Lanfear v. Home Depot USA, Inc., No. 10-13002 (11th Cir. May 8, 2012)
The plaintiffs planned for their retirement by investing in a single retirement plan that is both an “eligible individual account plan” (“EIAP”) and an “employee stock ownership plan” (“ESOP”). Their employer, The Home Depot, Inc., offered that retirement plan as an employee benefit. The plaintiffs claim that the fiduciaries of the Plan, who are the defendants in this case, breached their fiduciary responsibilities under the Employee Retirement Income Security Act, 29 U.S.C. § 1001 et seq. The complaint, as last amended, alleged that the defendants:
(1) continued to purchase and failed to sell Home Depot stock even though they knew based on nonpublic information that the stock price probably was inflated;
(2) provided inaccurate information to the Plan participants in fiduciary communications; and
(3) did not disclose to the Plan participants certain Home Depot business practices that had inflated Home Depot’s stock price.
The plaintiffs argue that those alleged breaches of the defendants’ fiduciary duties, which ERISA imposes, diminished their retirement funds.
The district court dismissed the Plaintiffs’ Third Amended Complaint, and the Eleventh Circuit affirmed. The Eleventh Circuit reasoned:
(1) the failure to exercise “prudence” claims did not fall within the “diversification” exemption of 29 USC 1104(a)
(2) because, following Kirschbaum v. Reliant Energy, Inc., 526 F.3d 243, 249 (5th Cir. 2008), a breach of prudent man standard for a fiduciary can exist where the allegation is that the investments were unsuitable in light of material nonpublic information, but (2) following the decisions of several other circuits, review of fiduciary decisions on self-invested stock is subject to an abuse of discretion standard, and under that standard the claims failed to state a claim.