Supreme Court shuns State Street's effort to halt GM stock lawsuit
By Hazel Bradford | December 3, 2012 4:20 pm
The U.S. Supreme Court on Monday rebuffed an effort by State Street Bank & Trust to stop a class-action lawsuit claiming that it had breached its fiduciary duty by failing to sell General Motors Corp. stock in the firm's 401(k) plans before the company began Chapter 11 bankruptcy proceedings.
The high court's decision to not review the case sends it back to U.S. District Court in Detroit, where an October 2011 dismissal was later reversed by a U.S. Court of Appeals.
The appellate court disagreed with U.S. District Court Judge Denise Page Hood's ruling that State Street should not be held liable for actions because plan participants could choose from a menu of investment options.
“A fiduciary cannot avoid liability for offering imprudent investments merely by including them alongside a larger menu of prudent investment options,” the appellate court said in its ruling.
State Street was hired in 2006 as independent fiduciary for GM stock valued between $1.45 billion and $1.9 billion in the company's two 401(k) plans from July 15, 2008, to April 24, 2009, when class-action plaintiffs have argued the stock should have been sold before its price collapsed prior to GM's 2009 bankruptcy filing.
GM stock was one of several investment options in the $11.7 billion salaried employees' 401(k) plan and $8.6 billion GM hourly employees' 401(k) plan, as of Dec. 31, 2007, according numbers in an SEC filing.
“We are disappointed by the court's decision not to hear this appeal. However, we will continue to vigorously defend ourselves in the underlying litigation in Detroit,” State Street spokeswoman Alicia Curran Sweeney said in an e-mailed statement.
Calls to law firms McDermott Will & Emery, representing State Street, and Scott & Scott, representing the plaintiffs, were not returned at press time.
On Oct. 15, the U.S. Supreme Court rebuffed two “stock drop” petitions brought by participants in plans sponsored by Citigroup Inc. and The McGraw-Hill Cos. who claimed the two firms failed their fiduciary duty under ERISA regarding the prudence of offering company stock as an investment option, and disclosure of market conditions affecting that stock.
The State Street case “kind of goes in the opposite direction,” said Scott Macey, president and CEO of the ERISA Industry Committee, which represents corporations on benefit issues. “It won't surprise me if there is additional litigation in the 6th Circuit and other jurisdictions. There should be some responsibility on participants to make those decisions.”