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‘Safe harbor’ defense rejected in imprudent investment suit

Virginia Lawyers Weekly//December 5, 2022

‘Safe harbor’ defense rejected in imprudent investment suit

Virginia Lawyers Weekly//December 5, 2022

Where an employee alleged her employer breached its fiduciary duty under ERISA by maintaining an allegedly imprudent investment option in its retirement plan, ERISA’s safe harbor did not apply to her decision to remain invested in that fund. The safe harbor does not shield a fiduciary from liability based on a decision to select and maintain a fund.


In this ERISA breach of fiduciary duty case, Christina Stegemann has moved for class certification and defendants Gannett Co. Inc. and Gannett Benefit Plans Committee have moved for summary judgment.

Safe harbor

The threshold issue at the heart of both plaintiff’s motion for class certification and defendants’ motion for summary judgment is whether plaintiff’s independent, deliberate decision to leave untouched for several years following the spinoff her investments in the TEGNA Stock Fund – an allegedly imprudent investment option – can be subject to defendants’ ERISA § 404(c) safe harbor affirmative defense.

The safe harbor protects “fiduciaries against losses that arise from plan participants’ idiosyncratic or unwise allocation decisions.” Defendants argue that § 404(c) clearly applies to plaintiff’s claims because she exercised control by making the deliberate decision to remain invested in the TEGNA Stock Fund for nearly three years following the spinoff.

As an initial matter, defendants’ position is directly contrary to the applicable regulation promulgated by the Department of Labor, which explicitly states that the safe harbor provision “does not serve to relieve a fiduciary from its duty to prudently select and monitor any … designated investment alternative offered under the plan.” Defendants’ position is also at odds with other pronouncements of prior Fourth Circuit precedent that directly addresses whether § 404(c) shields a fiduciary from liability based on a decision to select and maintain a fund. Other courts have likewise concluded that § 404(c) does not shield a fiduciary from liability based on the type of allegations in this case. Defendants are therefore not entitled to summary judgment based on its safe harbor defense, nor will it defeat class certification.

Fiduciary duty

Defendants also move for summary judgment on the grounds that the timing and manner of the TEGNA Stock Fund was reasonable and thus did not constitute a fiduciary breach. At this stage, however, disputed material facts prevent the court from resolving this question at the summary judgment stage.

For instance, the parties have not filed any Daubert motions challenging the admissions of each other’s experts. Therefore, the court is left with one expert opining that a prudent fiduciary would have divested the TEGNA Stock Fund by July 2016 while another expert opines that an August 2018 divestment was prudent. This is a quintessential “battle of the experts, which should not be resolved at summary judgment.”

Class certification

The court finds that 12,000 potential class numbers satisfies the Rule 23 numerosity requirement. Next, the court finds that the commonality requirement is satisfied because there are numerous questions of law and fact common to the proposed class, including principally whether defendants violated their fiduciary duties under ERISA by failing to remove the TEGNA Stock Fund at an earlier time, possibly resulting in a common injury to the members of the proposed class.

Typicality requires that “a class representative must be part of the class and possess the same interest and suffer the same injury as the class members.” Defendants oppose class certification on the grounds that § 404(c)’s safe harbor renders plaintiff’s claims atypical of the other class members. However, as the court has already ruled that § 404(c) is not applicable at this stage, defendants’ objections to class certification on this ground are overruled. Fourth, the court also finds that plaintiff is an adequate representative of the class and that proposed class counsel is sufficiently qualified.

In addition to meeting all of Rule 23(a)’s criteria, a case must also satisfy one of Rule 23(b)’s requirements before it can become certified. Here, plaintiff moves for certification under Rule 23(b)(1), and, in the alternative, Rule 23(b)(3). Several courts, including this one, have held that ERISA fiduciary breach claims are appropriate for Rule 23(b)(1) certification.

Defendants argue that LaRue v. DeWolff, Boberg & Associates, Inc., 552 U.S. 248 (2008), which did not address class actions, renders representative § 502(a)(2) suits uncertifiable under Rule 23(b)(1). Although a few district courts appear to have adopted that view, a substantial number of courts have rejected defendants’ expansive reading of LaRue. The court concludes, as other courts have, that LaRue does not preclude class certification under 23(b)(1). Finding certification appropriate under Rule 23(b)(1), the court does not address plaintiff’s requested certification under 23(b)(3).

Plaintiff’s motion for class certification granted. Defendants’ motion for summary judgment denied.

Stegemann v. Gannett Co. Inc., Case No. 1:18-cv-325, Nov. 17, 2022. EDVA at Alexandria (Trenga). VLW 022-3-526. 26 pp.

VLW 022-3-526

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