In re Syncor Erisa Litigation

227 F.R.D. 338, 2005 WL 711570
CourtDistrict Court, C.D. California
DecidedMarch 28, 2005
DocketNos. CV 03-2446LGBRCX, CV 03-6503, CV 04-247
StatusPublished
Cited by12 cases

This text of 227 F.R.D. 338 (In re Syncor Erisa Litigation) is published on Counsel Stack Legal Research, covering District Court, C.D. California primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
In re Syncor Erisa Litigation, 227 F.R.D. 338, 2005 WL 711570 (C.D. Cal. 2005).

Opinion

AMENDED ORDER GRANTING PLAINTIFFS’ MOTION FOR CLASS ACTION CERTIFICATION

BAIRDS, District Judge.

I. INTRODUCTION

Current and former beneficiaries of the Syncor International Corporation’s 401(k) plan seek class action certification.

II. FACTUAL AND PROCEDURAL BACKGROUND

Syncor International (“Syncor”) was a health care services company.1 Syncor sponsored, administrated and was the fiduciary of the Syncor Employees’ Savings and Stock Ownership Plan (the “Plan”). (Consolidated Complaint (“CC”) H 21.) The Plan is a 401(k) plan which permits participants to save for retirement and it is a plan under the Employee Retirement Income Security Act (“ERISA”). Id. 11112, 39. The Plan also includes an employee stock ownership plan (“ESOP”) which invests primarily in the common stock of the company. Id., Ex. A, “Introduction.”

Syncor’s Board of Directors (“Board”) had final decision-making authority regarding all aspects of plan administration. Id. H23. The Board members included: Monty Fu, Syncor’s co-founder and chairman of the Board; Robert Funari, Syncor’s chief executive officer, president, and Board member; George Oki; Benard Puckett; Ronald Williams; Steven Gerber; Arnold Spangler; and Gail Wilensky. Id. HIT 24-31. The Board appointed a separate committee (“Plan committee”) to oversee the Plan’s operation and carry out certain delegated Plan administrative duties. Id. H 34.

[340]*340There were three separate parts of the Plan. First, the Plan permitted participants to contribute between one and 14 percent of their compensation to the Plan each pay period in a “Fund Deferral Account.” Id. 1153. Participants could invest in any of nine available investment funds chosen by Syncor. Id., Ex. B, Summary Plan Description (“SPD”) at 272, 274. Second, participants could invest up to an additional two percent of pre-tax contributions in the Syncor Stock Deferral Account. Id. This account was used to purchase Syncor Common Stock. Id. Third, Syncor established accounts in which Syncor made employer contributions in the form of Syncor stock. Id. at 272. These contributions were made in the “Stock Investment Company Account.” (CC H 59; Ex. B, SPD at 281.)

During the purported class period, Syncor stock constituted between 66 and 77 percent of the Plan’s assets. Id. H 63.

On June 14, 2002, Syncor and Cardinal Health, Inc. (“Cardinal”) announced that Cardinal would acquire Syncor in a stock-for-stock merger valued at approximately $1.1 billion. Id. 11118. Cardinal announced on November 6, 2002, that it had uncovered illegal payments made by Syncor in Taiwan and China. Id. U121. Upon disclosure of the payments, the price of Syncor stock plummeted. Id. By November 8, 2002, the stock had hit a 52-week low, and devalued more than 50 percent in just two trading days. Id. K 122. The plummeting share values created losses to the Plan, which was heavily weighted in Syncor stock. As a result of the allegations, Cardinal reduced the exchange rate of O. 52 shares of Cardinal stock for each Syncor share to 0.47. Id. H124. This reduced the consideration to be paid to Syncor shareholders by at least $63 million. . Id.

The plaintiffs in this case were employed at Syncor between July 26, 2000 and January 1, 2003 (the “class period”) and participated in the Plan.2 Id. 1t 3. Plaintiffs filed the consolidated class action complaint on February 24, 2004 against Syncor, Syneor’s Board, and the Board’s Plan committee. Id. II7.

The Consolidated Complaint contained four causes of action. On August 23, 2004, this Court dismissed two causes of action against all defendants and dismissed a third cause of action against the Plan committee members only. (August 23, 2004, Order Granting in Part and Denying in Part Defendants’ Motions to Dismiss, at 37:11-21.)

A The Remaining Claims

Two causes of action remain after the August 23 Order. The first, against Syncor only, is for breach of fiduciary duty for failure to prudently and loyally manage Plan assets under ERISA sections 404(a)(1)(A)-(D) and 405, 29 U.S.C. §§ 1104(a)(l)(A)-(D) and 1105. (CC 1111153-164.) The second, against both Syncor and the Director Defendants,3 is for failure to monitor the Plan committee members and provide them with accurate information under ERISA sections 404(a)(l)(A)-(D) and 405. Id. ITU 165-177.

The first cause of action involves Plaintiffs’ allegation that Syncor stock was an imprudent investment because throughout the class period Syncor was engaging in an illegal foreign bribery scheme in order to increase overseas sales of its radiopharmaceutical services. Id. HH 79-107. Plaintiffs claim that defendants emphasized to Plan participants and beneficiaries — prior to and throughout the class period — that international business was a key source of growth for the company. Id. H1181, 108-117. Because Plan participants did not know about the bribery scheme, Plaintiffs argue that defendants misled them about the appropriateness of investing in Syncor stock. Id. 11117. Plaintiffs contend that Defendants either knew or should have known that Syncor stock was not a prudent Plan investment. Id. 1111127-137.

Plaintiffs also allege that defendants had a conflict of interest because a significant per[341]*341eentage of their compensation was tied to Syneor stock. Id. 11141. As such, defendants had an incentive to keep the Plan’s assets in the Syneor plan and to keep the Syneor Stock Fund investing in Syneor stock. Id. 11142. This investment elevated the demand for Syneor stock in the market and retained a favorable impression of the stock with Wall Street analysts. Id.

The second cause of action focuses on the duty of Syneor and the remaining Director Defendants to properly monitor their appointees, including their appointees to the Plan committee. Id. 11166. This duty included a duty to provide complete information to the appointees and to monitor the performance of the appointees. Id. 11167. Plaintiffs allege that Syneor and the Director Defendants (collectively “Defendants”) breached this duty by failing to warn their appointees of Syncor’s illegal overseas practices and by failing to ensure the appointees “appreciated the huge risk inherent in the significant investment by rank and file employees in an undiversified employer stock fund.” Id. 172.

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Bluebook (online)
227 F.R.D. 338, 2005 WL 711570, Counsel Stack Legal Research, https://law.counselstack.com/opinion/in-re-syncor-erisa-litigation-cacd-2005.