Employee Benefits & Executive Compensation Blog

The View from Proskauer on Developments in the World of Employee Benefits, Executive Compensation & ERISA Litigation

Category Archives: Employer Stock Fund Litigation

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U.S. Supreme Court Agrees to Hear IBM’s Challenge to Second Circuit Ruling in ERISA Stock-Drop Suit

In December 2018, we reported here that the Second Circuit became the first court at any level to allow an ERISA stock-drop claim to survive a motion to dismiss since the Supreme Court revamped the pleading standard for such claims several years ago.  The Second Circuit reinstated a claim for breach of fiduciary duty under … Continue Reading

Sixth Circuit Dismisses ERISA Stock Drop Action Against Cliffs Natural Resources

The Sixth Circuit affirmed the dismissal of ERISA stock drop claims by participants in the Cliffs Natural Resources’ 401(k) Plan. The participants alleged fiduciary breach claims based on public and non-public information arising out of the collapse in iron ore prices that caused the company’s stock price to decline 95%. With respect to the public information claim, … Continue Reading

District Court Applies Dudenhoeffer “More Harm Than Good” Standard to Closely-Held Corporation

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, … Continue Reading

On Remand, District Court Rules for the Fiduciaries in Tatum v. R.J. Reynolds

The R.J. Reynolds defendants have again prevailed against allegations that they breached their fiduciary duties by divesting the RJR 401(k) plan of funds invested in Nabisco stock.  Following remand by the Fourth Circuit, the district court held that a hypothetical fiduciary “would” have divested the plan of the Nabisco investments in the same time and … Continue Reading

Eleventh Circuit Again Affirms Dismissal of Stock Drop Claim Against Delta Air Lines

The Eleventh Circuit affirmed dismissal of ERISA breach of fiduciary claims against Delta Air Lines and other alleged plan fiduciaries in connection with a defined contribution plan’s investments in Delta Air Lines stock.   In so ruling, the Court joined a growing number of decisions following Dudenhoeffer that have dismissed claims based on public information.… Continue Reading

Supreme Court Denies Review of Fourth Circuit Loss Causation Case

The U.S. Supreme Court recently declined to grant certiorari to review the Fourth Circuit’s decision in RJR Pension Investment, et al. v. Tatum, 761 F.3d 363 (4th Cir. 2014).  As we previously reported here, a divided panel of the Fourth Circuit held that, because the plaintiff proved that the plan fiduciaries acted imprudently by liquidating … Continue Reading

Second Circuit Affirms Dismissal of ERISA Stock Drop Claims

The Second Circuit recently affirmed the dismissal of an ERISA stock drop class action because, like the district court, it held that Named Plaintiff Debra Taveras lacked constitutional standing to pursue her claims.  Taveras alleged that defendants, which included UBS and a number of individuals, breached their fiduciary duties by maintaining the company stock fund … Continue Reading

Divided Fourth Circuit Panel Rules On Burden of Proving Loss Causation in ERISA Fiduciary Breach Case

“As for those who might contemplate future service as plan fiduciaries, all I can say is: Good luck.”  That was the sentiment expressed in a blistering dissent by Fourth Circuit Judge J. Harvie Wilkinson in the latest ruling in a lawsuit challenging the decision by the fiduicaries of the RJR 401(k) plan to liquidate two … Continue Reading

Fifth Third Bancorp v. Dudenhoeffer – An Analysis of the U.S. Supreme Court’s Decision

For over two decades, federal courts have embraced the so-called Moench presumption of prudence in ERISA stock-drop cases. Pursuant to that presumption, courts have routinely dismissed such claims absent allegations in a complaint that a company’s situation was dire, or that the company was on the brink of collapse. On June 25,2014, the U.S. Supreme … Continue Reading

SCOTUS Says No Presumption of Prudence In ERISA Stock Drop Cases

Earlier today, in Fifth Third Bancorp v. Dudenhoeffer, the U.S. Supreme Court declined to adopt the so-called Moench presumption of prudence pursuant to which many circuit courts had dismissed ERISA stock drop claims unless plan participants had pled allegations that the company’s economic situation was dire or the company was on the brink of collapse. … Continue Reading

Plan Sponsors’ Decision to Change Form of Employer Contributions Not A Fiduciary Function

The Second Circuit recently held that Morgan Stanley and others were not de facto ERISA fiduciaries by virtue of having authority and means to fund company contributions with stock rather than cash. In so ruling, the Court explained that at the time of the decision to fund contributions with company stock, the stock was not … Continue Reading

District Court Finds Fiduciaries Have No Duty to Investigate False Sale Allegations for ESOP Investment

In Malcolm v. Trilithic, Inc., 2014 WL 1324082, No. 1:13-cv-00073 (S.D. Ind. Mar. 31, 2014), the Southern District of Indiana held that plan fiduciaries were under no duty to investigate allegations that a false sale had been included in the company’s records as a way of “puff[ing] up [its] receivables account and profitability” to present … Continue Reading

Courts Continue to Apply Presumption of Prudence While Awaiting the USSC’s Views

As the employee benefits world awaits the U.S. Supreme Court’s decision in Dudenhoeffer v. Fifth Third Bancorp, two federal courts recently dismissed employer stock-drop cases brought under ERISA on the ground that plaintiffs failed to overcome the presumption that a fiduciary’s decision to remain invested in employer stock was prudent. See Smith v. Delta Air … Continue Reading

High Court Employee Benefits Cases: A Review and Look Ahead

Having settled into the new year, we reflect on decisions from the U.S. Supreme Court in 2013 that are likely to have a significant impact in the world of pension and welfare employee benefits and, in some cases, already have had such an impact. The issues addressed by the Supreme Court are wide ranging and … Continue Reading

Regions Financial Agrees to Pay $22.5 Million to Settle ERISA Stock-Drop Litigation

According to a December 18, 2013 motion for preliminary approval, Regions Financial Corp. has agreed to pay $22.5 million to settle an ERISA stock-drop litigation pending in the Western District of Tennessee. Plaintiffs alleged that defendants, which included members of the plan investment committees, among others, imprudently retained Regions Financial stock as an employee retirement … Continue Reading

USSC to Consider Presumption of Prudence in Employer Stock Litigation

On Friday, the US Supreme Court agreed to consider Fifth Third Bancorp v. Dudenhoeffer (U.S. No. 12-751, cert. granted 12/13/13).  The Supreme Court stated that it will consider the following issue:  “Whether, to state a claim that a fiduciary of an employee stock ownership plan violated the duty of prudence by continuing to invest plan … Continue Reading

District Court in Tenth Circuit Adopts Presumption of Prudence

A district court in the Tenth Circuit adopted the presumption of prudence in dismissing a class action alleging that the defendants violated their fiduciary duties by allowing participants to continue investing in company stock at a time when the employer was allegedly experiencing significant financial difficulties. In re Chesapeake Energy Corp. 2012 ERISA Class Litig., … Continue Reading

SunTrust Plan Participants’ Stock-Drop Claims Tossed A Second Time

A federal district court in Georgia recently dismissed a suit brought by participants in the SunTrust Bank 401(k) savings plan alleging fiduciary breaches based on defendants’ decision to continue permitting investment in SunTrust stock while its value declined during the subprime mortgage crisis. The court had previously granted in part and denied in part SunTrust’s … Continue Reading

Second Circuit Dismisses Lehman Brother’s ERISA Stock-Drop Action

The Second Circuit recently affirmed the dismissal of former Lehman Brothers employees’ fiduciary breach claims relating to their investment in the Lehman Brothers stock fund through their 401(k) plan. Rinehart v. Akers, 2013 WL 3491281 (2d Cir. July 15, 2013). As is typical for cases of this type, the complaint included both a claim for … Continue Reading

Fifth Circuit Applies Moench Presumption of Prudence at Motion to Dismiss Stage

The Fifth Circuit recently joined four other circuits (the Second, Third, Seventh and Eleventh Circuits) in holding that the presumption of prudence applicable in employer stock fund cases is appropriately applied at the motion to dismiss stage of a litigation.  Kopp v. Klein, 2013 WL 3449866 (5th Cir. July 9, 2013).   Applying the presumption, the … Continue Reading

Arbitrator Determined to Have Erroneously Denied Enforcement of Indemnification Agreement

In Schafer v. Multiband Corp., 2013 WL 607910 (E.D. Mich. Feb. 19, 2013), a district court vacated the decision of an arbitrator who concluded that indemnification agreements executed in connection with the establishment of an employer stock ownership plan and an employee stock ownership trust violated ERISA § 410(a), 29 U.S.C. § 1110(a). The agreements indemnified … Continue Reading

Second Circuit Issues Additional Ruling on Scope of Moench Presumption

In Taveras v. UBS AG, 2013 WL 692535 (2d Cir. Feb. 27, 2013), the Second Circuit held the Moench presumption of prudence did not apply to fiduciaries of an eligible individual account plan where the plan document neither required nor “strongly” encouraged investment in the defendant’s stock fund. The Court accordingly reversed and remanded a … Continue Reading
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