Pension & Benefits Daily™ covers all major legislative, regulatory, legal, and industry developments in the area of employee benefits every business day, focusing on actions by Congress,...
Reliance Trust Co. isn’t liable for the losses suffered by SandRidge Energy Inc. employees who invested their retirement savings in the natural gas company’s stock as it declined into bankruptcy, a federal court ruled ( Gernandt v. SandRidge Energy, Inc. , 2017 BL 263965, W.D. Okla., No. 5:15-cv-00834, 7/28/17 ).
SandRidge’s plan participants didn’t plead sufficient facts to meet the special circumstances required by a 2014 U.S. Supreme Court decision that altered the standard of pleadings for stock challenges under the Employee Retirement Income Security Act, Judge Timothy D. DeGiusti of the U.S. District Court for the Western District of Oklahoma held July 28.
Granting Reliance’s motion to dismiss, DeGiusti said that the U.S. Court of Appeals for the Tenth Circuit—which reviews decisions from Oklahoma district courts—hasn’t addressed what special circumstances a participant could allege that would render a fiduciary’s reliance on the market imprudent. Under ERISA, fiduciaries who exercise discretionary control of plan assets are responsible for ensuring that all available investment options are prudent. In reaching his conclusion, DeGiusti looked at rulings in similar cases in favor of Lehman Brothers Holdings Inc., State Street Bank & Trust Co., RadioShack, and Citigroup.
DeGiusti said that he was “mindful” his ruling “may appear harsh” at this early stage of litigation and without the benefit of discovery. However, in light of the absence of further guidance from the Supreme Court or the Tenth Circuit, he was “compelled” to follow the majority of cases, which have held that the type of circumstances discussed in this case, including publicly available information of the company’s gradual decline into bankruptcy, wouldn’t be deemed special circumstances, DeGiusti said.
Major companies, including Eaton Corp., Whole Foods Corp., JPMorgan Chase & Co., International Business Machines Corp., and BP Plc have defeated lawsuits by employees who claimed their companies failed to remove poorly performing company stock from their retirement plans. However, these results haven’t stopped employees from filing new lawsuits against other companies, including Chesapeake Energy Corp., Seventy Seven Energy Inc., and General Cable Corp.
In 2015, SandRidge employees sued the company, its directors, and Reliance, as the plan trustee, for allowing the plan to continue to offer SandRidge stock as an investment option despite allegedly knowing that the stock was artificially inflated and SandRidge was in extremely poor financial condition. In 2016, SandRidge filed for bankruptcy, and the employees’ lawsuit over their retirement savings was stayed. DeGiusti reopened the case so the participants could proceed against the non-debtor defendants, including Reliance.
Although DeGiusti dismissed the lawsuit against Reliance, he granted the participants leave to amend their allegations. This is interesting because DeGiusti rejected Reliance’s argument that as a directed trustee, it didn’t have discretion regarding the extent to which the plan invested in the company stock.
The fact that Reliance, as a directed trustee, may not have exercised discretionary authority or control over the administration and management of the plan doesn’t relieve it of a fiduciary obligation to the participants, DeGiusti held.
Mattingly & Roselius PLLC, Kessler Topaz Meltzer & Check LLP, Norman & Edem PLLC, Harwood Feffer LLP, Delluomo & Crow, and Stull Stull & Brody represent the participants. Bryan Cave and Ryan Whaley Coldiron Shandy PC represent Reliance.
To contact the reporter on this story: Carmen Castro-Pagan in Washington at firstname.lastname@example.org
To contact the editor responsible for this story: Jo-el J. Meyer at email@example.com
Copyright © 2017 The Bureau of National Affairs, Inc. All Rights Reserved.
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to firstname.lastname@example.org.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to email@example.com.
Put me on standing order
Notify me when new releases are available (no standing order will be created)