(Article from Securities Law Alert, Year in Review 2017)
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Fourth and Sixth Circuits: ERISA Fiduciaries May Rely on the Market Price of a Publicly-Traded Stock as an Assessment of the Stock’s Riskiness
In April 2017, both the Fourth and Sixth Circuits applied the Supreme Court’s decision in Fifth Third Bancorp v. Dudenhoeffer, 134 S. Ct. 2459 (2014),[1] to hold that an ERISA fiduciary may rely on the market price of a publicly-traded stock as an assessment of the stock’s riskiness.
On April 28, 2017, the Fourth Circuit held that a prudent fiduciary may consider public information concerning a stock’s riskiness when determining whether to divest. Tatum v. RJR Pension Investment Committee, 855 F.3d 553 (4th Cir. 2017). The court held that “in an efficient market, a fiduciary can rely on the market price to reflect the public information about risk of loss, even if, in the beneficiaries’ view, the market valuation is not properly accounting for the true risk of loss.” The court further found that ERISA does not require “a more compelling reason for divestment decisions than for investment decisions.”
On April 7, 2017, the Sixth Circuit ruled that a fiduciary’s failure to investigate the accuracy of a publicly-traded company’s stock price is not a “special circumstance” within the meaning of the Fifth Third decision. Saumer v. Cliffs Natural Resources, 853 F.3d 855 (6th Cir. 2017). The court explained that Fifth Third “plainly holds that a fiduciary may rely on market price as an unbiased assessment of a security’s value,” including its riskiness. The court found “that even if the special-circumstances exception encompasses more than market inefficiency, it doesn’t include a fiduciary’s failure to independently verify the accuracy of the market’s pricing.”
Tenth Circuit: Plaintiffs Asserting ERISA Breach of Fiduciary Duty Claims Bear the Burden of Proving Loss Causation
On June 5, 2017, the Tenth Circuit held that the burden to prove loss causation in an ERISA breach of fiduciary duty action “falls squarely on the plaintiff.” Pioneer Ctrs. Holding Co. Employee Stock Ownership Plan and Tr. v. Alerus Fin., 858 F.3d 1324 (10th Cir. 2017).
Pursuant to 29 U.S.C. § 1109(a), “a fiduciary who breaches its duties under ERISA shall be personally liable for ‘any losses to the plan resulting from each such breach.’” Id. (quoting 29 U.S.C. § 1109(a)). The court noted that “the statute is silent as to who bears the burden of proving a resulting loss.” The Tenth Circuit explained that “[w]here a statute is silent on burden allocation, ‘the ordinary default rule [is] that plaintiffs bear the risk of failing to prove their claims.’” Id. (quoting Schaffer ex rel. Schaffer v. Weast, 546 U.S. 49 (2005)). The Tenth Circuit determined that none of the exceptions to the default rule apply to ERISA breach of fiduciary duty claims. Moreover, the court found that adopting a “burden-shifting framework could result in removing an important check on the otherwise sweeping liability of fiduciaries under ERISA.” The Tenth Circuit’s decision deepened a circuit split on this issue.
[1] Please click here to read our prior discussion of the Court’s decision in Fifth Third.