Courts Continue to Favor Defendants After Dudenhoeffer

In a detailed ruling, a district court ruled in Coburn v. Evercore Tr. Co., N.A, No. 1:15-cv-00049-RBW (D.D.C. Feb. 17, 2016), that an unsuccessful change in business strategy was not enough to meet the special circumstances standard outlined in the Fifth Third Bancorp v. Dudenhoeffer case. The court noted that one of the few post-Dudenhoeffer cases to survive, Gedek v. Perez, concerned Kodak, which faced a fundamentally changed market that offered virtually no way for the company to recover. The court said fiduciaries should not be in a position to outguess the market, whether that means selling or buying shares. The court also dismissed the claim made under the continuing monitoring obligation laid out in Tibble v. Edison International. The court said that the duty to monitor on an ongoing basis was nothing new, and did not mean the trustee can be expected to outguess the market absent special circumstances.

The special circumstances standard was discussed solely in the context of public companies, but in Allen v. GreatBanc Trust, No. 115-cv-03503 (N.D. Ill. Oct. 15, 2015), a district court ruled that GreatBanc did not cause an ESOP at Personal-Touch Home Care to buy shares at an excessive price. The court said even though the company was private, plaintiffs have to plead special circumstances to make a claim. The Department of Labor has filed an appeal in the case, saying the special circumstances rule should apply only to public companies.