Benefits and Compensation

BP Litigation: Plan Sponsor Not Liable for Employees’ Failure to Inform

Fiduciary status under ERISA “is not an all-or-nothing concept,” according to a recent federal district court ruling that found BP and its North American unit were not liable for their retirement plan employees’ breaches of fiduciary duty. The lawsuit arose from a BP company stock plan available as investment to plan participants that plunged in value after the 2010 Deepwater Horizon oil spill involving the U.K.-based oil company.

Background of the Case

In In re: BP ERISA Litigation, No. 4:10-cv-4214 (S.D. Tex., Oct. 30, 2015), U.S. District Judge Keith P. Ellison dismissed several claims by plan participants that BP failed to monitor fiduciaries acting for its company stock plans, primarily by finding the named defendants were not fiduciaries.

The plaintiffs alleged in their suit that BP was “vicariously liable” for employees’ fiduciary breaches under ERISA because the defendants “effectively controlled the individual defendants” whom they hired and assigned plan-related jobs. Yet Judge Ellison concluded that more than an employer-employee relationship is needed to establish vicarious liability, which requires that the principal have “participated in the agent’s breach.”

The plaintiffs failed to connect the company with the individual defendants’ alleged breach.

The suit had been dismissed in March 2012 in line with the so-called Moench presumption of prudence protected the plan’s choices of investment options. But the U.S. Supreme Court in June 2014 threw out the Moench presumption and created a new framework for evaluating claims against some ERISA fiduciaries. The BP case was remanded to the Houston federal district court for reconsideration by the 5th U.S. Circuit Court of Appeals in light of the Dudenhoeffer v. Fifth Third case that ended Moench protection for fiduciaries.

The case claimed BP’s North American unit was a fiduciary because the plan document describes it as the “plan sponsor.” The judge, however, said this provision didn’t affect fiduciary status because a “company cannot be subject to fiduciary liability simply by virtue of its role as a plan sponsor.” He said the plan document instead listed the BP North America’s Savings Plan Investment Oversight Committee as having authority and control over the management and disposition of the plan’s assets, which made it the “Investment Named Fiduciary.”

Judge Ellison did not rule the BP board of directors and its officers as being fiduciaries to the company’s savings plans. He noted the officers have no authority to limit or freeze investments in the BP stock fund unless they are directed to do so by the investment oversight committee.

He said the plaintiffs adequately alleged that the investment oversight committee defendants breached their fiduciary duties to the plan regarding safeguarding participants’ assets with prudent investments. But he did not accept plaintiffs’ claims that the officers who appointed the committee defendants breached their duty to monitor the committee and its actions. This duty, according to plaintiffs is composed of both a duty to inform the committee of material, non-public information about the company that could affect their evaluation of investing in the company’s securities and a duty to ensure that the monitored fiduciaries are performing their fiduciary obligations.

Judge Ellison ruled that ERISA does not impose a duty for monitoring fiduciaries to keep their appointees apprised of material, non-public information.