ERISA-Fifth Circuit Reverses District Court Decision, Holding That Plaintiff’s Complaint In A Stock Drop Case Does Not State A Plausible Claim of Breach Of Fiduciary Duty

In Whitley v. BP, No.15-20282 (5th Cir., 2016), a stock drop suit, the question on appeal is whether the district court erred in holding that the plaintiff stockholders’ amended complaint stated a plausible claim under the pleading standards of the Supreme Court’s 2014 decision in Fifth-Third Bancorp v. Dudenhoffer. Upon reviewing the case, the Fifth Circuit Court of Appeals (the “Court”) determined that the district court did err, the Court reversed the holding and remanded the case.

In this case, BP, p.l.c. (“BP”) is a multinational oil and gas company headquartered in London, England. BP offered its employees a choice of investment and savings plans regulated by ERISA. These plans included the BP Stock Fund—an employee stock ownership plan (“ESOP”) comprised primarily of BP stock—as an investment option. On April 20, 2010, the BP-leased Deepwater Horizon offshore drilling rig exploded, causing a massive oil spill in the Gulf of Mexico and a subsequent decline in BP’s stock price. The BP Stock Fund lost significant value, and the affected investors filed this stock drop suit on June 24, 2010, alleging various breaches of fiduciary duty under ERISA. The District Court had ruled that an amended complaint of the plaintiffs stated a plausible claim of breach.

However, the Court concluded that, to state a plausible claim of breach under Fifth-Third Bancorp, the plaintiffs’ must-in the complaint- offer a proposed alternative to investing in and holding the BP Stock, and the proposed alternative must be one that a prudent fiduciary in the same circumstances would not have viewed as more likely to harm the fund than to help it. But here, said the Court, the district court stated that it could not determine, on the basis of the pleadings alone, that no prudent fiduciary would have concluded that the alternatives would do more good than harm. This statement is not in accord with Fifth-Third Bancorp. Under the Fifth-Third Bancorp formulation, the plaintiffs bear the significant burden of proposing an alternative course of action so clearly beneficial that a prudent fiduciary could not conclude that it would be more likely to harm the fund than to help it. They must offer facts to support the proposal. In this case, the plaintiff’s amended complaint fails to meet these requirements. Thus, the reversal by the Court.

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