Rinehart v. Lehman Brothers Holdings

Plaintiffs filed suit on behalf of a putative class of former participants in an employee stock ownership plan (ESOP) invested exclusively in Lehman’s common stock, alleging that the Plan Committee Defendants, who were fiduciaries of the ESOP, breached their duty of prudence under the Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. 1001 et seq. Specifically, plaintiffs alleged that the Plan Committee Defendants breached ERISA by continuing to permit investment in Lehman stock in the face of circumstances arguably foreshadowing its eventual bankruptcy. Plaintiffs also filed claims against Lehman's former directors, including Richard S. Fuld. The district court dismissed plaintiff's consolidated amended complaint (CAC) and second consolidated amended complaint (SAC) for failure to state a claim. The court affirmed. The Supreme Court subsequently held in Fifth Third Bancorp v. Dudenhoeffer that ESOP fiduciaries are not entitled to any special presumption of prudence. After remand, the district court dismissed plaintiffs' third amended complaint (TAC). The court agreed with the district court that, even without the presumption of prudence rejected in Fifth Third, plaintiffs have failed to plead plausibly that the Plan Committee Defendants breached their fiduciary duties under ERISA by failing to recognize the imminence of Lehman’s collapse. The court concluded as it had before, that plaintiffs have not adequately shown that the Plan Committee Defendants should be held liable for their actions in attempting to meet their fiduciary duties under ERISA while simultaneously offering an undiversified investment option for employees’ retirement savings. Accordingly, the court affirmed the judgment. View "Rinehart v. Lehman Brothers Holdings" on Justia Law