Arent Fox is Meeting Challenges

Beginning in 2004, W. R. Grace, a premier specialty chemicals and construction materials company, which conducts business in 41 countries and more than 20 currencies, employing approximately 6,500 full-time people worldwide, was suddenly and unexpected faced with a two-front attack from two completely contradictory class action suits that threatened the company with a no-win scenario.

One federal suit filed in Massachusetts alleged that the decision by managers of the Grace’s 401(k) plan (including Grace’s Board of Directors and various officers and other employees) to hold off selling the stock until early 2004 was imprudent, and cost participants a significant share of their retirement savings. In filing suit against Grace, the plaintiffs sought hundreds of millions of dollars of damages they claimed they incurred because the plan managers (or “fiduciaries”) had not sold the stock a few years earlier.

Another suit, filed by a separate group of employees, had filed a class action in federal court in Kentucky claiming that Grace breached its duty to 401(k) plan participants. Except these employees were arguing that Grace violated the law, not because it held on to the stock too long, but rather because the company did not hold on to the stock long enough and had sold it prematurely. The plaintiffs in the second suit were alleging the plan should have retained the Grace stock absent evidence the company faced imminent collapse, and that plan managers failed to consider the stock’s potential increase in value before selling to a third-party at a price of $3.50 a share.

In other words, the company was being hit with two different class actions from two groups of employees (with a substantial overlap among the groups) who were making diametrically opposite claims about the same Grace stock. One side said Grace breached its duty because the company should have sold the stock sooner. The other side said Grace breached its duty because it should have held on to the stock longer.

Whatever it had done, Grace seemingly could not win. But then Arent Fox went to work.

The Arent Fox ERISA team quickly and successfully moved to combine the cases so that they could be heard and adjudicated by one judge. Although opposed by the plaintiffs in both suits, Arent Fox was successful in having the cases consolidated and transferred to the US District Court for the District of Massachusetts in 2005.

After the two suits were consolidated into one case, Arent Fox began to systematically prove to the court that Grace had properly managed the 401(k) fund and had done everything possible to protect the plan’s participants.

In January 2009, after years of litigation, including an argument before the US Court of Appeals for the First Circuit, Arent Fox prevailed. The appeals court examined the steps taken before the stock was sold in 2004, and concluded that the plan’s investment managers had “unquestionably met” ERISA’s “prudent man rule” with regard to investment diversity, market conditions, and risk management and, therefore, did not breach their duties to the class members in the Bunch suit.

Arent Fox’s victory then rippled through the claims filed against Grace in the Evans suit, which had also made a trip to the US Court of Appeals for the First Circuit. Shortly after the appellate and trial courts in the Bunch case found that Grace acted properly and prudently in managing the sale of the Grace stock, the plaintiffs in the Evans case agreed to settle their claims for a fraction of the amount of money they were seeking.