New Development: Net Loss Required in "Stock-Drop" Cases

The U.S. Court of Appeals for the Sixth Circuit upheld the dismissal of a stock-drop lawsuit against the fiduciaries of the KeyCorp 401(k) plan, finding that the plaintiff had not suffered net losses during the class period. The plaintiff, Ann Taylor, alleged multiple fiduciary breaches stemming from price inflation of the stock and from the continued availability of KeyCorp stock as one investment option in the plan.

The court specifically rejected the plaintiff's alternative-investment theory of damage, a theory also supported by the U.S. Department of Labor. The plaintiff sold much of her stock during the class period, resulting in a net profit to her, but argued that she suffered a loss because an alternative investment would have yielded greater returns. The court held that it is "common sense" that "plaintiffs suffer no 'actual injury' when they benefit from alleged artificial [price] inflation." An excellent summary of the case is available courtesy of McDermott Will & Emery.