The Sixth Circuit affirmed the dismissal of ERISA stock drop claims by participants in the Cliffs Natural Resources’ 401(k) Plan. The participants alleged fiduciary breach claims based on public and non-public information arising out of the collapse in iron ore prices that caused the company’s stock price to decline 95%. With respect to the public information claim, the Court held that a “fiduciary’s failure to investigate the merits of investing in a publicly traded company” is not the type of “special circumstance” that can support a claim based on public information, and that plaintiffs also must plead “what, if anything, the fiduciaries might’ve gleaned from publicly available information that would undermine reliance on the market price.” With respect to the non-public information claim, the Court rejected plaintiffs’ allegations that a prudent fiduciary could not have concluded that disclosing the inside information or halting additional contributions would do more harm than good. In so ruling, the Court determined that the plan fiduciaries could have concluded that divulging inside information would have caused the company’s stock price to collapse, further harming participants already invested in the fund. The Court also determined that closing the fund without explanation might be even more harmful: “It signals that something may be deeply wrong inside a company but doesn’t provide the market with information to gauge the stock’s true value.” The case is Saumer v. Cliffs Natural Resources, Inc., No. 16-3449 (6th Cir. Apr. 7, 2017).

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Photo of Neil V. Shah Neil V. Shah

Neil V. Shah is a member of the Employee Benefits & Executive Compensation Group, where he focuses on ERISA litigation.

He is the lead attorney representing the firm’s Taft-Hartley plan clients in withdrawal liability and delinquent contributions matters.  As part of his practice…

Neil V. Shah is a member of the Employee Benefits & Executive Compensation Group, where he focuses on ERISA litigation.

He is the lead attorney representing the firm’s Taft-Hartley plan clients in withdrawal liability and delinquent contributions matters.  As part of his practice, Neil pursues employers, their owners and officers, and affiliated companies to collect the amounts owed to these plans using a variety of complex legal theories, and has secured several precedential opinions and multi-million-dollar judgments in their favor.  Neil also defends these plans in arbitrations challenging the methods and assumptions used to calculate withdrawal liability, which has yielded a number of notable arbitration decisions and court opinions.  Owing to his experience in this area, Neil is a co-editor of the withdrawal liability chapter of the premier employee benefits treatise, Employee Benefits Law, published by Bloomberg, and regularly presents on the topic before practitioners and consultants that work in the area, such as at meetings of the Conference of Consulting Actuaries and the Employee Benefits Section of ABA’s Section of Labor & Employment Law.

In addition to his Taft-Hartley plan experience, Neil has represented several plan sponsors and fiduciaries in ERISA class actions alleging that the plan’s investments or other practices are imprudent, such as excessive fee and stock drop cases.

Prior to joining Proskauer, Neil was an associate at a large regional firm, where he litigated individual and class actions involving challenges to insurer claims adjudication procedures under ERISA, fraud recoveries against healthcare providers, and claims for benefits.

Neil has authored several articles, including those published in the New Jersey Law Journal and Bloomberg National Affairs.  He is also a frequent contributor to Proskauer’s Employee Benefits & Executive Compensation Blog.