The court decided that Merrill Lynch Trust Co. did
not breach its fiduciary duties by not removing RCN Corp
stock as a plan investment after the stock lost value, BNA
reports.
Noting that directed trustees have limited fiduciary
duties, the court said the plaintiffs failed to allege any
fact which, if proven, would establish that Merrill Lynch
had a fiduciary duty to disregard the investment directions
provided by the plan's named fiduciaries.
Citing a Department of Labor Bulletin (See
Rules/Regs: Divining Line
and
Rules/Regs: Directed Verdict?
), the court said Merrill Lynch would only have breached
its fiduciary duties if it had possession of material,
non-public information necessary to evaluate the prudence
of investing in RCN stock and had failed to act on that
information.
The court also said Merrill Lynch did not have a
duty to communicate negative public information regarding
RCN's financial status to the plan participants, saying
it only had an obligation to "disclose non-public
information that they possess to named fiduciaries prior to
following investment decisions that may be affected by that
information."
(See also
Directed Trustees Not Expected to Second
Guess)
In a separate opinion a day earlier, the court
dismissed numerous fiduciary breach claims brought by six
current and former employees against RCN, its board of
directors, RCN's compensation committee, the
plan's administrative committee, and Merrill
Lynch.
The employees alleged that each of the defendants
breached their fiduciary duties under the Employee
Retirement Income Security Act (ERISA) by keeping RCN stock
as an investment option when it was an imprudent
investment.
They also alleged that RCN and the board of
directors breached their fiduciary duties by failing to
properly monitor those they had appointed to the
administrative committee, and that the defendants failed to
communicate complete and accurate information about RCN to
plan participants.
The court dismissed RCN's compensation committee
as a defendant, saying the committee was not vested with
nor had it exercised any power or fiduciary duty regarding
the administration of the plan.
The court also rejected the employees'
contention that RCN's board of directors acted as
fiduciaries simply through their appointment of members of
the plan's administrative committee and that the
directors breached their fiduciary duties by failing to
protect the plan and its assets when RCN filed for
bankruptcy.
The court dismissed the employees' claim that RCN
and its board of directors breached their duty to inform
participants by failing to provide complete and accurate
information about RCN.
The court said that the company and board had no
duty under ERISA to communicate or otherwise present
investment information to Plan participants, noting that
the terms of the Plan's governing documents assigned
the duty to communicate with plan participants to the
administrative committee.
The court also found that the employees failed to
allege that communications the administrative committee
provided to plan participants that "fostered a
positive attitude" toward RCN's stock were
"inaccurate, incomplete and materially
misleading."
However, the court left intact the employees'
claim that the administrative committee breached its
fiduciary duties by making matching contributions in RCN
stock when it was imprudent to do so. The committee's
argument that it had no discretion to change the way
matching contributions were made because the plan
"dictated" that RCN matching contributions be
invested in the RCN ESOP was rejected.
The court also denied dismissal of the
employees' claim that RCN and the board of directors
breached their fiduciary duties by failing to monitor those
they had appointed to the administrative committee.
Finally, the court found that five of the six named
plaintiffs lacked standing. The employees had all
received distributions from the plans and had no
reasonable expectations of returning to work for RCN and,
therefore, were no longer plan participants, the court
said.
For the plan in question in the lawsuit, participants
could direct the investment of their individual
contributions into various investment options, but
RCN's matching contributions were made in RCN stock. In
2000, RCN's stock lost 90% of its value, according to
the court documents. Nearly three years later, the
plan's administrative committee modified the plan
structure so that participants were no longer permitted to
allocate any contributions to the RCN stock fund or move
assets from other investments into the RCN stock
fund.
The practice of making matching contributions in RCN
stock was not stopped until 2004.
According to the court, RCN was removed from the
NASDAQ in May 2004. On May 27, 2004, RCN filed for
reorganization under Chapter 11 of the Bankruptcy Code, and
emerged from Chapter 11 at the end of 2004.
At that time all outstanding shares of RCN stock,
including those invested in the RCN stock fund, were
canceled.
The rulings are In re RCN Litigation, D.N.J., No.
04-5068 (SRC), unpublished 3/21/06 and In re RCN
Litigation, D.N.J., No. 04-5068 (SRC), unpublished
3/22/06.