December 10, 2010
--- In an Amicus Brief, the U.S. Department of Labor said a court that
cleared Home Depot of wrongdoing in a stock drop suit misinterpreted the
Employee Retirement Income Security Act (ERISA). ---
Attorneys representing Secretary of Labor Hilda Solis argue a Georgia court's decision in Lanfear v. Home Depot Inc. misinterprets ERISA in three respects:
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It immunizes plan fiduciaries from liability for
imprudent investments in employer stock by mischaracterizing prudence
claims related to such investments as claims about diversification.
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The decision alternatively relies on a presumption of prudence, established in Moench v. Robertson, which has no basis in ERISA's language or purposes and which presents a novel question in this Court.
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The decision permits fiduciaries to evade the trust-law duty, recognized in Varity Corp. v. Howe, to communicate truthful material information to plan participants and beneficiaries.
A district court in Georgia found Home Depot’s defined
contribution plan was an eligible individual account pension investing
in company stock so it was not covered by the diversification mandate in
ERISA (see Home Depot Cleared in Stock Drop Suit).
Participants claimed it was no longer prudent to continue offering the
company stock after its share price fell 16% when Home Depot announced
its executives had been backdating stock options for 19 years. The
participants also claimed the company misclassified nondefective
merchandise for vendor credits.
Solis has been stepping up against cases that use the Moench “presumption of prudence” standard (see DoL Blasts 9th Circuit for Prudence Presumption Endorsement and Solis Argues for Stock Drop Case Law Change).
The Amicus Brief is here.
Rebecca Moore