Appellate Court Reopens Case Against State Street by GM Participants

In reversing a lower court ruling, the appellate court recognized that Moench v. Robertson (see "IMHO: Prudent Mien?") established that a fiduciary’s decision to remain invested in employer securities is presumed to be reasonable, but a plaintiff may rebut the presumption “by showing that a prudent fiduciary acting under similar circumstances would have made a different investment decision.”  

The 6^th Circuit found no error in the U.S. District Court for the Eastern District of Michigan’s holding that, accepting the allegations of the complaint as true, the plaintiffs have pleaded facts to overcome the presumption. The plaintiffs alleged that State Street failed to follow the terms of the plans, which required State Street to divest the plans’ holdings in company stock if “there is a serious question concerning [General Motors’] short-term viability as a going concern without resort to bankruptcy proceedings.”   

According to the complaint, on July 15, 2008, General Motors (GM) announced a restructuring plan designed to improve cash flow and save the company. By November 10, 2008, GM disclosed that its auditors had “substantial doubt” regarding the company’s “ability to continue as a going concern.” Nevertheless, State Street did not begin to divest the plan of its GM common stock holdings until March 31, 2009. Based on these allegations, the plaintiffs have sufficiently pleaded that “a prudent fiduciary acting under similar circumstances would have made a different investment decision” and thereby overcome the presumption of reasonableness, the appellate court found.