Court Opinion

ID: 8413711
Source: CourtListenerOpinion
Date Created: 2022-11-02 20:34:16.791645+00
Date Added: 2024-06-11T16:47:18.877081
License: Public Domain

HELENE N. WHITE,
dissenting.
I respectfully dissent. The majority recognizes that the district court applied the presumption of prudence rejected in Fifth Third Bancorp v. Dudenhoeffer, - U.S.-, 134 S.Ct. 2459, 189 L.Ed.2d 457 (2014), but, determines that its own analysis justifies affirmance.
The majority first adopts a rule derived from In re Citigroup ERISA Litigation, No. 11 CV 7672 JGK, 104 F.Supp.3d 599, 616, 2015 WL 2226291, at *14 (S.D.N.Y. May 13, 2015), and the Modern Portfolio Theory (MPT) that effectively immunizes fiduciaries from imprudence claims relating to publicly traded securities in the absence of special circumstances, including, perhaps, the complete failure to investigate. The foundation for this holding is the Supreme Court’s observation in Du-denhoeffer that the market price of a publicly traded security is highly likely to reflect the risk and future prospects of the company. But, Plaintiffs here do not assert that the market did not reflect the true value of the GM stock, and it is unclear how this new holding applies. I assume the majority concludes that because any transaction, either executed or eschewed, would be at the market price, at any given point in time, the ESOP was in the same position it would have been had the transaction been executed; it either had cash or stock of the same value. Further, if GM’s situation was so dire at any *389of the times asserted by Plaintiffs, it would have been reflected in the price of the stock. But, Plaintiffs do not challenge either of these propositions and do not claim that State Street should have discerned something the market did not.
One can concede that the market is generally efficient in pricing stocks without concluding that all decisions to buy, sell or hold are therefore prudent. The market includes participants with various levels of risk tolerance and various types of portfolios. What is prudent for one type of investor and one type of portfolio may be imprudent for others. Further, the fact that a stock’s price accurately reflects the company’s risk of failing does not mean that it is prudent to retain the stock as that possibility becomes more and more certain and buyers are willing to pay less and less for a stake in the upside potential. In short, I think the MPT is inapplicable here.
The majority also concludes that the process employed by State Street was prudent as a matter of law. I might agree were it not for the fact that Plaintiffs presented evidence that the decision makers were operating under an incorrect standard. A necessary part of a prudent decision-making process is the yardstick applied to the information yielded by prudent investigation and consideration. Here, members of the Independent Fiduciary Committee (IFC) testified that State Street was required, per its Engagement Agreement,1 to hold GM stock until a GM bankruptcy was “imminent,” (Brandhorst Deposition, PID 5712), or State Street reached a “clear conclusion” that GM would file for bankruptcy (Blake Deposition, PID 5697). However, Dudenhoejfer made clear that
the duty of prudence trumps the instructions of a plan document, such as an instruction to invest exclusively in employer stock even if financial goals demand the contrary. See also § 1110(a) (With irrelevant exceptions, “any provision in an agreement or instrument which purports to relieve a fiduciary from responsibility ... for any ... duty under this part shall be void as against public policy”). This rule would make little sense if, as petitioners argue, the duty of prudence is defined by the aims of the particular plan as set out in the plan documents, since in that case the duty of prudence could never conflict with a plan document.
Dudenhoeffer, 134 S.Ct. at 2468. Therefore, State Street’s reliance on the plan documents, rather than the fiduciary duty of prudence under the circumstances, was misplaced, regardless whether its interpretation of the documents was correct.
Finally, State Street and the majority rely on the actions of other pension-fund fiduciaries who continued to buy or hold GM stock as evidence that the stock remained a prudent investment at the relevant times. However, the record does not establish that the fiduciary decisions were made in a similar context. ERISA excus*390es fiduciaries of ESOP plans from any duty to diversify, but nevertheless imposes a duty of prudence under the circumstances. “Under the circumstances” is not an empty phrase; the Supreme Court explained in Dudenhoeffer that “the appropriate inquiry will necessarily be context specific.” Id. at 2471. Here, the circumstances involved an ESOP; the nature of these other portfolios and the measures taken to mitigate risk are unknown. Thus, that other plans retained GM stock in their portfolios is not dispositive. There is at least a question of fact whether State Street satisfied its duty of prudence under the circumstances.
I would reverse and remand for further proceedings.

. The engagement agreement stated that the Fund was to
continue to be invested exclusively in Company Stock ... without regard to (A) the diversification of assets of each Plan and Trust, (B) the risk profile of Company Stock, (C) the amount of income provided by Company Stock, or (D) the fluctuation in the fair market value of the company stock, unless State Street, using an abuse of discretion standard, determines from reliable public information that (i) there is a serious question concerning the Company’s short term viability as a going concern without resort to bankruptcy proceedings; or (ii) there is no possibility in the short term of recouping any substantial proceeds from the sale of stock in bankruptcy proceedings.
A-276.