An astute and clearly knowledgeable reader passed along the point that the recent Sixth Circuit decision in Pfeil v. State Street Bank implicitly rejected the structural barriers to bringing class actions over fiduciary breaches that had been created by the developing case law in other circuits and which were discussed in my recent article, Structural Impediments to Breach of Fiduciary Duty Claims. The Pfeil decision, in allowing the putative class action to proceed past the stage of motion practice, refused to allow a stock drop type case to be ended, prior to the full development of the facts needed for the plaintiffs’ case, by the early application of lowered – or merely altered and fact specific, depending on your point of view – fiduciary standards with regard to employer stock holdings in defined contribution plans, in circumstances in which the plaintiffs could not have, at the outset of the case, full and complete information about the fiduciary breaches at issue. In this way, the Sixth Circuit, deliberately or not, mitigated the difficulties for plaintiffs, identified in my article, that are caused by the intersection of the Iqbal and Twombly pleading standards with the limited information available to plaintiffs at the outset of the case.
Pfeil is interesting for a couple of other reasons as well. One is that, in some ways, it is not a pure stock drop claim, because the plan documents imposed an obligation on the fiduciary to divest under certain circumstances, and the question is whether the fiduciaries failed to comply with those plan terms, rather than simply being the question of whether the holding of the stock under the stock drop scenario in and of itself constituted a breach. Second, I have always felt that the stock drop case law reflected an attempt, implicitly at least and perhaps even subconsciously, to balance the obligations of a company under the securities laws and under ERISA when it comes to stock held in employee plans; Pfeil, by focusing on the liability of an outside fiduciary, does not have that dynamic. Three, I have written before about the evolutionary nature of plaintiffs’ class actions in ERISA, with the idea being that, over time and in response to early defeats – such as Hecker or the stock drop cases – the plaintiffs’ bar will craft more sophisticated and carefully targeted theories of liability, that will eventually pass muster. You see that here in Pfeil, in which a more nuanced approach to a fiduciary breach involving employer stock is able to leap a hurdle – a motion to dismiss – that earlier, less nuanced stock drop theories were not able to clear.