U.S. Fifth Circuit Affirms Dismissal of Breach of Fiduciary Duty Claims in Connection with Radio Shack Bankruptcy

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The RadioShack 401(k) Plan allowed participants to invest their deferred salary or company match contributions in over twenty investment options. The Plan had an Employee Stock Ownership Plan (ESOP) that allowed participants to invest their retirement savings in RadioShack stock, which was held in the RadioShack Stock Fund. Plan documents required that RadioShack be offered as an investment option. If participants did not choose an investment option, their contributions were placed in a default age-appropriate mutual fund. The Plan was administered by the plan administrative Committee, whose members were appointed by the RadioShack Board of Directors. The Committee was responsible for selecting Plan investments and was the “named fiduciary” under ERISA.

During the class period, RadioShack’s stock price dropped from $11.48 per share to pennies, as the company experienced a financial decline that culminated in Chapter 11 Bankruptcy.

The named plaintiffs filed suit against the members of the Committee (Committee Defendants), the Board of Directors (Director Defendants), and the plan Trustees. Shortly after plaintiffs filed the class action complaint, they settled with the Trustees. The district court granted the Committee and Director Defendants’ motion to dismiss, and the U.S. Fifth Circuit affirmed.

Dudenhoeffer establishes that for publicly-traded stocks, allegations that a fiduciary should have recognized from publicly available information alone that the market was over-or undervaluing the stock are implausible as a general rule, at least in the absence of special circumstances….  Plaintiffs argue that Dudenhoeffer addresses only allegations that public information showed that a stock was overvalued, not claims that the stock was excessively risky. This distinction between claims that stock is overvalued and claims that stock is excessively risky is ‘illusory.’ In an efficient market, market price accounts for risk….  Although Dudenhoeffer was primarily framed in terms of overvalued-stock allegations, it applies equally to Plaintiffs’ public-information claims premised on excessive risk” and “the Plan fiduciaries did not breach the duty of prudence by relying on market price as a fair indicator of the value of RadioShack stock.”

“Plaintiffs also allege that Defendants violated the duty of prudence because Defendants had inside information that RadioShack would fail, but made positive statements about the company’s future in public. This, they allege, caused the Plan to buy RadioShack stock at artificially inflated levels.”  The Court, however, concluded that: “These arguments are ultimately unavailing because all of the information alleged was available to the public.”

With respect to the Breach of Loyalty claims: “Plaintiffs’ assertion that the Committee Defendants declined to invest in RadioShack stock does not allege a duty of loyalty violation. Fiduciaries need not personally invest in any particular asset in order to fulfill their duties. With respect to the Director Defendants, Plaintiffs make the opposite argument that because certain executives and directors received bonuses in the form of RadioShack stock and options, they artificially inflated the stock price to preserve their personal wealth. However, Plaintiffs fail to point to any fact suggesting a conflict of interest other than Defendants’ stock ownership. Instead, they argue that Defendants were disloyal because they were concerned that freezing Plan investment in RadioShack stock would send negative signals to the market and cause the stock price to decrease. But the complaint fails to allege facts that would give rise to a plausible inference that Defendants’ concern about the stock price was self-serving. Defendants’ actions were equally consistent with protecting the Plan’s current holdings of RadioShack stock.”

With respect to the Failure-to-Monitor claims: “The Fifth Circuit has never recognized a theory of ERISA fiduciary liability that holds corporate directors personally liable for failing to monitor fiduciaries appointed by the directors. Even if the court were to adopt such a theory, duty-to-monitor claims recognized by other courts inherently require a breach of duty by the appointed fiduciary. Because the Committee did not breach any duty to the Plan, Plaintiffs’ duty-to-monitor claims against the Director Defendants collapse.”

Finally, the Court affirmed the dismissal of the claims against the Trustees of the Puerto Rico Plan for lack of Article III standing, as none of the named plaintiffs were participants in the Puerto Rico Plan.


Singh v. RadioShack Corp., No.16-11587, 2018 WL 732913 (5th Cir. Feb. 6, 2018).




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