US District Judge Julie Robinson of the US District Court for the District of Kansas ruled that the plaintiffs had raised a sufficiently strong case that the corporate defendants would be considered a fiduciary under the Employee Retirement Income Security Act (ERISA), BNA reported.
Plaintiffs alleged that the breach occurred when the company offered its shares as an investment option in the Westar Energy, Inc. Employees’ 401(k) Savings Plan and when it matched employee contributions with Westar stock. The defendants were accused of a number of “risky, abusive, aggressive, and illegal acts” that ultimately resulted in lost value to plan investments.
In her ruling, Robinson turned away allegations by the former Westar CEO David Wittig, that he lacked any fiduciary duty to monitor individuals he had selected to serve on the plan’s administrative committee.
In addition, Robinson rejected the defendants’ argument that the presumption that investment by an employee stock ownership plan (ESOP) in employer stock is prudent also applies to investments in employer stock made by non-ESOPs.
In asking the court to dismiss the lawsuit, Westar argued, among other things, that although it was the plan’s named fiduciary, it did not operate as a fiduciary and thus could not be held liable for the losses allegedly sustained by the participants.
Robinson also found that participants adequately alleged Westar breached its fiduciary duties through its allocation or designation of fiduciary responsibilities to Wittig and the plan’s administrative committee.
According to the court, the participants’ complaint “sets out in a detailed chronology a number of events and occurrences” that the committee and Wittig “gave little or no heed to” when continuing to allow participants to invest in Westar stock.
The court rejected the defendants’ assertion that, had they acted on nonpublic information about Westar and withdrawn Westar stock as an investment option in the plan, the defendants would have violated securities laws.
Robinson agreed, however, to dismiss the participants’ claim that the committee members should have amended the plan to withdraw Westar stock as an investment option. According to the court, such an amendment would have been a settlor function, not a fiduciary function.
Robinson also rejected the plan committee’s contention that it had no fiduciary duty to monitor, investigate, or acquire information about Westar’s financial condition. “Plan fiduciaries would not generally be expected to investigate, ascertain or monitor the Company and its officers with respect to matters that Plan administrators are not properly privy to. Nevertheless, Plan fiduciaries cannot turn a ‘blind eye to’ what they know in their corporate officer capacity,” the court said.
The case is In re Westar Energy Inc. ERISA Litigation, D. Kan., No. 03-4032-JAR, 9/29/05.