A federal appeals court unanimously rejected a complaint by participants in a Walt Disney Co. 401(k) plan that fiduciaries violated their duties by offering the Sequoia Fund, a mutual fund that several years ago plummeted in net asset value.
A three-judge panel of the 9th U.S. Circuit Court of Appeals in San Francisco upheld a November 2016 decision by U.S. District Court Judge Percy Anderson in Los Angeles, who dismissed the complaint in a consolidation of two similar lawsuits against the plan's investment committee and various plan fiduciaries. Mr. Anderson also dismissed an effort by the plaintiffs to amend their original complaint.
"As a general matter, allegations based solely on publicly available information that a stock is excessively risky in light of its price do not state a claim for breach of the ERISA duty of prudence," the appeals court wrote in its March 1 opinion.
The plaintiffs argued that the Disney plan fiduciaries had failed to "prudently monitor and review" the offering of Sequoia Fund as an investment option.
They said fiduciaries should have been aware of Sequoia's heavy investment in Valeant Pharmaceuticals — at one point exceeding 30% of the mutual fund's net asset value. They said retaining the mutual fund in the plan lineup breached their ERISA duties, due to investigations of Valeant's drug pricing practices that caused a sharp drop in Valeant's stock and in the Sequoia Fund's net asset value in September 2015. Neither Sequoia nor Valeant was cited as defendants.
The Disney Savings and Investment Plan, Burbank, Calif., had $7.1 billion in assets as of Dec. 31, 2017, according to the latest Form 5500.