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Russell v. Harman International Industries, Inc.

United States District Court, District Circuit

May 22, 2013



RICHARD W. ROBERTS, United States District Judge

Plaintiff Patrick Russell, a participant in the Harman Retirement Savings Plan (the “Plan”) established by Harman International Industries, Incorporated (“Harman”), brings on his own behalf and on behalf of others similarly situated this putative class action against Harman, Dr. Sidney Harman, Sandra Buchanan, Kevin Brown, Gregory Henry, Chet Simon, Jeffrey Curtis, Robert Ryan, the Harman Administrative Committee, the Harman Investment Committee, the Harman Pension Committee, and unknown fiduciary defendants 1-10, seeking damages and declaratory and injunctive relief for breach of fiduciary duties in violation of the Employee Retirement Income Security Act of 1974 (“ERISA”), 29 U.S.C. § 1001 et seq. The defendants have moved under Federal Rule of Civil Procedure 12(b)(6) to dismiss the complaint for failure to state a claim arguing that Russell is contractually barred from bringing this action. Because Russell released his individual ERISA claims alleged in his amended complaint and lacks Article III standing to bring ERISA claims on behalf of Plan participants, the defendants’ motion to dismiss, treated as a motion for summary judgment, will be granted.


Harman develops, manufactures, and markets audio products and electronic systems. Am. Compl. ¶ 14. Russell is a former Harman employee and a participant in the Plan, an employee pension benefit plan. Id. ¶¶ 13, 37. Russell alleges that each of the defendants was a fiduciary of the Plan under ERISA. Id. ¶ 54. The Plan is a participant-directed defined contribution plan.[1] As such, participants in the Plan choose from among a number of pre-selected investment options where to invest the money in their 401(k) accounts. See id. ¶¶ 40-41. One of the investment options available under the Plan is Harman common stock. Id. ¶¶ 49-51. During the class period, April 26, 2007 through the time of the complaint, “the Plan invested in Harman common stock.” Id. ¶ 2.

On April 26, 2007, Harman issued a press release announcing that Harman had agreed to be acquired by Kohlberg Kravis Roberts & Co. L.P. (“KKR”) and GS Capital Partners (“GSCP”) and that “[u]nder the terms of the agreement, Harman stockholders [would] be entitled to receive $120 in cash for each share of Harman common stock they [held]”. Id. ¶ 101. Russell alleges that in the press release and a conference call the same day, the defendants made several materially false and misleading disclosures regarding Harman’s financial conditions. For example, Sidney Harman stated that Harman’s inventory of personal navigation devices (“PND”) would decrease as sales increased throughout 2007. Id. ¶¶ 104, 107. He also projected that Harman would have opportunities to expand its sales of infotainment systems, such as the MyGIG radio, in 2007 and 2008. Id. ¶¶ 104-07, 109. Russell contends that contrary to Sidney Harman’s positive predictions, the MyGIG radio and the PND were “[a]t the center of the Company’s deteriorating financial condition.” Id. ¶ 93. Russell further alleges that the defendants continued to make false and misleading statements regarding these products, Harman’s capital expenditures, and Harman’s financial condition. Id. ¶ 94. Russell claims that as a result of the defendants’ false and misleading statements, KKR and GSCP decided not to acquire Harman, causing the price of Harman common stock to drop nearly 30 percent in two trading days. Id. ¶¶ 132-40.

Russell’s amended complaint charges that the defendants breached their fiduciary duty of loyalty by failing to disclose complete and accurate financial information about Harman and their fiduciary duty of prudence by allowing Plan members to invest in Harman common stock despite Harman’s poor financial condition (Counts One and Two). The amended complaint also charges that the defendants breached their fiduciary duty to monitor other fiduciaries (Count Three) and avoid conflicts of interest (Count Four). It further charges that all defendants are responsible for the fiduciary breaches of their co-fiduciaries (Count Five). The amended complaint charges in the alternative that if Harman is found not to be a fiduciary, Harman is still liable for knowingly participating in the breaches of other fiduciaries (Count Six).[2]

The defendants move to dismiss the complaint under Rule 12(b)(6) on several grounds including that Russell is contractually-barred from bringing this suit because he expressly waived his right to bring ERISA claims against the defendants in a severance agreement. Defs.’ Mot. to Dismiss the Am. Class Action Compl. (“Defs.’ Mot.”), Mem. of P. & A. in Supp. of Defs.’ Mot. to Dismiss the Am. Class Action Compl. at 40-41.

On June 19, 2007, Russell executed a severance agreement (the “Agreement”) with Harman. Under the Agreement, Russell agreed to release Harman from any claim of any kind that had arisen on or before June 19, 2007. Specifically, the Agreement states:

Employee . . . releases and forever discharges the Company, its affiliates, and all of their agents (collectively, the “Released Parties”) of and from any Claim (as defined below) which have arisen on or before [June 19, 2007]. . . . As used in this Agreement, the term “Claim” means any claim of any kind, including but not limited to claims, wages, demands, rights, liens, agreements, contracts, covenants, actions, suits, causes of action, obligations, debts, costs, expenses, attorneys’ fees, damages, judgments, orders and liabilities of whatever kind or nature in law, equity or otherwise, whether now known or unknown, suspected or unsuspected and whether or not concealed or hidden, fixed or contingent . . . . The Claims released by this Agreement include, but are not limited to, . . . any Claims constituting, arising out of, based upon, or relating to . . . the Employee Retirement Income Security Act[.] 2007). Thus, if Counts One and Two are dismissed, Counts Three through Six must also be dismissed.

Defs.’ Mot., Decl. of Jennifer Haring, Ex. 1 (“Agreement”) ¶ 2(a). In exchange, Harman received several benefits including severance payments beyond what Russell would have been entitled to receive otherwise. Id. ¶ 1(a).


A district court can dismiss a complaint under Rule 12(b)(6) when the defendant shows that the plaintiff “fail[s] to state a claim upon which relief can be granted[.]” Fed.R.Civ.P. 12(b)(6). However, “[w]hen ‘matters outside the pleadings are presented to and not excluded by the court’ on a motion to dismiss under Rule 12(b)(6), ‘the motion must be treated as one for summary judgment.’” Highland Renovation Corp. v. Hanover Ins. Grp., 620 F.Supp.2d 79, 82 (D.D.C. 2009) (quoting Fed.R.Civ.P. 12(d)). Since the defendants rely on materials outside the pleadings, such as the Agreement, the motion to dismiss will be treated as a motion for summary judgment.

Summary judgment may be granted when “the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(c); see also Moore v. Hartman, 571 F.3d 62, 66 (D.C. Cir. 2009). A dispute is “genuine” “where the ‘evidence is such that a reasonable jury could return a verdict for the non-moving party, ’ a situation separate and distinct from a case where the evidence is ‘so one-sided that one party must prevail as a matter of law.’” Dozier-Nix v. District of Columbia, 851 F.Supp.2d 163, 166 (D.D.C. 2012) (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 252 (1986)). “A fact is ‘material’ if a dispute over it might affect the outcome of a suit under the governing law[.]” Holcomb v. Powell, 433 F.3d 889, 895 (D.C. Cir. 2006) (citing Anderson, 477 U.S. at 248). To survive a motion for summary judgment, the nonmoving party “must provide evidence showing that there is a triable issue as to an element essential to that party’s claim.” Arias v. DynCorp, Civil Action No. 01-1908 (RWR), 2013 WL 864566, at *3 (D.D.C. Feb. 6, 2013) (internal quotation marks omitted); s ...

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