Lynn v. Peabody Energy Corp.

Participants in Peabody Energy Corporation’s employee stock option plans brought a lawsuit alleging that the plan administrator violated its duty of prudence by continuing to invest in the company’s stock well after public information made it clear that doing so was unreasonable. The court dismissed the case, finding that plaintiffs failed to meet the high burden of describing an alternative investment that “a prudent fiduciary in the same circumstances would not have viewed as more likely to harm the fund than to help it.”

Background
The plaintiffs, on behalf of three Peabody Employee Stock Option Plans (ESOP) participants and beneficiaries, filed suit in 2015 against the company for its promises of Peabody stock as investment options in the plan. As part of the ESOPs, the participants had chosen to allocate part of their pension to the Peabody Energy Stock Fund, since the company believed the stock was stable and a good option. However, Peabody had failed to disclose the effects of climate change or the imminent changes it would have on the company and its stock. The New York Attorney General found that Peabody had lied in its filings when they stated they couldn't predict the impact coal emission regulations would have on its business when they actually had made projections.

Because of the failure to report, the plaintiffs alleged that the company had breached their fiduciary duties under the Employee Retirement Income Security Act (ERISA) because they continued to offer the stock options when they knew the company was in jeopardy. The plaintiffs stated that the defendants would have reasonably known the stock options were "imprudent" because of the changes within the coal industry due to climate change.

Relevant Laws and Principles

 * Employee Retirement Income Security Act (ERISA)

Ruling
Before the final decision, the Peabody company filed for bankruptcy, so the suit against the company was dismissed but the actions against the board of directors remained pending. The U.S. District Court judge dismissed the case and ruled the purchases of Peabody stock didn't constitute a breach of fiduciary duty. The judge stated that public information established the conduct was not unreasonable.

Links

 * Peabody stock, Forbes
 * Here’s Why Investors Are Pouring Money Into Coal, Despite Its Bleak Future, Forbes