A federal appellate court backed a lower court judge, who ruled he had not proven his allegations.
The 3rd U.S. Circuit Court of Appeals asserted that U.S. District Judge Joel A. Pisano of the U.S. District Court for the District of New Jersey was correct when he declared in April 2007 that plaintiff Byron Ward had failed to prove fiduciaries of Avaya Inc.’s defined contribution plans breached their fiduciary duties (see “Court Finds Employees Missed ERISA Fiduciary Breach Case“). Ward charged that the plans should have sold off the communications firm’s stock during a period when the company was experiencing serious financial difficulties.
The appellate panel found that Ward had not overcome a legal standard set by a 3rd Circuit 1995 case that if a plan mandates company stock be offered as an investment option, a fiduciary acts prudently if he or she retains the company stock as an investment option. The appellate judges explained that the prudence presumption set by the 1995 case can be rebutted if a plan participant is able to show that the company is in such a dire financial state that continued investment in the company’s stock would be unreasonable.
In light of that, wrote Circuit Judge Kent A. Jordan for the court, while there was a significant dip in the price of Avaya’s stock during the period covered by Ward’s suit, he was unable to “point to anything other than Avaya’s financial struggles to support his breach of fiduciary duty claim.” Also, according to the court, while Avaya’s stock price dropped significantly, by 2003 and 2004 the stock price had rebounded.
Avaya was established in September 2000 through a spinoff from Lucent Technologies Inc. Employees of Avaya participated in three different defined contribution pension plans, all of which allowed employees to invest in the Lucent Stock Fund and the Avaya Stock Fund. Lucent and Avaya both suffered financially during the first three years following the spinoff.
Jordan said, at most, Ward’s allegations demonstrated that during the period at issue in the case, Avaya was undergoing corporate developments that were likely to have a negative impact on the company’s earnings. “That alone does not suffice to rebut the presumption that the defendants acted within their discretion in refusing to halt or alter the Plan’s investments in Avaya stock,” Jordan wrote.
Jordan asserted: “short-term financial difficulties do not give rise to a duty to halt or modify investments in an otherwise lawful ERISA [Employee Retirement Income Security Act] fund that consists primarily of employer securities.” the appeals court said.
The case is Ward v. Avaya Inc., 3d Cir., No. 07-3246, unpublished 11/13/08.