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IBC amended the Plan to allow the IBC to appoint an independent investment manager for the Grace Fund; in December 2003, the IBC appointed State Street Bank. In turn, State Street hired Duff and Phelps LLC ("D&P") and Goodwin Procter LLP ("Goodwin") to assist it in managing the Grace Fund. Relying on these experts' reports, State Street sold 13% of the Grace stock at between $2.86 and $3.09 a share. About a month or two later, an independent third party investor, D.E. Shaw & Co. ("Shaw") purchased the remaining shares at a price of $3.50 a share. The plaintiffs contend that both State Street and Grace breached their fiduciary duties under ERISA - State Street by selling the first chunk of stock for a price less than $3.50 and Grace for its failure to insert itself into State Street's decision-making.
Issue: Whether either State Street or Grace breached its fiduciary duties under ERISA.
Rules: Under ERISA, "a fiduciary is required to act with 'the care, skill, prudence and diligence ... that a prudent man acting in a like capacity and familiar with such matters would use.'" "The test of prudence- the Prudent Man Rule- is one of conduct, and not a test of the result of performance of the investment... Whether a fiduciary's actions are prudent cannot be measured in hindsight... [T]he 'test is how the fiduciary acted viewed from the perspective of the time of the challenged decision rather than from the vantage point of hindsight.'" "Furthermore, prudence 'involves a balancing of competing interests under conditions of uncertainty.'"
Holding: Neither State Street nor Grace breached their fiduciary duties under ERISA.
Reasoning: In the first instance, Grace hired State Street specifically to avoid breaching its duties to the Grace employees. Second, State Street also hired D&P and Goodwin to assist it in making its investment decisions with regard to the Grace stock. Third, in performing its duties, State Street was very diligent in studying Grace's financial performance and outlook. "Grace's corporate health was thoroughly studied by experts who debated and considered ad nauseam the pros and cons of retaining or selling the stock held in the Plan's portfolio." The plaintiff's request that the court apply a sort of reverse presumption of prudence - afforded fiduciaries when they decide to retain stock in falling markets - is denied. If the presumption was applied in this case, it would effectively act as a sword to be used against a prudent fiduciary. Such use of the presumption is not only inappropriate but also unsupported in the case law.
II. CLAIMSa. Administrative Expenses and Priority Claims In re American Coastal Energy Inc., 2009 WL 137493 (Bankr. S.D. Tex., Jan. 15, 2009)
Facts: Immediately after American Coastal Energy Inc. (the "Debtor") filed for chapter 11 bankruptcy, the Texas Railroad Commission (the "Commission") spent state money to plug certain wells that belonged to the Debtor. The Texas Administrative Code requires that a well operator plug a well that has not been in use for one year or longer; failure to comply and plug wells may result in fines. Pre-petition, in 2006, the Commission notified the Debtor that it needed to plug eight inactive wells. In July 2007, the Commission issued a 'plug and abandon' order on the eight wells. In January 2008, the Commission issued final orders requiring the Debtor to plug the wells. The Debtor concedes that it had a pre-petition obligation to plug the wells. On May 15, 2008, the Debtor filed for chapter 11. On May 18, 2008, the Commission plugged one of the eight wells. On May 19, 2008, the Commission and the Debtor entered into a settlement under which the Commission agreed to plug only three of the remaining wells and to postpone plugging the last four wells. The Commission's total cost for plugging the four wells came to $496,952.35; the Debtor paid the Commission $75,000, leaving a balance due of $421,952.35 (the "Claim"). The Debtor's chapter 11 plan listed the Claim as being a general unsecured claim and the Commission objected, arguing that the Claim is entitled to administrative priority status under § 503(b)(1)(A).
Issues: Whether the Claim - an environmental claim that arises post-petition even when the genesis of the claim is in the debtor's pre-petition conduct - is an actual and necessary expense
