Edison Executives Beat Latest Challenge to Stock Losses in 401(k)

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

Two Edison International Inc. top executives defeated again a worker’s lawsuit challenging their decision to retain allegedly inflated Edison stock in the company’s 401(k) plan.

The worker’s second amended lawsuit failed to state a valid claim of fiduciary breach under the Employee Retirement Income Security Act against two Edison executives—Theodore Craver, former chief executive officer, and Robert Boada, vice president and treasurer, Judge John A. Kronstadt of the U.S. District Court for the Central District of California held May 29. The worker again failed to allege a sufficient alternative action the executives could have taken other than continuing to hold the stock as an investment option in the plan, Kronstadt held.

The decision is the latest setback for Cassandra Wilson, an Edison employee and participant in its 401(k) plan, who filed a proposed class action against the company almost three years ago. Wilson alleged that the executives’ failure to promptly disclose certain communications regarding Edison caused its stock to trade at an inflated value. Since then, Kronstadt has dismissed her allegations twice. Kronstadt’s latest ruling, however, isn’t a complete defeat for Wilson since he allowed her a “final opportunity” to state her claims.

Kronstadt again rejected the proposed alternative actions Wilson alleged the executives could have taken to mitigate plan losses—immediate public disclosure and closing the stock fund to new investment. Prudent fiduciaries in the same position as the executives could have viewed both alternative actions as more likely to harm the fund than to help it, Kronstadt said.

Similar to his prior rulings, Kronstadt said that Wilson’s second amended lawsuit included “generic” allegations and didn’t present any “context-specific allegations” that could support another finding.

Kronstadt’s decision is in line with other court rulings across the country that have rejected employees’ use of ERISA to challenge losses in their retirement plans as a result of company stock drops. A growing list of companies have defeated these challenges, including Chicago Bridge & Iron Co., Eaton Corp., RadioShack Corp., Whole Foods Corp., Lehman Brothers, JPMorgan Chase & Co., International Business Machines Corp., and BP Plc.

Zamansky LLC, Cofiroute USA LLC, and Kirby Noonan Lance & Hoge LLP represent the worker. Munger Tolles & Olson LLP represents the executives.

The case is Wilson v. Edison Int’l Inc., C.D. Cal., No. 2:15-cv-09139-JAK-PJW, order granting defendants’ motion to dismiss 5/29/18.

Request Benefits & Executive Compensation News