Evercore Cleared in J.C. Penney Stock Drop Lawsuit

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

J.C. Penney workers who sued their retirement plan trustee, Evercore Trust Co., for $300 million in losses tied to a drop in company stock price lost their appeal before the U.S. Court of Appeals for the D.C. Circuit ( Coburn v. Evercore Tr. Co. , 2016 BL 435165, D.C. Cir., No. 16-7029, 12/30/16 ).

The workers’ lawsuit fell “far short” of alleging the type of “special circumstances” that would state a viable claim under U.S. Supreme Court precedent, a three-judge panel determined Dec. 30. In so ruling, the panel aligned itself with recent decisions dismissing similar claims involving the company stock plans of Lehman Brothers, General Motors, RadioShack Corp.

The Evercore case caused some disagreement among the three-judge panel, with two judges filing separate concurring opinions. One of those opinions, written by Senior Judge Harry T. Edwards, said that the workers would have had a valid claim against Evercore for failing to monitor the J.C. Penney stock investment, but they failed to preserve that issue on appeal.

No Special Circumstances

The workers’ lawsuit claimed that Evercore—which served as trustee of their retirement plan—should have acted to protect them from an 84 percent drop in J.C. Penney stock price. In February, a federal judge sided with Evercore, finding that the retailer’s practice of discontinuing sales and redesigning its stores didn’t qualify as special circumstances that would cause Evercore to be liable for continuing to hold J.C. Penney stock.

D.C. Circuit Judge Karen LeCraft Henderson agreed with the district judge, finding no special circumstances that would state a valid claim. In her majority opinion, she said that the special circumstances requirement—which forces employee stock plan participants to show either fraud or something “special” when challenging drops in employer stock price—is based on the theory that markets operate efficiently and don’t overvalue or undervalue stock in the absence of special circumstances.

Judge Judith W. Rogers wrote separately to express concern that Henderson’s majority opinion focused too heavily on the economic theory surrounding employer stock plans, which wasn’t fully explored by the parties’ filings. Rogers said it “behooves the court not to endorse a particular economic theory that could have unforeseen and even unintended consequences.”

Edwards wrote separately to emphasize that the court wasn’t ruling on whether Evercore breached its duty to monitor the J.C. Penney stock investment, because the workers failed to preserve that issue on appeal. The workers would have had a valid duty-to-monitor claim that “easily should have survived a motion to dismiss,” he said.

Harwood Feffer LLP represented the workers. O’Melveny & Myers LLP represented Evercore.

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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