Peabody v. Davis
636 F.3d 368
7th Cir.2011Background
- Peabody participated in Rock Island Corporation's ERISA Plan and rolled over outside IRA funds into the Plan in 1999, concentrating his account heavily in RIC stock.
- Davis and Kole, as Plan fiduciaries and RIS ERISA trustees, maintained investment in RIC stock despite signs of deteriorating company prospects.
- RIC faced a prolonged decline from 2000 to 2004 due to regulatory changes and weakening profitability, creating imprudent investment conditions for the Plan.
- The Plan offered Peabody a few distribution options; he instead entered a loan agreement in 2004 to convert his stock into a loan payable by the Plan sponsor, which later defaulted.
- RIC went out of business in 2005; Peabody sought recovery for fiduciary breaches and damages under ERISA and also sought damages from insurers under the Plan's dishonesty bonds.
- District court held fiduciaries liable for prudence breaches and handling of Peabody's benefit, but found Peabody lacked standing to sue insurers and remanded for damages calculations.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Did fiduciaries breach the duty of prudence by keeping Peabody's Plan invested in RIC stock? | Peabody | Davis/Kole | Yes, breach found; prudence breached despite EIAP exemption from diversification. |
| Does Moench presumption apply to EIAPs, and did waiver/consent defeat fiduciary liability? | Peabody | Davis/Kole | Moench presumption discussed; waiver defense rejected as to freeing fiduciaries from duty. |
| Was the district court's damages calculation proper under ERISA § 502(a)(2)? | Peabody | Davis/Kole | Damages must be remanded; initial per-share figure tainted; recomputation required with prudent divestiture framework. |
| Did the court correctly determine RIC’s liability or the liability of the Plan sponsor for the loan-for-stock transaction? | Peabody | RIC/RS | ERISA § 406(a)(1)(B) violation acknowledged but no damages to Peabody tied to the loan-for-stock substitution. |
| Does Peabody have standing to recover from insurers under ERISA § 502(a)(3)? | Peabody | Insurers | Standing disabled; insurers not proper defendants under § 502(a)(1)(B) or § 502(a)(2); § 502(a)(3) relief not typical equitable relief here. |
Key Cases Cited
- LaRue v. DeWolff, Boberg & Assocs., Inc., 552 U.S. 248 (U.S. 2008) (individual § 502(a)(2) actions may affect plan assets)
- Kirschbaum v. Reliant Energy, 526 F.3d 243 (5th Cir. 2008) (EIAP exemptions and prudence in employer stock)
- Moench v. Robertson, 62 F.3d 553 (3d Cir. 1995) (presumption of prudence for investing in employer stock)
- Wal-Mart Stores, Inc. Assoc. Health & Welfare Plan v. Wells, 213 F.3d 398 (7th Cir. 2000) (typical equitable relief limits under ERISA § 502(a)(3))
- Harris Trust & Sav. Bank v. Salomon Smith Barney, Inc., 530 U.S. 238 (U.S. 2000) (adverse domination and equitable relief under ERISA)