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May 24 —Total Petrochemicals USA Inc. must defend claims that it violated federal law by forcing its workers to sell off company stock held in their 401(k) accounts, a federal judge ruled.
The workers argued that Total Petrochemicals removed its company stock from the 401(k) plan at a time when its expanded operations made the stock “one of the 100 best stocks to buy,” causing the workers to take a loss and allowing the company to buy the stock back at a reduced price, the court said. These allegations were sufficient to state claims under the Employee Retirement Income Security Act of fiduciary imprudence, disloyalty and failure to monitor other fiduciaries, the judge concluded.
This ruling against the company is unusual both because it considers an infrequent set of ERISA allegations, and because it's a victory for the workers who filed suit.
The workers' allegations—that the forced sale of their well-performing company stock caused them to lose money—is a rarely seen twist on a frequent topic in ERISA litigation. In the typical “stock-drop” case, workers argue that ongoing investment in poorly performing company stock caused a drop in their retirement savings.
Both the R.J. Reynolds and Dell cases resulted in wins for the companies, with the judge who heard the Dell case describing the workers' allegations as an attempt to put the company in a “proverbial Kobayashi Maru”—a no-win scenario from the Star Trek universe.
Total Petrochemicals made a similar argument in seeking to dismiss the case against it, claiming that the workers had put it in a “Catch-22 situation” in which it could face liability regardless of whether it sold or held the stock.
This argument failed to persuade the court, which said that that “may be true,” but also may be “mere speculation.”
Specifically, the court allowed the workers to move forward with their claims of disloyalty, imprudence and failure to monitor plan fiduciaries. It allowed claims to proceed against both the company and individuals connected to the 401(k) plan.
However, the court dismissed claims against the Pension Investment Committee of Total Finance USA Inc., which allegedly advised the company to remove the company stock fund from the 401(k) plan. According to the court, “merely being an advisor to an ERISA plan does not automatically vest that advisor with fiduciary status.”
Judge Ron Clark of the U.S. District Court for the Eastern District of Texas wrote the May 20 opinion, which is designated as not for publication.
The workers are represented by Bradley Steele & Pierce LLP, Ferguson Law Firm LLP and Mostyn Law Firm. Jones Day represents Total Petrochemicals.
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Text of the decision is at http://www.bloomberglaw.com/public/document/Barton_v_Total_Petrochemicals_USA_Inc_Docket_No_115cv00471_ED_Tex/1.
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