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Noa v. Keyser

October 30, 2007


The opinion of the court was delivered by: Irenas, Senior District Judge


Plaintiffs commenced this class action against Defendants on February 8, 2005.*fn1 Plaintiffs assert three claims:

(1) Defendants breached their fiduciary duties to Plaintiffs under section 404 of the Employee Retirement Income Security Act ("ERISA"), 29 U.S.C. § 1104, by forcing the sale of all Trump Hotels & Casino Resorts, Inc. ("THCR") common stock in Plaintiffs' 401(k) plans, causing them significant monetary loss;

(2) alternatively, in the event this Court holds that any Defendants are not fiduciaries, such Defendants are liable under section 502(a)(3) of ERISA, 29 U.S.C. § 1132(a)(3), as nonfiduciaries who knowingly participated in the other Defendants' breach of their fiduciary duties;*fn2 and (3) Defendant Trump Taj Mahal Associates ("Taj Mahal") is liable for breach of contract.*fn3 (2d Amended Comp., Counts I-III). Before the Court is Defendants' motion for summary judgment dismissing Plaintiffs' claims. (Docket No. 35). For the reasons set forth below, because Defendants did not breach their fiduciary duties to Plaintiffs, the motion for summary judgment will be granted.


Defendants THCR, Taj Mahal, Trump Marina Associates, Trump Plaza Associates, and Trump Indiana, Inc. (collectively, "Trump Companies") were participating employers of the Trump Capital Accumulation Plan (the "Plan" or "401(k) Plan"). (Dfs. R. 56.1 Stat. ¶ 1).*fn4 Taj Mahal was the Plan sponsor. (Moldovan Cert. I, Ex. 1 at 29-30). The Plan was administered by an Administrative Committee (the "Committee"), whose members comprised various high-level employees of Trump Companies.*fn5 (Dfs. R. 56.1 Stat. ¶¶ 2-3). Each of the individually named Defendants were members of the Committee, except for Judy Fisher, who provided assistance in her capacity as Executive Director of Human Resources Administration for Trump Entertainment Resorts. (Id. ¶¶ 2-3).

Plaintiffs were employees of Trump Companies who participated in the Plan. (Id. ¶ 4). As required by the class definition, Plaintiffs held varying amounts of THCR common stock ("Employer Stock") in the Plan as of October 28, 2004. (Id.).

The Plan was a "defined contribution plan," pursuant to section 401(k) of the Internal Revenue Code and ERISA,*fn6 created for the benefit of the Trump Companies' employees. (Id. ¶ 5). Employee participants in the 401(k) Plan maintained personal control over the assets in their accounts, choosing whether to invest in Employer Stock and a number of other funds.*fn7 (Moldovan Cert. I, Ex. 1 at 4-10, App. A). The Committee had the "responsibility and authority to control the operation and administration of the Plan," and was given "all powers necessary to enable it to carry out its duties in that respect." (Id., Ex. 10 §§ 13.3, 15.4(c)). In particular, the Committee was charged with "monitor[ing] the suitability of acquiring and holding Employer Stock under the fiduciary duty rules . . . of ERISA." (Id. § 14.4(b)).

This case arises from a series of events that occurred in the latter part of 2004, and that ultimately resulted in the Committee's decision to force the sale of all Employer Stock held in Plaintiffs' 401(k) Plans. In early August, 2004, THCR contemplated a planned, prepackaged bankruptcy due to financial difficulties. (Moldovan Cert. I, Ex. 2 at 31:2-21). On August 9, 2004, THCR publicly disclosed a proposed Chapter 11 bankruptcy involving DLJ Merchant Banking Partners III, L.P. ("DLJ"),*fn8 the goal of which was "to restructure the Company's public indebtedness and to recapitalize the Company."*fn9 (Id., Ex. 12 at 1).

During a meeting held the same day, the Committee discussed the impending bankruptcy and whether to retain Employer Stock as an investment option for Plan participants. (Id., Ex. 7 at 37:20-38:6). Paul Chan, Esq., who was retained by the Committee to provide guidance as to their fiduciary obligations, was also present at the meeting. (Id., Ex. 13 at 29:1-30:21). A significant topic of discussion was that the New York Stock Exchange ("NYSE") was going to immediately de-list THCR stock because of the prepackaged bankruptcy.*fn10 (Id.; see also Ex. 14).

After Mr. Chan advised the Committee of their fiduciary duties, and after considering the impending bankruptcy and NYSE de-listing, the Committee adopted a Plan resolution, which stated: "Effective August 9, 2004, Employer Stock shall no longer be an investment option available to Participants." (Id., Ex. 13 at 36:11-24; Ex. 14; Ex. 15). The Committee made no decision about Employer Stock already held in participants' 401(k) Plans as of August 9. On August 10 Ms. Fisher advised the Plan's trustee, Merrill Lynch,*fn11 and all Trump Companies' employees of the Committee's decision. (Id., Ex. 17). Ms. Fisher sent a second mailing on August 14, again informing employees that Employer Stock would no longer be a Plan investment option, but also stating that employees were permitted to attempt to sell any shares they already owned. (Id., Ex. 20).

On September 22, 2004, THCR issued a news release indicating that the prepackaged bankruptcy with DLJ was terminated and that THCR was pursuing alternatives to restructure and recapitalize the company. (Id., Ex. 21). Approximately one month later, on October 21, another news release announced that a comprehensive restructuring plan was approved.*fn12 (Id., Ex. 22). Under this reorganization, it was expected that "unaffiliated stockholders [who included 401(k) Plan participants] would retain their interests in their current common stock (which would be diluted to 0.05% of the total equity interests of the recapitalized Company . . .). The existing unaffiliated stockholders would also receive one-year warrants upon consummation of the [Restructuring] Plan to purchase common stock at the same per share purchase price as Mr. Trump's investment." (Id. at 4).

Following this announcement, the Committee met again on October 25, to discuss the 401(k) Plan. (Dfs. R. 56.1 Stat. ¶ 26). All of the individually named Defendants, as well as outside counsel, Mr. Chan, were present at the meeting. (Id.) The meeting concluded with a decision by the Committee to "advise [401(k) Plan] participants that if they have not yet sold their [Employer Stock], effective November 15th 2004, the stock will be sold by Merrill Lynch." (Moldovan Cert. I, Ex. 23). Ms. Fisher sent an e-mail on October 28, attached to which was a letter informing Trump Companies' employees of the Committee's decision. (Id., Ex. 24). The letter to the employees stated that the forced sale would take place over a three-day period, November 15 through November 17, but that employees would "continue to be able to sell shares [they] currently own[ed] at any time prior to November 15." (Id.)

Based on the record, no single reason was dispositive of the Committee's decision. (See Pls. R. 56.1 Stat. ¶ 32). Committee members testified at their depositions that reasons for the forced sale included: warrants potentially being issued at some time in the future*fn13 (Pls. Ex. 111 at 65:22-66:9); THCR's anticipated default on a $90 million bond payment due on November 28, which might negatively impact the Employer Stock (Moldovan Cert. I, Ex. 3 at 34:16-36:11; Ex. 9 at 91:6-19); Mr. Chan's advice that a sale was legally required*fn14 (Pls. Ex. 104 at 40:11- 23; Ex. 106 at 58:3-59:5; Ex. 108 at 123:9-125:2); the collapse of the prepackaged bankruptcy with DLJ (Pls. Ex. 107 at 69:8-70:12); and general concern for the future value of the stock (Pls. Ex. 109 ...

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