On August 31, 2009, Judge Stein of the Southern District of New York granted defendant Citigroup’s motion to dismiss a complaint for breach of fiduciary duty filed by participants in Citigroup’s 401(k) plans. The action sought to recover plan losses suffered as a result of Citigroup stock’s staggering losses. Judge Stein dismissed the action after concluding that the plans’ trustees were “immune from judicial inquiry” in connection with the plans’ investments in Citigroup stock. Judge Stein’s decision conferring judicial immunity on plan fiduciaries appears contrary to ERISA, departs from relevant precedent and curtails rigorous protections afforded to retirement savings. If upheld, this rule will effectively bar most actions against fiduciaries concerning plan investments in company stock.
"Subprime" generally refers to borrowers who do not qualify for prime interest rates because they exhibit one or more of the following characteristics: weak credit histories; previous charge-offs, judgments, or bankruptcies; low credit scores; high debt-burden ratios; or high loan-to-value ratios.
21.
CDOs are repackaged pools of lower rated securities, backed by subprime loans, into tranches with different levels of risk and return.
22.
Citigroup created a CDO by acquiring an inventory of asset-backed securities and subsequently selling rights to the cash flow from the securities in a number of tranches rated by credit risk. Citigroup then profited from the fees it charged to manage the CDO. In addition to Citigroup’s involvement with conventional CDOs backed by subprime mortgages, Citigroup also allowed a buyer of the CDOs to sell them back at their original value to Citigroup (so-called liquidity puts).
23.
An SIV is a type of complex bond market investment originally created to help banks finance low-risk assets such as credit card loans. To set up an SIV, banks borrow cash by selling commercial paper to investors and use the proceeds to purchase bundles of high-quality loans. Investors buy the commercial paper at a discount from face value and expect to hold it for 30, 60 or 90 days, at which point the investor receives the full face value of a note.
24.
29 U.S.C. §§ 1132(a)(2) & (a)(3).
25.
Moench v. Robertson, 62 F.3d 553 (3d Cir. 1995).
26.
Id. at 571. The plan in Moench permitted the trustee to hold small amounts of cash or short-term money market investments to meet administrative payment and cash distribution needs. Id. at 558.
27.
Id.
28.
Id. at 570.
29.
Kuper v. Iovenko, 66 F.3d 1447 (6th Cir. 1995).
30.
Id. at 1457.
31.
Edgar v. Avaya, Inc., 503 F.3d 340 (3d Cir. 2007).
32.
Id. at 347.
33.
Moench, 62 F.3d at 567 n.4.
34.
Edgar, 503 F.3d at 346 n.10.
35.
Kuper, 66 F.3d at 1459; 29 U.S.C. § 1104(a)(1)(B).
36.
Amended Brief of the Secretary of Labor as Amicus Curiae at 34, In re Enron Corp., No. 4:01-cv-3913 (S.D. Tex. Sept. 03, 2002).
37.
Id.
38.
Id.
39.
In re Dell, Inc. ERISA Litigation, 563 F. Supp. 2d 681, 692 (W.D. Tex. 2008).
40.
Urban v. Comcast Corp., 71 Fed. R. Serv. 3d (Callaghan) 1360 (E.D. Pa. 2008).
41.
Id.
42.
Before Dell, no case applied the term judicial immunity. However, a few cases held that trustees could not be liable for breach of the fiduciary duty of prudence where the plans required company stock to be offered as a retirement savings option. See, for example, Crowley v. Corning, 02 Civ. 6172, 2004 U.S. Dist. LEXIS 758, at **30-31 (W.D.N.Y. 2004); Graden v. Conexant, 574 F. Supp. 2d 456, 462 (D.N.J. 2008).
43.
Moench, 62 F.3d at 571.
44.
Id.
45.
Id. at 567 n.4.
46.
Central States, S.E. & S.W. Areas Pension Fund v. Cent. Transp., Inc., 472 U.S. 559, 568 (1985).
