Peabody Energy Cleared in ERISA Challenge to Stock Losses

By Jacklyn Wille

Peabody Energy Corp. isn’t liable to employees who allegedly lost retirement savings by investing in the bankrupt coal company’s stock, a federal judge ruled ( Lynn v. Peabody Energy Corp. , E.D. Mo., No. 4:15-cv-00916-AGF, 3/30/17 ).

The proposed class action argued that Peabody wrongfully kept company stock in its workers’ retirement plans during a period in which the company was under investigation for allegedly making misstatements about the effects of climate change on its business prospects. A federal district court refused to hold Peabody liable for these actions under the Employee Retirement Income Security Act, saying that the employees failed to overcome the strict pleading standards set by the U.S. Supreme Court in ERISA cases over employer stock.

That pleading standard is “so high” that it precludes even cases brought against companies that are “careening to bankruptcy,” the court said. The court aligned itself with recent decisions refusing to impose ERISA liability in cases involving the retirement plans of RadioShack Corp., Whole Foods Corp., Lehman Brothers, JPMorgan Chase & Co., International Business Machines Corp. and BP Plc. However, these results haven’t stopped employees from filing new lawsuits against other companies, including Chesapeake Energy Corp., Seventy Seven Energy Inc. and General Cable Corp.

Peabody filed for bankruptcy protection in April 2016.

ERISA Claims Fail

ERISA challenges to employer stock losses often deal with two scenarios. The first is when a company’s stock price plummets and investors—including employees who invest their retirement savings in the stock—claim that public information about the company’s struggles demonstrated that the stock was a bad investment. The second is when investors learn that the company’s stock was artificially inflated and corporate executives had inside knowledge of corporate fraud that caused the inflation.

The Peabody employees argued that both situations were present in this case. The well-publicized collapse of coal prices made Peabody stock a poor investment, the employees argued, but so did undisclosed information about how coal industry regulations would affect the company’s business going forward.

Neither scenario stated a valid claim under ERISA, the court said.

The claim based on public information failed, the court said, because Peabody’s impending bankruptcy wasn’t a “special circumstance” that would satisfy the pleading standard outlined by the Supreme Court.

The employees’ claims based on undisclosed information about Peabody’s future prospects also failed. That’s because the employees failed to identify an alternative action the defendants could have taken—in lieu of continuing to offer the Peabody stock—that wouldn’t have been more likely to harm the plan, the court said.

Judge Audrey G. Fleissig of the U.S. District Court for the Eastern District of Missouri wrote the March 30 decision.

The Peabody employees were represented by Dysart & Taylor and Kessler Topaz. Peabody was represented by King & Spalding and Dowd Bennett.

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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