The
6th Circuit noted that in contrast to other circuits, it has not
adopted a specific rebuttal standard that requires proof that the company faced
a “dire situation,” something short of “the brink of bankruptcy” or an
“impending collapse.” It concluded that the better course is to permit the
lower courts to consider the presumption in the context of a fuller evidentiary
record rather than just the pleadings and their exhibits.
The
appellate court disagreed with the district court’s conclusion that the
plaintiffs had failed to plausibly plead a causal connection between State
Street’s alleged breach of duty and losses to the plan. The district court
concluded that because plan participants could direct their investments by
choosing from a menu of investment options and had the discretion to avoid GM
stock altogether, State Street should not be held liable for the plaintiffs’
decisions to stay invested in the General Motors Common Stock Fund.
According
to the 6th Circuit, while it is true that the plaintiffs must
eventually prove causation to prevail on their claims, the plaintiffs have
plausibly pleaded causation to survive State Street’s motion to dismiss. The
plaintiffs allege that State Street allowed the plans to continue to hold GM
stock well after it became imprudent to do so and thereby breached its duty to
the plan. According to the pleadings, GM stock ceased to be a prudent
investment on July 15, 2008, the date on which GM announced its restructuring
plan in response to its “significant” second quarter losses. State Street did
not make the decision to divest the plans of their GM stock holdings until
March 31, 2009. The plaintiffs allege that the plan suffered hundreds of millions
of dollars in losses as a result of State Street’s delay.
The appellate
court also held that as a fiduciary, State Street was obligated to exercise
prudence when designating and monitoring the menu of different investment
options that would be offered to plan participants. State Street had a
fiduciary duty to select and maintain only prudent investment options in the
plans. The opinion noted that State Street’s engagement letter with GM vested
State Street with the “exclusive authority under each Plan and Trust to
determine whether the Company Stock Fund continue[d] to be a prudent investment
option under [ERISA].”
Despite
State Street’s fiduciary duty to protect plan assets, the district court
focused on the fact that plan participants had the power to reallocate their
funds among a variety of options, only one of which was the General Motors
Common Stock Fund. A fiduciary cannot avoid liability for offering imprudent
investments merely by including them alongside a larger menu of prudent
investment options, the 6th Circuit said. It found State Street also
cannot escape its duty simply by asserting at the pleadings stage that the
plaintiffs themselves caused the losses to the plans by choosing to invest in
the General Motors Common Stock Fund. Such a rule would improperly shift the
duty of prudence to monitor the menu of plan investments to plan
participants.