The United States Court of Appeals for the First Circuit (the “First Circuit”) affirmed the decision of the lower court granting summary judgment for an investment manager who acted as the fiduciary of an employer stock fund option within a defined contribution plan, and numerous other defendants, most of whom were employees or committees of the company sponsoring the plan, W.R. Grace & Co. (the “Company”). The plaintiffs in two actions that were subsequently consolidated alleged a breach of ERISA fiduciary duties arising from the holding, and then selling, of the plan’s investments in the Company’s stock. The very unusual twist in these cases was that one set of plaintiffs sued alleging that the fiduciaries should have sold the stock before the Company filed for bankruptcy protection, thus avoiding losses in the securities’ price as the Company approached and then entered bankruptcy, while the other set of plaintiffs alleged that the investment fiduciary should have held the securities after the Company petitioned for Chapter 11 bankruptcy, as the stock subsequently rose in value. After the cases were consolidated by the district court, the proceeding simultaneously alleged a stock drop and a stock rise.
After a summary judgment record was converted to a proceeding as a case stated, the district court entered summary judgment. In affirming the decision of the district court, the First Circuit held that the investment manager selected by the plan’s named fiduciary to exercise authority over disposition of the plan’s holding of employer securities did not breach any fiduciary duties in its decisions with respect to first holding, and then selling, the securities. Specifically, the First Circuit found that the investment manager “unquestionably” met ERISA’s prudent man standard by engaging in a process designed to assess the feasibility of continued holding or disposition of the security. The First Circuit specifically identified as evidence of its prudence the fact that the named fiduciary hired independent experts to advise it as to the proper discharge of its obligations. The court followed the settled view that under ERISA, a fiduciary’s actions are not judged in hindsight, stating: ‘[a]lthough hindsight is 20/20 . . . that is not the lens by which we view a fiduciary’s actions under ERISA.” Bunch et al v. W.R. Grace & Co. et al, No. 08-1406 (1st Cir. Jan. 29, 2009).