UNITED STATES DISTRICT COURT WESTERN DISTRICT OF NEW YORK

Transcription

1 UNITED STATES DISTRICT COURT WESTERN DISTRICT OF NEW YORK JOSEPH J. CROWLEY, ON BEHALF OF THE CORNING, INC.INVESTMENT PLAN, AND ON BEHALF OF A CLASS OF ALL OTHER PERSONS SIMILARLY SITUATED, PLAINTIFF, DECISION AND ORDER -VS- 02-CV-6172 CJS CORNING, INCORPORATED, ET AL., DEFENDANTS. APPEARANCES For Plaintiff: Patrick A. Klingman, Esq. Robert A. Izard, Esq. Wayne T. Boulton, Esq. Schatz & Nobel, P.C. 330 Main Street, 2nd Floor Hartford, CT (860) Eugene Welch, Esq. Harris, Chesworth & O Brien 1820 East Avenue Rochester, NY (585) For Defendants: Eugene D. Ulterino, Esq. Ryan T. Jenny, Esq. Carolyn G. Nussbaum, Esq. Nixon Peabody LLP Clinton Square P.O. Box Rochester, NY (585)

2 INTRODUCTION Siragusa, J. This case is back before the Court on plaintiff s motion pursuant to Federal Rule of Civil Procedure 59 to alter or amend the judgment entered following this Court s dismissal of the first amended complaint. See Crowley v. Corning, Inc., 234 F. Supp. 2d 222 (W.D.N.Y. 2002) ( Crowley I ). For the reasons stated below, the Court denies plaintiff s application. II. FACTUAL BACKGROUND The Court included a detailed discussion of the facts in its first decision, familiarity with which will be assumed. Plaintiff, who is a resident of Georgia and over the age of 55, is a retiree of Corning, Incorporated ( Corning ), and a participant in the Corning Investment Plan ( Plan ). Corning is the sponsor of the Plan. The Plan, by its own terms, is governed by New York law and by the Employee Retirement Income Security Act of 1974 ( ERISA ), Pub.L , Title I, 2, Sept. 2, 1974, 88 Stat. 832, codified at 29 U.S.C (1999), et seq. Jurisdiction in this Court arises under ERISA 502(e)(1), 29 U.S.C. 1132(e)(1), and venue is proper in this District since the Plan is administered here, and since plaintiff alleges that the breaches of fiduciary duties occurred here. Plaintiff is bringing this proceeding as a class action pursuant to Federal Rule of Civil Procedure 23, however, the issue of whether this action should be certified as a class action is not presently before the Court. Plaintiff is suing Corning and a number of individuals. John Does 1 30 are the individual members of the Plan s Investment Committee ( Committee ). John S. Brown, James B. Flaws, John H. Foster, Gordon Gund, John M. Hennessy, James R. Page 2 of 26

3 Houghton, James J. O'Connor, Catherine A. Rein, Deborah D. Rieman, H. Onno Ruding, William D. Smithburg, Hansel E. Tookes, II, Peter F. Volanakis, and Wendell P. Weeks, are, or were, individual members of Corning s Board of Directors ( Board ), as are Richard Roes 1 30, whose identities are unknown to plaintiff. A. Procedural History Plaintiff filed a complaint in this Court on April 1, 2002, alleging four causes of action under ERISA. On May 21, 2002, plaintiff filed his first amended complaint making typographical corrections, but not otherwise substantively altering the complaint. On August 6, 2002, defendants moved to dismiss the first amended complaint for failure to state a cause of action. The Court heard oral argument on the motion on December 4, 2002, and on December 9, 2002, issued a decision granting defendants motion in its entirety. During oral argument, plaintiff withdrew the third cause of action, alleging fraud. Plaintiff, as an exhibit to his motion papers, filed a proposed second amended complaint ( Complaint ) in which the fraud claim is not reasserted. Following issuance of the Court s decision and order dismissing the first amended complaint, plaintiff contacted the Court Clerk and asked that judgment not be entered. However, judgment had already been entered in favor of defendants on December 12, 2002, and the case was closed on the Court s docket. 1 Plaintiff filed the 1 The Court s Decision and Order dismissing plaintiff s first amended complaint was filed on Monday, December 9, Plaintiff s counsel telephoned chambers on Wednesday, December 11, 2002, at approximately 4:15 p.m., and spoke with the Court s law clerk in an attempt to avoid having judgment entered. Before the Court could address the question, however, judgment was entered on Thursday morning, December 12, Page 3 of 26

4 present motion, which he captioned as a motion to open the judgment, on December 20, 2002, and the Court heard oral argument on the motion on April 10, The parties have each submitted numerous additional authorities supporting their positions, the latest having been received by the Court on October 6, Fifth 2 Notice of Supplemental Authority (Oct. 2, 2003). B. The Court s Prior Decision The essence of plaintiff s first amended complaint was that the Plan s fiduciaries failed either to warn plan participants of Corning s less than desirable financial condition, despite probably having inside information, or failed to divest the Plan of Corning stock when that stock began to fall in price during the class period, or both. The class period was alleged to have started on February 28, 2000 and to have continued through July 25, During that period, Corning changed its business strategy and began to concentrate on its telecommunications component (fiber optic cables and the parts that make them work). It acquired assets by purchasing companies at prices that plaintiff alleged were far above their actual value. Subsequently, during the alleged class period, the bottom fell out of the telecommunications market and, as a result, Corning was left with obsolete inventory and excess manufacturing capacity. Corning stock, which had been trading at less than $23 per share four months prior to commencement of the class period, rose to a high of $113 per share, then dropped to less than $20 per share. In its December 9, 2003 decision, the Court found that plaintiff had failed to state a cause of action against any of the various defendants sued. First, the Court found that 2 Only three of the supplemental filings have been docketed. Page 4 of 26

5 defendant Corning was not a fiduciary under the Plan, only a settlor, and consequently that its filings with the Securities Exchange Commission ( SEC ) were not duties undertaken as a fiduciary under ERISA. Second, the Court found that the first amended complaint did not allege a violation of the Board defendants duties under the Plan, which consisted of appointing, retaining, or removing members of the Committee and the preparation of SEC filings. As the Court determined, that like defendant Corning, this preparation of SEC filings was not done by the Board in a fiduciary capacity under the Plan. Finally, the Court found that the first amended complaint s conclusory allegations, that Committee members allegedly failed to disclose or act on inside information, was insufficient to sustain the cause of action against them. C. Plaintiff s Proposed Second Amended Complaint Plaintiff s proposed second amended complaint ( Complaint ) repeats the same causes of action dismissed in the Court s previous decision, but adds significantly greater detail, as well as statutory citations, and case law holdings 3 in support of plaintiff s position. Although it does not alter the facts with respect to Corning or the board of director defendants, it does reorganize the allegations into two claims: Claim I: Claim II: The Corning Stock Fund was an Imprudent Investment; and Defendants Negligently Misrepresented and Failed to Disclose Material Information. The first claim alleges that the defendants breached their fiduciary duties under ERISA by permitting the Plan to invest in the Corning stock fund when, based on public- 3 In a footnote in their responding papers, defendants suggest that the second amended complaint now fails to meet the short and plain requirement of Federal Rule of Civil Procedure 8(a)(2). Page 5 of 26

6 ally available information, it was imprudent to do so. More specifically, plaintiff alleges that Corning stock was in a high flying, high risk, new economy telcom/internet sector of the stock market and, therefore, highly imprudent as a Plan asset. Complaint 3. The second claim alleges that defendants breached their fiduciary duties by negligently making misrepresentations and by failing to disclose material information to the Plan participants, which was required for them to make informed decisions about their investments. II. LEGAL STANDARDS Plaintiff s motion is brought under Federal Rule of Civil Procedure 59(e) and, although entitled a motion to reopen the judgment, is actually a motion to alter or amend the judgment. In conjunction with that motion, plaintiff also moves to amend the first amended complaint with a second amended complaint pursuant to Federal Rule of Civil Procedure 15(a). Thus, the Court must look to the standards governing a joint Rule 59(e) and Rule 15(a) motion. In Patterson-Stevens, Inc. v. Int l Union of Operating Eng rs Local Union No. 17, 164 F.R.D. 4 (W.D.N.Y. 1995), the Honorable John T. Curtin of this District, reviewed the Second Circuit case law pertaining to a joint Rule 59(e) and Rule 15(a) motion. He noted that, generally, the courts liberally allow amendments to complaints under Rule 15(a), but that once a judgment had been entered, the interests of finality of judgment come into play. In that regard, under Rule 59(e), this Court may set aside the subject judgment for one, or more, of the following three reasons: (1) an intervening change in controlling law; (2) the availability of new evidence not previously available; or (3) the Page 6 of 26

7 need to correct a clear error of law or prevent manifest injustice. Id. (quotation marks and citations omitted). Since plaintiff alleges nothing in his second amended complaint that was not known, or could not have been known, at the time the fist amended complaint was filed (April 1, 2002), and since he does not allege any changes in controlling law, he necessarily bases his Rule 59(e) motion on the grounds of preventing manifest injustice. In conjunction with his Rule 59(e) application, plaintiff asks the Court to allow amendment of his first amended complaint with the proposed second amended complaint. Faced with a Rule 59(e) motion on the ground of preventing manifest injustice, and a concomitant Rule 15(a) motion to amend, the Court may reject both if the amendment of the complaint would be futile. See Foman v. Davis, 371 U.S. 178, 182 (1962) (recognizing futility of amendment as a valid ground for denying a motion to alter or amend judgment and grant amendment of the complaint). Furthermore, [w]hen the moving party has had an opportunity to assert the amendment earlier, but has waited until after judgment before requesting leave, 4 a court may exercise its discretion more exactingly. State Trading Corp. v. Assuranceforeningen Skuld, 921 F.2d 409, 418 (2d Cir. 1990) (citations omitted). In State Trading Corp., the Second Circuit went on to quote the Fifth Circuit, writing, [a] busy district court need not allow itself to be imposed upon by the presentation of theories seriatim. Id. at 418 (citation and internal quotation marks omitted). 4 During oral argument on defendants motion to dismiss the first amended complaint, plaintiff s counsel states he orally asked for leave to amend the complaint. Pl. s Mem. in Supp. of Mot. at 4. Page 7 of 26

8 In analyzing a motion to amend, the same standards govern as with a motion to dismiss. The defendant must show that the plaintiff cannot establish any set of facts that would entitle him to the relief sought. Conley v. Gibson, 355 U.S. 41, 45 (1957). The Court must view the complaint in the light most favorable to the plaintiff. The Court s role is not to weigh the evidence that will be introduced to support the claims, but rather, its function is to assess whether the plaintiff is entitled to offer evidence in support of his claims. See Scheuer v. Rhodes, 416 U.S. 232, 236 (1974). III. ANALYSIS The Court has reviewed the proposed second amended complaint and the papers to which it refers, including the Plan. Although defendants suggest the second amended complaint now violates Federal Rule of Civil Procedure 8(a), which requires, a short and plain statement of the claim, the Court declines to deny plaintiff s motion to amend on that ground. Apparently reacting to the Court s prior decision, plaintiff has elected to make the second amended complaint far more detailed than the first in order to avoid having the Court dismiss it on the grounds that it lacks detail. The Court does note, however, that the factual details are minor in comparison with the legal arguments contained in the second amended complaint. A. Claims Against Corning and its Board of Directors Plaintiff s proposed second amended complaint does not contain anything to alter the Court s previous holding that neither Corning nor the Board of Directors was a fiduciary under the Plan. While plaintiff relies on ERISA 3(21)(A), 29 U.S.C. 1002(21)(A) to argue that they exercised control over Plan assets in a manner that Page 8 of 26

9 made them fiduciaries (Complaint 26), the Court disagrees. ERISA 3(21)(A) reads as follows (emphasis added): (21) (A) Except as otherwise provided in subparagraph (B) [not applicable here], a person is a fiduciary with respect to a plan to the extent (i) he exercises any discretionary authority or discretionary control respecting management of such plan or exercises any authority or control respecting management or disposition of its assets, (ii) he renders investment advice for a fee or other compensation, direct or indirect, with respect to any moneys or other property of such plan, or has any authority or responsibility to do so, or (iii) he has any discretionary authority or discretionary responsibility in the administration of such plan. Such term includes any person designated under section 405(c)(1)(B) [29 USCS 1105(c)(1)(B)]. In support of his conclusion that Corning and the Board were fiduciaries under that definition, plaintiff alleges that employees of the Corning Benefits Network and the Corning Advantages Online were Corning employees who operated the Plan and communicated with Participants by mail and phone (the Benefits Network ) and over the Internet ( Corning Advantages Online ).... PSAC 45. The Court previously rejected plaintiff s respondeat superior argument as it pertained to the Committee members, and the same logic applies to plaintiff s allegations against the company. Plaintiff also alleges that the employees in the two programs, the Benefits Network and Corning Advantages Online, exercised discretion to give participants access to their account statements to enable Participants to make changes to their Plan investments and allocations, which enabled management and disposition of Plan assets. This is not an allegation that the employees of the two programs exercised discretionary authority or discretionary control respecting management of the Plan, or that they exercised any authority or control respecting management or disposition of the Page 9 of 26

10 Plan s assets. This allegation merely states that Corning employees provided access to management functions for the Plan Participants to enable them to manage or dispose of Plan assets. Plaintiff s other allegations, that these same employees gave participants access to analytical tools and models, valued their Plan assets every twenty minutes, and provided all information relating to the Plan, likewise fail to show that Corning or the Board was a fiduciary of the Plan. Plaintiff s further contends that an entry in the Summary Plan Description ( SPD ) informing Plan Participants they should send all notices pertaining to the Plan to, Corning Incorporated: Attention Plan Administrator, infers that the Plan Administrator was Corning s agent. The argument is also unpersuasive. The Plan itself clearly appoints the Committee as the administrator of the Plan. The inclusion in the SPD of a mailing address referencing Corning is insufficient to show that Corning, exercises any discretionary authority or discretionary control respecting management of such plan or exercises any authority or control respecting management or disposition of its assets. ERISA 3(21)(A), 29 U.S.C. 1002(21)(A). Finally, in its December 9, 2002 decision, the Court also rejected plaintiff s allegation that by preparing and filing information with the SEC, knowing that it would be eventually transmitted to Plan Participants, Corning was acting as a fiduciary with respect to Plan participants. Crowley I, 234 F. Supp. 2d at 228. The second amended complaint merely repeats, albeit with more detail and further advocacy, the same allegations the Court previously rejected as insufficient to state a cause of action. In sum, plaintiff s allegations against Corning and the Board in the Page 10 of 26

11 second amended complaint fail to state a cause of action against them for breach of their fiduciary duties. B. Claims Against the Committee The Committee members are clearly fiduciaries under the Plan. Plan 7.1. Plaintiff alleges in the second amended complaint that the Committee breached its fiduciary duties when it failed to remove Corning stock as an investment option for Plan Participants and failed to divest the Plan of Corning stock in light of both public and nonpublic information that Corning stock was an imprudent investment. The second amended complaint is replete with detailed information concerning Corning s stock prices during the class period, its major business decisions, and public information that plaintiff alleges would have led a prudent investor to conclude the price of Corning stock was inflated and that it would fall dramatically. However, the Court determines that plaintiff s allegations do not state a cause of action under ERISA against the Committee. 1. WorldCom and Moench Plaintiff asks this Court to go where few courts have gone before and rule that the Committee had a duty under ERISA to overrule the settlor s and Plan Participant s decisions to invest in Corning stock. Plaintiff refers the Court to In re WorldCom, Inc. ERISA Litigation, 263 F. Supp. 2d 745 (S.D.N.Y. 2003). A detailed analysis of that case is necessary in order to understand how it does, and does not, apply here. In WorldCom, the district court found that the plan there named the company as administrator and investment fiduciary. That plan also detailed the duties of the investment fiduciary. Among those duties was the duty to establish the investment Page 11 of 26

12 options for participants and the duty to [r]eview the status of the investment policy and the selection and performance of the investment alternatives offered under the Plan.... Id. at 754. Further, WorldCom s plan stated that any officer of WorldCom, Inc., shall have the authority to carry out, on behalf of WorldCom, Inc., the duties of Administrator and the Investment Fiduciary. Id. at 754 (emphasis removed). Plan participants in the WorldCom plan could choose among investment alternatives offered by the Investment Fiduciary. Id. at 755. The district court made it clear that fiduciary status under ERISA is dependant on a particular individual s functions, not merely his status. Thus, the district court held it was necessary for the plaintiffs to allege that a person was acting as a fiduciary (that is, performing a fiduciary function) when taking action subject to complaint. Id. at 757 (quoting Pegram v. Hedrich, 530 U.S. 211, 226 (2000)). The district court ruled, therefore, that when directors executed SEC filings, they did so not in their ERISA roles, but in their employee roles, and, thus, were not ERISA fiduciaries, even though the filings were included and summarized in the WorldCom plan s SPD. Id. at 760. The district court then went on to discuss the issue present in the case at bar: whether the fiduciaries could override the plan and discontinue offering WorldCom stock to participants if they thought it was an imprudent investment. The district court specifically held that nothing in the [WorldCom] Plan committed WorldCom to offer an investment in WorldCom stock through its 401(k) plan. Id. at 764. Thus, the district court reasoned, it was incumbent upon the plan fiduciaries to alert WorldCom to the Page 12 of 26

13 need to eliminate, or at least, the need to consider eliminating WorldCom stock as one of the investment alternatives. Id. In contrast to the situation in WorldCom, the Plan here directs that one investment option must be Employer Stock. Plan 6.4, 6.5. An employee age 55 or older, such as plaintiff here, however, may, at any time, direct that up to 100 percent of his interest in Employer Stock be transferred to any other investment fund under the Trust.... Plan 6.4 (emphasis added). By allowing certain employees to transfer their investment in Corning stock, the Plan clearly indicates that Corning stock is to remain an investment option. In WorldCom, the district court also discussed the situation of an Employee Stock Ownership Plan ( ESOP ). The district court in WorldCom found that, WorldCom stock could have been removed as one of the investments offered under the Plan without amending the Plan.... WorldCom, 263 F. Supp. 2d at 764. Citing to a Third Circuit case, the court held that a corporate insider s knowledge of the impending collapse of the corporation s stock price, the precipitous decline in the price of that stock, and the fiduciary s own conflicted status might constitute a situation in which a fiduciary may be liable for continuing to offer an investment in the employer s securities, at least where the plaintiff can show that circumstances arose which were not known or anticipated by the settlor of the trust that made continued investment in the company s stock imprudent, and in effect, impaired the purpose for which the trust was established. Id. at , citing Moench v. Robertson, 62 F.3d 553, 572 (3d Cir. 1995). The Third Circuit, in Moench v. Robertson, held that when an ESOP trust does Page 13 of 26

14 not mandate investment in the company s stock, then the ESOP fiduciary may be liable for failing to recognize when such investments no longer serve the purpose of the trust, or the settlor s intent. Moench v. Robertson, 62 F.3d 553, 571 (3rd Cir. 1995). Plaintiff here distinguishes between the ESOP and matching contributions made by Corning, on the one hand, and the investment options available to Plan participants on the other. Citing to Plan 6.5, and emphasizing the word appropriate, plaintiff argues that the language, the Trustee shall establish, in addition to an ESOP stock fund and other appropriate Employer Stock funds, such equity, fixed income or other investment funds designated from time to time by the Committee, gave the Committee the option to not offer Corning stock as an investment choice for plaintiff, who had the right to invest all his funds in one or more of the investment choices offered by the Committee. However, as the Third Circuit wrote in Moench, in reviewing the fiduciary's actions, the court must be governed by the intent behind the trust in other words, the plaintiff must show that the ERISA fiduciary could not have believed reasonably that continued adherence to the ESOP's direction was in keeping with the settlor's expectations of how a prudent trustee would operate. In determining whether the plaintiff has overcome the presumption, the courts must recognize that if the fiduciary, in what it regards as an exercise of caution, does not maintain the investment in the employer's securities, it may face liability for that caution, particularly if the employer's securities thrive.... Moench, 62 F.3d at The Plan, which is at issue here, does not give the fiduciaries the option to omit Corning stock funds as an investment option. The language in Plan 6.5 makes that abundantly clear. The second paragraph of that section states, in pertinent part, [e]ach Participant has the right to elect how his contributions are to be invested among the available investment choices, including the Page 14 of 26

15 Corning Common Stock Fund. Plan 6.5 (emphasis added). The word appropriate in the first paragraph modifies the phrase, Employer Stock. Employer Stock refers to any class of the Employer s common stock or the Employer s preferred stock that is convertible into common stock... [and] includes ESOP Stock. Plan It does not, as plaintiff argues, imply that the Committee had the discretion, without amending the Plan, of removing Corning stock funds as an investment option. The facts of the WorldCom and Moench cases are clearly distinguishable from the facts of this case. Both Worldcom and Moench involved pension plans of companies that filed for bankruptcy. WorldCom involved allegations of massive fraud by corporate officers as well as the trustee and the accounting firm that audited WorldCom s books. The allegations include contentions that WorldCom engaged in a series of illegitimate accounting strategies in order to hide losses and inflate reported earnings to meet increasingly unrealistic earnings projections. WorldCom, 263 F. Supp. 2d at WorldCom admitted to improperly treating more than $3.8 billion in ordinary costs as capital expenditures in violation of generally accepted accounting principles. Id. In Moench, the employer, Statewide Bancorp, was found by the Office of the Comptroller of the Currency to be in violation of laws and regulations in a number of its subsidiary banks. Moench, 62 F.3d at 557. In both cases, the corporate sponsors of the employee pension plans were in jeopardy of dissolving. The situation at Corning, though serious, was as a result of free market forces and not, as in WorldCom and Moench, the result of bad acts by corporate employees charged with fiduciary responsibilities under the Plan. Page 15 of 26

16 2. Stein Plaintiff also relies on Stein v. Smith, 270 F. Supp. 2d 157 (D. Mass. 2003). Plaintiff argues that Stein recognized a plan fiduciary s obligation to convey material information to participants, even when the information is not specifically requested, and that a fiduciary can be held liable for not disclosing adverse facts about the company to plan participants who need that information to make informed financial decisions. Plaintiff also asserts that Stein held that a fiduciary may be liable for imprudent investments in a company stock fund even when the fiduciary, under the terms of the plan document, has no discretionary authority with regard to that stock fund. Plaintiff also cites Stein in support of his claim that the proposed second amended complaint does not violate Federal Rule of Civil Procedure 8. In addition, plaintiff also relies on Stein for the proposition that he should be permitted to show whether the company s chief executive officer spoke about the company s future prospects wearing his corporate, or fiduciary hat. Further, plaintiff contends that Stein held that any potential conflict between ERISA and securities laws should not be decided on a motion to dismiss. Finally, plaintiff states that Stein recognized that a fiduciary duty arises out of a defendant s actions, not merely his or her title or designation in the plan document. As in WorldCom, the company at issue in Stein, S&W, was experiencing increasing financial difficulties attributable to a policy of underbidding on fixed-price contracts that led to an accumulation of large, undisclosed losses on major projects as well as an impending liquidity crisis that was not adequately disclosed to the public. Stein v. Smith, 270 F. Supp. 2d at 164. These financial difficulties eventually forced S&W to file for bankruptcy. In re Stone & Webster, Inc. Securities Litigation, 253 F. Page 16 of 26

17 Supp. 2d 102, 109 (D. Mass. 2003); In re Stone & Webster, Inc., 286 B.R. 532, 534 (Bankr. D. Del. 2002) ( Stone & Webster, Incorporated... and 72 direct and indirect subsidiaries filed voluntary Chapter 11 petitions on June 2, 2000 ). As defendants point out in their response, unlike the plaintiff in Stein, plaintiff here has not alleged that Corning had any problems that could subject it to collapse, let alone that any fiduciary knew, or should have known, of such problems. Defs. Mem. of Law in Response to Pl. s Supp. Briefs and in Opp n to Pl. s Mot. to Open J. and for Leave to File a Second Am. Compl. (# 42), at 5. Like plaintiff here, the defendants in Stein relied on language in the 401(k) Plan Document (stating that the Committee shall have no power to determine or control the investment of the Trust Fund ) and the requirement in the ESOP Plan Document that contributions made in cash be used to purchase S&W shares to support their argument that the Plans, by their terms, removed from the Committee Defendants any discretionary authority to change the Plans and/or to evaluate the appropriateness of investment by the Plans in S&W stock. Stein, 207 F. Supp. 2d at 171. Unlike the case at bar, however, in Stein, the 401(k) Trust Agreement states that the Company as named fiduciary shall continually monitor the suitability of acquiring and holding Company Stock in the Company Stock Fund under the fiduciary duty rules of ERISA. 401(k).... Id. The court in Stein went on to find that, The Committee's position is even weaker as regards the ESOP Plan. In that Plan, the duty to review investments for suitability was assigned to the Administrator i.e., the Committee itself.... Where the governing documents of the ESOP Plan specifically grant to the Committee the duty to review the suitability of maintaining the ESOP's investment in company stock, I cannot conceive of any reason to dismiss the ESOP claim against the Committee Defendants on the ground that they had no discretionary authority over the ESOP's investment activities. Page 17 of 26

18 Stein, 270 F. Supp. 2d at 171. Thus, Stein is factually distinguishable from the case at bar and does not support plaintiff s motions. such as, Stein also held that statements made by corporate officers were not actionable, e.g., press releases and periodic filings with the Securities and Exchange Commission. With respect to these statements, no fiduciary liability can be implicated: these were statements made to the market in general, not to Plan participants specifically. The Supreme Court addressed the questions that arise when a person charged with fiduciary duties speaks on behalf of an employer in Varity v. Howe, 516 U.S. 489 (1996). In Varity, a corporate officer was sued for allegedly misrepresenting the overall condition of the employer company in materials (videotaped and written) intended to provide information to employees about their benefits. Considering carefully this factual background and weighing the difficulty inherent in distinguishing between statements by an officer wearing his employer hat versus his fiduciary hat, the Court concluded that the context made all the difference, holding that making intentional representations about the future of plan benefits [in the context of a meeting convened to discuss plan benefits] is an act of plan administration. Varity, 516 U.S. at 505. The plaintiffs here cannot show any set of facts that would tend to prove that statements attributed to Smith in press releases and SEC filings were made in the context of a discussion of Plan benefits, and no plausible argument can be made that the issuance of such statements is an act of plan administration. Stein, 270 F. Supp. 2d at 173. As in Stein, and as the Court previously indicated, plaintiff cannot establish that Committee members, who were Corning employees, spoke as fiduciaries under the Plan making public statements about Corning s future. Crowley I, 234 F. Supp. 2d 222, In re Williams Companies ERISA Litigation In his Third Notice of Supplemental Authority (# 43), plaintiff provided the Court with a copy of In re Williams Companies ERISA Litigation, 271 F. Supp. 2d 1328 (N.D. Ok. 2003). In that case, the district court recognized that, [p]lan sponsors who alter the Page 18 of 26

19 terms of a plan do not fail into the category of fiduciaries. Id. at 1338 (quoting Lockheed v. Spink, 517 U.S. 882, 890 (1996)). Significant to that decision, and distinguishing that case from the one at bar, is that, [t]he Plan did not require that Williams stock be offered as an investment option. Id. at As a result, the court in Williams found that, [t]o the extent, therefore, that any Plan fiduciary had a duty to decide or present its views on the wisdom of investment options, it would have been a breach of that duty to fail to address the need to eliminate, or at least consider eliminating, Williams stock as one of the investment options. Id. (citation omitted). Citing to the WorldCom decision, the court in Williams found, generally, that the plan s fiduciaries had duties to disclose information. However, the district court did not specifically address the contentions advanced by defendants here, or in Williams, that to disclose or act upon inside information, would breach the securities laws. Instead, the district court in Williams found the reasoning in WorldCom persuasive, and denied the benefits and investment committees motion to dismiss. Id. at Based on its analysis of Worldcom, as previously set forth, this Court is unpersuaded by the Williams case. Rather, the Court finds the reasoning in the case cited by defendants, In re McKesson HBOC, Inc. ERISA Litig., No. C RMW, 2002 U.S. Dist. LEXIS (N.D. Calif. Sep. 30, 2002), logical and persuasive. In that case, the district court agreed that, contrary to suggestions by the plaintiff, the fiduciaries were not obligated to violate the securities laws or other laws merely to protect the interests of Plan participants. Id. at *24. Further, in McKesson, the district court found that the plan document gave the defendants some discretion with regard to Page 19 of 26

20 investments in company stock ( because the McKesson Plan allows for contributions to be made in the form of cash or stock, at the company's election, there is some investment discretion provided for in the Plan, and with that discretion comes potential fiduciary liability ). Id. at *16. However, in the case at bar, the Plan does not give the fiduciaries any discretion with regard to investments in company stock. Consequently, the Plan creates no potential for fiduciary liability with regard to investments in Corning stock. Crowley I, 234 F. Supp. 2d at Rankin v. Rots In a Fourth Supplemental Submission, plaintiff provided the Court with the case of Rankin v. Rots, 278 F. Supp. 2d 853 (E.D. Mich. 2003). The district court there set forth the following pertinent facts: the Plan provided that the ESOP assets at all times shall be invested primarily in [Kmart] stock. See Art The Plan also provides that a participant's employer contributions must be in Kmart stock until the participant reaches age 55 and had been a participant for five full years. After January 1, 1999, a participant age 55 who had been a participant for five years could elect to have future employer contributions invested in any of the investment funds by making a proper election with Kmart. Rankin, 278 F. Supp. 2d at (footnotes omitted). In contrast, the Plan at issue here required investment in Corning stock for the matching funds, and mandated that Corning stock be an investment option for beneficiaries. Plan 6.4, 6.5 provide as follows: SECTION 6.4 Except as provided in the following paragraph, a Participating Employer s matching contributions pursuant to Section 3.3 and post-1984 mandatory contributions under Section 3.4 and the Income with respect to both types of contributions shall be invested in Employer Stock. (Pre-1985 Participating Employer mandatory contributions and the Income thereon shall remain invested in fixed income instruments.) The Page 20 of 26

21 foregoing Employer Stock investments, once made, are not subject to future investment discretion of a Participant except at age 55 as provided in the following paragraph. A Participant who is 55 or more years of age may, at any time, direct that up to 100 percent of his interest in Employer Stock be transferred to any other investment fund under the Trust pursuant to such terms and conditions as the Committee may prescribe. A Participant s contributions (whether after-tax or tax-deferred) and the Income thereon as well as amounts previously allocated to other Plan investment options may be invested in Employer Stock and amounts previously invested in Employer Stock may be transferred to other Plan investment options without limitation except for reasonable administrative limits and for restrictions necessary to comply with securities laws. SECTION 6.5 Amounts allocated to a Participant s accounts that are not restricted to Employer Stock as provided in Section 6.4 shall be subject to the investment direction of the Participant as provided in this Section. For this purpose, the Trustee shall establish, in addition to an ESOP Stock fund and other appropriate Employer Stock funds, such equity, fixed income or other investment funds designated from time to time by the Committee, as set forth in Appendix A. Each Participant has the right to elect how his contributions are to be invested among the available investment choices, including the Coming Common Stock Fund. Once made, a Participant s elections shall remain in effect until a new election is made. A Participant may change his investment elections as to current and future contributions as of any dates that may be specified by the Committee. If for any reason a Participant fails to make an investment election, the contributions made by or on behalf of the Participant shall be invested in a fixed income fund designated by the Committee. In addition, a Participant may, by making an election with the Committee, change the investment of all or a portion of the accumulated amounts then in his accounts (except for Employer Stock restrictions as provided in Section 6.4). Such a change may be made only as of any dates that may be specified by the Committee. All Participant investment directions shall be made to the Committee at such time and under such terms and conditions as the Committee, after consultation with the Trustee, may prescribe, provided that all such rules shall be uniformly applicable to all Participants. Plan 6.4 and 6.5 (emphasis added). Page 21 of 26

22 An additional difference between the case at bar and Rankin is that Kmart was named as the plan administrator. Id. at 858. The Rankin court also found that, unlike the situation here, the board of directors had assumed the role of plan administrator and that, [t]his is not a situation where the Plan Documents simply provide [that] board of directors' powers are limited to appointing, retaining, and removing members of a benefits committee. In that circumstance, courts have dismissed ERISA breach of fiduciary claims based on allegations of improper investment decisions against members of the board of directors because of the limited role of the board of directors in relation to the plan. Rankin, 278 F. Supp. 2d at 872 (citation omitted). The district court, therefore, declined to dismiss the complaint against Kmart s board. However, the Corning Board did not have the degree of discretion granted to Kmart s board. Moreover, while the district court in Rankin adopted the Worldcom rationale with respect to the fiduciary responsibility vis-á-vis the security laws, this Court, as discussed in its consideration of Worldcom and Williams, is not persuaded that the WorldCom rationale applies here. In reaching its conclusions in Rankin, the district court relied on the Sixth Circuit s decision in Kuper v. Iovenko, 66 F.3d 1447, 1457 (6th Cir. 1995). In Kuper, the Sixth Circuit, reviewing the district court s trial decision granting a judgment to defendants, addressed the need to balance an ESOP fiduciary s exemption from the duty to diversify plan investments against the general fiduciary responsibility provisions in ERISA Id. at The Sixth Circuit specifically held, a plan provision that completely prohibits diversification of ESOP assets necessarily violates the purposes of ERISA. Kuper, 66 F.3d at After agreeing with the district court s rejection of defendants argument that the plan provisions in Kuper left the fiduciaries with no discretion to Page 22 of 26

23 diversify, the Sixth Circuit went forward and reviewed the district court s finding that the fiduciaries conduct did not rise to the level of a breach. Id. at The Sixth Circuit addressed the competing concerns of ESOPs (to increase an employee s ownership in the company) with ERISA (imposing a high standard of fiduciary duty to plan participants) and adopted the Third Circuit s rationale from Moench v. Robertson, 62 F.3d 553, 572 (3d Cir. 1995): The Third Circuit found that the better balance between these concerns was achieved by measuring a fiduciary's decision to continue investing in employer securities for an abuse of discretion. Moench, 62 F.3d 553. Thus, it held that keeping in mind the purpose behind ERISA and the nature of ESOPs themselves,... 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. However, the plaintiff may overcome that presumption by establishing that the fiduciary abused its discretion.... Moench, 62 F.3d 553. The court further explained that in attempting to rebut the presumption, the plaintiff must show that the ERISA fiduciary could not have reasonably believed that the plan's drafters would have intended under the circumstances that he continue to comply with the ESOP's direction that he invest exclusively in employer securities. However, the court cautioned that in determining whether the plaintiff has overcome the presumption, the courts must recognize that if the fiduciary, in what it regards as an exercise of caution, does not maintain the investment in the employer's securities, it may face liability for that caution, particularly if the employer's securities thrive. Id. (citing Kuper, 852 F. Supp. at 1395). Kuper v. Iovenko, 66 F.3d 1447, 1459 (6th Cir. 1995). On this point the Court finds instructive the case of LaLonde v. Textron, 270 F. Supp. 2d 272 (D. R. I. 2003). There, in the context of a motion to dismiss the complaint, the same posture in which this case was at the time of the Court s first decision, the Rhode Island District Court adopted the rationale of Kuper. Id. at 280. Applying the standard set out by the Sixth and Third Circuits, it held that, in order to state a viable Page 23 of 26

24 claim, Plaintiffs must plead facts that, if proven at trial, would establish that Textron and the Plan abused their discretion in failing to diversify Textron stock during years 2000 and Id. Though the Second Circuit has not yet spoken on this issue of the conflicting goals between an ESOP and ERISA, the test set out by the Rhode Island district court comports with the evolving law in this area. Applying that test to the case at bar, the Court must review Claim I in the proposed second amended complaint, a claim that the defendants breached their fiduciary duties by permitting the Plan to invest in the [Corning Stock] Fund when the Fund was an imprudent investment. In particular, Claim I alleges that it was imprudent for the Plan to invest such massive amounts, and such a huge percentage of its assets, in the high flying, high risk, new economy telcom/internet sector of the stock market and in particular the Corning Stock Fund. Proposed Second Amended Complaint at 2 3. Plaintiff sets forth a number of what he alleges were publicly known facts in support of his claim that the Committee members breached their fiduciary duties by continuing to invest in and by maintaining investments in the Corning Stock Fund. See Proposed Second Amended Complaint at The list is detailed and specific, citing, in most instances, references to the publication of the information, the speaker, and includes information about Corning and the companies that bought products from Corning. In essence, the allegations are that Corning experienced extraordinary growth, its price to earnings ratio rose to record levels, it changed businesses from manufacturing cookware to manufacturing telecommunications equipment, the telecommunications market was volatile, sales were decreasing, and, as is common knowledge, the stock market suffered dramatic losses during 2000 and As in LaLonde, plaintiff fails to Page 24 of 26

25 allege any facts that would indicate that the Committee should have had reason to think the decline in the price of Corning stock was anything unusual or specifically related to [Corning s] viability as a company. Id. at 280. Thus, the Court finds that plaintiff has not alleged any set of facts that would entitle him to the relief sought. See Conley v. Gibson, 355 U.S. 41, 45 (1957). 5. In re Enron Corporation Securities, Derivative & ERISA Litigation In a Fifth Notice of Supplemental Authority, plaintiff submitted the decision in In re Enron Corporation Securities, Derivative & ERISA Litigation, 284 F. Supp. 2d 511 (S.D. Texas 2003). The printed copy of this decision is 122 pages, and plaintiff has not pointed to any specific part of the decision he alleges supports his position on this motion. The Court notes that the Enron ESOP plan mandated that the assets of the Plan will at all times be primarily invested [80% or more] in Enron stock. The Savings Plan at V.16(a) provided that the employer's contributions should be primarily in shares of its own stock. Id. at 549 n. 51. Thus, Enron is factually distinguishable from the case at bar. See also In re WorldCom, Inc. ERISA Litigation, 263 F. Supp. 2d 745 (S.D.N.Y. 2003), discussed above. CONCLUSION Accordingly, the Court finds no reason to reopen the previous judgment, or to grant plaintiff s motion to amend his complaint as proposed in the second amended complaint. Plaintiff s motion is denied. It Is So Ordered. Page 25 of 26

26 Dated: January 14, 2004 Rochester, New York ENTER: /s/ Charles J. Siragusa CHARLES J. SIRAGUSA United States District Judge Page 26 of 26