A Tale of Two Cases, or Why Bad Facts Make Bad (Stock Drop) Law
I will be sharing a dais with Joe Barton later this month at the 13th National Forum on ERISA Litigation, where we are both part of a panel that is discussing equitable remedies under ERISA. Joe won an interesting case before the Second Circuit recently, Severstal Wheeling Retirement Committee v WPN Corporation, in which the Court held that the fiduciaries had breached their duties by failing to properly diversify the plan holdings. While the decision is interesting in a number of ways, what caught my eye about the Court’s opinion was the focus on very specific and concrete facts demonstrating a close link between the fiduciaries’ specific acts and losses to the plan. The Court drilled down into the conduct at issue, and found a very specific action or series of actions that breached the defendants’ fiduciary duties. This is worth noting because most successful fiduciary litigation – and by that I mean successful in the courtroom, not just at the settlement table – has this type of narrow, concrete linkage in common; think back to the first big breakthrough excessive fee case, Tibble, and the trial court’s focus on one specific fee aspect of the case.
In contrast, fiduciary breach cases that are based on a more generalized complaint about fiduciary conduct tend to fizzle out, and you see this nowhere more clearly than in the stock drop cases. Writing the other day about the Fifth Circuit’s decision rejecting a stock drop claim based on the impact on BP’s stock price of an oil rig explosion, I pointed out that stock drop cases are turning against the plaintiffs’ bar, and suggested that the BP decision was a good example of why that was the case: because the factual linkage between the underlying event giving rise to the stock drop and the fiduciary actions of the plan’s fiduciaries was too attenuated to support a compelling claim. In other words, at the heart of much of the failure of the stock drop claims is the old maxim that bad facts make for bad law. Many of the stock drop claims, and the BP case is the perfect exemplar, are simply based on facts that don’t easily lend themselves to concluding that a plan’s fiduciaries acted improperly. As the Second Circuit’s decision in Severstal Wheeling Retirement Committee v WPN Corporation reflects, although obviously not in the context of a stock drop claim, a close link between plan losses and fiduciary acts is a necessary prerequisite to a compelling claim.
Will stock drop claims eventually come back into fashion, perhaps after the next stock market downturn? Will they ever be successful? I think the answer to both is likely yes, but as to the latter, only if and when they start being tied much more closely to specific and concrete acts of fiduciaries and are no longer based on broad claims that essentially treat fiduciaries as somehow able to protect plan participants against the risk of declines from any and all corporate actions. That last dog simply won’t hunt, to borrow an old saying from my youth spent on the line where Baltimore’s suburbs ended and its remaining farmlands began.