Breach of Fiduciary Duty

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Yesterday, in Retirement Plans Committee of IBM v. Jander, No. 18-1165, 2020 WL 201024 (U.S. Jan. 14, 2020), the U.S. Supreme Court vacated and remanded a closely watched ESOP breach of fiduciary duty case to the Second Circuit Court of Appeals.  The High Court’s per curiam decision is a short one so allow me to give you some background to understand the full picture.

In December 2018, the Second Circuit issued a decision in Jander v. Ret. Plans Comm. of IBM, 910 F.3d 620 (2d Cir. 2018), cert. granted, 139 S. Ct. 2667, 204 L. Ed. 2d 1068 (2019), and vacated and remanded sub nom. Retirement Plans Committee of IBM v. Jander, No. 18-1165, 2020 WL 201024 (U.S. Jan. 14, 2020), where it addressed the question of what standard one must meet to plausibly allege that fiduciaries of an employee stock option plan (“ESOP”) have violated ERISA’s duty of prudence.
Continue Reading Supreme Court Sends Closely Watched Fiduciary Duty Case Back to the Second Circuit Court of Appeals

What do you do if you’re a milling and animal feed manufacturer saddled in scandal because you produced horse and cattle feed containing a fatal amount of monensin?  Apparently, you sell your stock to an ESOP at an overly inflated price.  That’s at least what the plaintiff alleges in this week’s notable decision, Zavala v. Kruse-Western, Inc., et al., No. 119CV00239DADSKO, 2019 WL 3387102 (E.D. Cal. July 26, 2019).  

Following Kruse-Western’s expensive settlements related to monensin poisoning of horses and cattle, and allegedly with the knowledge of significant future liabilities, the Western Milling Employee Stock Ownership Plan (the “ESOP”) was created.  Zavala, a current ESOP participant, alleges various violations related to the sale of Kruse-Western stock to the ESOP.  The ESOP purchased the stock from Kruse-Western and the other defendant “selling shareholders,” which the ESOP financed by borrowing the entire purchase price of $244 million from Kruse-Western.  The value of Kruse-Western stock fell shortly thereafter, with only marginal recovery, such that within two years of the ESOP’s creation, the ESOP had purchased Kruse-Western’s outstanding stock for nearly ten times its actual value.  And like monensin, that’s a hard pill to swallow.
Continue Reading Dudenhoeffer Does Not Defeat Breach of Fiduciary Duty Claims Related to ESOP Purchase of Inflated Company Stock

Good morning, ERISA Watchers!  It’s been a beautiful sunny weekend here in San Francisco.  Unfortunately, it hasn’t been so sunny for participants investing in SunEdison stock.  This week’s notable decision is Usenko v. MEMC LLC, No. 18-1626, __F.3d__, 2019 WL 2344827 (8th Cir. June 4, 2019), where the Eighth Circuit affirmed the district court’s dismissal of this putative class action alleging that Defendants breached their duty of prudence with respect to keeping SunEdison stock in the defined-contribution retirement savings plan.  Plaintiffs alleged that Defendants knew, or should have known, that between July 20, 2015 and April 21, 2016 that SunEdison was in poor financial condition and they should have removed SunEdison stock from the plan’s assets.  
Continue Reading Second and Eighth Circuits Affirm Dismissal of Imprudent Investment Lawsuits Involving SunEdison Stock