Employee Benefits News examines legal developments that impact the employee benefits and executive compensation employers provide, including federal and state legislation, rules from federal...
General Cable Corp. defeated a lawsuit challenging losses in its workers’ retirement savings allegedly caused by keeping artificially inflated company stock as an investment option amid a foreign bribery scandal.
The worker’s allegations in support of her fiduciary breach claims under federal benefits law didn’t meet the stringent pleading standard required in these cases, Judge William O. Bertelsman of the U.S. District Court for the Eastern District of Kentucky held July 23.
Essentially, the worker failed to allege any alternative action the company could have taken that would have been consistent with securities laws and that a prudent fiduciary wouldn’t have viewed as more likely to harm the plan than to help it, Bertelsman said.
Bertelsman’s ruling ends a would-be class action filed a year ago that sought to hold General Cable liable for its alleged involvement in a foreign bribery scheme. The worker alleged that General Cable stock was artificially inflated for more than 13 years because of an undisclosed bribery scheme aimed at gaining business in violation of the Foreign Corrupt Practices Act. In 2016, the company agreed to pay more than $75 million in penalties to resolve FCPA-related charges against it by the Justice Department and the Securities and Exchange Commission.
The ruling is the latest example of how difficult it is for workers to meet the stringent pleading standard established by the U.S. Supreme Court in Fifth Third Bancorp v. Dudenhoeffer. Since that 2014 decision, courts have largely ruled against workers seeking to hold their employers liable under the Employee Retirement Income Security Act for losses in their retirement plans as a result of a drop in the price of their employers’ stock.
Bertelsman rejected the worker’s argument that an early and candid disclosure of the bribery scheme would have protected plan participants from harm. In ruling this way, Bertlesman joined the rational of other courts that have rejected similar theories involving other major companies, including Eaton Corp., Cliffs Natural Resources Inc., Target Corp., and Exxon Mobil Corp.
Bertelsman also rejected the worker’s arguments that the company could have held participants’ contributions in cash or some other short-term investment. Her arguments that General Cable fiduciaries should have resigned, sought guidance from regulatory authorities, or retained experts to advise them were conclusory and didn’t satisfy the pleading standard either, Bertelsman said.
Stull Stull & Brody and Strauss & Troy LPA represent the workers. Morgan Lewis & Bockius LLP, Alston & Bird LLP, and Fessler Schneider & Grimme represent General Cable.
The case is Eley ex rel. Gen. Cable Sav. & Inv. Plan v. Gen. Cable Corp., 2018 BL 260634, E.D. Ky., No. 2:17-cv-00045-WOB-CJS, order granting defendants’ motion to dismiss 7/23/18.
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