Allergan Stock Losses Spawn ERISA Class Action

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 Jacklyn Wille

Allergan plc’s connection to an alleged price-fixing scheme among generic drug makers spawned a proposed class action Feb. 14, with an Allergan employee claiming he lost retirement savings by investing in the company’s stock ( Xie v. Inv. Comm. & Benefits Oversight Comm. of Allergan Inc. Sav. & Inv. Plan , C.D. Cal., No. 8:17-cv-00271, complaint filed 2/14/17 ).

The complaint accuses Allergan’s benefits plan committee and the company’s chief financial officer, Maria Teresa Hilado, of failing to protect workers from a 23 percent drop in Allergan’s stock price in connection with an ongoing Department of Justice investigation into price collusion among major pharmaceutical companies. Hilado and the committee breached their duties under federal benefits law by continuing to let workers invest retirement savings in Allergan stock, which carried an artificially inflated price tag before news of the investigation broke, the complaint alleges.

Allergan—which was subpoenaed in connection with the DOJ investigation in 2015—is the first drug company to be sued over related retirement plan losses. In December 2016, 20 state attorneys’ general filed antitrust charges against six drug companies, including Aurobindo, Heritage, Mylan and Teva, without naming Allergan. The DOJ filed its first criminal charges that same month, targeting twoformer Heritage executives.

Litigation over alleged drug price fixing continues to swirl, with twonew lawsuits targeting Allergan in the past month. The suits, filed by California’s attorney general and the Federal Trade Commission, challenge the pricing of lidocaine patches intended to treat shingles. Allergan has challenged the FTC lawsuit, which was filed Jan. 23 in a California federal court, as “flagrant forum shopping” and an attempt to circumvent a settlement entered in a Pennsylvania-based federal court.

Allergan also faces multiplesecuritieslawsuits over stock losses connected to the DOJ investigation. Those lawsuits claim that hundreds of thousands of Allergan shareholders were harmed by the alleged fraud. By contrast, the most recent lawsuit alleges violations of the Employee Retirement Income Security Act and seeks relief on behalf of “at least 19,000" individuals who held Allergan stock in the company’s retirement plan. It’s the first time Allergan has been sued under ERISA in at least five years, according to Bloomberg Law Litigation Analytics.

The ERISA lawsuit will likely face obstacles in the federal courts, which have been increasingly likely to dismiss ERISA claims involving employer stock losses since a seminal U.S. Supreme Court decision in 2014.

Since that decision, a number of companies have beaten these “stock-drop” lawsuits, with courts rejecting claims involving the company stock plans of Lehman Brothers, General Motors, RadioShack Corp., J.C. Penney, Whole Foods Corp., and Sanofi-Aventis U.S. LLC.

The ERISA lawsuit against Allergan was filed in the U.S. District Court for the Central District of California by Zamansky LLC.

Zamansky also represents investors bringing similar claims involving the retirement plans of L-3 Communications Corp., Exxon Mobil Corp. and Wells Fargo & Co.

Allergan didn’t immediately respond to inquiries about the new lawsuit.

To contact the reporter on this story: Jacklyn Wille in Washington at jwille@bna.com

To contact the editor responsible for this story: Jo-el J. Meyer at jmeyer@bna.com

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