Senior US District Judge Howard Munson made the ruling in a suit filed against Agway Inc., aCentral New York agricultural cooperative, which accused its directors and members of its Administrative and Investment Committees of breaching their responsibilities in the case.
In clearing the way for the participants’ suit to proceed, Munson accepted the recommendations of US Magistrate David Peebles. Agway sought US Bankruptcy Court protection in 2002.
Highlighting the court rulings against Agway were findings that:
- PricewaterhouseCoopers (PWC) could not be sanctioned for a fiduciary breach because it properly functioned as a plan auditor and, as such, was not a fiduciary under the Employee Retirement Income Security Act (ERISA). “PWC neither profited from fiduciary breaches of others, as distinct from its role as an auditor, nor has it been unjustly enriched. Plaintiffs thus have no ERISA claim against PWC… The allegations of plaintiffs’ amended complaint against PWC implicate the type of services ordinarily rendered by independent, outside auditors. Nowhere does plaintiffs’ amended complaint assert that PWC possessed the power to make decisions regarding plan assets, nor do plaintiffs aver that through their conduct as auditors, PWC intended to entice fiduciaries of the plan to breach their duties, or to engage in prohibited transactions.”
- “Nothing in ERISA requires blind compliance with plan terms which would require a fiduciary to engage in imprudent conduct. Instead, under ERISA fiduciaries owe allegiance to the terms of a plan document only “insofar as such documents and instruments are consistent with the provisions of [Title I] and Title IV” of ERISA. 29 U.S.C. Â§ 1104(a)(1)(D). Indeed, ERISA casts upon fiduciaries an affirmative, overriding obligation to reject plan terms where those terms would require such imprudent actions in contravention of the fiduciary duties imposed under ERISA..”
The participants’ lawsuit charged that the plan’s committees and board of directors breached their ERISA fiduciary duties:
- by overvaluing Agway stock held in the Agway stock fund
- by failing to investigate whether the continued purchase of Agway stock was a reasonable and prudent investment option
- by disseminating false and misleading information to the participants about Agway’s financial condition
- by continuing to have the plan purchase and hold Agway stock as its financial problems mounted.
According to the court, Agway continued making matching contributions in Agway stock even after it announced in March 2002 the suspension of the sale of all Agway securities. In June 2002, Agway froze the redemption of Agway stock and since then the participants have been unable to withdraw or transfer the Agway stock, the court said.
The case is Agway Inc. Employees’ 401(k) Thrift Investment Plan v. Magnuson, N.D.N.Y., No. 5:03-CV-1060 (HGM/DEP), 10/12/06.