The opinion of the court was delivered by: SAUNDRA ARMSTRONG, District Judge
This matter comes before the Court on Calpine's Motion to
Dismiss Plaintiff's Amended Consolidated Complaint [Docket No.
106] and the Committee Defendants' Motion to Dismiss the Amended
Consolidated Complaint [Docket No. 110]. Having read and
considered the papers presented by the parties, the Court finds
this matter appropriate for disposition without a hearing. The
Court hereby GRANTS both Calpine's Motion to Dismiss Plaintiff's
Amended Consolidated Complaint and the Committee Defendants'
Motion to Dismiss the Amended Consolidated Complaint WITHOUT
LEAVE TO AMEND.
Defendant Calpine Corporation ("Calpine" or the "Company"), a
Delaware corporation, is a leading independent power company
engaged in the development, acquisition, ownership, and operation
of power generation facilities and the sale of electricity
predominantly in the United States, but also in Canada and the
United Kingdom. Corrected Amended Consolidated Compl. ("ACC") at
¶ 8. Calpine is also the world's largest producer of renewable
geothermal energy. Id. Calpine is the designated Plan
Administrator and a named fiduciary of the Calpine Corporation
Retirement Savings Plan (the "Plan"), a 401(k) plan established and sponsored by Calpine. Id. at ¶¶ 1, 3, 9-10.
Defendant Investment Advisory Committee ("Advisory Committee")
is a fiduciary delegate of Calpine with the duty and
responsibility to directly monitor the Plan. Id. at ¶ 12.
Through its individual members, the Advisory Committee exercised
discretionary authority with respect to the management,
administration, and oversight of the Plan and the management and
disposition of the Plan's assets. Id. Defendants Kati Miller
("Miller"), Lisa Bodensteiner ("Bodensteiner"), Rick Barraza
("Barraza"), Tom Glymph ("Glymph"), Trevor Thor ("Thor"), Bob
McCaffrey ("McCaffrey"), and Bryan Bertacchi ("Bertacchi") were
members of the Advisory Committee during the relevant period.
Id. at ¶¶ 13-16, 18-20. Defendant Patrick Price ("Price") was
Calpine's Director of Compensation Benefits and Corporate
Employment and also a member of the Advisory Committee during the
relevant period. Id. at ¶ 17.
Plaintiff James Phelps ("Plaintiff") was an employee of Calpine
and a participant in the Plan during the relevant period. Id.
at ¶¶ 1, 3.
At the end of calendar year 2000, Calpine's portfolio included
forty-four power plants, with an aggregate capacity of 4,273
megawatts. ACC at ¶ 53. Twenty five of those power plants were
gas-fired cogeneration plants with a total capacity of 3,385
megawatts and nineteen geothermal power generation facilities
with a total capacity of 888 megawatts. Id. In 2000, Calpine
raised approximately $8.1 billion through equity and bond
offerings and renewal lease financing. Id. at ¶ 55. Due to
"skyrocketing" energy prices, the Company also enjoyed record
earnings. Id. at ¶ 56.
In the Company's 2000 Annual Report, the Company stated:
In the past year, a series of factors have reduced
the supply of power to California, which has resulted
in wholesale power prices that have been
significantly higher than historical levels. Several
factors contributed to this increase. These included:
significantly increased volatility in prices and
supplies of natural gas;
an unusually dry fall and winter in the Pacific
Northwest, which reduced the amount of available
hydroelectric power from that region (typically,
California imports a portion of its power from this
the large number of power generating facilities in
California nearing the end of their useful lives,
resulting in increased downtime (either for repairs
or because they have exhausted their air pollution
credits and replacement credits have become too
costly to acquire on the secondary market); and continued obstacles to new power plant construction
in California, which deprived the market of new power
sources that could have, in part, ameliorated the
adverse effects of the foregoing factors.
Id. at ¶ 67.
On January 5, 2001, Calpine announced that it was increasing
its earnings expectations for 2000 and 2001 to approximately
$1.05 per share for fiscal year end 2000 ("FY00") and to $1.25
per share for fiscal year end 2001 ("FY01"). Id. at ¶ 63. This
earnings announcement exceeded analyst expectations of $0.96 per
share for FY00 and $1.20 per share for FY01. Id. Calpine's
stock climbed to $35.06. Id. at ¶ 54.
On or about February 2, 2001, the Company announced in a press
release that by 2005, it planned to be at 70,000 megawatts of
electric generating capacity. Id. at ¶¶ 58, 64. On February 6,
2001, the Company announced that, before the taking of an
extraordinary charge, net income for FY00 was $324.7 million.
Id. at ¶ 64. This represented a 238% increase over the
Company's 1999 net income. Id.
On February 28, 2001, the Company announced that it had signed
two long-term power sales contracts with the California
Department of Water Resources ("CDWR"), providing up to $8.3
billion in potential revenues. Id. at ¶ 65. On or about March
15, 2001, the Company filed its FY00 Form 10-K with the
Securities Exchange Commission ("SEC").
On December 9, 2001, an article was published in the New York
Times regarding Calpine's relationship with Enron. Id. at ¶¶
59, 93. The article noted in part:
Gains from trading energy commodities and energy
derivatives made up the difference. For the first
nine months of 2001, 10 percent of Calpine's $1.1
billion in gross profit came from derivatives trading
activity, which because of the way the company
accounts for the transaction flows directly into the
income statement. Another 18 percent came from
trading energy itself.
. . .
Enron was the biggest player in that field, and the
resemblance is not coincidental. Mr. Posoli, who
created Calpine's trading arm, came to the company
from Enron. He spent most of his four years at Enron
in the group that traded energy derivatives before
joining Calpine in 1999.
. . .
In the third quarter of 2001, $768 million, or 26
percent, of Calpine's revenue came from Enron. Also
in the quarter, Enron bought 6.5 million megawatt
hours of electricity from Calpine. Dividing revenue
generated by Enron by the megawatt hours it bought
from Calpine produces an average cost per megawatt
hour of $119.13 to Enron.
This Cost is significantly higher than what other
Calpine customers paid in the same period. Calpine's
revenue for all megawatt hours sold during the third
quarter averaged just over $84. Sales to non-Enron
customers averaged a rate of $75.48 per megawatt
. . .
But a search through energy commission's filings back
to February 2000 shows only one other power sale
agreement that Calpine struck with Enron and that
was one covering Jan. 13 and 14, 2001. This
transaction could not account for the third-quarter
Id. at ¶ 93.*fn1
By December 14, 2001, Moody's Investors Service announced that
it would cut the credit rating on Calpine's $11.6 billion of debt
to "junk." Id. at ¶ 59. Subsequently, Calpine's shares
plummeted from a starting price of $21.37 at the opening of
trading on December 10, 2001 to a closing price of $13.20 on
December 14, 2001. Id. at ¶ 60.
On April 22, 2002, Calpine settled with the Attorney General of
California, thereby ending the State's investigation into
allegedly illegal electricity pricing practices in California.
Id. at ¶ 84. Calpine paid $6 million in fines. Id.
On January 28, 2004, Calpine settled with the Commodity Futures
Trading Commission ("CFTC"), thereby ending the CFTC's
investigation regarding allegedly improper energy trade
reporting. Id. at ¶ 96. Calpine paid $1.5 million in fines.
In May 23, 2004, Peter Cartwright, the Company's founder,
Chairman of the Board, and Chief Executive Officer, publicly
stated that Calpine's relationship with Enron was minimal and
that other market and regulatory factors were ...