NCEO founder and senior staff member
Corey Rosen
In Fentress v. Exxon Mobil, No. 4:16-cv-03484 (S.D. Tex, Feb. 4, 2019) a district court again rejected employee claims over the decline in Exxon Mobil stock price in their 401(k) plan. Employees alleged the company was inflating its actual oil reserves, causing the stock price to fall. The court ruled that the company could rely on the Dudenhoeffer standard that any alternative action would have done more harm than good.
Corey Rosen
In Acosta v. Saakvitne, No. 18-2019 BL18093 (D. Haw., Jan. 18, 2019), a district court denied motions to dismiss both the company, Bowers + Kubota Consulting, and the sellers to the company’s ESOP, for their alleged roles as fiduciaries. The DOL charged that the ESOP overpaid for the shares based on faulty revenue projections and sued the two parties as well as the trustee, Nicholas Saakvitne (who has since deceased). The company noted that the complaint did not allege any wrongdoing on the part of the company, but the court ruled that other violations might turn up at trial. The sellers argued that they did what they were supposed to do in appointing an independent fiduciary to handle the transaction, but the court ruled that sellers allegedly told Saakvitne that the company was worth $40 million, which may have made them functional fiduciaries and, in any event, they (as well as the company) had a duty to monitor the trustee as appointing fiduciaries. That raises important legal questions about what an appointing fiduciary should do if it finds the process being used appropriate, but disagrees with the price. That would make it a functional fiduciary and could be seen as an improper influence on the price.
Corey Rosen
In Cunningham v. Wawa, No. 2:18-cv-03355 (E.D. Pa., Feb. 18, 2019), Wawa partially agreed to allow plaintiffs to proceed with their action as a class, but reserved the right to challenge whether named plaintiffs are representative and whether affirmative defenses apply to any individuals. The case revolved around a change in Wawa’s distribution policy.
Corey Rosen
In Vigeant v. Meek, No. 18-3616 (Eighth Cir., Feb. 26, 2019), the DOL entered an amicus brief on the side of plaintiffs appealing a previous district court ruling saying that plaintiffs in the Lifetouch ESOP case did not adequately plead that the plan’s fiduciaries had violated their ERISA duties with respect to an alleged overvaluation and continued purchase of Lifetouch shares. The court ruled the plaintiffs did not state their allegations with sufficient particularity as to what the defendants did wrong. The court also ruled that having an independent annual valuation was sufficient to determine if the price for the shares was appropriate. Moreover, the company was not in such dire straits that it might go bankrupt and thus continued purchasing of shares was reasonable. The DOL contends this is too high a bar because plaintiffs cannot know the particulars of what might have led to an improper valuation, that just having an annual valuation is not a sufficient defense, and that courts have tossed out the standard that holding and buying shares is acceptable as long as the company is not in imminent danger.
Corey Rosen
Jander v. Retirement Plans Committee of IBM, No. 17-3518, (2nd Cir., Feb. 4, 2019): The Second Circuit refused a request by IBM to put a case on hold in which the Court had previously ruled that plaintiffs in a stock drop suit could rely on a more favorable interpretation of the Dudenhoeffer standard. IBM wanted to delay the litigation while IBM sought an appeal to the Supreme Court. The one-page ruling did not elaborate on the rationale.
Corey Rosen
The 2017 tax bill contained provisions that allowed employees in private companies that provide non-qualified stock options and restricted stock units to at least 80% of their workforce to defer taxation on the awards until up to five years after termination. The law was intended to prevent employees from ending up with grants that were taxed even though the resulting shares could not yet be sold.
Corey Rosen
In Acosta v. Saakvitne, No. 1:18-cv-00155-SOM-RLP, (D. Haw. inclinations Jan. 13, 2019) a district judge told counsels that she was inclined to rule that two owners of a Hawaii construction company that sold to an ESOP could be considered fiduciaries of the plan because they hired and were responsible for monitoring the appraisal firm and failed to provide realistic financial projections. The lawsuit also names the plan’s trustee, who has since died. The statement is not a decision, but advice to parties on how to prepare for oral arguments.
Corey Rosen
In Cunningham v. Wawa, Inc., No. 2:18-cv-03355-PD (E.D. Pa., Ja. 10, 2019), a judge allowed a lawsuit against Wawa over changes in its ESOP to move forward. Plaintiffs allege that participants in the Wawa ESOP were harmed when the company amended the plan so that former employees who had stock in their accounts had to have the shares purchased and moved to cash investments. Wawa had previously settled with a group of plaintiffs but sought to dismiss the case from the second group. The judge agreed that the change did not violate the anti-cutback rule, but agreed that plaintiffs had sufficiently alleged a case that a change from stock to cash can, in effect, only be done prospectively, not for those who have already left employment under the prior terms of the plan. The lawsuit also alleged that their shares had been improperly valued, that plaintiffs relied on language from the SPD that seemed to prevent such a change, and that their rights had been misrepresented.
Corey Rosen
In Acosta v. Reliance Trust, No. 0:17-cv-04540- SRN-ECW (D-Mon. Ja. 7, 2019), a district court ruled that Reliance Trust could not bring the estate of a now deceased owner into a lawsuit the DOL has filed against Reliance in a case involving an alleged overvaluation of shares for sale to the ESOP. Reliance argued that the agreement with the ESOP stated that if an overvaluation was found, the seller would reimburse the ESOP trust, but the DOL argued that a) it had not sued the estate in this action and b) that Reliance’s interest in the case was the same as the estate’s, so it was not necessary to include the estate in the action.
Corey Rosen
Jander v. Retirement Plans Committee of IBM, No. 17-3518, (6th Cir., Dec. 10, 2018) is a potentially important ruling that runs against recent trends in stock drop cases. The Second Circuit reversed and remanded a lower court ruling that found that the trustees of IBM’s ESOP were not in violation of their fiduciary duty when they failed to disclose that a major division of the company was overvalued. The lower court ruled that plaintiffs failed to show disclosure would not have done more harm than good. The Sixth Circuit, however, ruled that this standard is too strict. The court said the Dudenhoeffer ruling laid out two conflicting standards for determining if a fiduciary should have concluded an action would have done more harm than good. The first is whether an average fiduciary would have made that conclusion; the second is that any fiduciary could have made that decision. Here the court chose not to decide which standard applied, saying that the plaintiffs met either test. The plaintiffs had convincingly argued, the court said, that early disclosure and correction would not have resulted in more damage to the stock price than ultimately resulted when the division in question was sold and information came out about the accounting irregularities and other issues the division faced. The fiduciaries, the plaintiffs argued, could have taken action to correct these issues earlier and disclosed them to the market. In a presumably efficient market, the court said, the price would ultimately reflect the problems anyway. In light of all this, the court said the plaintiffs had made a sufficient plea to require remanding.
