Court Clears Independent Fiduciary of ERISA Breach in USAir Case

November 16, 2005 ( - A Virginia federal judge has cleared a Washington, DC-based independent fiduciary of a fiduciary breach when it worked with the US Airways company stock fund.

US District Judge T.S. Ellis III of the US District Court for the Eastern District of Virginia issued the ruling as part of a participant lawsuit which had accused Fiduciary Counselors of violating its duties under the Employee Retirement Income Security Act (ERISA) by not deleting the fund as an investment option in US Airways’ K plan as the company moved towards bankruptcy. Ellis ruled that the fiduciary advisory firm acted appropriately by avoiding a massive selloff of the fund’s holdings in the troubled carrier.

Ellis pointed out in his ruling that Fiduciary Counselors had actually acted properly to manage the risks of the company’s bankruptcy filing by instructing the K plan’s directed trustee, Fidelity Management Trust Co., to stop buying company shares on the open market.

“Sales of stock are subject to numerous legal constraints, which are a matter of public record. To require disclosure to participants of every possible legal consideration faced by a fiduciary would be to risk confusing participants by burying a fiduciary’s truly important disclosures in a mass of legal disclosures. ERISA plainly does not require such disclosures,” Ellis asserted in the ruling.

Plaintiff Vince DiFelice, a US Airways employee and plan participant, sued US Airways, Fidelity Management, and Fiduciary Counselors alleging they each breached their ERISA fiduciary duties by holding US Air Group stock when it was no longer a prudent investment.

In September, Ellis dismissed the claims against Fidelity Management. In that decision, the court found that, as a directed trustee, Fidelity Management was not liable for the losses incurred by plan participants who invested in the company stock fund (See  Directed Trustees Not Expected to Second Guess ).

In its latest decision, Ellis dismissed all claims brought against Fiduciary Counselors. According to the court, DiFelice did not allege that Fiduciary Counselors had fostered any material misunderstanding among plan participants. “Fiduciary Counselors had no reason to suspect that Plan participants were unaware of the risks of investing in US Air Group stock, nor did Fiduciary Counselors misrepresent the risks of investing in US Air Group stock,” Ellis said, noting that the financial difficulties facing US Airways were “well known to the investing public at large” as well as to plan participants.

The case is DiFelice v. Fiduciary Counselors Inc., E.D. Va., No. 1:05cv750, 11/8/05.