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Home / Opinion / 09-3428, 09-3452, 09-3497, 10-1851, 10-2079 & 10-2091 Peabody v. Davis

09-3428, 09-3452, 09-3497, 10-1851, 10-2079 & 10-2091 Peabody v. Davis

ERISA
Breach of fiduciary duty; diversification

Where a retirement plan failed to diversify despite the investment’s collapse, the plan was properly found liable for breach of fiduciary duty.
“We agree with the district court that a prudent investor would not have remained so heavily invested in RIC’s stock as the company’s fortunes declined precipitously over a five-year period for reasons that foretold further and continuing declines. In particular, Davis testified that RIC income came from commissions, and that the SEC’s decimalization rule ‘crushed’ RIC’s profit margins, such that by 2003 or 2004 profit margins had declined by 70-80%. He further testified that this effect was being felt, beginning in 2000, in commission-based firms like RIC across the country. Kole likewise acknowledged that by 2003 and 2004, RIC was ‘going downhill.’ Although these developments were public, no one was better positioned to know of RIC’s prospects and the future of its stock value than Davis and Kole, who co-founded the company and set the share value. These facts are consistent with circumstances under which sister courts would find it imprudent to continue an investment in company stock. See Quan, 623 F.3d at 882 (explaining that to demonstrate imprudence, a plaintiff must show circumstances that ‘“clearly implicate [] the company’s viability as an ongoing concern” or show “a precipitous decline in the employer’s stock . . . combined with evidence that the company is on the brink of collapse or is undergoing serious mismanagement.”’) (citing Wright, 360 F.3d at 1099 n.5). In short, a widely-known and permanent change in the regulatory environment had undermined RIC’s core business model, and consequently the company stock became an imprudent investment.”

Affirmed in part, and Reversed in part.

09-3428, 09-3452, 09-3497, 10-1851, 10-2079 & 10-2091 Peabody v. Davis

Appeals from the United States District Court for the Northern District of Illinois, Coar, J., Cudahy, J.

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