High-court ruling thwarts ERISA stock-drop lawsuits
Skip to main content
pilogo-NEW
Subscribe
  • Subscribe
  • My Account
  • login
  • NEWS
    • Asset owners and the coronavirus
    • Alternatives
    • Consultants
    • Coronavirus
    • Defined Contribution
    • ESG
    • Frontlines
    • Hedge Funds
    • Investing / Portfolio Strategies
    • Money Management
    • Pension Funds
    • People Moves
    • Private Equity
    • Real Estate
    • Searches & Hires News
    • SECURE Act
    • Special Reports
    • WorldPensionSummit
    • Ron Schmitz
      Pandemic drives faster transition for Virginia to private markets
      Mubadala Investment Co. logo
      Mubadala draws on portfolio in coronavirus fight
      T.J. Carlson
      Texas Muni reduces downside risk during pandemic, finding opportunities now
      Scott Davis
      ‘Triage plan’ at Indiana system helped stem losses
    • BentallGreenOak agrees to acquire Metropolitan Real Estate Equity
      watch video
      0:45
      Private funds weathered 2020 turmoil
      Daniel McHugh
      Aviva Investors promotes from within for real assets CIO
      Marc Rowan
      More alts managers seek expansion to retail market
    • Kieran Mistry
      Hymans Robertson picks head for new non-traditional risk transfer unit
      Troy Saharic
      NEPC brings on director of new business development
      Bill Foley
      Foley-backed SPAC agrees to $7.3 billion deal with Alight
      Jason Schwarz, chief operating officer of Wilshire,
      New owners have big plans for future of Wilshire
    • A pharmacist administers a dose of the COVID-19 vaccine in Mountain Brook, Ala., on Feb. 21, 2021
      Business optimism grows as vaccinations spread – Fed
      watch video
      0:59
      Coronavirus and the S&P 500: February 2021
      Multiemployer pension measures cleared for relief bill vote
      The Charging Bull statue is covered in snow near the New York Stock Exchange on Feb. 11, 2021
      Bain: Private equity managers finish 2020 strong
    • OECD proposes revision of its DC ‘good design' roadmap
      Dominic Scriven, director and portfolio manger of Dragon Capital, speaks during an interview in Ho Chi Minh City, Vietnam in 2006
      Vietnam gets its first private defined contribution plan
      DCALTA releases daily valuation tool for alts in DC plans
      PSCA: Employee participation in non-qualified deferred comp plans rising
    • Michael Herskovich
      BNP Paribas Asset Management names global head of stewardship
      TPT Retirement taps into low-carbon strategies
      Gary Gensler
      Nominee Gensler backs SEC climate risk disclosure
      Emissions from a smokestack in Poland
      Asset managers facing more scrutiny on ESG issues – report
    • Spirit winners
      Prudential honors young people who are helping out
      2 U.K. pension execs take on ESG investing in new podcast
      Donation illustration
      Jefferies will use trading commissions to do good
      Michael Arougheti
      SPACs ride wave as latest investment darling
    • Robert 'Rob' Shafir listens during a Senate Permanent Subcommittee on Investigations hearing in Washington on Feb. 26, 2014
      Sculptor hedge fund hits sixth straight year of outflows
      The WallStreetBets forum on the Reddit Inc. website on a laptop computer and the GameStop logo on a smartphone in an arranged photo.
      GameStop frenzy has hedge fund managers rethinking next moves
      Gabe Plotkin, chief investment officer and portfolio manager of Melvin Capital Management, speaks during the Sohn Investment Conference in New York on May 6, 2019
      Citadel, Point72 back Melvin with $2.75 billion after losses
      Shanghai skyline
      Global hedge funds struggle even in a more open China market
    • Irshaad Ahmad
      Canada Post delivers new pension fund CIO
      Former regulators ask Congress to address market stability
      SEC launches climate task force
      Los Angeles Fire & Police eyes up to $950 million in private equity commitments
    • Railpen hires head trader in preparation for in-house trading
      Andy Moniz
      Acadian picks responsible investing director
      Schroders PLC office building on Gresham Street in London's financial district
      Schroders AUM gains as private assets and alternatives unit grows
      Amanda Agati
      PNC chooses new CIO for asset management group
    • Irshaad Ahmad
      Canada Post delivers new pension fund CIO
      Los Angeles Fire & Police eyes up to $950 million in private equity commitments
      Sempra Energy to infuse pension plans with $246 million
      Illinois pension fund liability jumps 19%
    • Irshaad Ahmad
      Canada Post delivers new pension fund CIO
      Railpen hires head trader in preparation for in-house trading
      Deborah Shufrin
      Colby College chooses new CIO
      Andy Moniz
      Acadian picks responsible investing director
    • The Charging Bull statue is covered in snow near the New York Stock Exchange on Feb. 11, 2021
      Bain: Private equity managers finish 2020 strong
      Carlyle secures $4.1 billion ESG-related credit facility
      Hamilton Lane raises $3.9 billion for fifth secondary fund
      PSG closes first Europe-focused fund at $1.5 billion
    • AEW chooses head of fund operations and debt finance
      Sebastiano Ferrante and Jocelyn de Verdelon
      PGIM Real Estate turns to staff to fill new roles
      European managers key in on specialist strategies
      Ingrid Jacobs
      Jones Lang LaSalle brings on head of diversity and inclusion
    • Neal and Brady
      Retirement security could be only issue both sides accept
      Retirement cartoon
      Hopes rising for retirement readiness in 2021
      David Ireland
      Sponsors returning to questions about in-plan annuities
      Shawn O'Brien
      Annuities coming to target-date funds, but not right away
    • Charging Bull, sometimes referred to as the Wall Street Bull or the Bowling Green Bull, a bronze sculpture that stands on Broadway just north of Bowling Green in the Financial District of New York City
      Top-performing managers Q4 2020
      P&I 1,000 largest retirement plans: 2021
      Retirement in emerging markets
      Outlook 2021
    • U.S. still a key market for investors
      Collected coverage of P&I's 2020 WorldPensionSummit
      Pedestrians pass a large advertisement on the Arndale Center shopping mall reading 'Act now to avoid a local lockdown' in Manchester, England
      COVID-19 puts new opportunities and risks on the agenda - WPS panelists
      Screens display stock price information over the trading floor of the NYSE Euronext exchange in Paris
      Private assets will continue to grow in portfolios – WPS panelists
  • Data
    • Research Center
    • Searches & Hires Database
    • Searches & Hires News
    • RFPs
    • Charts / Infographics
    • Sponsored Research
    • Trackers
    • Q2 2020 searches and hires overview report
      Q2 2020 money manager M&A activity summary
      Q2 2020 legal overview report
      Q1 2020 searches and hires overview report
    • Fairfax County Educational Employees discloses $61 million in commitments
      Bristol, Conn., scouting for investment consultant
      Chicago Policemen plans search for index fund manager
      North Dakota builds on infrastructure investment with $200 million commitment
    • Fairfax County Educational Employees discloses $61 million in commitments
      Bristol, Conn., scouting for investment consultant
      Chicago Policemen plans search for index fund manager
      North Dakota builds on infrastructure investment with $200 million commitment
    • Independent Investment Consulting Services
      Financial Auditing Services
      Actuarial Services
      Emerging Market Equity Manager Services
    • Taiwan Semiconductor’s No. 1 in the emerging markets book
      U.S. fixed-income returns post another positive year
      Nasdaq delivers an impressive year
      U.S. dollar's recent decline continues
    • Institutional Investors: Shared Expectations, Divergent Paths
      Global Investor Study 2016
      Workplace Financial Wellness
    • U.S. Endowment Returns Tracker
      Pension Fund Returns Tracker
      Earnings Tracker
      Corporate Pension Contribution Tracker
  • Insights
    • Opinion
    • White Papers
    • Industry Voices
    • Letters to the Editor
    • Partner Content
    • Publisher's Update
    • Tesla cartoon
      Don’t confuse wealth creation with retirement saving
      Top 1000 cartoon
      Top 1,000 retirement plans weather storm just fine
      Infrastructure cartoon
      You must go big on infrastructure, Mr. President
      Retirement cartoon
      Hopes rising for retirement readiness in 2021
    • Investment Trends: Looking Ahead Across Equity Sectors
      Rethinking Market and Reference Data Management
      China is embarking on a new stage of growth
      Gold Outlook 2021
    • Sameer Shalaby
      Commentary: Why should investors care about treasury management?
      David Blitzstein
      Commentary: Without a national retirement policy, Americans face a future of pension crises
      Lawrence Cunningham
      Commentary: Gensler should keep Clayton’s pragmatic proxy adviser rules
      My-Linh Ngo
      Commentary: Pension funds and the role of the debt market in the fight against climate change
    • Writer using a typewriter
      OCIO industry needs to adopt GIPS
      Writer or journalist workplace. stock illustration
      Even as it assails China, Trump administration emulates it
      Skeptical of Main Street support for proxy adviser proposal
      Focus on manager diversity pushes asset owners’ to walk the talk
    • P&I Content Solutions
      How will gold react?
      To people shaking hands
      P&I Content Solutions
      Lessons From 2020: Today’s OCIO Model Passes a Major Test of Governance
      Sponsored Content By MassMutual
      Leveraging Data to Manage Risk
      Sponsored Content By iShares
      ETFs are becoming a cornerstone of insurance equity portfolios
    • Help us help you by supporting quality journalism
      You Must Believe in Spring
      Everything Must Change
      Tomatoes & Investments
  • Multimedia
    • Videos
    • Webinars
    • Polls
    • Slideshows
    • Charts / Infographics
    • watch video
      0:45
      Private funds weathered 2020 turmoil
      watch video
      0:59
      Secure choice and other retirement plans at a state level
      watch video
      3:33
      P&I 1,000 by the numbers 2021
      watch video
      1:33
      A look at hiring activity in 2020
    • Emerging Markets: Expanding Investors’ View
      2021: A Fixed Income Odyssey
      Technology is the New Oil: The Changing Nature of Emerging Markets
      Powering the Change: The power of diversity and inclusion
    • POLL: Working after the pandemic
      POLL: The year ahead for the 1,000 largest U.S. retirement funds
      POLL: The Biden administration’s economic plans
      POLL: Retirement issues in 2021
    • view gallery
      9 photos
      Coronavirus and the markets
      view gallery
      22 photos
      The 1,000 largest retirement funds: 2020
      view gallery
      10 photos
      Outlook 2020
      view gallery
      10 photos
      2019 as seen through the eyes of Roger
    • By the Numbers for February 2021
      Top Performing Managers of Convertibles, 4th Quarter 2020
      Top Performing Managers of Domestic Growth Equity, 4th Quarter 2020
      Top Performing Managers of Domestic Limited-Duration Fixed Income, 4th Quarter 2020
  • Events
    • Conferences
    • Webinars
    • Defined Contribution Spring Virtual Series
      DC Investment Lineup Virtual Series
      ESG Investing Virtual Series
      Private Markets Virtual Series
    • Emerging Markets: Expanding Investors’ View
      2021: A Fixed Income Odyssey
      Technology is the New Oil: The Changing Nature of Emerging Markets
      Powering the Change: The power of diversity and inclusion
  • Careers
  • Research Center
MENU
Breadcrumb
  1. Home
  2. DEFINED CONTRIBUTION
January 25, 2021 12:00 AM

High-court ruling thwarts ERISA stock-drop lawsuits

Robert Steyer
  • Tweet
  • Share
  • Share
  • Email
  • More
    Reprints Print
    Jan Jacobson
    Photo: Elliott O'Donovan
    American Benefits Council's Jan Jacobson

    More than six years after the U.S. Supreme Court issued a unanimous ruling on how courts should handle stock-drop cases, defined contribution participants claiming ERISA violations are struggling to vault the high hurdle set by the court.

    Since the 2014 decision in Fifth Third Bancorp et al. vs. Dudenhoeffer et al., the annual number of stock-drop suits being filed has declined, especially when compared to the annual filings during and following the Great Recession.

    Many U.S. District Court judges have dismissed ERISA complaints as they abide by the Dudenhoeffer guidelines. A handful of appeals courts have reversed lower court dismissals. For those few lawsuits that climbed the litigation ladder to the Supreme Court, the justices have shown little desire to review or revise the standards for determining if a stock-drop complaint should be dismissed or allowed to go to trial.

    The Dudenhoeffer decision "provided some relief" to sponsors, said Jan Jacobson, senior counsel for retirement policy at the American Benefits Council, Washington, which has filed friend-of-the-court brief in a variety of ERISA cases.

    "There is still some concern among employers who have company stock in their plans," she said. "Even when a case is dismissed, there's a cost."

    The court offered several guidelines:

    • "Where a stock is publicly traded, allegations that a fiduciary should have recognized on the basis of publicly available information that the market was overvaluing or undervaluing the stock are generally implausible and thus insufficient to state a claim" under previous Supreme Court rulings.
    • "To state a claim for breach of the duty of prudence, a complaint must plausibly allege an alternative action that the defendant could have taken, that would have been legal, and that a prudent fiduciary in the same circumstances would not have viewed as more likely to harm the fund than to help it."
    • "ERISA's duty of prudence never requires a fiduciary to break the law, and so a fiduciary cannot be imprudent for failing to buy or sell stock in violation of insider trading laws."

    Initially, sponsors worried that the Supreme Court's guidance would make sponsors more vulnerable to stock-drop lawsuits because it replaced the "presumption of prudence standard" establish by a 1995 Philadelphia federal appeals court decision. The standard offered a strong barrier against stock-drop lawsuits.

    District Courts have, however, interpreted the Dudenhoeffer guidelines to the point that participant-plaintiffs have had little success.

    "There was an immediate reaction (by sponsors) to the loss of the presumption of prudence," said Andrew L. Oringer, a New York-based partner at Dechert LLP and co-chairman of the firm's ERISA and executive compensation group.

    "It became evident quickly" that the Dudenhoeffer ruling "was neutral or a net good" for sponsors, said Mr. Oringer, who represents employers in ERISA cases. "It has played out as a net good for fiduciaries."

    The high court since Dudenhoeffer has declined to hear a few stock-drop petitions, sent another back to a federal appeals court on procedural grounds and issued a full-fledged opinion, which emphatically reaffirmed its guidelines issued in 2014. In that 2016 opinion, the justices supported the sponsor, Amgen Inc.

    The 9th U.S. Circuit Court of Appeals in San Francisco had overturned a District Court's dismissal of ERISA complaints relating to Amgen's stock falling due to controversies over drug-marketing practices and drug safety.

    The Supreme Court said the appeals court "did not correctly apply" the Dudenhoeffer guidelines, adding that it "has not found sufficient facts and allegations" to support an ERISA violations claim.

    "Amgen was totally a we're-not-kidding decision," Mr. Oringer said.

    Still, "Amgen doesn't necessarily stop (lower) courts from doing what they think is right," said Mr. Oringer noting that some appeals courts have issued decisions saying plaintiffs' allegations met the Dudenhoeffer standards.

    Getty Images

    The U.S. Supreme Court building, Washington

    Review or deny

    The latest stock-drop petition to reach the Supreme Court is Francesca Allen et al. vs. Wells Fargo & Co. et al. The justices haven't decided whether to review or deny review of the petition that was filed in December 2020. Unlike some earlier petitions to the Supreme Court by sponsors challenging an adverse appeals court ruling, this is a lawsuit by current and former employees whose complaint was dismissed by a U.S. District Court in 2017. A federal appeals court upheld the dismissal in July 2020.

    Plaintiffs criticized fiduciaries for failing to protect stock-owning plan participants following the revelations of a Wells Fargo sales-practices scandal that depressed the stock and led to penalties against the company.

    The Dudenhoeffer decision appears to have affected the filing of stock-drop cases, according to the Washington consulting firm Cornerstone Research.

    "Historically, the number of cases was much higher," said Kivanc Kirgiz, a vice president at Cornerstone Research, in an email. "Between 2009 and 2011, for example, these cases almost averaged 20 per year."

    The highest yearly filings were 34 in 2002 and 37 in 2008, according to Cornerstone data, which count stock drop-cases for publicly held companies but excludes employee stock ownership plan lawsuits among private companies. The data also exclude suits in which a corporate spin-off produces a publicly traded company with its own company stock as well as the publicly traded stock of its former parent.

    According to Cornerstone, the number of stock-drop lawsuits began to shrink even before the Dudenhoeffer ruling. There were six in 2012, two in 2013, three in 2014 and seven in 2015. Also, there were eight in 2016, four in 2017, none in 2018 and three in 2019.

    "We have not finished our review of 2020 but so far we have not identified any stock-drop cases," wrote Mr. Kirgiz, suggesting that a strong stock market also has played a role in the filing of fewer cases.

    Despite courts' pro-employer track record, sponsors' attorneys and trade groups representing employers aren't ready to declare victory.

    "There is still some concern" because different cases present different facts, said Aliya Robinson, senior vice president of retirement and compensation policy at the ERISA Industry Committee in Washington.

    As for the Dudenhoeffer guidelines, "We think it's clear, but it's always open to interpretation," said Ms. Robinson, whose organization has filed friend-of-the-court briefs supporting employers.

    Attorney David Levine, who represents employers in ERISA cases, said sponsors "are not taking anything for granted" even though they are "relieved" by the trend of pro-sponsor rulings by lower courts.

    "The courts often are dismissing cases, but there are cases like IBM," said Mr. Levine, Washington-based principal with the Groom Law Group. Without more specific guidelines, "we will always have courts go in different directions."

    The case of Retirement Plans Committee of IBM et al. vs. Larry W. Jander et al. has gone to the Supreme Court twice.

    Although a U.S. District Court in New York dismissed a complaint by plan participants in 2016 and 2017, the 2nd U.S. Circuit Court of Appeals in New York ruled in 2018 that participants had met the Supreme Court's guidelines in some of their allegations.

    In January 2020, the Supreme Court responded to IBM's petition by vacating and remanding the case to the appeals court, instructing it to examine issues that the lower courts hadn't addressed. The 2nd Circuit's judges reaffirmed their original decision; IBM petitioned the Supreme Court again.

    In November 2020, the Supreme Court declined to review the case; it is back at the trial court, which must follow the appeals court's interpretation. Participants sued the IBM fiduciaries in 2015, saying they should have protected stock-holding participants in the 401(k) plan. IBM's stock fell following disclosure of an asset write-down and subsequent sale of a money-losing microelectronics unit.

    "I think we were hoping that the Supreme Court would take up IBM and confirm Dudenhoeffer," Ms. Robinson said. "It does leave uncertainty."

    The IBM case highlights the challenge in interpreting the Dudenhoeffer "more harm than good" standard. Lower courts must assess if participants suing a company can "plausibly allege" that any response by a plan's fiduciary — such as freezing a stock fund or halting stock purchases — would have been better than doing nothing. That applies to allegations that fiduciaries failed to act on non-public information.

    The IBM case indicates that "the judiciary is waiting for more clarity" regarding the more-harm-than-good standard, said Dechert's Mr. Oringer. "There's more work to be done on just what that means. The final word hasn't been written."

    Related Articles
    Wells Fargo claimants ask Supreme Court to overturn lower-court rulings
    Supreme Court to revisit shareholder class-action threshold
    Supreme Court rejects request in IBM 401(k) stock-drop suit
    Recommended for You
    OECD proposes revision of its DC ‘good design' roadmap
    OECD proposes revision of its DC ‘good design' roadmap
    Vietnam gets its first private defined contribution plan
    Vietnam gets its first private defined contribution plan
    DCALTA releases daily valuation tool for alts in DC plans
    DCALTA releases daily valuation tool for alts in DC plans
    How will gold react?
    Sponsored Content: How will gold react?
    sponsored
    Events
     
     
    Sponsored
    White Papers
    Rethinking Market and Reference Data Management
    Investment Trends: Looking Ahead Across Equity Sectors
    China is embarking on a new stage of growth
    Gold Outlook 2021
    Shifting DC Times - Winter 2021
    GP-LED OPPORTUNITIES AT THE SMALLER END OF THE MARKET
    View More
    Sponsored Content
    Partner Content
    The Industrialization of ESG Investment
    For institutional investors, ETFs can make meeting liquidity needs easier
    Gold: the most effective commodity investment
    2021 Investment Outlook | Investing Beyond the Pandemic: A Reset for Portfolios
    Ten ways retirement plan professionals add value to plan sponsors
    Gold: an efficient hedge
    View More
    E-MAIL NEWSLETTERS

    Sign up and get the best of News delivered straight to your email inbox, free of charge. Choose your news – we will deliver.

    Subscribe Today

    Get access to the news, research and analysis of events affecting the retirement and institutional money management businesses from a worldwide network of reporters and editors.

    Subscribe
    Connect With Us
    • RSS
    • Twitter
    • Facebook
    • LinkedIn

    Our Mission

    To consistently deliver news, research and analysis to the executives who manage the flow of funds in the institutional investment market.

    pilogo-NEW
    About Us

    Main Office
    685 Third Avenue
    Tenth Floor
    New York, NY 10017-4036

    Chicago Office
    150 N. Michigan Ave.
    Chicago, IL 60601

    Contact Us

    Careers at Crain

    About Pensions & Investments

     

    Advertising
    • Media Kit
    • P&I Content Solutions
    • P&I Careers | Post a Job
    • Reprints & Permissions
    Resources
    • Subscribe
    • Newsletters
    • FAQ
    • P&I Research Center
    • Site map
    • Staff Directory
    Legal
    • Privacy Policy
    • Terms and Conditions
    • Privacy Request
    Pensions & Investments
    Copyright © 1996-2021. Crain Communications, Inc. All Rights Reserved.
    • NEWS
      • Asset owners and the coronavirus
      • Alternatives
      • Consultants
      • Coronavirus
      • Defined Contribution
      • ESG
      • Frontlines
      • Hedge Funds
      • Investing / Portfolio Strategies
      • Money Management
      • Pension Funds
      • People Moves
      • Private Equity
      • Real Estate
      • Searches & Hires News
      • SECURE Act
      • Special Reports
      • WorldPensionSummit
    • Data
      • Research Center
      • Searches & Hires Database
      • Searches & Hires News
      • RFPs
      • Charts / Infographics
      • Sponsored Research
      • Trackers
    • Insights
      • Opinion
      • White Papers
      • Industry Voices
      • Letters to the Editor
      • Partner Content
      • Publisher's Update
    • Multimedia
      • Videos
      • Webinars
      • Polls
      • Slideshows
      • Charts / Infographics
    • Events
      • Conferences
      • Webinars
    • Careers
    • Research Center