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Three American Express Co. executives won a lawsuit accusing them of breaching their fiduciary duties by allegedly not disclosing in a timely manner that the credit card company wouldn’t renew its agreement with Costco Wholesale Corp. ( Houssain v. Cheanault , S.D.N.Y., No. 1:15-cv-08184, motion to dismiss granted 9/28/17 ).
Amex Chief Executive Officer Kenneth Chenault didn’t have any fiduciary duty under the Employee Retirement Income Security Act to participants in the company’s retirement plan, Judge Paul G. Gardephe of the U.S. District Court for the Southern District of New York held Sept. 28. As to the other two executives, John Koslow and Peter Sisti, Gardephe noted that they had fiduciary functions, but the participants failed to show that the two executives had any knowledge of the financial significance of the Costco relationship with Amex or the status of the negotiations.
The lawsuit, brought by a participant in Amex’s retirement plan, alleged that the failure to disclose the status of the negotiations between Costco and Amex caused Amex’s stock price to become artificially inflated, resulting in an alleged imprudent investment for employees’ retirement savings. Once Amex announced that the Costco agreement wouldn’t be renewed, Amex’s stock price declined, causing losses to participants.
The decision is the latest example of how difficult it has become for employees to challenge losses in their retirement plans as a result of company stock drops. In the last couple of years, judges have ruled against employees in lawsuits against Wells Fargo Co., Target Corp., Cliffs Natural Resources Inc., Reliance Trust Co., Lehman Brothers Holdings Inc., State Street Bank & Trust Co., RadioShack, Citigroup, Eaton Corp., Whole Foods Corp., JPMorgan Chase & Co., IBM Corp., and BP Plc.
In his ruling, Gardephe rejected the participant’s argument that Chenault was a fiduciary of the plan because he had discretionary authority and management control as a result of his authority to amend the plan.
Amending an ERISA plan is a settlor function, and the statute assigns no fiduciary duties to sponsors when they adopt, modify, or terminate ERISA plans, the judge said. The delegation of amendment power to Chenault didn’t convert him into a plan fiduciary, Gardephe concluded.
Zamansky LLC represents the participant. Steptoe & Johnson LLC represents the executives.
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