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Hewlett-Packard Co. is the latest major company to defeat a lawsuit by workers who say they lost out on retirement savings by investing in company stock.
The workers failed to show that HP executives took steps to conceal a corporate fraud related to the company’s controversial acquisition of British software maker Autonomy Corp., the U.S. Court of Appeals for the Ninth Circuit said Jan. 9. The workers also failed to identify a good alternative action HP executives could have taken to protect the company’s 401(k) plan when HP stock fell 12 percent in the wake of the acquisition, the Ninth Circuit said.
Lawsuits challenging lost retirement savings following drops in company stock price have seen almost no success since 2014, when the U.S. Supreme Court’s decision in Fifth Third Bancorp v. Dudenhoeffer made it harder to bring fiduciary breach claims under the Employee Retirement Income Security Act. Since then, a growing list of companies and their executives have defeated stock-drop lawsuits, including Wells Fargo, Target Corp., Cliffs Natural Resources Inc., Reliance Trust Co., Lehman Brothers Holdings Inc., State Street Bank & Trust Co., RadioShack, Citigroup, Whole Foods Corp., JPMorgan Chase & Co., L-3 Communications, and BP Plc.
The Ninth Circuit’s decision comes two days after the U.S. Court of Appeals for the Sixth Circuit issued a similar ruling in a case against executives of Eaton Corp. Both decisions are unpublished, suggesting the courts view the decisions as resting on settled legal principles.
“These rulings further demonstrate that courts continue to construe the Dudenhoeffer pleading standard as a gatekeeper against the very costly discovery inherent in ERISA class-action litigation,” Joseph E. Clark, an employer-side ERISA attorney who practices in Proskauer Rose’s New York office, told Bloomberg Law in an email. “With the Ninth Circuit’s decision, four circuit courts since the Supreme Court’s decision in Amgen have affirmed dismissals of employer stock claims based on inside information, and all district courts have followed suit.”
In 2016’s Amgen Inc. v. Harris, the Supreme Court clarified that workers challenging losses in their employer stock plans face a higher hurdle than some lower courts had previously used.
Both the HP and Eaton cases turned in part on the Supreme Court’s new pleading standards for workers challenging the decision to continue investing retirement assets in company stock. To succeed, the workers must show an alternative, legal action that plan fiduciaries could have taken that wouldn’t be seen as causing the plan more harm than good.
The HP workers’ suggested alternative actions—making public disclosures about the Autonomy deal and halting new 401(k) investments in HP stock—didn’t meet this standard, the Ninth Circuit said.
The unpublished decision was joined by Judges M. Margaret McKeown and Mary H. Murguia and Judge Cynthia M. Rufe of the U.S. District Court for the Eastern District of Pennsylvania, sitting by designation.
Zamansky LLC and Wolf Haldenstein Adler Freeman & Herz LLP represented the HP workers. Wachtell Lipton Rosen & Katz and Farella Braun & Martel LLP represented HP.
The case is Laffen v. Hewlett-Packard Co. , 2018 BL 7981, 9th Cir., No. 15-16360, unpublished 1/9/18 .
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