Fiduciaries of the former Seventy Seven Energy Inc. have agreed to pay $15 million to settle a lawsuit that alleged the company's 401(k) plan violated ERISA's rules against undiversified holdings when it retained shares of its former parent, Chesapeake Energy Corp.
The settlement agreement was filed April 21 in a U.S. District Court in Oklahoma City.
The settlement, which must be approved by the court, covers a class of participants in the 401(k) plan from July 1, 2014, through Feb. 28, 2021. Approximately 4,000 participants may be affected by the agreement, the settlement document said.
Seventy Seven Energy, Oklahoma City, was spun off as a pubic company by Chesapeake Energy in June 2014. Its 401(k) plan contained both company stock and Chesapeake stock.
In April 2017, Seventy Seven Energy, an oilfield services company, was acquired by Patterson-UTI Energy Inc.
Patterson-UTI, Chesapeake and their fiduciaries were not defendants in the case of Christopher Snider v. Administrative Committee, Seventy Seven Energy Inc. Retirement & Savings Plan, et al.
The Seventy Seven Energy plan held Chesapeake stock from July 1, 2014 until Dec. 31, 2017, when the Seventy Seven Energy plan was merged into the Patterson-UTI Inc. 401(k) Profit Sharing Plan.
Mr. Snider, a 401(k) plan participant, sued in September 2020, arguing that the plan's holding of Chesapeake stock was imprudent and violated an ERISA rule against offering undiversified investments. Company stock is exempt from this requirement.
The defendants moved to dismiss the case but Timothy D. DeGiusti, the chief justice of the U.S. District Court in Oklahoma City, ruled in October 2021 that most of Mr. Snider's allegations could proceed to trial. The parties then sought mediation.
"Defendants deny all allegations of wrongdoing, fault, liability, or damages to plaintiff and the settlement class and deny that they engaged in any wrongdoing or violation of law or breach of fiduciary duties," the settlement document said.
"Defendants contend that the plan fiduciaries employed a robust and thorough process for selecting, monitoring, and removing plan investment options, informed plan participants of the risk of investing in Chesapeake stock, (and) did not allow new investments in Chesapeake stock after the plan was established," the document said.
The Seventy Seven Energy Inc. Retirement & Savings Plan, Oklahoma City, had $77 million in assets as of Dec. 31, 2016, the last Form 5500 filed by the company.
The Patterson-UTI Inc. 401(k) Profit Sharing Plan, Snyder, Texas, had assets of $209 million in assets as of Dec. 31, 2020, according to the latest Form 5500.