ERISA-Second Circuit Rules That Plaintiffs’ Claims of Breaches Of ERISA Fiduciary Duties Of Prudence And Loyalty Were Properly Dismissed

In Majad v. Nokia, Inc., No. 12-4064-cv (2nd Cir. 2013) (Summary Order), the plaintiffs, suing on behalf of a putative class of Nokia, Inc. employees who invested in the Nokia Retirement Savings and Investment Plan (the “Plan”), were appealing the dismissal by the district court of their claims for compensatory and equitable relief under ERISA § 502(a)(2) and (a)(3). The plaintiffs had alleged that the defendants had breached the fiduciary duties of prudence and loyalty owed under ERISA, with respect to the Plan’s offering of an investment fund consisting of American Depository Shares of common stock of Nokia Corp. (“Nokia”). Nokia is the Finnish parent company of the plaintiffs’ employer. The plaintiffs’ complaint centered on the decrease in the price of Nokia stock.

The Second Circuit Court of Appeals (the “Court”) first dealt with the duty of prudence. The Court said that, mindful that a fiduciary must discharge his duties in accordance with the documents and instruments governing the plan insofar as ERISA requires (ERISA § 1104(a)(1)(D)), the Court has recognized that fiduciaries may face conflicting demands with respect to offering employer stock as an investment option to employees. Thus, the Court affords such an offer a presumption of prudence, reviewing related fiduciary conduct only for abuse of discretion. The Court added that, if plan terms require or strongly favor investment in employer stock, then only circumstances placing the employer in a dire situation that was objectively unforeseeable by the settlor could require fiduciaries to override plan terms. However, the Court ruled that here, the plaintiffs’ allegations, including a proposed amended complaint, fails to state an ERISA prudence claim under any standard of review. This obtains because the plaintiffs have not alleged, and would not allege in the amended complaint, any circumstances under which the Plan fiduciaries could have predicted-based on secret information or otherwise- a fall in the price of Nokia stock.

As to the claim of breach of loyalty, the Court noted that the plaintiffs alleged that the defendant fiduciaries also breached this duty of loyalty in failing to relay complete and accurate information about Nokia’s business prospects to Plan participants (relying on ERISA § 404(a)(1), which requires ERISA fiduciaries to act solely in the interest of the participants and beneficiaries). The Court said that the district court correctly dismissed this disclosure-based claim because: (1) ERISA imposed no affirmative obligation on defendants to update Plan participants about Nokia’s financial condition, and (2) any alleged misstatements were not made in a fiduciary capacity. Further, since plaintiffs’ appellate briefing contains no specific argument regarding this claim, the Court deems it abandoned.
Accordingly, the Court ruled that the plaintiffs’ ERISA prudence and loyalty claims were appropriately dismissed.