Full opinion text
MEMORANDUM OPINION ELLIS, District Judge. This breach of fiduciary duty action brought against U.S. Airways, Inc. (“US Airways” or “the Company”) pursuant to the Employee Retirement Income Security Act of 1974 (“ERISA”), 29 U.S.C. §§ 1001 et seq., concerns the standard a prudent fiduciary must meet when considering whether to retain as an investment option in a defined contribution 401(k) retirement plan an investment consisting primarily of company stock when the company is in financial distress. This action was originally filed by Vincent D. DiFelice, a plan participant, on behalf of a class of plan participants, against U.S. Airways and Fidelity Management Trust Company (“Fidelity”)', the directed trustee of the 401(k) plan at issue, for breach of their respective fiduciary duties. Fidelity’s threshold motion to dismiss was granted on September 27, 2005. See DiFelice v. U.S. Airways, Inc., 397 F.Supp.2d 735 (E.D.Va.2005) [Hereinafter DiFelice I ]. Thereafter, plaintiff and U.S. Airways conducted extensive interrogatory, document and deposition discovery, following which U.S. Airways filed a motion for summary judgment. After briefing and oral argument, U.S. Airways’ motion was granted in part and denied in part. It was granted with respect to the claim that U.S. Airways failed to provide complete and accurate information to Plan participants and denied with respect to the claim that U.S. Airways failed to exercise prudently its discretion to select and retain investment options for the retirement plan at issue. See DiFelice v. U.S. Airways, Inc., 397 F.Supp.2d 758 (E.D.Va.2005) [Hereinafter DiFelice II ]. Also during the discovery, plaintiff successfully sought certification of a class. Specifically, plaintiffs motion for class certification was granted on March 22, 2006, resulting in the certification of the following class: All participants and their beneficiaries in the U.S. Airways, Inc. 401(k) Savings Plan (the “Plan”) for whose accounts the fiduciaries of the Plan acquired or held units of the U.S. Airways Group, Inc. Common Stock Fund at any time between October 1, 2001 and June 27, 2002. See DiFelice v. U.S. Airways, 235 F.R.D. 70, 83 (E.D.Va.2006). The sole issue remaining following discovery and summary judgment proceedings was whether U.S. Airways breached its fiduciary duty under ERISA by allowing the stock of U.S. Airways’ parent corporation U.S. Airways Group, Inc. (“Group”), to remain as a plan investment option during the class period despite the Company’s and concomitantly Group’s precarious financial condition. This issue was then the focus of a six day bench trial in the course of which 18 witnesses testified, either live or by video deposition. Plaintiff presented 11 fact witnesses and 5 experts, and U.S. Airways presented 2 expert witnesses. Additionally, the trial record also included cross-designated portions of the depositions of ten additional witnesses, as well as a total of approximately 200 documentary exhibits. Based on this voluminous record and the parties’ written and oral arguments, the Court issues the following findings of fact and conclusions of law, pursuant to Rule 52, Fed.R.Civ.P. I.FINDINGS OF FACT A. Introduction 1. This ERISA case involves an alleged breach of fiduciary duty by defendant U.S. Airways in offering and retaining the U.S. Airways Group, Inc. Common Stock Fund (the “Company Stock Fund”) as an investment option for the U.S. Airways, Inc. 401(k) Savings Plan (the “Plan”) during the period October 1, 2001 to June 27, 2002 (“the class period”). 2. US Airways, a Delaware Corporation headquartered in Arlington, Virginia, is a certified air carrier engaged in the business of transporting passengers, property and mail primarily in the northeastern United States and Florida. It is the principal operating subsidiary of Group. 3. During the class period, Group’s shares were publicly traded on the New York Stock Exchange. At all times during the class period, the Company Stock Fund was composed primarily of the publicly traded Group shares and the remainder in cash. 4. Plaintiff Vincent D. DiFelice, a citizen of Pennsylvania, has been employed by U.S. Airways as an aircraft mechanic since January 3, 1990. He was a participant in the Plan throughout the class period, and at certain times during the class period, he invested a significant percentage of his 401 (k) account in the Company Stock Fund. B. The U.S. Airways 401(k) Plan 1. The Plan 5. At all relevant times, U.S. Airways maintained a defined contribution plan under Section 401 (k) of the Internal Revenue Code of 1986, 26 U.S.C. § 401(k), for the benefit of its employees covered by certain bargaining agreements, including flight attendants represented by the Association of Flight Attendants, and mechanics represented by the International Association of Machinists and Aerospace Workers. 6. The relevant documents governing the Plan consisted of the U.S. Airways, Inc. 401(k) Savings Plan, as amended, and the Trust Agreement for U.S. Air, Inc. 401(k) Savings Plan which is incorporated by reference. The Company also provided participants with several documents describing their rights and obligations under the Plan in greater detail, including the Summary Plan Description (“SPD”), and several investment brochures describing the Plan’s investment options. As the Plan documents reflect, the Plan’s stated purpose was “to provide retirement income” to the participants. The Plan documents also stated that the Plan was “intended to operate for the exclusive benefit of eligible employees and their beneficiaries.” 7. The Plan was a participant-directed defined contribution plan that provides an individual account for each participant. Each participant’s benefit was based solely on the value of his or her individual account, i.e., the contributions to the account plus any earnings and less any losses or allocated expenses. 8. The Plan permitted participants to contribute up to 15% of their salaries to the Plan on a pre-tax basis. In addition to a participant’s contributions, U.S. Airways matched the contributions of certain employees up to a specified level. These matching contributions could not be invested in the Company Stock Fund. 9. The Plan provided: “The Company shall enter into a Trust Agreement with a Trustee, setting forth the terms, provisions, and conditions pursuant to which the Trustee shall hold, manage and administer all assets of the Plan in Trust.” The Plan further provided: “The terms and provisions of the Trust Agreement are hereby incorporated into the Plan by reference.” Pursuant to these provisions, the Company entered into a Trust Agreement with Fidelity dated January 1, 1993. Fidelity remained the directed trustee of the Plan throughout the entire class period. 10. Consistent with the Plan, the Trust Agreement states that the Trust was established “for the exclusive benefit of employees and their beneficiaries .... ” 2. US Airways’ Responsibilities Under the Plan 11. The Plan designated U.S. Airways as the administrator of the Plan for purposes of ERISA and the Internal Revenue Code. Particularly pertinent here is the Plan provision designating U.S. Airways as a named fiduciary with the authority “to employ such attorneys, agents, and accountants as it may deem necessary or advisable to assist in carrying out its duties hereunder 12. The Plan granted U.S. Airways the discretionary authority to select or remove alternative investment funds. 13. Neither the Plan nor the Trust Agreement mandated the offering of the Company Stock Fund as an investment alternative. Instead, this was left to U.S. Airways’ discretion, the Plan stating that “[t]he Company may, in its discretion, terminate any Investment Manager and any Investment Fund.” Likewise, the Trust Agreement stated, “Investment vehicles which the Company may select shall be limited to any investment options set forth in Schedule C that may be attached to and made part of this Agreement .... ” Schedule C to the Trust Agreement stated during the class period: “The Company may select as investment vehicles only from among the following investment options: .... (vi) employer securities issued by USAir Group, Inc.” 14. The Trust Agreement stated: “Any investment by the Trustee in employer securities shall be made in accordance with the provisions of Article VIII.” Article VIII, in turn, provided that Trust investments in employer securities shall be made via the Company Stock Fund. Further, Section 8.3 of’ the Trust Agreement, entitled “Fiduciary Responsibility for Investment in Company Stock,” stated that: “The Company shall continually monitor the suitability under the fiduciary duty rules of Section 404(a)(1) of ERISA (as modified by Section 404(a)(2)) of acquiring and holding Company Stock.” 3. The Pension Investment Committee 15. In accordance with the terms of the Plan, U.S. Airways delegated the authority to select, monitor, and terminate investment options under the Plan to the Pension Investment Committee (“PIC”). The PIC reported to the Human Resources Committee of the Board of Directors (the “HR Committee”), which in turn reported to the full Board of Directors. 16. The PIC had the responsibility and authority to make decisions regarding investment policy and investment options offered with respect to the Plan, as well as the responsibility and authority to monitor the prudence of investment options. 17. During the class period, the following persons were members of the PIC: Ben Baldanza, Senior Vice President — Marketing & Planning; Michelle Bryan, Executive Vice President — Corporate Affairs and General Counsel and Senior Vice President — Human Resources; Neal Cohen, Executive Vice President and Chief Financial Officer; and Thomas Mutryn, Senior Vice President — Finance and Chief Financial Officer. Ben Baldanza served as a member of the PIC during the entire class period. Michelle Bryan also served on the PIC throughout the class period. Thomas Mutryn served as a member of the PIC from the beginning of the class period until on or about April 8, 2002. Neal Cohen then replaced Thomas Mutryn and served on the PIC from April 8, 2002 until at least the end of the class period. All of these officers had significant experience in the airline industry and, as part of their responsibilities with the Company, they were all well aware on a daily basis of U.S. Airways’ business and financial situation. 18. The PIC met on a regular basis to review the performance of investment options provided in the Plan, and to consult with financial advis-ors. During the class period, the PIC formally met on four dates: November 16, 2001; December 12, 2001; January 22, 2002; and June 3, 2002. The PIC also met informally on various other occasions during the class period. These informal meetings of the PIC became more frequent as the Company focused on successfully completing its voluntary restructuring plan in May 2002. 19. The Treasurer of the Company, Jeff McDougle, the Director of Pension Investments, Janice Emery, the Assistant General Counsel, Jennifer McGarey, and outside investment consultants also attended PIC meetings for the purpose of providing PIC members advice and information relevant to Plan investments. 20. Prior to PIC meetings, Janice Emery, Director of Pensions, typically circulated an agenda and various written materials to the members, including reports, summaries, and other documents covering such subjects as employee participation rates in the Plan, the performance of funds offered in the Plan, general market trends, asset allocation among funds, the holdings of the Company Stock Fund as a percentage of total market capitalization, the risk and reward characteristics of the funds, the number of participants invested only in the company Stock Fund, and other data. Among the reports PIC members considered were the U.S. Airways Defined Contribution Plans Quarterly Performance Reports prepared by ■ the Company’s outside consultants. PIC members also received general background information and news articles, and reviewed financial reports that were presented during the Board of Directors meetings, as well as internal reports of the Company’s financial performance. 21. During its meetings, the PIC also reviewed the Company Stock Fund in conjunction with its review of all investment options in the defined contribution plans. As senior executives of the Company, PIC members were well aware on a daily basis of Group’s stock price and were therefore also aware of the Company Stock Fund’s performance. Additionally, Mr. Mutryn reviewed Wall Street estimates and investment analyst recommendations regarding Group’s shares. 22. In addition to its regular meetings, the PIC also reported to the HR Committee twice a year. These reports covered a range of subjects relating to the Company’s defined contribution and defined benefit plans and the PIC’s activities. These reports typically included a slide presentation and/or written materials. Included in the PIC’s reports to the HR Committee were data on the market value of the Company Stock Fund and the percentage of Plan assets held in the Company Stock Fund. A The Plan Investment Options and the Company Stock Fund 23. In addition to the Company Stock Fund, the investment options available to Plan participants at all times during the class period included the following investment funds: Fidelity Magellan, Fidelity Spartan U.S. Equity Index, Fidelity Equity Income, T. Rowe Price Small Cap Stock, Neuberger Ber-man Guardian Trust, Putnam International Equity, Capital Growth Mix Portfolio, Moderation Mix Portfolio, Income Mix Portfolio, MSIFT U.S. Core Fixed Income, Fixed Income (Stable Value) Fund, and Fidelity Retirement Gov’t Money Market. 24. These investment options presented Plan participants with a range of choices along the risk/return spectrum, and therefore allowed participants to construct a portfolio consistent with their investment goals. 25. The Company Stock Fund consisted primarily of Group’s publicly traded shares, plus an amount of cash sufficient to satisfy the Fund’s needs for transfers and payments. In this regard, the Trust Agreement specifically stated that the Company Stock Fund would consist of Group stock and short-term liquid investments “necessary to satisfy the Fund’s cash needs for transfers and payments.” During the class period, U.S. Airways had discretion to determine the percentage mix between Group stock and cash in the Company Stock Fund, and at all relevant times directed the Trustee to keep approximately 10% of the Company Stock Fund in cash. 26. Participants’ investments in the Company Stock Fund were limited to “units of participation” in the whole fund, rather than shares of Group stock, with such units representing a proportionate interest in all of the assets of the Fund. Because the Company Stock Fund consisted primarily of shares of Group’s common stock, the performance of the Company Stock Fund correlated closely with the performance of Group shares. And because the Company Stock Fund had a 10% cash component, the Company Stock Fund was a less risky investment than owning Group shares outright. For the same reason, any increase in the percentage of the Fund’s cash component would decrease the risk associated with an investment in the Company Stock Fund. 27. The unit price for the Company Stock Fund at the start of the class period on October 1, 2001 was $7.99. The unit price for the Company Stock Fund at the close of the class period on June 27, 2002 was $7.02. During this period, the unit price ranged from a high of $14.53 to a low of $5.43. 5. The Participants’ Authority Under the Plan 28. While the Plan delegated to U.S. Airways the authority to select and maintain the pool of available investment options, it specifically delegated to the Plan participants the authority to select one or more of these available options in which to invest their account assets. Thus, during the class period, the Plan allowed participants to allocate their Plan account assets among 13 different investment options, including a money market fund, a fixed income fund, various mutual funds, several diversified portfolio funds, and the Company Stock Fund. Participants alone decided how much money to contribute to their Plan accounts (within certain legal limits) and how much money to invest in each investment option. 29. In addition, at any time and without any restrictions, participants could change their investment elections and transfer funds from one investment option to another. Thus, at all times, participants were free to halt contributions to the Company Stock Fund and reallocate prior investments in the Company Stock Fund to other investment alternatives in the Plan. Further, a participant who exchanged out of the Company Stock Fund could not exchange back into the Company Stock Fund for 30 calendar days. 6. US Airways’ Disclosures to Participants Concerning Investment Strategy 30. US Airways delivered to each Plan participant a copy of the SPD describing the various investment options available in the Plan and the mechanics of investing in the Plan. 31. The SPD repeatedly advised participants that they were each individually responsible for directing investments in their account. Significantly, the SPD also advised participants that the Plan was intended to comply with Section 404(c) of ERISA, which protects fiduciaries from liability for complying with participant directions, and explained that participants alone were “responsible for any losses which result from investment elections” they made. 32. Also important, U.S. Airways specifically and repeatedly explained to Plan participants in various publications directed to them, the importance of diversifying their investments among various asset classes with different risk/return profiles, and characterized investments in the Company Stock Fund as “involving more risk” than investments in a diversified fund. 33. For example, in the brochure entitled “More Choices When Considering Your Next Move,” which U.S. Airways distributed to all Plan participants in late 1998, U.S. Airways explained that “[w]ith [the Plan’s] wide-variety of investment choices, you may create the portfolio — that is, mix of investments — that is right for you based on your financial goals, comfort level with risk, and investment time frame.” 34. In the same brochure, U.S. Airways also explained that participants should “Mix Your Investments to Lower Your Risks,” and further explained that: Most financial experts recommend that you spend your money among three basic investment types — stocks, bonds and short-term/money market investments. That way, the growth potential of stocks, the income potential of bonds, and the safety of short-term/money market investments can be combined to meet your particular investing goals and minimize your investment risk. If you put your money in two or more investment types, then the poor performance of one investment may be offset by the good performance of other investments. Mixing your investments this way is called “diversifying.” 35. In the “Destination Retirement” investment brochure distributed to participants, U.S. Airways again told participants to “Mix Your Investments To Help Lower Risks.” US Airways explained to participants that: If you put all your money into one investment or investment type and it doesn’t perform well, then your entire portfolio may not perform well and you may not reach your financial goals ---- That’s why most financial experts recommend that you spread your money among the three basic investment types — growth, income and preservation of principal ____ Mixing your investments this way is called “diversifying.” Diversification does not ensure a profit or guarantee against loss. 36. The same brochure explained to participants that: [y]our Plan offers a range of investment options to choose from. The investment options differ in their objectives, giving you the flexibility to choose investments to match your goals. Some are conservative and relatively low risk; others are aggressive and take more risks in their search for potentially higher gains. You choose how much you contribute and where to invest money. 37. Finally, the Destination Retirement brochure explained to participants that they should “Consider Both Risk and Return” and further explained that: [i]n choosing your investments, be sure you consider the risks and potential for return associated with each investment. There are two basic types of risk — investment risk and inflation risk. Investment risk is the risk that the value of your investment will go down. Generally, investments with greater investment risk (such as stocks) are less stable (subject to ups and downs of the stock market).... 38. In addition to these notices and advices, U.S. Airways specifically warned participants about the risks of investing in the Company Stock Fund, telling participants that the Company Stock Fund was not a mutual fund and, therefore, was not diversified or managed by a portfolio manager or by Fidelity. Further, U.S. Airways explicitly warned participants that the Company Stock Fund was the highest-risk fund offered under the Plan, and participants were provided charts showing that the Fund was the most volatile Plan investment option, with prior investment returns reflecting a 67% loss in one year, followed by a 211.76% gain the next year. 39. US Airways also warned participants that “[ijnvesting in a non-diversified single stock fund involves more risk than investing in a diversified fund,” and that only “[sjomeone who does not rely on this fund for his/her entire portfolio” should invest in the Company Stock Fund. Additionally, U.S. Airways expressly cautioned participants against investing more than 10% of their assets in the stock of a single industry. 40. Finally, the SPD specifically referred to the Company Stock Fund, and reiterated that U.S. Airways and Fidelity “cannot and do not guarantee the performance of the [Company Stock] Fund and have no obligation to compensate for any losses suffered by any participant should any such losses occur.” 41. Thus, U.S. Airways provided the participants with considerable instruction about the need to diversify among investments with different risk/return characteristics, and specifically informed participants about the risk/return characteristics of the Company Stock Fund. 7. The Modem Portfolio Theory 42. US Airways’ advice to Plan participants reflects the sound and generally accepted view in the investment community that diversification among different types of investments is the appropriate way to optimize an investor’s overall return while minimizing the investor’s aggregate risk. This view is generally referred to as the “modern portfolio theory.” The acceptance of the portfolio management theory by the investment community was confirmed by the testimony of plaintiffs experts Dr. Edward Altman and Helen Peters, as well as by the testimony of defendant’s expert John Peavy. 43. According to modern portfolio theory, investors appropriately measure risk and return as the combined risk and return profile of a portfolio of investments, and not the risk/return characteristics of an individual security included in the portfolio. Because investment returns on different assets are not perfectly correlated with each other, a portfolio of investments is less risky than the average risk of the individual investments. In fact, seemingly risky securities may be portfolio stabilizers and actually may lower the risk of the overall portfolio. Thus, according to modern portfolio theory, diversification among a variety of assets is an important means to control portfolio risk. 44. The investment options offered within the Plan provided participants the opportunity to minimize their investment risk for a given desired return through diversification. The Plan offered investment options in all major asset classes and each participant was free to allocate his or her employee contributions among the available investment alternatives. 45. As previously mentioned, in addition to the Company Stock Fund, U.S. Airways provided participants in the Plan with twelve different investment options offering varying levels of risk and return characteristics. The Plan offered options with a broad array of investment categories, including money market funds, stable value, income, growth and income combined, growth, and higher risk international mutual funds. There was at least one fund for each category type, including the lower risk Fixed Income Fund, the moderate risk Fidelity Equity-Income Fund, and the higher risk Fidelity Magellan and Putnam International Growth funds. Additionally, the Plan’s three different pre-selected diversified portfolio mixes — one for lower risk tolerances, one for moderate risk tolerances, and one for high-risk tolerances — provided participants with the ability to select a diversified investment portfolio based on his or her risk preferences. In sum, the Plan’s investment options were appropriate and sufficiently diverse to allow participants to choose options to result in a portfolio mix that achieved their individual desired level of risk and return. C. The Events of the Class Period 1. The View from October 1, 2001 46. Any objective investigation of the prospects of U.S. Airways’ business on October 1, 2001, three weeks after the September 11 terrorist attacks, would disclose a company facing serious hurdles, with its long-term success, and indeed viability, in doubt. 47. In the fiscal year prior to the beginning of the class period, U.S. Airways had the highest cost structure of any major airline in the United States airline industry. The airline industry measures its cost in terms of the cost per available seat mile. Group’s Form 10-K for the fiscal year ended December 31, 2000 stated as follows: US Airways’ unit operating cost, or operating cost per available seat mile (ASM), is one of the highest of all the major domestic ah- carriers. US Airways’ pro forma unit operating cost was 12.72 cents for 2000.... By contrast, Delta reported unit operating costs of 9.30 cents for calendar year 2000, and Southwest reported unit operating costs of 7.73 cents for the same period. 48. While the cost differential between U.S. Airways and other major airline carriers declined slightly in 2001, Group remained by far the highest cost carrier of all major domestic air carriers. Group’s Form 10-K for the fiscal year ending December 31, 2001 stated: US Airways’ unit operating cost ... is the highest of all major domestic carriers .... U.S. Airways’ unit operating cost was 12.46 cents for 2001 .... By contrast, Delta reported unit operating costs of 10.14 cents for 2001, and Southwest reported unit operating costs of 7.54 cents for the same period. 49. Among the factors contributing to U.S. Airways’ high operating costs were the relatively short “stage lengths” of its flights. Stage length is the term used to describe the average distance of an airline’s flights. Generally, the cost per mile flown decreases for longer stage lengths. 50. In addition to high costs, U.S. Airways’ revenues during and before the class period were negatively affected by the overall economic decline associated with the burst of the dot-com bubble in 2000. This adversely affected U.S. Airways because it relied heavily on business fares. 51. US Airways’ revenues were also adversely affected by significant competition from the four low-fare carriers in its markets, including Southwest Airlines, JetBlue, AirTran and Delta Express. US Airways considered this low-fare competition to be its “foremost competitive threat.” As stated in Group’s 2001 Form 10-K: The Company considers the growth of low-fare competition and the growing presence of competitors’ regional jets in certain of its markets to be its foremost competitive threat. Recent years have seen the entrance and growth of low-fare competitors in many of the markets in which the Company’s airline subsidiaries operate. These competitors, based on low costs of operations and low fare structures, include Southwest Airlines Co. (Southwest), AirTran Airways, Inc. and JetBlue Airways as well as a number of smaller start-up air carriers. Southwest has steadily increased operations within the Eastern U.S. since first offering service in this region in late 1993. Delta Air Lines, Inc.’s (Delta) low-fare product, “Delta Express,” operates primarily in this region and has grown substantially since its 1996 launch.... 52. These difficulties were reflected in U.S. Airways’ financial results. For the year .ending December 30, 2000, Group recorded a net loss of $166 million before the effect of an accounting change relating to dividend miles, and a net loss of $269 million after the net effect of the accounting change was taken into account. These losses continued throughout the first two quarters of 2001 with Group recording a net loss of $163 million for the first three months of 2001, and a net loss of $24 million in the quarter ended June 30, 2001. 53. US Airways had attempted to address its business problems by entering into a definitive merger agreement, signed on May 23, 2000, with UAL Corporation, United Airlines Inc.’s parent corporation, and Yellow Jacket Acquisition Corp., a subsidiary of UAL Corp. formed for the purpose of the merger. On consummation of the merger, shareholders of Group were to receive $60 per share of Group stock. US Arways expected to benefit substantially from this merger and the resulting synergies from combining the two airlines. The market’s initial reaction indicated its considerable confidence in the ability of the two airlines to consummate the merger. On May 23, 2000, the price of Group Stock closed at $26.3125 per share. Following the announcement of the proposed merger, Group Stock closed the next day at $49.00 per share. The proposed merger with UAL was approved by Group’s shareholders on October 12, 2000. 54. The tentative merger agreement restricted U.S. Airways from implementing changes to its business model, such as changing its route structure, during the pendency of the merger. 55. On February 7, 2001, while the merger was still pending, the Company’s Chairman, Stephen M. Wolf, testified before the Judiciary Committee of the United States Senate, which was holding hearings on airline consolidation. In his prepared testimony before the Senate Judiciary Committee, Chairman Wolf stated as follows: Today I am more concerned than ever about U.S. Airways’ status. In today’s extremely competitive marketplace, there are only two platforms on which to operate an airline successfully. There is the low-cost, low-fare business model represented by carriers such as AirTran, America West, JetBlue and Southwest, and the mature, full service network carriers such as American, Continental, Delta, Northwest and United. US Airways is neither, and there is no place for a “neither.” This is simply an economic reality. For the 45,000 employees of U.S. Airways and the communities we serve, the status quo is simply not an option. Senators, there are two certainties. One, U.S. Airways does not have the financial wherewithal to become a large network carrier. Two, you cannot shrink an airline to profitability. 56. During his video-taped testimony, Mr. Wolf retreated somewhat from this categorical statement (obviously intended to generate Congressional support for the pending merger), indicating that he had always believed a restructuring would be a possible, but more difficult, solution to the Company’s long-term business problems. 57. In his prepared statement to the Senate Judiciary Committee, Mr. Wolf also referenced five other airlines he considered to be of a similar size and nature as U.S. Airways, and indicated that of those five, three had “disappeared completely” and the other two “have gone through multiple bankruptcies.” He then added that, while neither of those options is an attractive alternative, “[t]hey are, however, real threats given U.S. Airways’ unique position.” Given this reality, U.S. Airways’ management’s focus during this period was on completing the merger with United Airlines. 58. Notwithstanding U.S. Airways’ stated reliance on the successful completion of the merger, and Chairman Wolfs testimony to Congress, the Department of Justice (“DOJ”) indicated on July 27, 2001 that it intended to file a lawsuit to block the merger. As a result, U.S. Airways and United terminated the proposed merger. At this point, Group shares had fallen in value from their post-announcement highs and closed at $17.26. 59. Immediately after the DOJ blocked the merger, U.S. Airways began working on a restructuring plan that would enable it to compete in the marketplace as a stand-alone airline. The new business plan was designed to streamline the Company’s operations by employing smaller aircraft and becoming more of a commuter, or regional carrier. 60. Specifically, on August 15, 2001, the Company announced a three-phase strategic restructuring plan to improve its financial performance. The first phase (which was expected to reduce costs by $439 million) focused on (i) adjusting the Company’s route network, (ii) adjusting its capacity both in the aggregate and in particular markets, (iii) joining a global alliance, and (iv) reducing non-labor costs. The second phase involved increasing the number of regional jets flown, and the third phase focused on reducing the Company’s labor costs through negotiations with the various unions to eliminate the existing unsupportable wage parity with the four largest carriers. 61. Before any significant progress had been made on the Company’s restructuring plan, the Company was dealt a further blow by the terrorist attacks of September 11, 2001. These attacks were devastating to the airline industry and to U.S. Airways in particular. Indeed, in response to the September 11, 2001 attacks, the federal government grounded all civilian aircraft operating in United States airspace for three days. Additionally, the federal government closed Ronald Reagan National Airport, where U.S. Airways had substantial operations, for three weeks, not reopening until October 4, 2001. Even upon reopening the airport, the government only allowed airlines to reinstate service in stages. As a result, as of March 22, 2002, U.S. Airways was only operating 77% of its pre-September 11 departures from Ronald Reagan National Airport. The government did not permit airlines to return to their pre-September 11 service levels at Reagan National Airport until April 15, 2002. 62. Chairman of the Board, Stephen Wolf was quoted in the press as stating to shareholders at a September 19, 2001 meeting, as follows: We have never seen such a cataclysmic fall-off in revenue. We have got to get our costs down dramatically— dramatically — if we’re going to be here tomorrow.... I want to make perfectly clear that the bad thing that could happed is not filing Chapter 11 bankruptcy. The end bad thing that could happen is the elimination of our company if we don’t have the cash to operate. 63. The market’s reaction to September 11 was swift and negative, reflecting not only the significant damage to U.S. Airways’ business prospects, but also the considerable uncertainty concerning possible further terrorist strikes and the government’s response to such attacks. 64. The price for a single share of Group stock dropped nearly 65% from a September 10, 2001 price of $11.62 to a September 27, 2001 price of $4.10. This drop was mirrored in the unit price of the Company Stock Fund which dropped 59%, from $18.04 per unit to $7.38 per unit, over the same period. 65. The bond rating agencies also reacted to U.S. Airways’ misfortune. Moody’s downgraded the Company’s debt on September 14, 2001 from B1 to B2. Historically, 6.23% of companies with a B2 rating default within one year, and 13.70% of companies with a B2 rating default within two years. Standard & Poor’s downgraded its rating of the Company’s senior secured debt on September 20, 2001 from a “B” rating to a “CCC+” rating. According to Standard & Poor’s a “CCC + ” rating indicates that the debt is vulnerable to nonpayment, and is dependent upon favorable business, financial, and economic conditions for the obligor to meet its financial commitment on the obligation. Furthermore, an obligor with a “CCC” rating is not likely to have the capacity to meet its financial commitments on its obligations in the event of adverse business, financial, or economic conditions. 66. To advance his argument that U.S. Airways was on the cusp of bankruptcy throughout the class period, plaintiff presented the expert testimony of Dr. Edward Altman who has created a family of mathematical models that combine traditional financial statement ratios with a statistical multi-variant technique, known as discriminant analysis, to arrive at an overall score to classify and predict a firm’s likelihood of going bankrupt. These models are known as the “Altman Z-Score Models.” After applying his models to U.S. Airways, Dr. Altman concluded that “US Airways was in severe financial distress over the entire [class] period, and with a very high likelihood of bankruptcy potential, particularly after September 30, 2001.” 67. Because it was based almost entirely on Group’s historical financial metrics, Dr. Altman’s model did not take into account either the possibility that U.S. Airways would be able to restructure voluntarily thereby significantly reducing its costs, or the possibility that U.S. Airways would be able to address its liquidity problems by obtaining a federal loan guarantee. Indeed, in this respect, Dr. Altman cited Chrysler Corporation as one of the few examples of a company that was in a similarly distressed situation but was nonetheless able to avoid bankruptcy through assistance from the federal government. In sum, Dr. Altman’s models do not take account of future events that might impact the likelihood of bankruptcy. The credit rating agencies do consider these factors, and according to the credible testimony of Nell Hennessy, the President and CEO of Fiduciary Counselors, it is for this reason that fiduciaries typically rely on the credit rating agencies rather than the Altman Z-Score models when assessing the likelihood of bankruptcy. 68. Furthermore, Dr. Altman conceded that investing in high-yield (i.e., very risky) securities as part of a diversified portfolio is appropriate, even for managers of pension plans. 69. Finally, because the impact of the terrorist attacks of September 11, 2001 and U.S. Airways’ uncertain business prospects were already reflected in Group’s share price, investment analysts were essentially neutral on their outlook for Group shares. Of the eight analysts covering the stock on September 30, 2001, six issued a “Hold” rating, one had a “Buy” rating, and one had an “Underperform” rating. As might be expected, a “Hold” rating indicates that the security will perform in line with the market, a “Buy” rating indicates that the security is predicted to outperform the market and an “Underperform” rating indicates that the security is expected to underperform relative to the market. 2. US Airways’ Response to September 11, 2001 70. A U.S. Airways Special Bulletin issued to employees on September 24, 2001 described the effect of the attacks, and the steps U.S. Airways’ management was forced to take as a result: The teiTorist attacks of Sept. 11 have had a catastrophic effect on the airline industry, and U.S. Airways now finds itself in the position of having to struggle for its very survival. Last week, U.S. Airways announced that it would be forced to reduce its system by 23 percent and cut back its workforce by about 11,000 employees due to the aftermath of these attacks and subsequent war emergency .... This is a desperate situation for our company .... While bankruptcy is not imminent, it is not impossible, and none of the tools available to any U.S. business can be ruled out. Everything depends on how quickly our customers return and how quickly we can bring down our costs, (emphasis added). 71. In addition to the cost-cutting measures outlined above, on September 25, 2001, U.S. Airways announced a strategic plan to include converting the equipment used for many of its jet flights to more efficient regional jet and turbo-prop aircraft beginning October 7, 2001. US Airways also announced that in “response to the sharp decline in demand as a result of the events of September 11,” the Company would be retiring three types of aircrafts from its fleet, which was projected to result in significant cost savings. 72. US Airways’ restructuring plan also included deferring certain capital expenditures and closing several reservation centers, U.S. Airways Club facilities and city ticket offices. 73. In an October 30, 2001 press release disclosing its third quarter results, U.S. Airways commented on its post-September 11 outlook as follows: US Airways and other airlines today face the most significant challenge in the history of our companies. That challenge is being met at U.S. Airways through a series of major initiatives that will position the company to deal with the current economic environment. At the same time, our core structure remains sound and provides a solid foundation for the future. 74. On November 27, 2001, Rakesh Gangwal resigned from his position as CEO of U.S. Airways. The position of CEO was filled on an interim basis by Chairman Wolf while U.S. Airways began its search for a new CEO. In addition to his experience as Chairman of the Board of Directors for U.S. Airways, Mr. Wolf had previously served as the CEO of UAL Corporation and United Airlines, Inc. 75. As noted, the terrorist attacks of September 11, 2001 had a significantly negative impact on U.S. Airways’ already tight cash position. US Airways addressed its liquidity problems by borrowing against its few remaining unencumbered aircraft and seeking a grant from the government. In November 2001, U.S. Airways raised $404 million by mortgaging certain aircraft to General Electric. In addition, by December 31, 2001, U.S. Airways had received a grant of approximately $264 million from the federal government under the Air Transportation and System Stabilization Act. 76. US Airways commented on these efforts in a January 17, 2002 press release announcing its year end results: US Airways has taken difficult yet necessary steps to create a platform from which the company can move forward. We have eliminated unprofitable flying, retired four fleet types substantially improving our operating efficiencies, deferred new aircraft deliveries, consolidated and closed facilities, and sadly, but necessarily, reduced our workforce significantly. 77. Thus, despite reporting a net loss for the year ended December 31, 2001 of $2,177 billion (or $1,170 billion after excluding unusual items), Group still had $1,078 billion in cash, cash equivalents and short-term investments on hand at the end of the year. 78. Group’s share price recovered somewhat in response to U.S. Airways’ efforts to address the calamity of September 11, reaching a fourth quarter 2001 high of $8.60 per share before ending the 2001 calendar year at $6.34 per share. The unit cost of the Company Stock Fund on December 31, 2001 was $11.08. 3. The PIC’s Reaction and Report to the Human Resources Committee 79. The PIC’s first meeting, after the September 11 attacks, and during the class period, occurred on November 16, 2001. At this meeting, the PIC did not discuss whether to remove the Company Stock Fund as an investment option or to alter its cash to stock ratio. 80. The PIC did discuss the Company Stock Fund at its December 12, 2001 meeting. Associate General Counsel Jennifer McGarey led a discussion regarding U.S. Airways’ potential exposure to litigation for retaining the Company Stock Fund in its 401(k) plans. The discussion specifically highlighted the then recently-filed ERISA suits against Lucent Technologies and Enron, Inc. 81. In considering whether to continue offering the Company Stock Fund as an investment option in the Plan at that time, the PIC considered a number of factors including information contained in the written materials presented to Committee members .prior to the meeting. These written materials included copies of articles discussing lawsuits that had been filed against Enron and Lucent in connection with offering company stock as an investment option in their 401 (k) plans. One article explained that Lu-cent matched its employee contributions in company stock and that 42% of the plan’s assets were invested in the Lucent stock fund. That article further noted that in the year 2000, 68% of participants who had invested in company stock funds in their retirement plans had over 10% of their assets in the company stock fund, with 18% of these individuals investing over 50% of their account in the company stock fund. Another article noted that 19% of all retirement plan assets were invested in company stock in 2000, and cautioned that “15 to 25% is the maximum you want in company stock.” This article further explained that “[e]xacerbating the Enron situation was the fact that the company matched employee 401(k) contributions only in company stock, which employees could not sell until age 50,” and that employees were precluded from transferring out of the fund as the stock price tumbled due to an untimely blackout period. 82. The Plan and the Company Stock Fund did not suffer from the problems alleged in the Enron and Lucent lawsuits, as the Plan did not compel participants to invest in Group stock and, in contrast with the Enron and Lucent cases, there could be no allegation of fraud or deception on the part of U.S. Airways. Further, the PIC considered that as of September 30, 2001, only 3.8% of the Plan’s assets were invested in the Company Stock Fund and only 2.23% of participants were invested exclusively in the Company Stock Fund. This was in contrast to the heavy concentration of participant investments in Enron and Lu-cent company stock. Indeed, the percentages of Plan assets invested by participants in the Company Stock Fund considered by the PIC were well below those recommended in the articles discussing the Lucent and Enron lawsuits. For these reasons, the PIC, acting as the ERISA Plan fiduciary, reasonably concluded that the lawsuits against Lucent and Enron did not suggest or require that the Company Stock Fund should be removed as a Plan investment option. 83. As of December 12, 2001, the date of the PIC’s second meeting during the class period, Group stock, which at the beginning of the class period traded at $4.48 per share, was trading at $6.64 per share, an increase in value of $2.16, or 48%, since October 1, 2001. 84. At the December 12, 2001 meeting, the PIC requested that Ms. McGarey obtain additional legal advice regarding the continued inclusion of the Company Stock Fund as an investment option under the Plan. Pursuant to the PIC’s request, Ms. McGarey contacted outside legal counsel, the late Peter Shinevar of O’Melveny & Myers, LLP, for advice concerning the proper handling of the Company Stock Fund. Mr. Shinevar’s advice was then discussed with Stephen Wolf, U.S. Airways’ interim CEO, who requested that Mr. Shinevar present his advice in writing. 85. In response to this request, O’Mel-veny & Myers prepared a memorandum for U.S. Airways wherein it (1) addressed the legal restrictions imposed by ERISA with respect to investment of defined contribution plan assets in employer stock; (2) reviewed two class action lawsuits filed against other corporations as a result of losses suffered by participants who invested plan assets in company stock funds; and (8) discussed proposed legislation that would limit 401 (k) plan investments in company stock funds. The O’Melveny memorandum explained that many of the legislative proposals being considered — preventing employee matching contributions from being invested only in company stock or requiring plans to permit employees to trade out of a fund consisting primarily of company stock without restriction — would not affect U.S. Airways’ Company Stock Fund because the various U.S. Airways 401(k) plans, including the Plan, already provided participants with the ability to trade out of the Company Stock Fund on a daily basis and did not permit matching contributions to be invested in the Fund. 86. Importantly, the O’Melveny memorandum also explained that the then current case law did not require that a fiduciary must advise participants to sell company stock or cease offering company stock as an investment option merely because the stock has declined in value. The memorandum cited Kuper v. Iovenko, 66 F.3d 1447 (6th Cir.1995), explaining that the “Sixth Circuit found no liability [for breach of fiduciary duty] even though the company stock declined from $50 to $10 per share, because the stock price fluctuated significantly (and thus the decline was not predictable) and several investment bankers recommended the stocks during the relevant periods.” 87. The O’Melveny memorandum also advised that except for one company that was about to file for Chapter 11 (ie., Federal-Mogul), however, we are not aware of any company that has eliminated a Company Stock Fund from its 401(k) plan or even restricted the ability of participants to make new investments in its Company Stock Fund. The best defense against potential liability is a full disclosure of material information about all investment alternatives, including the Company Stock Fund and general advice regarding investment risk. 88. After reviewing the O’Melveny memorandum just prior to the January 15, 2002 Board meeting, the PIC again discussed whether it was prudent to continue offering the Company Stock Fund as an investment under the Plan, and determined that it was prudent to continue offering the Company Stock Fund as an investment option in the Plan. 89. At the HR Committee meeting held on January 15, 2002, which Mr. Mu-tryn and Ms. Emery also attended, Ms. Bryan reported to the HR Committee that, after considering the O’Melveny memorandum, the PIC had concluded that the Plan could continue offering the Company Stock Fund to participants. The HR Committee discussed outside legal counsel’s opinion regarding the Company Stock Fund, and agreed with the PIC’s conclusions. The HR Committee also considered the market values and investment performance of the Company’s defined contribution plans, and specifically the Company Stock Fund. In addition, the HR Committee specifically considered the percentage of all Group shares outstanding held by the Company Stock Fund and the percentage of defined contribution assets and total pension assets represented by the Company Stock Fund. 90. Thereafter, at the January 16, 2002, Board of Directors meeting (which was also attended by Ms. Bryan and Mr. Mutryn), Mathias De-Vito, Chairman of the HR Committee, reported to the full Board, as reflected in the minutes, that the Company’s outside legal counsel had reviewed the legal issues associated with offering the [Company Stock Fund] as an investment option offered under the Corporation’s 401(k) plans in light of the Enron issues and determined that there were not any legal issues involved with offering the Common Stock Fund. The Board of Directors accepted this representation and accordingly took no action with respect to the Company Stock Fund. 91. Thus, the record reflects that as of January 2002, the PIC and the Board of Directors had fully considered whether to continue to offer the Company Stock Fund as a Plan investment option and had determined, based largely on the advice of outside legal counsel, that retaining the Company Stock Fund was not a breach of its fiduciary duty. J. New Leadership and the “Dual Path" Approach 92. US Airways began fiscal year 2002 with decidedly mixed prospects. Although the Company disclosed in its Form 8-K filing announcing its results for fiscal year 2001 that it expected its operating cash flow to be negative $3 million per day through the first quarter of 2002, it also disclosed its expectation that operating cash flow would turn positive in April 2002 as the Company entered a stronger seasonal quarter, the effects of September 11, 2001 dissipated, and the Company’s cost-cutting measures began to bear fruit. 93. This guidance to the investment community was consistent with the internal projections presented to the Board of Directors on January 16, 2002 by then Chief Financial Officer Thomas Mutryn. In his presentation Mr. Mutryn’s “base case” scenario predicted that Group’s cash balance would never drop below $666 million, and that the balance at the end of the year would be $809 million. Even his conservative estimate left Group with a cash balance of $540 million at the close of the 2002 fiscal year. This compares with a $200 to $250 million “threshold level” Mr. Mutryn deemed necessary for the airline to operate. 94. Mr. Mutryn’s liquidity plan included preparing but not filing a federal loan application, and vigorously attempting to improve revenues while reducing costs. His presentation to the Board of Directors did not mention the possibility of bankruptcy, and Mr. Mutryn testified credibly that he did not believe it was a realistic possibility at that point. 95. At this point in time, Wall Street analysts were taking a “wait-and-see” approach with respect to U.S. Airways and its financial prospects. As of January 30, 2002, according to the IBES Compilation of Analyst Ratings, all nine investment analysts covering the stock gave a “Hold” recommendation, an essentially neutral rating that is not indicative of imminent bankruptcy. 96. On March 6, 2002, U.S. Airways hired David Siegel as its President and Chief Executive Officer. Mr. Sie-gel, in turn, hired Neal Cohen to replace Thomas Mutryn as Chief Financial Officer. Upon taking the reins, Mr. Siegel retained Seabury Airline Aviation Consultants (“Seabury”) to assist U.S. Airways with its restructuring. Seabury had successfully assisted America West Airlines in its financial restructuring and attainment of loan financing from the Air Transportation Stabilization Board (“ATSB”). 97. As predicted, U.S. Airways’ losses continued during the first quarter of 2002. For the three month period ending March 31, 2002, Group recorded a net loss of $269 million. 98. Following U.S. Airways’ announcement of its results on April 18, 2002, CEO David Siegel spoke to industry analysts on a conference call. He announced the initiation of a new restructuring plan which would require the participation of all U.S. Airways’ stakeholders. He also stated that the Company would likely apply to the ATSB for a grant to provide liquidity while the Company executed its restructuring plan. Mr. Siegel publicly affirmed Mr. Mutryn’s January 2002 prediction that cash flow would turn positive in the second quarter of 2002, but he admitted the Company would face pressure on its cash position in the third and fourth quarters of 2002 if the restructuring plan were not instituted. 99. The market took the announcement of U.S. Airways’ results, and Mr. Sie-gel’s description of U.S. Airways’ restructuring plan, in stride. The price of a unit of the Company Stock Fund dropped slightly from an April 18, 2002 price of $10.46 to an April 19, 2002 price of $10.24. 100. On May 10, 2002, U.S. Airways filed its Form 10-Q for the three month period ending March 31, 2002. In its filing, U.S. Airways elaborated on its proposed restructuring plan by describing its three key elements: (1) a lower cost structure in which the participation of all key stakeholders including employees, suppliers and financial providers would be essential; (2) a plan for deploying a significant increase in regional jets in the U.S. Airways Express system; and (3) a means to access the significant amount of incremental revenue U.S. Airways could achieve by becoming part of a larger domestic and international network. 101. The Form 10-Q also provided: The Company contemplates that such a restructuring plan would be supported by liquidity assistance in the form of a government-guaranteed loan under the Air Transportation Safety and Stabilization Act (Stabilization Act) referred to below. The Company’s preferred approach, which it is actively pursuing, is to reach an accord with its key stakeholders and obtain assistance under the Stabilization Act on a timely basis in light of its significant liquidity issues. However, because there is no assurance that this will occur, the Company also recognizes that in order to successfully restructure the Company, alternative restructuring scenarios in the context of a judicial reorganization also must be considered. The Company is addressing these scenarios on a contingency basis. 102. The proposed ATSB loan was to be comprised of $900 million of federally guaranteed loans and $100 million from unsecured lenders intended to demonstrate the confidence of the investment community. US Airways lined up Bank of America and Airbus as its unsecured creditors. The ATSB loan process also required U.S. Airways to demonstrate that it had a viable business plan and could demonstrate reasonable assurance that it could repay the loan. 103. Under the heading “Liquidity and Capital Resources,” the Form 10-Q disclosed that the Company’s balance of cash, cash equivalents and short-term investments had been reduced by roughly 50% over the first quarter from over $1 billion to $561 million. This dramatic decrease in U.S, Airways’ cash position was primarily attributable to a loss of $438 million in U.S. Airways operations, and also included the payment of $188 million in ticket taxes which had been deferred from 2001 by the Stabilization Act. In addition, U.S. Airways acknowledged that: The Company continues to be highly leveraged. It has a higher amount of debt compared to equity capital than most of its principal competitors. Substantially all of its aircraft and engines are subject to liens securing indebtedness. The Company and its subsidiaries require substantial working capital in order to meet scheduled debt and lease payments and to finance day-to-day operations. The Company has not generated positive operating cash flow since September 11, 2001. There can be no assurances that the Company can achieve or sustain positive cash flow from operations. In addition, the Company expects there to be pressure on its cash position later in the year, without taking into account the restructuring plan.... 104. This announcement triggered a drop in the price of Group’s publicly traded shares and a corresponding drop in the unit price of the Company Stock Fund, which fell from a closing price of $8.92 per unit on May 9, 2002 to a closing price of $6.73 on May 10, 2002 and fell further to a closing price of $5.72 per unit on May 13, 2002. 105. While acknowledging that the Company would be developing contingency plans for a judicial restructuring, U.S. Airways’ efforts focused chiefly on implementing its strategic plan through a voluntary, out-of-court restructuring. The most formidable challenge to U.S. Airways’ successful restructuring, and the key to a successful loan application with the ATSB, was U.S. Airways’ ability to obtain wage concessions from certain unions. Management’s view at the time, as stated succinctly by Mr. Wolf in Ms testimony, “was always that rational thinking would prevail, rather than having the airline go under.” In other words, management reasonably believed, though erroneously as it turned out, that U.S. Airways employees would choose the certainty of reduced pay and benefits over the uncertainty o