 1,

2004.” Def.’s Mot. 27.

For the reasons spelled out above, supra Part III.A, State

Street’s participation in the Illinois settlement involved what was

at that time “a prudent decision-making process, given the facts

and circumstances of the particular situation” and was “reasonable

in light of the plan's likelihood of full recovery, the risks and

costs of litigation, and the value of claims foregone.” 68 Fed.

-21-
Reg. 75,633, 75,639. Therefore, Plaintiffs’ Motion for Summary

Judgment as to Count VII is denied, and State Street and Old

Waste’s Motion for Summary Judgment is granted.14

/s/
November 2, 2011 Gladys Kessler
United States District Judge

Copies via ECF to all counsel of record

14
For the reason stated above, supra note 4, the grant of
State Street’s Motion applies to both State Street and Old Waste.

-22-