Defined contribution plan participants may sue to recover losses for alleged breaches of fiduciary duty, even if not all participants lost money, according to a ruling by the 3rd U.S. Circuit Court of Appeals in Philadelphia.
The three-judge panel's decision on Aug. 19 reverses a June 2004 decision by a lower court in Jingdong Zhu vs. Schering-Plough Corp., that the approximately 8,000 participants who lost more than $138 million could not sue because all plan participants had not incurred losses from the drop in the employer's stock. The participants alleged in the class-action suit that company executives should not have continued to offer the employer stock fund as an investment option when they knew that the stock price was artificially inflated.
"The fact that any proceeds may be allocated to individual participants is not relevant," said Joseph Meltzer, partner in the Radnor, Pa., law firm of Schiffrin & Barroway, which represents the participants. If Schering-Plough does not ask the appellate court for a review by all the judges, the case will be sent back to the district court to determine Schering-Plough's liability, he said.
Mr. Meltzer said the decision could influence the rehearing of Milofsky vs. American Airlines, a similar case that will be heard by the 5th U.S. Circuit Court of Appeals in New Orleans next month. The 6th U.S. Circuit Court of Appeals in Cincinnati also ruled that retirement plan participants can sue for losses, even if recovery benefits only some of the participants, he noted.
"We're disappointed with this decision, and we're exploring our options," said Rosemarie Yancosek, a spokeswoman for Schering-Plough at the company's Kenilworth, N.J., headquarters. "We still believe the case has no merits and will continue to vigorously defend ourselves," she said.