Lanfear v. Home Depot, Inc.
679 F.3d 1267
| 11th Cir. | 2012Background
- ERISA plaintiffs allege fiduciaries imprudently kept Home Depot stock in the Plan, an EIAP/ESOP, based on nonpublic information inflating the price.
- Plan requires a Company Stock Fund invested primarily in Home Depot stock; direct contributions must initially go into this fund, with other funds available for diversification.
- Disclosures warned participants about the risks of a nondiversified Company Stock Fund; plan documents allowed transfers to other funds.
- Allegations include improper return-to-vendor chargebacks and backdating of stock options affecting Home Depot's earnings and stock price.
- District court dismissed the complaint for lack of prudence and loyalty claims; plaintiffs appealed focusing on Moench presumption and nonpublic information disclosure.
- Court adopts an abuse-of-discretion review for ESOP fiduciaries and concludes Moench presumption can be overcome only by showing an abuse of discretion; the plaintiffs fail to plead such abuse.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Prudence claim within §1104(a)(2) or not | Lanfear alleges nondiversification and imprudence beyond plan directions. | Home Depot argues claim is exempt as diversification under §1104(a)(2). | Prudence claim not barred by §1104(a)(2); not purely diversification. |
| Standard of review for ESOP fiduciaries’ stock investments | Moench presumption rebuttable; plaintiffs can overcome prudence by nonpublic info. | Moench supplies an abuse-of-discretion standard, with a presumption of prudence. | Court adopts Moench-based abuse-of-discretion standard; presumption not absolute. |
| Whether Moench presumption applies at 12(b)(6) | Presumption operates as evidentiary, not pleading, and may be used to deny claims early. | Moench presumption governs pleading and review through dismissal. | Moench presumption applies at motion to dismiss; not an evidentiary pleading rule. |
| Loyalty claim based on incorporation of SEC filings into plan documents | Misrepresentations in Form 10-K/10-Q become ERISA fiduciary communications when incorporated into S-8 and prospectuses. | Filings were securities-law actions; fiduciaries not acting in ERISA capacity during those acts. | No ERISA liability for misrepresentations in incorporated securities filings. |
Key Cases Cited
- Moench v. Robertson, 62 F.3d 553 (3d Cir. 1995) (presumption of prudence in ESOP fiduciary review; abuse of discretion standard)
- Kirschbaum v. Reliant Energy, Inc., 526 F.3d 243 (5th Cir. 2008) (distinguishes diversification from imprudence in ESOP context)
- In re Citigroup ERISA Litig., 662 F.3d 128 (2d Cir. 2011) (adopts Moench presumption; discusses ESOP fiduciary review)
- Edgar v. Avaya, Inc., 503 F.3d 340 (3d Cir. 2003) (trust-law-inspired framework; praiseworthy for deference to plan terms)
- Summers v. State St. Bank & Trust Co., 453 F.3d 404 (7th Cir. 2006) (disclosure and prudent management considerations in ESOP contexts)
- Pugh v. Tribune Co., 521 F.3d 686 (7th Cir. 2008) (limits on fiduciary duty to divest absent imprudence beyond plan terms)
- Wright v. Oregon Metallurgical Corp., 360 F.3d 1090 (9th Cir. 2004) (stock-price volatility alone not proof of breach)