Allergan Beats Challenge Over Company Stock in 401(k) Plan (Corrected)

Employee Benefits News examines legal developments that impact the employee benefits and executive compensation employers provide, including federal and state legislation, rules from federal...

By Carmen Castro-Pagan

Allergan PLC defeated a lawsuit by workers challenging losses in retirement savings held in a company stock fund that devalued amid a federal investigation into a price-fixing scheme among makers of generic drugs.

The former employees didn’t sufficiently allege that Allergan and its directors were plan fiduciaries under the Employee Retirement Income Security Act, Judge Susan D. Wigenton of the U.S. District Court for the District of New Jersey held July 2.

The workers also failed show that Allergan breached its ERISA fiduciary duties by keeping company stock as an investment option in its retirement plan while a federal investigation that affected its stock value was being conducted, Wigenton said.

The decision is the latest defeat for workers seeking to hold their employers liable under federal benefits law for losses in their retirement plans as a result of drops in the price of their employers’ stock. These lawsuits have had almost no success since 2014, when the U.S. Supreme Court’s decision in the case Fifth Third Bancorp v. Dudenhoeffer made it harder to bring fiduciary breach claims under ERISA. So far this year, courts have sided with Idearc Inc., Chicago Bridge & Iron Corp., Phillips 66 Co., SunEdison Semiconductor LLC, RadioShack Corp., and Hewlett-Packard Co. in similar challenges.

The Allergan workers alleged that the drugmaker colluded with other companies to fix generic drug prices in violation of federal securities laws, creating excess revenue and putting Allergan at risk of civil and criminal liability. Allergan and its executives allegedly violated ERISA when they retained company stock as an investment option even though they knew or should have known that Allergan’s statements artificially inflated its stock price.

Wigenton rejected the workers’ argument that Allergan was a fiduciary because it could hire and terminate a third-party administrator. She also rejected the workers’ allegation that Allergan was a fiduciary because it made Securities and Exchange Commission filings as the plan’s administrator. These allegations are insufficient to show that Allergan and its directors were de facto fiduciaries, Wigenton said.

In line with other federal court rulings, Wigenton took issue with the workers’ liability theory and rejected the proposed alternative actions Allergan could have taken to avoid losses to the plan.

The workers argued that Allergan could have disclosed its alleged antitrust violations so that company stock would have traded at a fair value. The workers didn’t allege that a prudent fiduciary in Allergan’s position couldn’t have concluded that disclosing negative information would have done more harm than good to the plan by causing a drop in the stock price, Wigenton said.

Wigenton also rejected the workers’ other proposed alternative actions, including freezing the fund, holding incoming assets in cash until the stock was no longer artificially inflated, and moving cash assets into the plan’s default investment fund.

Kantrowitz Goldhamer & Graifman Esqs. and Zamansky LLC represent the workers. Becker LLC and Duane Morris LLP represent Allergan.

The case is In re Allergan ERISA Litigation, D.N.J., No. 2:17-cv-01554-SDW-LDW, order granting defendants’ motion to dismiss 7/2/18.

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