An Employee Retirement Income Security Act (ERISA) lawsuit questioning the transfer of a pension plan during corporate restructuring of companies E. I. du Pont de Nemours and Co. (Historical DuPont) and the Dow Chemical Co. (Historical Dow) has been dismissed.
As background, on December 11, 2015, Historical DuPont and Historical Dow announced a plan to merge and restructure their businesses. Under the terms of the restructuring, the two entities were to merge temporarily under a single entity, DowDuPont Inc., and then separate out their product lines into three independent companies. This resulted in three agriculture, materials science and specialty products companies: Corteva Inc., Dow Inc. and DuPont de Nemours Inc., respectively. Historical DuPont emerged from the spin-offs as a subsidiary of Corteva.
The plaintiffs in the case are participants in the U.S. DuPont Pension and Retirement Plan, which provides benefits to retirees of Historical DuPont.
In their first amended complaint (FAC), the plaintiffs allege that the defendants eviscerated Historical DuPont’s business operations and made it a subsidiary of Corteva, an undercapitalized and overburdened spin-off, so as to relieve DuPont and Dow of any obligations with respect to the plan. They further allege that the defendants engaged in these corporate transactions without proper disclosures to plan participants.
In the original lawsuit, the plaintiffs suggested that plan fiduciaries “are kicking the plan down the road along with the retirees that built the historical company.”
“The new companies, by leaving Historical DuPont as the plan sponsor and moving that company, after having eviscerated the plan sponsor’s business operations, to Corteva, have removed themselves from the controlled group of the plan,” the complaint stated. “In summary, were Corteva to fail and file for bankruptcy, the plan can be terminated through a distress proceeding without affecting the other companies. If the other companies had not removed the plan from their controlled group, the plan could not be terminated through a bankruptcy filing unless all members of the controlled group also filed for bankruptcy.”
In addition, the lawsuit argued, “The plan documents do not contemplate, nor do they authorize, the evisceration of the business activities of Historical DuPont and the shift of the plan sponsor, along with the plan assets and liabilities, to a newly created company and controlled group. By removing Historical DuPont’s business activities, leaving it a shell corporation, Historical DuPont is no longer able to make the contributions that the plan documents require be made by the plan sponsor, Historical Dupont. Both actions are violations of the plan documents.”
In her order dismissing the case, U.S. District Judge Yvonne Gonzalez Rogers of the U.S. District Court for the Northern District of California noted that the 9th U.S. Circuit Court of Appeals has held that the “decision to spin a [pension] plan off … is not a fiduciary act.” Rogers said that insofar as plaintiffs’ claim arises out of defendants’ decisions regarding corporate restructuring, the claim fails. The plaintiffs said they do not take issue with the merger and spin-offs per se, but bring this action challenging changes made to Historical DuPont’s operations and controlled group as part of the restructuring. Again, Rogers said such changes do not implicate fiduciary duties.
She added that the plaintiffs’ allegations are conclusory and speculative regarding whether Historical DuPont or Corteva—the post-spin-off entities responsible for fulfilling plan obligations—will be able to do so.
In their fifth count in the complaint, the plaintiffs alleged that by “choosing to only contribute the minimum amount required … the [d]efendants have created a plan that is so underfunded that it is at an increased risk of failure.” Rogers said this claim ultimately fails because the plaintiffs themselves concede that the DuPont defendants satisfied ERISA’s minimum funding requirements. “Plaintiffs cite no on-point authority for their contention that fiduciary obligations impose a higher funding requirement than that imposed by ERISA. Plaintiffs also do not explain what level of funding would be enough to satisfy defendants’ fiduciary duties. Without a legal basis to find a breach of fiduciary duty where statutory requirements have been met, plaintiffs’ claim fails,” Rogers wrote in her order.
Regarding the claim for failure to follow plan documents, Rogers reiterated that corporate restructuring decisions are not fiduciary in nature. Thus, the defendants’ decision to change Historical DuPont’s controlled group does not trigger the fiduciary’s obligation to follow plan documents. In addition, she found that the plaintiffs did not identify any portions of the plan that were violated by defendants’ implementation of the spin-offs or management of the plan.
Rogers noted that ERISA prohibits fiduciaries from causing a pension plan to engage in transactions if the fiduciary “knows or should know that such transaction constitutes a direct or indirect … transfer to, or use by or for the benefit of a party in interest, of any assets of the plan.” In the sixth count in the complaint, the plaintiffs alleged that the transfer of Historical DuPont, which included the plan and its assets, to a new controlled group within Corteva is a prohibited transaction under ERISA.
Rogers found that the plaintiffs’ claim as currently pleaded suffers from similar deficiencies as its other claims. That is, to the extent their claim is based on the corporate restructuring, they have not pleaded any fiduciary acts. She also found the FAC does not plead facts showing that the plan or its assets were involved in any prohibited transaction with a party-in-interest. She cited a prior court decision upholding dismissal of a prohibited transaction claim that “did not involve the investment or management of plan assets,” but rather, “there was a change in sponsors of the plans while the plans’ assets remained unaffected.” In fact, Rogers noted, in several places, the FAC suggests the challenged transactions involve Historical DuPont’s corporate assets, instead of plan assets. Accordingly, she dismissed the plaintiffs’ prohibited transaction claim.
Rogers determined, however, that amendment of the claims would not be futile, so she granted the plaintiffs leave to amend as to all claims, with a second amended complaint to be filed within 28 days of issuance of her order.