World’s Largest Coal Company Faces ERISA Suit

Peabody Energy Corporation is facing a class action lawsuit alleging violations of the Employee Retirement Income Security Act (ERISA) by continuing to offer company stock as an investment in several defined contribution (DC) plans. 

The plaintiff filed the lawsuit on behalf of participants in the Peabody Investments Corp. Employee Retirement Account; the Peabody Western-UMWA 401(k) Plan; and the Big Ridge, Inc. 401(k) Profit Sharing Plan and Trust, alleging plan officials breached their fiduciary duties by continuing to offer Peabody Stock as an investment option for the plans when it was imprudent to do so, and maintaining the plans’ pre-existing significant investment in Peabody Stock when it was no longer a prudent investment. 

The lawsuit also alleges that certain defendants failed to avoid or ameliorate inherent conflicts of interests which crippled their ability to function as independent, single-minded fiduciaries with only the plans’ and their participants’ best interests in mind. In addition, it alleges that certain defendants breached their fiduciary duties by failing to adequately monitor other persons to whom management/administration of the plans’ assets was delegated. 

According to the complaint, the fiduciaries knew or should have known that Peabody stock was imprudent as a retirement investment vehicle because of the “sea-change in the basic risk profile and business prospects of the company caused by the collapse of coal prices, the company’s deteriorating Altman Zscore—a financial formula commonly used by financial professionals to predict whether a company is likely to go into bankruptcy—which indicated that Peabody Energy was and is in danger of bankruptcy, an excessive increase in the company’s debt to equity ratio, and increased costs due to the ill-advised acquisition of Australian company Macarthur Coal Ltd.” 

The lawsuit says that as a consequence the plans are their participants have suffered tens of millions of dollars of losses as the market price of Peabody Energy has fallen from approximately $26.56 on December 14, 2012, the first day of the Class Period, to $3.21 (both adjusted closes) on June 10, 2015, the most recent trading day preceding the date of the lawsuit filing—a decline of 88%. 

The lawsuit names as defendants company officers, directors, and employees who were fiduciaries of the plans during the class period, including members of the plans’ administrative committee. It asks that fiduciaries restore the values of the plans’ assets to what they would have been if the plans had been properly administered.