Camera v. Dell Inc. et al
ORDER GRANTING 29 Motion to Dismiss. Signed by Judge Sam Sparks. (dm)
IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF TEXIA44 JUN 17
Case No. A-13-CA-876-SS
DELL INC.; SHANTANUNARAYAN; GERALD
J. KLEISTERLEE; SAMUEL A. GUESS; JANET
WRIGHT; and GARY BISCHOPING,
BE IT REMEMBERED on this day the Court reviewed the file in the above-styled cause, and
specifically Defendants' Motion to Dismiss Plaintiff's Second Amended Complaint [#29], Plaintiff
Carl Camera's Response [#3 81, and Defendants' Reply [#39]. Having reviewed the documents, the
governing law, and the file as a whole, the Court now enters the following opinion and orders
GRANTING the motion to dismiss.
The Court previously recounted the facts underlying this lawsuit in its order granting
Defendants' first motion to dismiss.
Order of Feb. 26, 2014 [#26]. In short, Camera, a Dell
employee, alleges Dell and certain of its board members improperly allowed Dell's independent
fiduciary (Evercore Trust) to go forward with a forced sale of employee-held Dell stock in 2012 in
an effort to force Dell employees to diversify the holdings in their retirement accounts. Dell
concocted this plan in 2010 in response to a lawsuit alleging Dell had allowed its employees to invest
too heavily in Dell stock in violation ofERISA. Carrying out the plan in 2012 was wrongful, Camera
alleges, because Dell was at the time actively considering a going-private transaction which could
have been anticipated to bring in an above-market-price offer to buyout all Dell stock. By forcibly
reallocating employees' shares over a certain percentage, Camera contends Dell prevented those
employees from fully benefitting from the going-private transaction ultimately completed in 2013.1
Camera's specific claims Defendants violated their fiduciary duty of prudence, and alleged
Dell's directors also violated their fiduciary duty to monitor the Special Committee formed to
evaluate the going-private transaction. This Court granted Defendants' motion to dismiss those
claims. Specifically, this Court held the facts alleged in the First Amended Complaint did not state
a plausible "imprudent investment" claim because the going-private transaction was not so certain
an outcome at the time of the forced reallocation to require Dell to force its independent fiduciary
to countermand the express requirements of Dell's ERISA plan, which had been announced in 2010
and formally adopted in 2012. Id. at 5-9. The Court also dismissed the failure-to-monitor claim
because it was derivative of the imprudent-investment claim. Id. at 9. The Court dismissed without
prejudice and granted Camera twenty days to file a Second Amended Complaint.
Camera accepted that invitation and repleaded. The Second Amended Complaint adds a
variety of factual allegations not present in the prior pleadings. For example, Camera has bolstered
his allegations concerning Michael Dell's desire to take Dell private and his knowledge such a
transaction was possible as early as July 2012. 2d Am. Compl. [#27] ¶ 5-7; see
(alleging Michael Dell and Dell's board discussed and planned a going-private transaction beginning
Dell's amended plan capped participant investment in Dell stock at 20% of their plan assets. Any amount over
20% would be sold by way ofthe forced reallocation. Accordingly, any plan participant who held Dell stock through the
buyout benefitted from the buyout. The issue in this suit is whether plan participants who had excess shares on the date
of the forced reallocation should have been allowed to benefit even more by retaining their excess shares until the going
private transaction was completed.
in November 2010, and Michael Dell acquired a significant number of shares of Dell stock between
November 2010 and May 2012). Camera contends Michael Dell was "dedicated to closing the
transaction" and knew it was more likely than not that any deal would close at a price "significantly
above prevailing market value." Id.
70-81 (detailing Michael Dell's
personal commitment to the transaction and his intent to move forward with the deal at the highest
price the two prospective buyers were willing to offer). In addition to these factual allegations, the
Second Amended Complaint adds an additional count alleging Dell and its directors are liable as cofiduciaries for any actions taken by Dell's appointed independent fiduciary, Evercore. Id. ¶J 96-103.
Defendants now move to dismiss a second time, arguing these additional factual allegations
do not cure the central deficiencies in the First Amended Complaint, and still fail to plead any
Motion to DismissRule 12(b)(6)Legal Standard
Federal Rule of Civil Procedure 8(a)(2) requires a complaint to contain "a short and plain
statement of the claim showing that the pleader is entitled to relief"
R. Civ. P. 8(a)(2). A
motion under Federal Rule of Civil Procedure 12(b)(6) asks a court to dismiss a complaint for
"failure to state a claim upon which relief can be granted."
R. Civ. P. 12(b)(6). The plaintiff
must plead sufficient facts to state a claim for relief that is facially plausible. Ashcroft v. Iqbal, 556
U.S. 662, 678 (2009); Bell Ati. Corp. v. Twombly, 550 U.S. 544, 570 (2007). "A claim has facial
plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable
inference that the defendant is liable for the misconduct alleged." Iqbal, 566 U.S. at 678. Although
a plaintiff's factual allegations need not establish that the defendant is probably liable, they must
establish more than a "sheer possibility" that a defendant has acted unlawfully. Id. Determining
plausibility is a "context-specific task," and must be performed in light of a court's "judicial
experience and common sense." Id. at 679.
In deciding a motion to dismiss under Rule 12(b)(6), a court generally accepts as true all
factual allegations contained within the complaint. Leatherman
Tarrant Cnty. Narcotics
Intelligence & Coordination Unit, 507 U.S. 163, 164 (1993). However, a court is not bound to accept
legal conclusions couched as factual allegations. Papasan
Al/am, 478 U.S. 265, 286 (1986).
Although all reasonable inferences will be resolved in favor ofthe plaintiff, the plaintiff must plead
"specific facts, not mere conclusory allegations." Tuchman v. DSC Commc 'ns Corp., 14 F .3 d 1061,
1067 (5th Cir. 1994). In deciding a motion to dismiss, courts may consider the complaint, as well
as other sources such as documents incorporated into the complaint by reference, and matters of
which a court may take judicial notice. Tellabs, Inc.
Makor Issues & Rights, Ltd., 551 U.S. 308,
This is fundamentally the same lawsuit the Court was presented with in the previous motion
to dismiss, so the Court will endeavor to avoid belaboring the discussion by repeating its prior order
in full. Instead, the Court focuses primarily on those aspects of the pleadings Camera believes alter
the calculus and render previously implausible claims plausible.
The focus of Camera's Second Amended Complaint is still the allegation Dell and the
members of Dell's Special Committeethe committee formed to analyze the going-private
transactionviolated their duty of prudence. Under this umbrella, Camera's first claim is still that
this duty was breached when the ERISA plan was amended to require forcible reallocation of excess
plan-participant shares "by an artificial deadline." 2d Am. Compi. [#27] ¶ 90. The Court previously
held Camera had failed to allege facts showing either the announcement of this policy in 2010 or the
formalizing of this policy, including the choice of a date certain (October 19, 2012), in May 2012
Order of Feb. 26, 2014 [#26], at 5 ("Camera has pleaded no facts suggesting a
prudent fiduciary would not have chosen 2012, or October 2012, at the times these decisions were
made."). None of the facts added in the Second Amended Complaint change this outcome. Camera
still has not alleged any facts suggesting the announcement of the plan in early 2010, prior to even
the earliest alleged internal plans to take Dell private, was imprudent at the time. Nor has Camera
alleged any facts suggesting the choice of the October 19, 2012 deadline in May 2012 was
imprudent. Camera does not allege any of the Defendants knew in May that a going-private
transaction would close shortly after October 19, and thus chose the date specifically to deprive plan
participants of the benefit ofthe buyout. There is simply no basis for concluding these particular acts
violated the duty of prudence.
Camera's remaining three theoriesthe two previously asserted, plus one new theory added
in the Second Amended Complaintallege the Defendants violated the duty of prudence by failing
to stop the forced reallocation or otherwise prevent Evercore from carrying out the reallocation. The
Court previously found these theories unsupported by the law, particularly because Camera's
theories, if true, would force Dell into a no-win situation:
If Defendants proceed with the reallocation, they will be sued for breaching their
fiduciary duties and failing to override the Plan's mandate. If Defendants
countermand the Plan's express directive to conduct the reallocation, they will be
sued for breaching their fiduciary duties and overriding the Plan's mandate, and
likely sued by the participants who voluntarily divested between 2010 and October
2012 in reliance on Deli's prior notice of the reallocation deadline. See Kirschbaum,
526 F.3d at 256 & n. 13 (suggesting "a fiduciary who scraps plan requirements is just
as apt to be sued as
if he had enforced them" (internal quotation marks omitted)).
ERISA does not create such a trap, at least not on these facts.
Id. at 6. Second, the Court held the Defendants' alleged knowledge did not obligate them to
countermand the ERISA plan's mandate requiring the reallocation to occur on October 19, 2012:
Defendants, in their role as fiduciaries, simply were not required to bet the plan
participants' assets on the likelihood of a going-private transaction occurring at some
unknown point in the future. Cf Kirschbaum, 526 F.3d at 256 ("One cannot say that
whenever plan fiduciaries are aware of circumstances that may impair the value of
company stock, they have a fiduciary duty to depart from [ERISA] plan provisions.
Instead, there ought to be persuasive and analytically rigorous facts demonstrating
that reasonable fiduciaries would have considered themselves bound to divest.").
Id. at 7. Camera's new allegations do not change these outcomes, either, and the Court addresses
them in reverse order.
First, Camera's allegations do not show the duty of prudence imposed on these Defendants
any obligation to countermand the ERISA plan based on their alleged knowledge in October 2012.
Much of Camera's briefing focuses on the idea the perceived likelihood and magnitude ofthe going-
private transaction made the deal "material" under Basic Inc.
Levinson, 485 U.S. 224 (1988), and
therefore the Defendants were required to include the information about the possible buyout in their
evaluation of the reallocation
But as Defendants highlight in their Reply, the relevant
inquiry is not whether Defendants had to consider the possibility of the buyout, but whether their
decision to follow the ERISA plan violated the duty of prudence. Even assuming the Defendants
possessed material information about Michael Dell's planned going-private transaction in October
2012, they violate the duty of prudence only if Camera can present "persuasive and analytically
Basic and its progeny, including the cases cited by Camera in his Response, concern materiality in the
securities-fraud context. See Basic, 485 U.S. at 226-27; Castellano v. Young & Rubicam, Inc., 257 F.3d 171, 179 (2d
Cir. 2001); SEC v. Maio, 51 F.3d623, 626-27(7thCir. 1995).
rigorous facts demonstrating that reasonable fiduciaries would have considered themselves bound"
to countermand the ERISA plan. See Kirschbaum v. Reliant Energy, Inc., 526 F .3 d 243,256(5th Cir.
Camera's Second Amended Complaint does not contain such facts. As the Fifth Circuit has
instructed, Defendants' decisions in their roles as fiduciaries "are not to be judged with the benefit
of hindsight, but from the facts known to them at the time." Kopp v. Klein, 722 F.3d 327, 341 (5th
Cir. 2013). Accepting Camera's allegations as true and drawing even the most generous of inferences
the members of the Special Committee "knew at the time of the [reallocation], on
October 19, 2012, that the private buyout transaction was more likely than not to close at a price
significantly above the then-prevailing market price for the shares, and above any 'control premium,'
as indeed occurred." 2d Am. Compl. [#27] ¶ 80. By Camera's own admission, there was therefore
chanceperhaps as high as 49%the buyout would not go through. The Special
Committee had no knowledge of when such a deal might be completed, and initial offers had not yet
been received. On the other side of this equation, the Special Committee had a reallocation plan,
announced in 2010 and formally adopted as part of Dell's ERISA plan in May 2012, mandating
Similarly, Kirschbaum recognized some possibility of injury to the plan participants is insufficient to compel
the fiduciaries to disobey the plan. 526 F.3d at 256 ("One cannot say that whenever plan fiduciaries are aware of
circumstances that may impair the value of company stock, they have a fiduciary duty to depart from [ERISA] plan
provisions."). Camera's allegations at most show the Defendants here may have been aware of circumstances that might
result in a better outcome for over-concentrated plan participants.
example, Camera's Second Amended Complaintfocuses almost exclusively on Michael Dell's individual
desire to complete the going-private transaction. As a result, the pleading is essentially silent as to the Special
Committee's willingness to approve a going-private transaction at any price, and about the shareholders' willingness to
do the same. The consent of both groups would be necessary for the deal to move forward. In another example, the
Second Amended Complaint provides no factual basis for inferring the Special Committee members knew about Michael
Dell's "willingness to match the highest price [either identified potential buyer] would offer." 2d Am. Compi. [#27] ¶ 77.
Camera admits Michael Dell did not tell the potential buyers he was "prepared to participate at the highest price they
were willing to pay" until November20 12after the reallocationand pleads no facts suggesting the Special Committee
members had any basis for learning of Michael Dell's state of mind at an earlier date.Id. ¶ 76.
excess shares be sold by October 19, 2012. As the Court previously held, these facts are insufficient
to show reasonable fiduciaries would have felt themselves bound to countermand the ERISA plan
on the belief that going through with the reallocation would violate ERISA. See 29
§ 11 04(a)( 1 )(D)
(fiduciary must act "in accordance with the documents and instruments governing
the plan insofar as such documents and instruments are consistent with the provisions of [ERISA]");
see also Order of Feb. 26, 2014 [#26], at 7 ("Defendants, in their role as fiduciaries, simply were not
required to bet the plan participants' assets on the likelihood of a going-private transaction occurring
at some unknown point in the future.").
Second, the Court's conclusion remains buttressed by the no-win situation Camera's theory
of the law would foist upon ERISA fiduciaries. Camera contends the Defendants were free to simply
cancel the reallocation because they would be protected from any subsequent lawsuit by a
presumption they acted prudently. See Kirschbaum, 526 F.3d at 254 (discussing the so-called
"Moench presumption," named for Moench
Robertson, 62 F.3d 553 (3d Cir. 1995)). But the
presumption of prudence is designed to protect those investors who do what the ERISA plan tells
them to do. See
at 25 3-56. The Court is aware of no authority holding fiduciaries are presumed
to have acted prudently in disobeying the express commands of an ERISA plan. Moench
intentionally left open the question whether a fiduciary could even breach a duty by simply doing
what the plan requires him to do, which suggests the inverse situation is dangerous ground for
fiduciaries. See id. at 255 & n.10
Finally, important policy considerations illustrate why Camera's theories of liability cannot
accurately reflect the state of the law. As the Court previously explained, Camera would impose
liability on the defendant fiduciaries because they did not use their insider knowledge of Dell's intent
to go private to improve returns on plan participants'
sharesshares those participants could retain
only in violation of the ERISA plan's formal cap on company stock ownership. This outcome is
wholly inconsistent with the spirit of the securities laws; it is, in essence, insider trading on a time
delay. See id. at 256 ("Fiduciaries may not trade for the benefit ofplan participants based on material
information to which the general shareholding public has been denied access.").
In response, Camera cites a variety of district court decisions for the proposition that "the
requirements of the securities laws will not insulate or excuse a Defendant from a breach of fiduciary
duty under ERISA," but those cases dealt with vastly different scenarios. P1.'s Resp. [#38], at 19. A
fiduciary certainly should not join a fraudulent scheme to withhold material information from the
investing public. See In re Enron Corp. Secs., Derivative & ERISA Litig., 284 F. Supp. 2d 511, 565
(S.D. Tex. 2003). But the fiduciaries here are not accused of withholding information from the
public. Instead, they are being faulted for not using their superior knowledge of Dell's internal plans
to help the plan participants take unfair advantage of the market. To accomplish that goal, the
fiduciaries would have had to countermand the plan's requirements and allow the plan participants
to hold onto shares they could not by the terms of the ERISA plan hold until they could sell them for
an above-market price. See Rinehart
Akers, 722 F.3d 137, 154 (2d Cir. 2013) ("Since ERISA
fiduciaries have no duty to disclose inside information to plan-participants so that participants may
act on it, Plaintiffs' argument that the Benefit Committee Defendants should have been privy to
inside information so that they could act on it on behalf of plan-participants is simply not
persuasive."); In re Enron Corp., 284 F. Supp. 2d at 565 ("At the same time, a fiduciary's duty of
loyalty should also not be construed to require him to enable and encourage plan participants to
violate the law.
. . .
Nor would selective disclosure of [the company's financial condition] by the
fiduciary to plan participants protect any lawful financial interests of the plan participants and
beneficiaries."). Any fiduciary who behaves in such a way deserves to be sued by the other plan
participants who were foolish enough to take the fiduciary at his word and therefore voluntarily
divested between 2010 and 2012 to avoid the forced reallocation.
Finally, because Camera has still failed to plead a plausible breach of fiduciary duty claim
against any Defendant, his derivative claims also fail. The Fifth Circuit has recognized "a claim for
breach of fiduciary duty to appoint, inform, and monitor plan fiduciaries is a derivative claim," and
therefore requires an underlying breach of fiduciary duty to be actionable. Kopp, 722 F.3d at 344
In re Dell, Inc.
563 F. Supp. 2d 681, 695 (W.D. Tex. 2008) (Sparks, J.)).
Camera's new claim asserts "co-fiduciary liability" for the conduct of Evercore. Evercore has not
been sued and is not accused of violating any fiduciary duties in this case. Any "co-fiduciary
liability" claims must be wholly derivative as well, and therefore share the other claims' fate.
Despite Camera's additional factual allegations, the Court remains convinced these facts do
not show the defendant fiduciaries were required "to reverse a two-year course, countermand express
Plan terms, and call off the reallocation" in light of a possible going-private transaction. Order of
Feb. 26,2014 [#26], at 7. Camera has now filed three versions of his complaint in this Court and two
motions to dismiss have been granted. Camera has not suggested there are any additional facts he
could plead in a Third Amended Complaint which might turn the tide and state a plausible claim
against any of these defendants. The Court concludes further leave to amend would be futile, and it
is time for this case to be concluded or appealed.
IT IS ORDERED that Defendants' Motion to Dismiss Plaintiffs Second Amended
Complaint [#29] is GRANTED;
IT IS FINALLY ORDERED that all claims brought by Plaintiff Carl Camera in the
above-styled cause are DISMISSED WITH PREJUDICE.
SIGNED this the /'7'day of June 2014.
UNITED STATES '1STRICT JUDGE
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