A federal district court in Mississippi ruled for the first time that the “more harm than good” pleading standard established by the Supreme Court in Fifth Third Bancorp v. Dudenhoeffer, 134 S. Ct. 2459 (2014), applied to employer “stock drop” claims brought against the fiduciaries of plans sponsored by closely-held corporations. Hill Brothers Construction Company, Inc. (“Hill Brothers”), a closely-held corporation, ceased operations and subsequently sent notice to all 401(k) plan (the “Plan”) participants that their retirement accounts were worthless. Plaintiffs, former employees of Hill Brothers, commenced a putative class action on behalf of all current and former participants and beneficiaries of the Plan alleging that the Plan fiduciaries breached their fiduciary duties to manage the Plan’s assets prudently and loyally and to monitor other fiduciaries adequately. In Dudenhoeffer, the Supreme Court held, in a case involving a publicly traded employer stock fund, that in order to state a claim for breach of fiduciary duty on the basis of inside information, a plaintiff must plausibly allege (among other things) an alternative action that could have been taken by the plan fiduciaries that would have been consistent with its obligations under securities laws and that a prudent fiduciary would not have viewed as more likely to harm the fund than to help it. The district court agreed that this standard applied to the allegations against the closely held corporation and dismissed the complaint upon finding that plaintiffs had failed to plead such an alternative course of action. The case is Hill v. Hill Brothers Construction Company, No. 14-213, 2016 WL 1252983 (N.D. Miss. Mar. 28, 2016).
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