Another Ruling in the YRCW Stock-Drop Litigation

The U.S. District Court for the District of Kansas issued another ruling last Friday in In re YRC Worldwide Inc. ERISA Litigation, D. Kan., No. 2:09-cv-02593-JWL-JPO (April 15, 2011 ) that we recently reported on. Specifically, the District Court ruled that ERISA’s fiduciary safe harbor provision, Section 404(c), does not relieve fiduciaries of liability if they assemble an imprudent menu of plan investments. Section 404(c) provides a defense to a breach of fiduciary duty claim if the loss caused by the breach resulted from a plan participant's exercise of control over his or her investments. The plaintiffs in the case filed a motion to strike several of the defendants' asserted affirmative defenses. In their motion to strike the Section 404(c) defense, the plaintiffs cited to the U.S. Court of Appeals for the Seventh Circuit's recent decision in Howell v. Motorola Inc., 663 F.3d 552 (7th Cir. 2011), where the Seventh Circuit adopted the DOL’s view that Section 404(c) does not immunize plan fiduciaries that make imprudent investment selections. The YRC defendants attempted to downplay the significance of Howell by saying the Seventh Circuit's discussion of Section 404(c) was mere dicta. The defendants also argued that even if the Section 404(c) discussion in Howell was not dicta, it extended only to the “selection” of investment options, not the decision to continue offering an investment once it is selected. The District Court rejected the defendants’ arguments stating that (1) the Seventh Circuit's decision regarding Section 404(c) was not dicta and, (2) the Howell opinion “is in no way limited” to the selection of investment options. According to the District Court, “[t]he opinion expressly references the decision ‘to continue offering a particular investment vehicle'—allegations which are clearly encompassed in the Amended Complaint—and the rationale offered by the Seventh Circuit clearly applies to decisions from the initial selection decision to other decisions relating to the investment menu offered under the Plan.” The District Court also rejected the defendants' argument that the court should follow the lead of a minority of federal courts, including the U.S. Court of Appeals for the Fifth Circuit, that have declined to give effect to the DOL’s interpretation of Section 404(c). The District Court noted its belief that, if confronted with this issue, the U.S. Court of Appeals for the Tenth Circuit would conclude, like the Seventh Circuit, that Section 404(c) does not insulate a fiduciary from liability for assembling an imprudent investment menu.