The appellate court said the highly deferential “abuse of discretion” standard, as set forth in Lanfear v. Home Depot (see “ERISA Imposes No Duty to Disclose Certain Information”), applied to the allegations set forth in the complaint (Smith v. Delta Air Lines) against Delta. The court conceded that during the period in question Delta undeniably faced business challenges (see “Delta Asks to Void ‘Worthless’ Employee Stock Options”), but the plan required defendants to offer participants investments in Delta stock and the defendants had abided by those provisions.
According to the court opinion, lead plaintiff Dennis Smith contended that with the benefit of hindsight, defendants should have known Delta’s turnaround efforts would fail. But the court disagreed, saying that was not at all obvious at the time, as underscored by market movements during the class period. “Because a reasonable fiduciary could have concluded that investments in Delta stock during the class period remained appropriate, Smith’s prudence claim fails,” the court wrote.
The Lanfear standard applies to fiduciaries of ESOP plans as well as other Employee Retirement Income Security Act (ERISA) plans that “encourage or require investment in employer stock.” The 11th Circuit agreed with Delta that, at the very least, the plan’s many provisions addressing investments in Delta stock made clear that the defendants were “encouraged” to offer employer stock as an investment option for participants. “That is all that is required to bring this case within the scope of Lanfear,” the court said in its opinion.
The opinion in Smith v. Delta Air Lines is here.