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Sept. 29 — RadioShack Corp. is the third major company in less than a week to defeat a lawsuit by employees claiming they lost retirement savings because their employer allowed them to invest in poorly performing company stock ( In re 2014 RadioShack ERISA Litig. , N.D. Tex., No. 4:14-cv-00959-O, 9/29/16 ).
In dismissing the lawsuit against RadioShack, a Texas-based federal judge found on Sept. 29 that the employees failed to allege—either by reference to public information or inside corporate knowledge—that the people running RadioShack’s 401(k) plans breached their duties by continuing to offer company stock as an investment.
This decision comes three days after BP Plc’s victory in the U.S. Court of Appeals for the Fifth Circuit and one day after a win for Whole Foods Corp. issued by another Texas-based judge. In all three cases, the courts found that employees failed to overcome the high bar set by the U.S. Supreme Court for cases challenging stock losses under the Employee Retirement Income Security Act.
The RadioShack case has a wrinkle not present in the BP or Whole Foods lawsuits—namely, that the original allegations against the company were based largely on publicly available information about RadioShack’s financial struggles. In its 2014 decision on ERISA-based stock challenges, the Supreme Court drew a distinction between cases based on public information and cases based on inside knowledge of fraud or wrongdoing, saying that the former are generally implausible absent “special circumstances.”
In January, Judge Reed O’Connor of the U.S. District Court for the Northern District of Texas rejected the RadioShack workers’ claims after finding that the company’s slide toward bankruptcy didn’t qualify as a “special circumstances.”
In his most recent ruling, Judge O’Connor allowed the RadioShack workers to bring new allegations based on inside information, a move arguably aimed at bringing the dispute under the more plaintiff-friendly of the Supreme Court’s pleading standards.
However, O’Connor’s ultimate decision—taken along with the recent decisions favoring BP, Whole Foods, Lehman Bros., JPMorgan Chase, Edison International and International Business Machines Corp.—demonstrates how difficult it has become for plaintiffs to satisfy either standard.
After reaffirming his January conclusion that no special circumstances were present, O’Connor found that the workers also failed to state a claim based on inside corporate information. According to O’Connor, the workers failed to identify any material inside information that the RadioShack defendants withheld from the public.
RadioShack was represented by Morgan Lewis & Bockius LLP and Ogletree Deakins Nash Smoak & Stewart P.C. The employees were represented by Kessler Topaz Meltzer & Check LLP and Lackey Hershman LLP.
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Text of the decision is at http://www.bloomberglaw.com/public/document/Master_File_In_Re_2014_RadioShack_ERISA_Litigation_Docket_No_414c/2.
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