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Arch Coal Inc. defeated a lawsuit by employees accusing it of failing to divest their 401(k) plan of the company’s stock during a three-year period when its value declined from $680 to $1.42 per share ( Roe v. Arch Coal, Inc. , 2017 BL 272483, E.D. Mo., No. 4:15-cv-00910, 8/4/17 ).
This is the third company in the past week to defeat legal challenges to their decision to hold company stock in 401(k) plans. Whole Foods Market Inc. and Target Corp. won similar cases earlier in the week.
The Arch Coal employees’ allegations—that the market was improperly valuing the company stock—were based on publicly available information alone and thus weren’t sufficient to state a claim of fiduciary breach under the Employee Retirement Income Security Act, Judge Carol E. Jackson of the U.S. District Court for the Eastern District of Missouri held Aug. 4.
Allegations of Arch Coal’s “serious deteriorating condition” and “overwhelming debt” are evidence of the company’s impending slide into bankruptcy but don’t establish a special circumstance sufficient to survive dismissal, Jackson said in dismissing the lawsuit.
Since a 2014 U.S. Supreme Court decision that changed the pleading standard for stock challenges under ERISA, judges have almost universally dismissed lawsuits against companies that put their own stock in their workers’ 401(k) plans. Other companies that have recently beat these lawsuits include Reliance Trust Co., Lehman Brothers Holdings Inc., State Street Bank & Trust Co., RadioShack, Citigroup, Eaton Corp., JPMorgan Chase & Co., IBM Corp., and BP Plc.
In 2015, the participants sued Arch Coal, its directors, and Mercer Trust Co. for allegedly failing to monitor the prudence of investing in company stock and continue to allow the investment of their plan assets in Arch Coal stock. The participants allegedly lost tens of millions of dollars in plan assets.
Ruling against the participants, Jackson also dismissed their claims against Mercer, as the plan’s directed trustee—an ERISA fiduciary without discretionary authority that must follow the instructions of the named fiduciary.
Under a Labor Department regulation, there are some circumstances in which a directed trustee may have a duty to not follow a fiduciary’s instruction without further inquiry. Courts have held that a formal bankruptcy filing is the proper trigger for a duty of inquiry by a directed trustee.
In this case, the participants’ allegations didn’t rise to the level that would have required Mercer to make such inquiry because the plan’s investments in the stock were liquidated before the company filed for bankruptcy in January 2016, Jackson said.
Kessler Topaz Meltzer & Check LLP, Blitz Bardgett & Deutsch, and Dysart Taylor Cotter McMonigle & Montemore PC represented the proposed class. Bryan Cave LLP represented Arch Coal. Groom Law Group Chartered and Armstrong Teasdale LLP represented Mercer.
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