Court Again Finds No ERISA Fiduciary Act in DuPont Pension Case

The plaintiffs in a case challenging 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) have again failed to succeed in stating a claim for breach of Employee Retirement Income Security Act (ERISA) fiduciary duties.

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 spinoffs as a subsidiary of Corteva.

The plaintiffs in the case—participants in the U.S. DuPont Pension and Retirement Plan, which provides benefits to retirees of Historical DuPont—alleged in their first amended complaint (FAC) that the defendants eviscerated Historical DuPont’s business operations and made it a subsidiary of Corteva, an undercapitalized and overburdened spinoff, to relieve DuPont and Dow of any obligations with respect to the plan. U.S. District Judge Yvonne Gonzalez Rogers of the U.S. District Court for the Northern District of California granted the defendants’ motion to dismiss all seven counts in the FAC, holding that the decision to spin off a pension plan is not a fiduciary act. She also found that the plaintiffs’ allegations that the post-spinoff entities would not fulfill plan obligations were conclusory and speculative.

However, she granted the plaintiffs leave to amend their claims, which they did in May.

In their second amended complaint (SAC), the plaintiffs filed a single claim for breach of fiduciary duty. Responding to the defendants’ motion to dismiss, the plaintiffs said the new complaint succeeded in stating a claim for relief on three main grounds: It challenges implementation of the spinoff, rather than the spinoff itself; it alleges that the spinoff improperly transferred the plan from its original company to a newly formed shell corporation; and it alleges that defendants failed to terminate the plan in the manner required by statute.

With respect to the argument that the SAC challenges the implementation of the spinoff rather than the decision to spin off, the plaintiffs focus on allegations that the spinoff separated plan participants from the company where they were employed while accruing benefits and placed them in a shell subsidiary of a newly formed company, Corteva. Rogers cited prior case law in her finding that “even accepting plaintiffs’ factual allegations as true, defendants’ actions in this case—specifically, placing the plan with a Corteva subsidiary while placing core business operations and employees with New DuPont—were nonfiduciary in nature.” The fact that the plaintiffs seek, among other things, “the return of the plan assets and liabilities to the reincarnation of the company that created it, New DuPont” is further evidence that they are challenging corporate decisions rather than fiduciary acts, she added.

Regarding the allegation that the spinoff improperly transferred the plan from its original company to a newly formed shell corporation, Rogers noted that Section 208 of ERISA provides that when a plan “transfer[s] its assets or liabilities [to] any other plan,” the benefits available to plan participants “immediately after” the transfer must be equal to or greater than the benefits they would have received if the plan had been terminated immediately before the transaction. She held that Section 208 does not apply absent an alleged transfer to another pension plan, and the plan retained its assets and participants after the spinoff.

Finally, the plaintiffs asserted that the defendants have taken the “first step” in a “standard termination,” or completed a “de facto termination,” which requires notice, full funding and payout of plan assets, none of which has occurred, according to the court order. Rogers pointed out that the SAC does not allege that any of the required steps under ERISA to terminate a plan have been taken, and that it says the plan is currently maintained by Historical DuPont and its parent, Corteva. “There simply is no basis in the SAC for the court to conclude that there was a ‘termination’ in any conventional use of the term where the plan continues to exist and for the time being has not abandoned its obligations,” Rogers wrote in her order. “As such, plaintiffs’ termination theory fails to support a claim for breach of fiduciary duty.”

This time, Rogers dismissed the case with prejudice, meaning it cannot be brought up again.