A federal appeals court in Pasadena, Calif., upheld a lower court's dismissal of a stock-drop ERISA lawsuit filed by a participant in a Edison International Inc. 401(k) plan against two plan fiduciaries.
"Plaintiff failed to state a claim for breach of duty of prudence consistent with the standard" established by the U.S. Supreme in 2014 for lower courts to determine if a stock-drop complaint should be dismissed or be allowed to go to trial, said the ruling Monday by the U.S. Court of Appeals for the 9th Circuit. A three-judge panel's ruling was unanimous in the case of Cassandra Wilson vs. Theodore F. Craver and Robert Boada.
"We conclude that the district court properly determined that plaintiff Wilson failed plausibly plead that a prudent fiduciary in defendants' position could not have concluded that plaintiff's proposed alternative action of issuing a corrective disclosure would do more harm than good," the appeals court wrote.
The judges said her complaint "relies solely on general economic theories and is devoid of context-specific allegations explaining why an earlier disclosure was so clearly beneficial that a prudent fiduciary could not conclude that disclosure would be more likely to harm the fund than help it."
The participant's complaint said plan investors in a company stock fund offered in the 401(k) plan were harmed due to a scandal involving the setting of rates by the California Public Utilities Commission for Southern California Edison Co., which provides electricity for most of southern California.
The scandal involved ex parte communications between a utility official and a commission official during a dispute over rate setting between the utility and ratepayer advocacy groups in 2013 and 2014, a court document said. The improper communications took place following the closing of a nuclear power plant, according to the document.
A rate-setting settlement was reached in November 2014. However, the improper communications didn't become public until February 2015, said the document, adding that the improper communication took place in March 2013.
The document said the commission eventually fined the utility $16.7 million.
Ms. Wilson sued Edison International — later dropping her claim against the company — and Mr. Craver, the now-retired chairman, CEO and president of Edison International, and Mr. Boada, still the vice president and treasurer, in their roles as plan fiduciaries.
Seeking class-action status for her lawsuit, Ms. Wilson contended that Edison International's stock was artificially inflated before the ex parte communications were disclosed. As fiduciaries to the 401(k) plan, Messrs. Craver and Boada should have taken corrective action to protect participants holding Edison stock, her complaint said.
However, a federal court judge in Los Angeles dismissed the complaint in July 2016. "Plaintiff argues that defendants had a duty to inform the public," wrote U.S. District Judge John A. Kronstadt on July 6, 2016. "Plaintiff has cited no case, and the court has found none, that imposes such a duty."