Court Opinion

ID: 6943326
Source: CourtListenerOpinion
Date Created: 2022-07-24 01:13:10.08548+00
Date Added: 2024-06-11T16:07:47.570076
License: Public Domain

O’SCANNLAIN, Circuit Judge,
dissenting:
I agree with the majority that ERISA fiduciaries are held to the standard not of a “prudent lay person” but rather of a “prudent fiduciary with experience dealing with a similar enterprise.” Whitfield v. Cohen, 682 F.Supp. 188, 194 (S.D.N.Y.1988). If they do not have all of the knowledge and expertise necessary to make a prudent decision, they have a duty to obtain independent advice. Of course, the mere seeking of an independent appraisal does not, by itself, satisfy the prudence requirement. As the Fifth Circuit noted in an oft-quoted passage, “[a]n independent appraisal is not a magic wand that fiduciaries may simply waive over a transaction to ensure that their responsibilities are fulfilled. It is a tool, and, like all tools, is useful only if used properly.” Donovan v. Cunningham, 716 F.2d 1455, 1474 (5th Cir.1983).
Nevertheless, I know of no case in which ERISA fiduciaries were adjudged to have breached their duty when they carefully selected and accurately informed the independent appraiser of the relevant data. In fact, the Fifth Circuit has held that
[t]o use an independent appraisal properly, ERISA fiduciaries need not become experts in the valuation of closely-held stock-they are entitled to rely on the expertise of others. However, as the source of the information upon which the experts’ opinions are based, the fiduciaries are responsible for ensuring that that information is complete and up-to-date.
Cunningham, 716 F.2d at 1474 (citation omitted).
The majority cites this Fifth Circuit case to support the creation of a new and unwarranted requirement for ERISA fiduciaries who would obtain expert opinions-that fiduciaries must make certain that reliance on an expert’s advice is reasonably justified under the circumstances. Cunningham simply does not stand for this proposition. The fiduciaries in that case had relied on an expert’s valuation of the stock made 13 and 20 months before the ESOP transactions. By the time of the ESOP transactions, the fiduciaries knew that the growth projections used by the expert were incorrect-the company had not actually done as well as projected. The fiduciaries nonetheless used the expert’s valuation opinion to set the price of the stock for the ESOP transaction. The Fifth Circuit *1491held that the fiduciaries had breached their duties-that they must provide complete and up-to-date information to experts before relying on the experts’ opinion.
The crucial distinction between Cunningham and the case before us is that the Cunningham fiduciaries-the company’s board of directors-knew that the company had not performed as well as the growth projections. In effect, they knew that the expert’s appraisal was out of date. In this case, however, the majority faults the fiduciaries not for providing inaccurate data to the expert, but for failing to question the expert’s methodology and valuation assumptions.
The district court specifically found that the fiduciaries in this case used an appropriate selection process in choosing Arthur Young, and that they provided Arthur Young with all relevant, material information. Unless that finding is clearly erroneous, this court should hold that the fiduciaries acted prudently. The majority’s unprecedented rule essentially requires the fiduciaries to be experts in subjects in which they admittedly have insufficient knowledge or experience. Fiduciaries use experts precisely because they are not qualified to do the appraisal themselves; once they have carefully selected and adequately informed the expert, they should be able to rely on the expert’s conclusions.
The district court also found that Arthur Young’s valuation was appropriate, and that the price Arthur Young recommended was adequate and fair. Unless that finding is also clearly erroneous, there is little basis for claiming that the fiduciaries’ reliance on Arthur Young’s valuation was unreasonable or imprudent.
I respectfully dissent.