Lifetouch Employer Stock Plan Suit Hits Dead End

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

Employees of photography company Lifetouch Inc. lost their lawsuit claiming they lost hundreds of millions of dollars in retirement savings when their employer stock plan allegedly tanked in value.

The employees didn’t provide enough specific details backing their claim that Lifetouch and its directors artificially and fraudulently inflated the company’s stock value before its 2018 sale to Shutterfly Inc., a federal judge said ruled Nov. 7. She dismissed their proposed class action without giving them an opportunity to refile their claims.

This ruling is the latest in a long line of Employee Retirement Income Security Act cases rejecting challenges to declining employer stock price. These cases—which, unlike the Lifetouch lawsuit, typically involve publicly traded companies—have seen almost no success since a 2014 U.S. Supreme Court decision made it harder to bring these claims. Since then, a growing list of companies and their executives have defeated stock-drop lawsuits, including RadioShack Corp., WellsFargo, Target Corp., Cliffs Natural Resources Inc., Reliance Trust Co., Lehman Brothers Holdings Inc., State Street Bank & Trust Co., Citigroup, Whole Foods Corp., JPMorgan Chase & Co., L-3 Communications, and BP Plc.

The Lifetouch lawsuit claimed workers who invested in the company’s employee stock ownership plan weren’t protected from losses as the company struggled to adapt to the age of digital photography. The stock held in Lifetouch’s ESOP declined by more than $840 million between 2015 and 2018, representing an average loss of more than $22,000 for each of the plan’s 16,000 investors, according to the lawsuit. This decline happened while several Lifetouch executives retired and cashed out their stock at favorable prices, the lawsuit claimed.

These allegations weren’t enough to survive Lifetouch’s motion to dismiss, Judge Joan N. Ericksen of the U.S. District Court for the District of Minnesota said. Specifically, Ericksen said the drop in stock value was a “result one would expect from lawful conduct,” given the financial hardships alleged by the employees.

Ericksen also rejected the idea that Lifetouch’s stock was so risky to be unsuitable for a retirement plan. Lifetouch experienced financial hardships but was ultimately sold for over $800 million in early 2018, Ericksen said.

The Lifetouch employees were represented by Zamansky LLC and Douglas J. Nill PLLC. The company and its directors were variously represented by Dorsey & Whitney LLP and Winston & Strawn LLP.

The case is Vigeant v. Meek, 2018 BL 411461, D. Minn., No. 0:18-cv-00577-JNE-TNL, 11/7/18.

Request Benefits & Executive Compensation News on Bloomberg Law