MCCABE v. CAPITAL MERCURY APPAREL

nsition[ing] out of the apparel business and into an operational state more similar to a holding company, owning few particular assets including joint venture assets and real estate assets." Capital Mercury's financial statements indicated that "the Company's account[s] receivable balance decreased $8.8 million from $11.3 million as of June 30, 2008 to $2.6 million as of June 30, 2009 . . . [and] the Company's inventory balance decreased $12.5 million from $17.0 million as of June 30, 2008 to $4.5 million as of June 30, 2009." The Company anticipated "ceas[ing] operations and fil[ing] for bankruptcy upon expiration of the royalty payments from Paris." Consequently, following the sale, the Board was primarily concerned with liquidating or transferring the Company's remaining assets, as well as helping its employees find new jobs. The only currently remaining employees of the Company are its three Board members —

Feller Dep. at 47:05-47:14.

2009 Valuation Report at 18.

Id. at 19.

Id. at 39.

See, e.g., May 27, 2010 Deposition of Sam DiPrima, Ex. 7 to Def. 56.1 at 14:13-33:19.

Higdon, Brainin, and DiPrima.

See Def. 56.1 ¶ 97.

E. Termination of Class Members' Interests in ESOP

In connection with the APA, the majority of Company employees were terminated and therefore deemed inactive for ESOP purposes. Higdon, as the sole Committee member, "made the decision to distribute the shares to the Inactive Employees" around mid-March 2009. Because "the ESOP plan requires that the last valuation be used in repurchasing shares, and June 30, 2008 had been the last valuation," the Committee set the distribution rate as $0.015 per share, the Fair Market Value on June 30, 2008. Moreover, based on his "knowledge of the company [and . . .] the economic climate [and . . .] of having worked with Houlihan Lokey for over a decade [and . . .] the general sense of having been a CFO in the company for over two decades," it was Higdon's position that the year-old valuation remained an accurate representation of the Company's financial condition at the time of the distribution, so that another valuation was not required.

See Pl. 56.1 ¶¶ 22-23.

PI. 56.1 ¶ 31. Accord Def. 56.1 ¶ 98. The reasons for the distribution to the Class are in dispute, and are not considered for purposes of deciding this motion. Plaintiff argues that "the decision to make these distributions was motivated by the intent to reduce the number of Company shares outstanding . . . and therefore provide defendant Higdon with a larger percentage of future earnings, profits and distributions resulting from the sale of these assets" to Paris. Plaintiff's Reply to Defendants' Statement of Undisputed Facts Pursuant to Local Rule 56.1 ¶ 99. Defendants allege that the distributions were made in an attempt to minimize future administrative costs of the Plan since "the management of an ESOP Plan with so any inactive employees, [and] small amounts, was onerous going forward." Def. 56.1 ¶ 99.

Pl. 56.1 ¶¶ 24-28.

Higdon Dep. at 102:02-104:09 ("[B]ased on my knowledge of where I was at that moment in time and what my belief was of how Houlihan would value the company, I believed the values were similar and did not require another valuation."). Because he felt that "[n]o one [else] would be as qualified" to determine whether the Houlihan Lokey valuation as of June 30, 2008 fairly valued Capital Mercury as of June 30, 2009, Higdon did not confer with Houlihan Lokey "in connection with [his] decision to use the June 2008 Valuation to value the Inactive Employees' shares of Company common stock in June 2009." Id. at 87:02-06, 105:03-13.

In early June 2009, inactive employees with ESOP account balances of less than one thousand dollars were notified by mail that their shares of Company Stock would be distributed and then immediately resold back to the Company for $0.015 per share, as determined by the Fair Market Value on June 30, 2008. The Company completed the purchase of inactive employees' shares by enclosing a check with the value of their vested benefit. Specifically, Plaintiff received his distribution by letter dated June 1, 2009, in the amount of $560.58, as based on his 36431.7261 shares of Company Stock.

See Pl. 56.1 ¶¶ 24-28. Although the distribution decision was made in March, the "time [required] to prepare the paperwork for so many participants" delayed its implementation until June. Higdon Dep. at 79:09-79:11.

See, e.g., June 1, 2009 Capital Mercury Letter and Enclosed Check to Paul F. McCabe ("McCabe Distribution"), Ex. 12 to Def. 56.1.

See id.

F. The 2009 Valuation and Plaintiff's Claim

On August 6, 2009, Houlihan Lokey was retained to perform the June 2009 valuation for Capital Mercury. In conducting its assessment of the Company's Fair Market Value, Houlihan Lokey "considered the assets and liabilities of the Company in light of the sale of its apparel operations" and anticipated future operating cash flow, as based on representations of management. Given its continuing "operational difficulties," the ABVA was once again determined to be "the most appropriate valuation approach for the Company."

See Pl. 56.1 ¶¶ 56-57.

Pl. 56.1 ¶ 61. Accord id. ¶ 62. Houlihan Lokey accepted Capital Mercury's representations regarding its operations and financial condition without independent verification. See id. ¶ 63.

June 2009 Valuation Report at 42.

The ABVA indicated that the Company's equity value was negative $1.438 per share and therefore speculative. Upon receipt of the draft report from Houlihan Lokey, Higdon objected to the valuation, believing that it was "not appropriate for Capital Mercury since [it] was still in business." Houlihan Lokey agreed that the Company retained some option value while it was still operating, and reconsidered the valuation.

See id. (emphasis added).

Higdon Dep. at 150:23-151:02.

See Strassman Dep.at 115:18-117:17. See also 2009 Valuation Report at 42 ("Although the adjusted book value approach results in negative equity value, the Company's equity may still have option value based on the remaining assets held and the future operating cash flows from the Company's limited operations.").

The discrepancy between the zero value generated by the ABVA and the positive value Houlihan Lokey surmised a hypothetical buyer might pay for Capital Mercury assets was attributed to the exclusion of certain variables from ABVA calculations. Namely, the present cash flow associated with the "earn out, the royalty stream, the rental income . . . and the expense structure" necessary to operate the business was not "picked up in the adjusted book value estimate." Houlihan Lokey thus employed an additional methodology — the Black-Scholes option analysis — to more accurately value the equity of the Company. Relying on these two complementary evaluation measures, Houlihan Lokey's final valuation report, issued in or around December 2009, indicated the Fair Market Value of Company Stock to be within a range of zero to $0.259 per share. Houlihan Lokey would "not give a valuation between the two [figures] and [expressed] comfort[] with giving two values," thereby leaving it up to the Committee to "determine the fair market value of Capital Mercury using the Houlihan report as a basis." In early 2010, ESOP participants were informed that the Company Stock was valued at $0.13 per share, the midpoint between the two potential values, as of June 30, 2009.

See Strassman Dep. at 108:17-109:05; 140:07-19.

Id.

See id. at 115:18-117:17.

See June 2009 Valuation Report at 43.

Higdon Dep. at 185:05-10.

See Pl. 56.1 ¶ 59.

Plaintiff argues that an independent appraisal of the Fair Market Value of the Company should have been performed when the Class's ESOP interests were terminated. Plaintiff asserts that the Houlihan Lokey valuation as of June 30, 2008 undervalued the Company as of June 2009, and that he and others similarly situated were thus deprived of a fair return for their stock shares. Consequently, plaintiff argues that Higdon, the Committee, and Capital Mercury violated their fiduciary responsibilities under ERISA.

III. APPLICABLE LAW

A. Summary Judgment

Courts routinely grant summary judgment in breach of fiduciary duty cases brought pursuant to ERISA. Summary judgment is appropriate "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 movant is entitled to judgment as a matter of law." "`An issue of fact is genuine if the evidence is such that a reasonable jury could return a verdict for the nonmoving party. A fact is material if it might affect the outcome of the suit under the governing law.'" "[T]he burden of demonstrating that no material fact exists lies with the moving party. . . ." In determining whether a genuine issue of material fact exists, the court must "constru[e] the evidence in the light most favorable to the non-moving party and draw all reasonable inferences" in that party's favor. "The standard to be applied when deciding cross-motions for summary judgment is the same as that for individual motions for summary judgment and the court must consider each motion independent of the other."

See, e.g., Warren Pearl Constr. Corp. v. Guardian Life Ins. Co. of Am., 639 F. Supp. 2d 371, 383 (S.D.N.Y. 2007) (granting defendant's summary judgment motion on plaintiffs ERISA breach of fiduciary duty claim); Lisa v. Smith, 991 F. Supp. 2d 289, 298 (S.D.N.Y. 2004) (same, for plaintiff).

Fed.R.Civ.P. 56(c).

SCR Joint Venture L.P. v. Warshawsky, 559 F.3d 133, 137 (2d Cir. 2009) (quoting Roe v. City of Waterbury, 542 F.3d 31, 34 (2d Cir. 2008)).

Miner v. Clinton County, N. Y., 541 F.3d 464, 471 (2d Cir. 2008).

Sledge v. Kooi, 564 F.3d 105, 108 (2d Cir. 2009).

Schultz v. Stoner, 308 F. Supp. 2d 289, 298 (S.D.N.Y. 2004).

B. Fiduciary Duty under ERISA

ESOPs are subject to ERISA, which "is a comprehensive statute designed to promote the interests of employees and their beneficiaries in employee benefit plans." Consequently, decisions pertaining to the governance of such plans must "be made with an eye single to the interests of the participants and beneficiaries." Plan administrators and trustees "have fiduciary obligations that have been described as `the highest known to the law.'" "[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 . . . management or disposition of its assets . . . or [(ii)] he has any discretionary authority or responsibility in the administration of such plan."

Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 90 (1983).

Donovan v. Bierwirth, 680 F.2d 263, 271 (2d Cir. 1982) (describing the "complete loyalty" fiduciaries owe to ERISA plan participants).

Flanigan v. General Elec. Co., 242 F.3d 78, 86 (2d Cir. 2001) (quoting Donovan, 680 F.2d at 272 n. 8).

29 U.S.C.A. § 1002(21)(A).

Section 404(a) of ERISA sets out the basic obligations of fiduciaries acting in connection with an ERISA benefits plan. First, ERISA "charges fiduciaries with a duty of loyalty to guarantee beneficiaries' interests." Thus, an ERISA fiduciary must act "solely in the interest of the participants and beneficiaries [of the plan] and for the exclusive purpose of providing benefits [to them] and defraying reasonable expenses of administering the plan." Because ERISA's primary goal of "protecting employees' expectations of . . . benefits" can only be met if the interests of Plan administrators are subordinated to those of Participants, the duty of loyalty is perhaps ERISA's "most fundamental" fiduciary obligation. Second, ERISA imposes a duty of care upon fiduciaries, whereby fiduciaries must exercise "the care, skill, 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. . . ., " In this regard, "the standard by which [a fiduciary's] conduct must be judged is essentially one of reasonableness." Courts must evaluate whether, "at the time [he or she] engaged in the challenged transactions," that fiduciary discharged his or her duties in an "objectively reasonable manner according to the standards of others similarly situated." Finally, ERISA requires that fiduciaries act in accordance with plan documents and instruments insofar as those documents and instruments are consistent with the relevant provisions of the statute. "Thus, while failure to follow plan documents may constitute a breach of fiduciary duty, compliance with the terms of the plan does not, by itself, satisfy ERISA imperatives."

Pegram v. Herdrich, 530 U.S. 211, 224 (2000) (tracing ERISA's fundamental fiduciary duty of loyalty to its roots in the common-law context of trusts).

29 U.S.C. § 1104(a)(1)(A)(i)(ii).

Bell v. Pfizer, No. 07 Civ. 5390, 2010 WL 3385949, at *12 (2d Cir. Aug. 30, 2010) (citation and quotation omitted).

Pegram, 530 U.S. at 224 (citation and quotation omitted).

In legal parlance, the duty of care is alternatively referred to as the duty of prudence. See, e.g., F. W. Webb Co. v. State Street Bank and Trust Co., No. 09 Civ. 1241, 2010 WL 3219284, at * 11 (S.D.N.Y. Aug. 12, 2010) (observing that courts have interpreted the statutory requirements imposed on ERISA fiduciaries as creating "both a duty of loyalty and a duty of prudence"). I use the terms interchangeably here.

29 U.S.C. §§ 1104(a)(1)(B)-(C).

Pineiro v. Pension Benefit Guar. Corp., 318 F. Supp. 2d 67, 91 (S.D.N.Y. 2003).

Katsaros v. Cody, 744 F.2d 270, 279 (2d Cir. 1984) (quotations and citations omitted).

See 29 U.S.C. § 1104(a)(D).

In re Polaroid ERISA Litig., 362 F. Supp. 2d 461, 474 (S.D.N.Y. 2005) (citations omitted).

To establish a breach of fiduciary duty under ERISA, a plaintiff must demonstrate "some causal link between the alleged breach of [the fiduciary's] duties and the loss plaintiff seeks to recover." If a fiduciary is found to have breached the obligations imposed by ERISA, he or she is liable to restore any losses to the plan that resulted from each breach, and may also be subject to any equitable or remedial relief that the court deems appropriate.

Silverman v. Mutual Benefit Life Ins., 138 F.3d 98, 104 (2d Cir. 1998).

See 29 U.S.C. § 1109(a). Section 502 of ERISA sets forth a civil enforcement scheme, allowing plan participants to bring actions arising from an employer's fiduciary breach. See id. § 1132. See also Varity Corp. v. Howe, 516 U.S. 489, 507-15 (1996) (elaborating on Section 502).

IV. DISCUSSION

Each party contends, on the basis of divergent views of facts material to the dispute, that the case is ripe for summary judgment in its favor. Plaintiff argues that defendants breached their fiduciary duty under ERISA, on the grounds that "a prudent ERISA fiduciary would not have terminated Class members' interest in the ESOP in June 2009 without first determining the fair market value of the company as of the termination date." Defendants respond that they complied with their ERISA obligations because they acted "in accordance with the documents and instruments governing the plan" and for the permissible purpose of reducing administrative costs associated with the Plan.

Plaintiff's Memorandum of Law in Support of His Cross-Motion for Summary Judgment and in Opposition to Defendants' Motion for Summary Judgment ("Pl. Mem.") at 5.

Defendants' Memorandum of Law in Support of Their Motion for Summary Judgment ("Def. Mem.") at 7 (citation and quotation omitted).

I evaluate, in turn, defendants' compliance with the distinct fiduciary duties imposed by ERISA: (1) the duty to follow Plan provisions; (2) the duty of prudence; and (3) the duty of loyalty.

See Ello v. Singh, 531 F. Supp. 2d 552, 563 (S.D.N.Y. 2007) (listing exclusive purpose, prudence, and acting in accordance with the plan as the affirmative duties set forth by Section 404 of ERISA).

A. Duty to Follow Plan Provisions

1. Plan Provisions Pertaining to Distributions

""As part of the `prudent [person]' standard of care imposed by the statute, plan fiduciaries are required to perform their duties `in accordance with the documents and instruments governing the plan.'" The timing and manner of Capital Mercury ESOP distributions are governed by Sections 11 and 12 of the Plan, respectively. Under Section 11, Participants with vested accounts worth less than one thousand dollars will "normally [receive their capital accumulations] following the termination of service." In contrast, Participants with vested accounts worth more than one thousand dollars must first consent to the distribution, unless they are over age sixty-five. Because plaintiff and the putative Class Members fell into the former category, defendants' unilateral decision to distribute their interests in June 2008 was consistent with the terms of the Plan.

Schultz, 308 F. Supp. 2d at 303 (quoting 29 U.S.C. § 1104(a)(2)).

Section 11 is entitled, "When Capital Accumulation Will Be Distributed." ESOP at 20. Section 12 is entitled, "How Capital Accumulation Will Be Distributed." Id. at 23.

Id. at 20.

See id.

Section 12 explains how capital accumulations will be distributed. Specifically, "[a]ny distribution in cash shall be based upon the Fair Market Value of Company Stock as of the Allocation Date immediately preceding the date of distribution." In laymen's terms, the SDP instructs employees that, "[i]n determining the value of your vested interest in your Accounts, the shares of Company Stock held therein are valued at the fair market value as of the June 30 coinciding with or immediately preceding the date of distribution." The decision to distribute ESOP shares to inactive employees with less than one thousand dollars in their accounts was made in or around mid-March, and implemented in early June 2009 ( i.e., before June 30) after all the paperwork had been completed. Thus, the Plan not only condoned, but explicitly required, defendants' use of the June 30, 2008 valuation to establish the Fair Market Value of Company Stock at the time of the distribution.

See id. at 23.

Id. (emphasis added).

ESOP SPD at 5 (emphasis added).

2. Plaintiffs Interpretation of the Plan

Perhaps recognizing that "courts have narrowly circumscribed when a plaintiff may sue a fiduciary for adhering to the terms of the governing plan," plaintiff concedes that defendants adhered to Sections 11 and 12 of the Plan but argues that their reliance on these sections was misplaced. Plaintiff contends that Sections 11 and 12 only govern distributions in "ordinary circumstances," and that defendants were required to conduct a new valuation prior to cashing out the Class's interest in the ESOP under the two properly controlling Plan provisions for "extraordinary events."

In re Polaroid ERISA Litig., 362 F. Supp. at 474.

Pl. Mem. at 23. Plaintiff's summary judgment brief conclusively asserts, without explanation, that "defendants did not act in accordance with the Plan Document" because "a prudent person would not have applied [Sections 11 and 12] of the Plan under the circumstances then prevailing." Id. at 20, 21. In order to distill plaintiff's argument, I referred to his pre-motion submissions for guidance. See June 17, 2010 Plaintiff's Letter to the Court Seeking Leave to File for Summary Judgment ("6/17/10 Pl. Letter"); June 25, 2010 Plaintiff's Letter to the Court Replying to Defendants' Intended Summary Judgment Motion ("6/25/10 Pl. Rep. Letter").

As a general matter, plaintiff's variant application of Sections 11 and 12 is unsubstantiated by either fact or logic. It is well-settled that "[u]nambiguous language in an ERISA plan is to be interpreted and enforced in accordance with its plain meaning." The distinction between ordinary and extraordinary circumstances does not appear anywhere in the Plan or the SPD, and plaintiff does not cite any authority whatsoever to support his claim that Sections 11 and 12 may be bypassed under extraordinary circumstances. Nor does plaintiff explain how he determined that "ordinary circumstances [are those] where a Plan Participant seeks to sell his ESOP shares to the Company," while "extraordinary circumstances [are those] where the Committee decides to cash out most Plan participants." This omission is particularly glaring in light of the clear option for unilateral distributions set forth in Section 11, through which the Company may cash out Participants at its initiative and without their consent as a matter of "normal[]" course.

Perreca v. Gluck, 295 F. 3d 215, 223 (2d Cir. 2002) (quotation and citation omitted).

Pl. Mem. at 21.

ESOP at 21.

Indeed, the language of Sections 11 and 12 of the Plan unequivocally affirms their universal application to all distributions. Section 11 begins by noting that "[a] Participant's Capital Accumulation will be distributed at the time and in the manner set forth in [this section]." Section 12 asserts that " [a]ny distribution in cash shall be based upon the Fair Market Value of Company Stock as of the [June 30] coinciding with or immediately preceding the date of distribution." Accordingly, if the Committee were to ignore the mandates set forth in these sections, and instead use its broad direction to decide when a new valuation is appropriate, it would violate its statutory duty to act "in accordance with the documents and instruments governing the plan." Plaintiff's argument thus nonsensically leaves defendants in a catch-22, exposing them to liability both for complying with the Plan terms and for departing from them.

Id. at 20.

Id. at 23.

29 U.S.C. § 1104(a)(1)(D). Accord Ramos v. SEIU Local 74 Welfare Fund, No. 01 Civ. 2700, 2002 WL 519731, at *4 (S.D.N.Y. Apr. 5, 2002) ("Fiduciaries are required to administer an ERISA plan in accordance with plan documents."). Additionally, plaintiff's recognition of defendants' discretionary authority to interpret and apply the Plan defeats his own argument. "[A] district court must accord deference to the denial of benefits by a fiduciary where the plan document itself grants the fiduciary discretion in applying and interpreting the plan," and may only intervene when the fiduciary has acted arbitrarily or capriciously in construing Plan terms. Id. Because plaintiff concedes that Sections 11 and 12 govern distributions as a general principle, defendants could not have acted arbitrarily or capriciously in following their dictates to deny the Class the potential benefits that might have resulted from a new valuation.

The two provisions cited by plaintiff do no more to bolster his argument that Sections 11 and 12 did not properly govern the distribution. First, plaintiff excerpts a Plan provision which, he posits, "requires that `[t]he fair market value of Company Stock, as determined by the [Administrative] Committee for all purposes under the Plan [be] based upon a valuation by an independent appraiser'" ("FMV Provision"). Plaintiff argues that

Pl. Mem. at 21.

defendant Higdon . . . has admitted that he violated [this provision because he . . .] testified that he did not need an independent appraisal in June 2009 in order to inform the Administrative Committee as to whether the year-old June 2008 independent appraisal fairly valued the Company as of June 2009, because "No one would be as qualified as [Higdon] to make that judgment."

Plaintiff's contention, however, is misleading both in substance and spirit.

As an initial matter, plaintiff misrepresents the FMV Provision. It does not require that the Fair Market Value be based upon an independent appraiser; rather, the provision sets forth the definition of Fair Market Value in a section exclusively devoted to listing and defining key Plan terms. The FMV Provision explains that `Fair Market Value' refers to Company Stock prices "as determined by the Committee for all purposes under the Plan based upon a valuation by an independent appraiser." Hence, the FMV Provision is merely descriptive, not actionable. Because it does not set forth any fiduciary duties, it cannot be the basis for liability for any perceived breach thereof.

ESOP at 6 (emphasis added).

Even assuming, arguendo, that the FMV Provision does prescribe procedural rules for evaluating Company Stock, it explicitly reserves discretion to the Committee to make the final determination of its Fair Market Value. By the terms of the FMV Provision, a valuation by an independent appraiser need only inform the Committee's decision; not preordain it. As such, the Committee properly invoked an independent appraisal as the basis for the Fair Market Value asserted as of June 30, 2008 — notably, the Company Stock price reflected exactly the quantitative recommendation set forth in Houlihan Lokey's June 30, 2008 Valuation Report.

Section 15 of the Plan governs its Administration, and vests the Committee with "all the powers necessary to . . . determin[e] the Fair Market Value of Company Stock." Id. at 29.

Moreover, even accepting plaintiff's interpretation of its terms, a violation of the FMV provision could not sustain his breach of fiduciary duty claim. To establish liability for breach of fiduciary duty under ERISA, there must be a causal connection between the alleged breach of a duty imposed upon a fiduciary and the loss to the plan. Plaintiff argues that defendants improperly relied on the June 30, 2008 valuation as the benchmark for the June 2009 distribution because interim changes at the Company demanded a new valuation. Yet the FMV Provision addresses the process for determining fair market value, not the circumstances compelling an off-calendar valuation. Thus, defendants' compliance with plaintiff's view of the FMV Provision would not have averted the ultimate harm.

See, e.g., Salovaara v. Eckert, No. 94 Civ. 3430, 1998 WL 276186, at *4 (S.D.N.Y. May 28, 1998) ("[B]oth loss to the fund, and a causal connection between that loss and defendant's breach, are necessary elements of an ERISA claim for damages under 29 U.S.C. § 1109(a)."); Hecht v. Colorboard Packaging Corp., 856 F. Supp. 184, 190 (S.D.N.Y. 1994) (dismissing plaintiffs' ERISA claims for breach of fiduciary duty because they failed "to prove the necessary connection between the trustee's breach of fiduciary duty and actual losses incurred by the pension plan").

Second, plaintiff argues that defendants did not follow the terms of the Plan because "the Committee's fiduciary duties, as laid out in the Plan document, include `selecting an independent appraiser and determining the Fair Market Value of the Company Stock on such dates as it determines to be necessary or appropriate. '" Plaintiff's claim is belied by the very terms he chooses to emphasize. Plaintiff argues that defendants were required to undertake a new valuation, but the Plan — and the cited provision — is unequivocal in its commitment of interpretive and administrative discretion to the Committee. It vests the Committee with the "sole and exclusive authority to construe, interpret, and apply the terms of the Plan," and underscores that "[t]he Committee shall be given the greatest possible deference permitted by law in the exercise of such discretionary authority." Indeed, the excerpt cited by plaintiff, which he represents as an exposition of the Committee's obligations, actually appears as part of a list enumerating all the Plan provisions over which the Committee has total power.

Pl. Mem. at 21 (citing ESOP, at 30 (emphasis added)).

ESOP at 30.

See id. at 29.

Thus, plaintiff's claim that defendants did not comply with the terms of the Plan is entirely unavailing. The remaining issue is therefore whether adherence to the Plan documents was consistent with defendants' other fiduciary duties under ERISA — namely, the duties of loyalty and care.

B. Duty of Loyalty

The duty of loyalty requires fiduciaries to exclusively consider, and act in furtherance of, the interests of beneficiaries. Plaintiff argues that defendants breached this duty by undervaluing Class members' ESOP accounts, and depriving them of the full distribution to which they were entitled. Plaintiff's implicit assumption — that a new appraisal would have yielded higher returns — is unsubstantiated. Plaintiff points to the results of the June 2009 valuation as evidence that the Company Stock was worth more than the Class received. Yet the undisputed record indicates that Houlihan Lokey initially concluded that the Company Stock was speculative and set a value of zero, but that Higdon objected to this valuation and asked Houlihan Lokey to reconsider. Consequently, Houlihan Lokey employed a new valuation method that had never before been applied to Capital Mercury, and returned a potential range of value from zero to $0.259 per share. Any fair market value extracted from the range would be legitimate, thus allowing the possibility that Company Stock could appropriately be rendered worthless. To the extent that Participants received a greater return on their ESOP accounts based on the June 30, 2009 distribution, they did so because Higdon — charged under the terms of the Plan with determining the ultimate fair market value — chose a number in the midpoint of the range.

See Higdon Dep. at 150:23-151:07; 151:19-152:02 ("I objected to the draft I received [because] I did not agree with a zero valuation even though a zero valuation was entirely perfect for me to get out of this lawsuit, but I did not feel that it was the correct value."). Id. at 151:22-152:02.

See June 2009 Valuation Report at 43.

See Strassman Dep. at 141:01-07 ("[I]n light of the indications that [Houlihan Lokey] had and the facts and circumstances, we were comfortable that the value was somewhere in that range.").

Plaintiff's claim that the Class was "cheat[ed]" by defendants is wholly without merit.

Pl. Mem. at 18. In any event, because the Company Stock value could have been set at zero under Houlihan Lokey's June 30, 2009 analysis, there is no injury resulting from defendants' actions. See supra n. 118. As a result, plaintiff would be unable to recover damages under ERISA even upon a successful showing of defendants' breach of fiduciary duty.

In any event, speculation about the possible results of an interim valuation between June 30, 2008 and June 30, 2009 is incidental to the issue of whether defendants breached their duty of loyalty. The propriety of fiduciary action is not dependant on its outcome, but on its purpose — fiduciaries are not required to be prescient or infallible in their decision-making, but to exclusively pursue the interests of beneficiaries. Thus, so long as defendants used the June 30, 2008 valuation for the distribution because it reasonably appeared to maximize returns for Plan participants under then-prevailing circumstances, they were justified in doing so.

Moreover, Participants are explicitly instructed that the Plan imposes risks and that their accounts may lose value. See ESOP SDP at 1. See also Gearren v. McGraw-Hill Companies, Inc., 690 F. Supp. 2d 254, 265 (S.D.N.Y. 2010) ("ESOPs, unlike pension plans, are not intended to guarantee retirement benefits, and indeed, by its very nature an ESOP places employee retirement assets at much greater risk than does the typical diversified ERISA plan.").

There can be no question that reliance on the June 30, 2008 valuation seemed to best serve Participant interests. Plaintiff proposes that a new valuation was required to give Participants the full fair market value of their accounts. Yet based on the cost in previous years, a new valuation would run at least twenty thousand dollars — practically a third of the Company's total value at the time. The act of pursuing a new valuation would thus endanger the Company's survival and thwart the very reason it was undertaken in the first place. Indeed, even without factoring in the expense, it was already unclear whether the Company could survive during the months it would take to complete a new valuation.

See supra nn. 27, 38 and accompanying text.

Moreover, in order to promote ERISA's goal of protecting employee benefits, the statute explicitly charges fiduciaries with "defraying reasonable expenses of administration" as part of the duty of loyalty. Incurring over twenty thousand dollars in expenses for a new valuation, only months before the regularly scheduled valuation was set to take place, would run counter to defendants' statutory duty to defray administrative expenses. Thus, defendants acted in accord with their fiduciary duty of loyalty in using the June 30, 2008 valuation as the basis for the distribution of Class members' interests.

29 U.S.C. § 1104(a)(1)(A)(ii).

C. Duty of Prudence

Plaintiff argues that the duty of prudence required defendants to "obtain[] a current fair market value of the Company before cashing out [the] class." In support of his claim, plaintiff presents the following three undisputed facts:

(a) Defendants were taking the . . . step of terminating the interests of the majority of the Company's shareholders who were former employees; (b) the Company's financial condition had clearly changed as a result of the Paris transaction; and (c) the fair market valuation relied on by Defendants was 9-12 months old as of March and June 2009, respectively.

Pl. Mem. at 23.

While the substance of these facts is undisputed, as plaintiff alleges, the parties perceive their implications differently in accord with their respective claims.

The relevant question is whether these facts objectively support defendants' decision to use the June 30, 2008 valuation for the June 2009 distribution. Because it is unfair to assess the reasonableness of defendants' conduct from the "vantage point of hindsight," I will consider only the information available to them at the time.

Katsaros, 744 F.2d at 279 (quotations and citations omitted).

Defendants decided to distribute Class members' interests in March 2009, and began to complete the necessary paperwork soon thereafter. At the time, Capital Mercury was, by all accounts, perilously close to liquidation. Although the Company was negotiating a sale of assets with Paris, no deal had yet been confirmed. The Company's future was thus uncertain — it could imminently be forced into bankruptcy; saved by an agreement with Paris; or restructured as an entirely new corporate entity. Defendants may have had reasoned beliefs about which of these (or other) scenarios was most probable, but they had no guarantees.

They did, however, have concrete information about the valuation process for determining the fair market value of Company Stock. They knew from years of experience that a new appraisal would take months to complete, and that a final report could not feasibly be issued before the next scheduled Allocation Date of June 30, 2009. They were also aware that the previous valuation had been finalized only three or so months earlier, and that the Plan allowed (if not mandated) distributions to be valued as of the preceding June 30.

Plaintiff argues that defendants relied on a "stale" fair market value because it was established at least six months earlier. PI. Mem. at 3. In doing so, plaintiff fails to appreciate the length of time required to obtain a new valuation. Houlihan Lokey typically produced the final report of the fair market value as of the Allocation Date in December or January — i.e., six or seven months later. See Def. 56.1 ¶¶ 41-41, 66. Defendants' reliance on a six to nine month old valuation was thus not only reasonable, but expected, under standard industry practices.

Under these circumstances, it was prudent to use the June 30, 2008 valuation to distribute Class members' interests in the Plan. Plaintiff argues that "the prudent course of conduct would have been to wait for the independent appraisal required by the Plan [in June 30, 2009]." However, any number of reasons can justify defendants' decision to use the earlier valuation — an interest in ensuring that Inactive Employees received their benefits before the Company was no longer able to provide any benefits; the reasonable possibility that the cost of a new valuation would have devastated the Company; an attempt to ease the administrative burden by eliminating the large volume of small accounts; the impracticability of obtaining a timely new valuation before the next Allocation Date; and the sincere belief that the Plan terms required use of the June 30, 2008 valuation. Because defendants' decisions were objectively appropriate in light of then-prevailing circumstances, subjective disagreement or speculation regarding their motivations does not render their actions imprudent or unreasonable.

Pl. Mem. at 20.

V. CONCLUSION

For the foregoing reasons, defendants' motion for summary judgment is granted and plaintiffs cross-motion for summary judgment is denied. The Clerk of the Court is directed to close these motions [Docket Nos. 24, 31] and this case.

SO ORDERED: