The U.S. District Court for the Western District of Oklahoma decided allegations from the plaintiffs had not been sufficiently proven. Fiduciaries for the Chesapeake Energy Corporation Savings and Incentive Stock Bonus Plan requested a motion to dismiss the suit, claiming the status of the company and the stock was never as dire as alleged and that the matter of prudency for investing in company stock is moot.
The court cites the presumption of prudence standard developed from Moench v. Robertson in its opinion, saying that while fiduciaries should not be immune from judicial inquiry in relation to investments in employer securities, neither should they “be subject to the strict scrutiny that would be exercised over a trustee only authorized to make a particular investment.”
The district court opined that the 10th U.S. Circuit Court of Appeals “would adopt the Moench presumption of prudence in cases in which, under the terms of an Employee Retirement Income Security Act (ERISA) plan, the fiduciary is not absolutely required to invest in employer securities but is more than simply permitted to make such investments, and would apply an abuse of discretion standard to review the fiduciary’s decision to continue investing in employer securities.”
The court adds that the 10th Circuit Court would require the plaintiff to show that “the ERISA fiduciary could not have reasonably believed that continued adherence to the [plan’s] direction was in keeping with the settlor’s expectations of how a prudent trustee would operate in order to demonstrate an abuse of discretion.”
In its decision, the court says, “Having carefully reviewed the [complaint], the court finds that although the plaintiffs have set forth numerous specific and detailed facts regarding certain aspects of Chesapeake’s financial well-being, [the] plaintiffs have not shown that they can plausibly overcome the presumption of prudence.” The court cites the most damaging thing to the plaintiffs’ case is that the price of Chesapeake stock “during the class period always retained significant value.” As such, the court finds it “implausible that a reasonable fiduciary would have considered himself bound to divest.”
The lawsuit alleges that the plan’s fiduciaries failed to manage and administer the assets with the care, skill, prudence, and diligence of a prudent person; failed to disclose material information to the plan’s participants; and engaged in activities inconsistent with, and detrimental to, the plan and its participants. Since April of 2012, Chesapeake has been the subject of a dozen lawsuits, alleging securities fraud, corporate waste and breach of fiduciary duties owed to shareholders (see “ERISA Suit Filed Against Chesapeake Energy”).
The opinion for In re Chesapeake Energy Corporation 2012 ERISA Class Litigation is here.