The Ninth Circuit today answered a question that many (including Blawgletter) wondered about — whether a "fiduciary" under the Employee Retirement Income Security Act breaches its duty to pension plan beneficiaries by continuing to buy and hold their employer’s stock during a period of artificial inflation. The court answered that it just might, even if the company doesn’t face a threat to its viability (a la Enron):
A prudent man standard based only upon a company’s alleged financial viability does not take into account the myriad of circumstances that could violate the standard. A violation may occur where a company’s stock did not trend downward over time, but was artificially inflated during that time by an illegal scheme about which the fiducaries knew or should have known, and then suddenly declined when the scheme was exposed. While financial viability is a factor to be considered, it is not determinative of whether the fiduciaries failed to act with care, skill, prudence, or diligence.
In re Syncor ERISA Litig., No. 06-55265, slip op. at 1444 (9th Cir. Feb. 19, 2008).
The court also overturned the district court’s decision to reject a binding settlement because it already decided to grant defendants summary judgment. On remand, the district court must consider the settlement to determine whether it meets the requirements Rule 23(e), which governs class action settlements.