SunTrust Plan Participants’ Stock-Drop Claims Tossed A Second Time

by Proskauer - Employee Benefits & Executive Compensation Blog
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A federal district court in Georgia recently dismissed a suit brought by participants in the SunTrust Bank 401(k) savings plan alleging fiduciary breaches based on defendants’ decision to continue permitting investment in SunTrust stock while its value declined during the subprime mortgage crisis. The court had previously granted in part and denied in part SunTrust’s motion to dismiss, and SunTrust appealed. The Eleventh Circuit stayed the appeal until it issued an opinion in Lanfear v. Home Depot, Inc., 679 F.3d 1267 (11th Cir. 2012), which raised similar issues. In Home Depot, the Eleventh Circuit ruled that “a fiduciary abuses his discretion by acting in compliance with the directions of the plan only when the fiduciary could not have reasonably believed that the settlors would have intended for him to do so under the circumstances.” Following its decision in Home Depot, the Eleventh Circuit reversed the district court’s decision in SunTrust and remanded plaintiffs’ prudence claim for further consideration by the district court. On remand, the district court dismissed the claim. In re SunTrust Bank, Inc., ERISA Litig., 2013 WL 5418130 (N.D. Ga. Sept. 26, 2013). Applying Home Depot, the district court reviewed various plan provisions and concluded that: (i) the settlor intended “for the fiduciaries to wait until the company was ‘on the brink of financial collapse’” before taking action; and (ii) even at that point the fiduciaries were instructed to seek outside counsel for advice, not sell SunTrust stock. The court also noted that in considering whether to hold a certain investment or sell it, a fiduciary must consider the interests of the plan participants. It was thus not unreasonable to assume that many of the plan participants were at least several years from retirement, and it was not “impossible to say that the opportunity to purchase SunTrust shares at historically low prices was not in the best interests of those participants.”

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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