The United States Supreme Court denied
cert. yesterday in a lawsuit by JP Morgan Chase & Co. (“JP Morgan”)
employees, Fisher v. JP Morgan Chase
& Co., U.S., No. 12-298 (cert.
denied Nov. 13, 2012) who alleged that fiduciaries of the company's Section
401(k) plan (the “Plan”) breached their duties under ERISA by not eliminating
company stock from the Plan when the stock price dropped due to losses the
company incurred through its dealings with Enron Corp.
By way of background, the lawsuit was filed in 2003 by a group of JP Morgan employees who had invested in the company's stock between April 1999 and January 2003. The employees alleged that, during this period, the fiduciaries of JP Morgan's 401(k) plan knew or should have known that the company's stock was not a prudent investment option, given that JP Morgan had billions of dollars in undisclosed loss exposure to Enron. The Supreme Court’s
denial of cert. followed the United States Court of Appeals for the Second
Circuit’s May 2012 decision upholding a district court’s dismissal of the
lawsuit against JP Morgan, using the “presumption of prudence” (frequently called the "Moench presumption") that attaches to
defined contribution pension plans that offer employer stock in their plans,
finding that there were no “dire circumstances” that should have prompted plan
fiduciaries to remove employer stock as an investment option. The Second
Circuit had noted that it had already ruled in two other cases that the “presumption
of prudence” applied to all eligible individual account plans and employee
stock ownership plans, even if those plans did not strictly mandate that
employer stock be offered.
The petition for certiorari asked the
Supreme Court to determine whether there is a presumption of prudence that
immunizes from liability fiduciaries of Section 401(k) plans when they offer
employer stock as an investment option, and, if so, whether the presumption is
applicable to all eligible individual account plans or only those plans that
mandate or strongly favor employer stock. The petition also asked what facts or
circumstances give rise to or overcome the presumption and whether the
presumption is properly applied to test the sufficiency of a complaint on a
motion to dismiss.
