ERISA-Second Circuit Holds That Plaintiff’s Complaint Makes Out A Case Of Breach Of The Duty Of Prudence

In Jander v. Retirement Plans Committee of IBM, Docket No. 17-3518 (2nd Cir. 2018), plaintiffs Larry Jander and Richard Waksman appeal from a judgment of the district court dismissing their suit against fiduciaries of IBM’s employee stock option plan (the “ESOP”).  The plaintiffs claim that the defendants violated their fiduciary duty under ERISA to manage the ESOP’s assets prudently, because they knew but failed to disclose that IBM’s microelectronics division (and thus IBM’s stock) was overvalued.  The district court determined that plaintiffs did not plausibly plead a violation of ERISA’s duty of prudence, because a prudent fiduciary could have concluded that earlier corrective disclosure would have done more harm than good.

On appeal, the plaintiffs assert that the foregoing standard for the duty of prudence is stricter than the one set out in Fifth Third Bancorp v. Dudenhoeffer, 134 S. Ct. 2459 (2014), and that the district court and others have applied this stricter standard in a manner that makes it functionally impossible to plead a duty-of-prudence violation.

In reviewing the case, the Second Circuit Court of Appeals (the “Court”) found it unnecessary to determine whether plaintiffs are correct, because they plausibly plead a duty-of-prudence claim even under the stricter standard used by the district court.  Here, the Court concluded that several allegations in the plaintiff’s complaint (considered in combination and drawing all reasonable inferences in plaintiffs’ favor) establish that a prudent fiduciary in the ESOP defendants’ position could not have concluded that corrective disclosure would do more harm than good.  Accordingly, the Court reversed the judgment of the district court and remanded the case back to the district court for further proceedings.


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