October 28, 2021

Volume XI, Number 301

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Failure to Identify Specific Viable Alternative Action Dooms Stock Drop Claim

The Ninth Circuit recently affirmed the dismissal of an ERISA employer-stock drop putative class action, holding that the plaintiff’s failure to identify specific, viable alternative actions that plan fiduciaries should have taken instead of the challenged actions was fatal to her claim. In so holding, the Ninth Circuit joined the Second, Fifth, Sixth, and Eighth Circuits, which require a plaintiff to articulate in the complaint the specific actions that the defendants should have taken rather than those that allegedly caused the plaintiff’s damages.

The plaintiff alleged that two executives of the plan sponsor who were fiduciaries of the company’s employee stock ownership plan (ESOP) breached their duty of prudence by failing to disclose to shareholders the company’s difficulties in managing a retired nuclear generating station. The plaintiff alleged that, as a result, employees retained “artificially inflated” company stock and that once the company disclosed its problems with the nuclear generation station, the price of the stock declined causing employees to lose millions of dollars in retirement savings.

The Ninth Circuit applied the pleading standard first espoused by the Supreme Court in Fifth Third Bancorp v. Dudenhoeffer, holding that the plaintiff’s “recitation of generic economic principles, without more, is not enough to plead a duty-of-prudence violation.” The court held that the plaintiff failed to articulate the alternative actions so clearly beneficial that a prudent fiduciary could not conclude it would be more likely to harm the Plan than to help it and instead relied on unspecified “generic economic principles,” including “key metrics reflecting the underlying risk and volatility” of the company’s stock, to support her claim. The court distinguished the Second Circuit’s decision in Jander v. Ret. Plans Comm. of IBM by holding that while a district court may consider “allegations reciting general economic principles,” those general allegations are insufficient without more to support a prudence claim. Accordingly, the court concluded the plaintiff failed to satisfy the Dudenhoeffer standard and affirmed the dismissal of her complaint.

The case is Wilson v. Craver, No. 18-56139 (9th Cir. Apr. 19, 2021)

Jackson Lewis P.C. © 2021National Law Review, Volume XI, Number 139
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About this Author

Principal

Stacey C.S. Cerrone is a Principal in the New Orleans, Louisiana, office of Jackson Lewis P.C. Her practice focuses on representing employers in workplace law matters, including preventive advice and counseling.

Practices

  • Employee Benefits

Admitted to Practice

  • 5th Circuit Court of Appeals, 1998
  • 6th Circuit Court of Appeals, 2014
  • Louisiana - E.D. La., 1999
  • Louisiana - M.D. La., 1998
  • Louisiana - W.D. La., 1998
  • Louisiana, 1998
504-208-1755
John W. Sulau Employment Attorney Jackson Lewis Greenville
Associate

John Sulau is a member of Jackson Lewis P.C.'s ERISA Complex Litigation and Employee Benefits practice groups.  He is an associate in the firm's Greenville, South Carolina, office. John defends employers, plan sponsors, and fiduciaries in ERISA class actions.  He has represented clients of all sizes in ERISA litigation nation-wide against a broad spectrum of claims, including claims for breach of fiduciary duty, benefit claims from health and welfare and pension plans, COBRA claims, statutory penalties claims, and excessive fee claims involving 401(k) Plans....

864-232-7000
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