Trust Updates Archive

ESOPS lawsuits valuation extraordinary Scheindlin Trusts Banks McCabe Capital Mercury A.M. Publishing Garbo Extraordinary Is Defined By Plan, Not Market

(November 18, 2010 --Chicago, IL) -- “Unambiguous language in an ERISA plan is to be interpreted and enforced in accordance with its plain meaning," a federal court ruled on November 9. The court dismissed ESOP participants’ claims that the plan inappropriately used a 2008 appraisal to value stock when making a 2009 distribution. The plan required annual valuation of the stock on June 30.

Plaintiffs asserted that the plan’s March and early June 2009 cash distribution violated ERISA and the fiduciary’s duty of loyalty. Participants argued that a new valuation should have been conducted because 2008 values did not reflect the true value of the company. For purposes of valuation, the plan is silent regarding extraordinary market conditions, according to court filings.

U.S. District Judge Shira Scheindlin found plaintiffs’ argument “nonsensical.”

“Speculation about the possible results of an interim valuation between June 30, 2008 and June 30, 2009 is incidental to the issue of whether defendants breached their duty of loyalty,” writes Scheindlin.

“The propriety of fiduciary action,” she explained, “is not dependant [sic] on its outcome, but on its purpose -- fiduciaries are not required to be prescient or infallible in their decision-making, but to exclusively pursue the interests of beneficiaries.”

Scheindlin notes that if the fiduciary had ignored plan mandates and instead used its broad direction to decide when a new valuation is appropriate, “it would violate its statutory duty” to act in accordance with the documents and instruments governing the plan. She adds that plaintiffs’ argument would put the fiduciary in a catch-22 situation.

“Complying with the Plan terms [or] departing from them” she writes, would “expose them to liability.”

Because the distribution occurred before June 30, 2009, Scheindlin writes, the fiduciary was “justified” in using June 30, 2008 valuation. “It reasonably appeared to maximize returns for Plan participants under then-prevailing circumstances.”

For more on this topic, see the upcoming issue of Trust Regulatory News.

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