U.S. District Judge John W. Lungstrum of the U.S. District Court for the District of Kansas applied the presumption of prudence typically used in stock-drop cases (where fiduciaries in plans with company stock as a 401(k) plan investment option are presumed to have acted prudently), but concluded that the plaintiffs had put forward a strong enough case so far to rebut the presumption.
The suit claimed the plan continued to offer the company stock option after it was no longer prudent; the share price plummeted from high of $25.96 per share in October 2007 to a low of $0.45 per share in March 2010.
In agreeing to let the case move forward, Lungstrum noted that the stock had become virtually worthless during the period covered by the suit. The court said the plaintiffs’ allegations went “far beyond” the substantial stock price drops that courts in other cases have found insufficient to rebut the presumption of prudence.
The court also pointed to several business practices of YRC that, in conjunction with the “calamitous decrease in share value,” showed YRC was facing a dire financial situation that endangered the viability of the company.
Lungstrum wrote: “Allowing the Plan’s holdings of Company stock to become essentially worthless could certainly defeat the purpose of the Plan, such that a reasonable fiduciary would be justified in overriding the Plan’s mandate to offer such stock as an investment option.”
While Lungstrum allowed the Employee Retirement Income Security Act (ERISA) fiduciary breach claims to proceed, he threw out a breach allegation that the plan did not disclose material information to employees who invested in company stock.
The court turned away the defendants’ contention that the plaintiffs’ imprudent investment claim was the equivalent of a claim that the defendants should have better diversified the plan. Lungstrum said he agreed with the plaintiffs that their imprudent investment claim was distinct from a failure to diversify allegation.
The case is In re YRC Worldwide Inc. ERISA Litigation, D. Kan., No. 09-2593-JWL.