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Ward v. Avaya

April 12, 2007

BYRON WARD, PLAINTIFF,
v.
AVAYA, INC., ET AL, DEFENDANTS.



The opinion of the court was delivered by: Pisano, District Judge.

FOR PUBLICATION

OPINION

Plaintiff brings this purported class action against Ayaya, Inc. ("Avaya") and the Pension and Employee Benefits Investment Committee (the "Committee," collectively with Avaya, "Defendants") alleging that Defendants breached various duties under the Employee Retirement Income Security Act of 1974 ("ERISA") in connection with three Avaya retirement plans. Defendants have moved to dismiss the complaint pursuant to Federal Rule of Civil Procedure 12(b)(1) and 12(b)(6). For the reasons expressed below, Defendants motion is granted in part and denied in part.

I. Factual Background*fn1

Defendant Avaya, which is in the business of communications and technology, was established on September 30, 2000, through a spin-off from Lucent Technologies, Inc. ("Lucent"). Avaya established and maintained three "employee pension benefits plans" as defined in 29 U.S.C. § 1002(2)(A): the Avaya Inc. Savings Plan for Salaried Employees (the "Salaried Plan"), the Avaya Inc. Savings Plan (the "Savings Plan"), and the Avaya Inc. Savings Plan for the Variable Workforce (the "Variable Plan") (collectively referred to herein as "Plans"). Avaya was the plan administrator for each of the Plans, and the Committee, among other things, had authority to provide for the investment of the Plans' assets, as well as the authority to select and monitor investment options under the Plans.

Plaintiff was an employee of Lucent until Avaya was spun off from Lucent, at which time Plaintiff then became an employee of Avaya. From the time of the spin-off, Plaintiff has been a "participant and/or beneficiary" in the Salaried Plan and has held assets in his account that included Avaya and Lucent securities. Compl. ¶ 11. Plaintiff purports to bring this action on behalf of persons who were "participants and beneficiaries in the Plans at anytime between September 29, 2000 and April 23, 2003, whose accounts in the Plans included investments in Avaya securities," as well as persons who were "participants and beneficiaries in the Plans at anytime between September 29, 2000 and October 30, 2003, whose accounts in the Plans included investments in Lucent securities." Id. ¶¶ 29-30.

Employees participating in the Plans had the option to contribute a percentage of their pay into the Plans, subject to certain limitations. Avaya also provided matching contributions under the Plans.*fn2 All funds from all three Plans were held in a master trust. Participants could direct the trustee to invest their contributions and Avaya's matching funds*fn3 into a variety of investment options available under the Plans. The Plan documents required "a broad range of investment alternatives" be available to participants. Compl. ¶ 21. One available fund was the Lucent Stock Fund, which was a fund that invested primarily in Lucent stock. Another was the Avaya Stock Fund, which invested primarily in shares of Avaya common stock. In fact, as set forth in the relevant governing documents, it was an express requirement for each of the Plans that the investment options include the Avaya Stock fund. Certification of Kerri Chewning ("Chewning Cert.") at Ex. 2 at § 5.3, Ex. 3 at § 5.3, Ex. 4 at § 5.3.*fn4

In the present case, Plaintiff alleges that the financial conditions of both Lucent and Avaya made their stock unsuitable as retirement plan investments for the Avaya Plans. Several months prior to the spin-off of Avaya, on January 6, 2000, Lucent issued a press release stating that its financial results for the first quarter of 2000 would fall short of analysts' expectations. On that day, the price of Lucent's shares dropped substantially, from $72.32 to $51.96 per share. Lucent's stock continued a downward trend that year, and it was trading at $30.50 per share on September 29, 2000, the last day before the Lucent spin-off. Further, during this same period of time, sales attributable to Avaya's businesses within Lucent had declined 3.5% from the year before. By the time of the spin-off, Avaya projected that its revenue would grow only "incrementally" over the following three years. Compl. at ¶ 72.

On October 10, 2000, Lucent announced that excepted financial results for the fourth quarter would be less than previously announced, and the price of Lucent shares suffered a twoday drop in price from $31.21 to $21.25 per share. With further news of revenue reductions, by December 31, 2000, the price for a share of Lucent stock had fallen to $13.50. Lucent's revenues and earnings continued to decline in 2001, and by year end a share of Lucent stock was trading at $6.30. With the announcement of continued losses in 2002, Lucent's stock dropped to $0.76 per share by October 2002. It was not until one year later, in October 2003, that Lucent recorded its first quarterly profit since March 2000.

After being spun off, Avaya suffered financial difficulties as well. In the final quarter of 2000, Avaya's net income was down substantially from the prior year, and Avaya recorded an annual net loss of $352 million for the fiscal year ending September 30, 2001. By the end of its second fiscal year, Avaya's net losses reached $666 million. Not surprisingly, Avaya stock suffered declines in share price during this time. On October 2, 2000, the stock's first day of trading on the New York Stock Exchange, the stock opened at $22.88 per share. Three days later the price of the stock had fallen to $14.38 per share. By December 31, 2000, the price was $10.31 per share. Despite substantial fluctuations in share price during 2001, by August 2, 2002, Avaya's stock closed at $1.15 per share. Things finally began to turn around for Avaya several months later in April of 2003, when the company's ongoing restructuring efforts resulted in a second quarter financial performance that was above analysts' expectations.

Plaintiff alleges that on September 29, 2000, the day before the Avaya spin-off, Defendants caused the Salaried Plan and the Savings Plan to invest hundreds of millions of dollars in the both the Lucent Stock Fund and the Avaya Stock Fund. Defendants permitted the Salaried Plan and the Saving Plan to be invested in the Lucent Stock Fund until October 30, 2003, at which time Defendants required the assets invested in the Lucent Stock Fund to be invested in other investment options. The Salaried and the Savings Plan continued to invest assets in the Avaya Stock Fund, and on March 1, 2001, the Defendants permitted the Variable Plan participants to invest in the Avaya Stock Fund.

Plaintiff alleges that Defendants breached their fiduciary duties and engaged in prohibited transactions as follows:

Count I: Plaintiff alleges in Count I that Defendants "failed to conduct an adequate and independent investigation of the fair market value of Avaya securities before or after September 29, 2000," thereby causing the Salaried and Savings Plans "to acquire Avaya securities at inflated prices that exceeded their market value." Compl. ¶ 134. As a result, the "Salaried and Savings Plans' acquisition of Avaya stock are per se prohibited transactions, in violation of ERISA § 408(a)(1), 29 U.S.C. § 1108(a)(1), that are not exempt under the provisions of ERISA § 408(e)(1), 29 U.S.C. § 1108(e)(1)." Id.

Count II: Plaintiff alleges in Count II that Defendants breached their fiduciary duties by failing to "conduct an adequate investigation of Avaya securities or the Avaya Stock fund" before including the investments as an option under the Plans and "failing to adequately monitor the Plans' investment options," thereby permitting the Plans' assets, including employee contributions and company matching contributions, to remain invested in Avaya securities when it was imprudent to do so. Compl. ¶ 155.

Count III: Plaintiff's allegations in Count III are similar to those in Count II, except Count III relates to Lucent stock. Plaintiff claims that Defendants breach their fiduciary duties by failing to "conduct an adequate investigation of the Lucent Stock Fund . . . before including the Lucent Stock Fund as an investment option under the Plans," and by failing to "take any actions to prevent the Plans from investing in the Lucent Stock Fund." Compl. ¶ 162. Further, once Lucent securities were included as an investment option in the Plans, Plaintiff alleges that Defendants failed to conduct an "adequate investigation" that would have "concluded that the Plans' continued investments in the Lucent Stock Fund was imprudent." Compl. ¶ 169.

Count IV: In Count IV, Plaintiff alleges that Defendants "failed to adequately monitor the activities of other fiduciaries and failed to replace them with fiduciaries willing and able to make prudent investment decisions." Compl. ¶ 180. Plaintiff also alleges that Defendants are liable as co-fiduciaries under 29 U.S.C. § 1105 for breaches by other fiduciaries.

Plaintiff seeks (1) damages in the form of reimbursement to the Plans of "all losses resulting from" Defendants' breaches and restoration to the Plans of "any profits made through [Defendants'] use of the assets of the Plans; (2) certain declaratory, injunctive and other equitable relief; (3) attorneys' fees, costs and expenses of this litigation. Compl. at 43-44.

II. Discussion

A. Standard on a Motion to Dismiss

Federal Rule of Civil Procedure 12(b)(6) permits a court to dismiss a complaint that fails "to state a claim upon which relief can be granted." In deciding a Rule 12(b)(6) motion to dismiss, the Court must reasonably read the complaint and decide whether the plaintiff has pled a cognizable cause of action entitling him to relief. Nami v. Fauver, 82 F.3d 63, 65 (3d Cir. 1996). In making this determination, a court accepts as true all of the well-pleaded factual allegations within the complaint and any reasonable inferences drawn therefrom. Hayes v. Gross, 982 F.2d 104, 105-06 (3d Cir. 1992). The court may also consider exhibits attached to the complaint, matters of public record, and documents that form a basis of plaintiff's claim. Lum v. Bank of Am., 36 ...


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