On January 4, 2013, federal district court judge Denise Hood of the Eastern District of Michigan certified a class action in Pfeil v. State Street Bank & Trust Co. under Fed. R. Civ. P. 23(a), 23(b)(1)(B) and 23(b)(3). The certified class includes all participants or beneficiaries of the GM retirement plans who suffered losses to their investments in the GM stock fund during the class period of July 15, 2008 to April 24, 2009. This blog post provides a brief recap of the litigation and class certification in Pfeil.
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On December 3, 2012, the Supreme Court denied State Street’s petition for a writ of certiorari with regard to the Sixth Circuit’s decision in Pfeil v. State Street Bank & Trust Co., 671 F.3d 585 (6th Cir. 2012). Decided February 22, 2012, the Sixth Circuit held in Pfeil that the presumption of prudence for employer stock is evidentiary in nature and thus does not apply at the pleading stage. The Sixth Circuit’s rejection of the application of the presumption at the pleadings stage is unique among the Circuit Courts of Appeals.
Perhaps State Street is getting coal in its stocking because it abandoned the controversial presumption of prudence ruling in its cert petition and instead raised two more narrow issues.
For more on this case, please continue reading.
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Federal Rule of Civil Procedure 23(b)(2) authorizes class action treatment if the defendant “has acted or refused to act on grounds that apply generally to the class, so that final injunctive relief or corresponding declaratory relief is appropriate respecting the class as a whole.” But is it really possible for a defendant to “act” or “refuse to act” the same way with respect to a group that is so large and varied that it is broken into 10 separate and distinct subclasses? Judge Posner thinks so. Indeed, writing on behalf of a three-judge panel of the Seventh Circuit, Judge Posner recently affirmed certification under Rule 23(b)(2) of a class of more than 4,000 individuals who participated in an ERISA-governed pension plan over a span of 23 years, and comprising 10 distinct subclasses. See Johnson v. Meriter Health Services Employee Retirement Plan, --- F.3d ----, 2012 WL 6013457 (7th Cir. Dec. 4, 2012).
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We all know that a fiduciary must act solely in the interests of the participants and beneficiaries of the plan at all times. This includes, for example, bringing a lawsuit against former fiduciaries or current co-fiduciaries for breaches of their fiduciary duty that caused harm to the plan. But, what happens when Fiduciary No. 1 brings a lawsuit against Fiduciary No. 2, and then Fiduciary No. 2 turns around and seeks contribution and indemnification from Fiduciary No. 1? There is no statutory right to contribution and indemnification under ERISA, but is this permitted under common law? The Supreme Court has not ruled on whether an ERISA fiduciary has the right to seek contribution and indemnity from a co-fiduciary, and several Circuits and district courts are split on this issue. However, a recent decision from the Middle District of Florida relied on trust principles to hold that the rights to contribution and indemnity from co-fiduciaries under ERISA are properly permitted pursuant to federal common law. See Guididas v. Community National Bank Corp., Case No. 8-11-cv-02545-JSM-TBM (M.D. Fla., Nov. 5, 2012).
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On October 15, 2012, the Supreme Court denied the petition for writs of certiorari filed by plan participants in 401(k) plans sponsored by Citigroup and McGraw-Hill Companies, meaning that the high court chose not to weigh in on the Second Circuit’s adoption of the presumption of prudence regarding investment in employer stock, otherwise known as the Moench presumption. However, the Moench presumption may yet make its way to the Supreme Court, thanks to the Sixth Circuit’s minority holding that rejected the application of the presumption at the pleadings stage. Will the Supremes be more willing to take up this issue on a cert petition in Pfeil v. State Street Bank & Trust Co., 671 F.3d 585 (6th Cir. 2012)?
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In a recent case, Griffin v. Flagstar Bancorp, Inc., No. 11–1497, 2012 WL 2989231 (6th Cir. July 23, 2012), the Sixth Circuit stuck with its position that the presumption of prudence does not apply at the pleadings stage, when it reversed an order dismissing a putative ERISA class action.
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On May 25, 2012, the United States Court of Appeals for the Sixth Circuit affirmed the dismissal of a class representative’s putative ERISA class action against KeyCorp and related defendants because the proffered “class representative” could not demonstrate that she suffered any actual injury from the alleged breach of fiduciary duty and, therefore, lacked standing. See Taylor v. KeyCorp, No. 10-4163, 2012 WL 1889283 (6th Cir. May 25, 2012).
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On May 8, 2012, the United States Court of Appeals for the Second Circuit summarily affirmed the granting of judgment on the pleadings by the United States District Court for the Southern District of New York in favor of JP Morgan Chase & Co. (“JP Morgan”) and various affiliated individuals and committees. In so doing, the Second Circuit reiterated and expanded upon its adoption of the presumption of prudence (better known as the Moench presumption, named for the Third Circuit’s decision in Moench v. Robertson, 62 F.3d 553 (3d Cir. 1995)) for employee stock ownership plans (“ESOP”) and eligible individual account plans (“EIAP”) that the Second Circuit announced last fall in In re Citigroup ERISA Litig., 662 F.3d 128 (2d Cir. 2011).
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On May 8, 2012, in Lanfear, et al. v. Home Depot, Inc., et al., the Eleventh Circuit joined the Second, Third, Fifth, Sixth and Ninth Circuits by officially adopting the Moench presumption of prudence as the applicable standard of review with regard to a plan fiduciary’s decision to offer company stock as an investment option in eligible individual account plans. The Eleventh Circuit also joined those courts applying the presumption at all stages of litigation (including the pleading stage). Further, the Eleventh Circuit adopted the “sponsor intent” test originally promulgated in Moench (rather than a viability or brink of collapse test). As such, we reiterate our prior recommendation that sponsors include an explicit statement of their intent regarding the employer stock fund.
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It’s that time of year again. Final exams are almost over, the school year is ending, and summer recess is almost here. With graduations looming, May often serves as a time to reflect on the past and look to the future. Inspired by the sense of nostalgia this time of year brings, we thought it would be a good time to reflect on how ERISA stock drop class actions have fared in the Circuit Courts of Appeal during this spring semester of 2012.
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The Department of Labor (“DOL”) has returned to the fray over the future of the Moench presumption. On December 14, 2011, the DOL was given the “go ahead” from the Second Circuit to file an amicus curiae brief in the McGraw-Hill matter.
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On November 15, 2011, Judge Samuel Der-Yeghiayan of the Northern District of Illinois denied certification of a potential class of Motorola 401k Plan participants, concluding that Plaintiffs failed to meet their burden of showing that there was “commonality” among the proposed class members. The Court made clear that – after Walmart Stores, Inc. v. Dukes – the burden is far higher to survive the “rigorous analysis” that the Rule 23 prerequisites have been satisfied. Now, generalized statements that “other courts certified classes in other ERISA cases” simply does not suffice to show “commonality” to make the case suitable for class certification. See Grousman v. Motorola, Inc. No. 10-C-911, 2011 WL 5554030 (N.D. Ill. Nov. 15, 2011).
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To presume prudence or not to presume prudence? The Second Circuit recently chose the former, joining the Third, Fifth, Sixth and Ninth Circuits in holding that the presumption of prudence is the applicable standard in reviewing breach of fiduciary duty claims related to investments in employer stock. (The Third Circuit put its stamp on the presumption over fifteen years ago in Moench v. Robertson, 62 F.3d 553 (3rd Cir. 1995), coining the now famous “Moench presumption” moniker.)
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On October 19, 2011, the Second Circuit affirmed the dismissal of two high-profile employer-stock drop cases and joined several sister circuits in officially adopting the Moench presumption of prudence. The Second Circuit also joined those courts expanding the Moench presumption to all eligible individual account plans (not just employee stock ownership plans) and applying the presumption at all stages of litigation, including the pleading stage. In re Citigroup ERISA Litigation and Gearren v. McGraw-Hill Cos., Inc. were argued in tandem and decided by separately issued opinions filed on the same day.
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