District Court in Tenth Circuit Adopts Presumption of Prudence

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A district court in the Tenth Circuit adopted the presumption of prudence in dismissing a class action alleging that the defendants violated their fiduciary duties by allowing participants to continue investing in company stock at a time when the employer was allegedly experiencing significant financial difficulties. In re Chesapeake Energy Corp. 2012 ERISA Class Litig., 2013 WL 5596908 (W.D. Okla. Oct. 11, 2013). Although the Tenth Circuit has not yet adopted the presumption, the district court found that the Tenth Circuit would adopt the presumption in cases where the fiduciary is not absolutely required to invest in employer securities but is more than simply permitted to make such investment. The district court also determined that plaintiffs need not show the company was facing impending collapse to overcome the presumption, but that a prudent fiduciary would conclude that continued adherence to the stock fund no longer conformed with the plan settlor’s expectations. Here, based upon the fact the employer’s stock price “retained significant value” during the class period, the employer’s recent positive income and asset growth figures, and a comparison of the employer’s financial condition both before and after the plan’s adoption, the court found it “implausible” that the settlor would have expected the plan to divest the employer stock.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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