Stiefel Labs Partly Defeats Suit Challenging Company Stock Buyback; Some Claims Stay

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By Jacklyn Wille

June 22 — Stiefel Laboratories Inc. scored a partial victory in one of the lawsuits challenging its handling of company stock prior to a corporate merger, when the U.S. District Court for the Northern District of Georgia dismissed claims by three out of four plan participants in the suit.

Although the court found that three participants' claims were barred by release agreements, it allowed most of the individual claims by the remaining participant, John Wagner, to proceed.

Wagner and the other participants accused Stiefel of encouraging them to sell their shares in the company's employer stock plan at around $15,000 per share while hiding merger negotiations with GlaxoSmithKline LLC that ultimately resulted in payouts of $70,000 per share.

Several other lawsuits have challenged Stiefel's conduct in the lead-up to the GlaxoSmithKline merger, including a putative class action that resulted in a $1.5 million jury verdict in favor of an individual plan participant (Finnerty v. Stiefel Labs., Inc., 756 F.3d 1310, 58 EBC 2641 (11th Cir. 2014)).

In another case, the U.S. Court of Appeals for the Eleventh Circuit reversed a $1.7 million judgment in favor of a participant after finding that he validly exercised his right to sell Stiefel stock back to the company, despite failing to complete the required paperwork (Bacon v. Stiefel Labs., Inc., 590 Fed.Appx. 903, 58 EBC 2909 (11th Cir. 2014) (unpublished)).

Individual Versus Plan-Wide 

In allowing Wagner to proceed under Section 502(a)(2) of the Employee Retirement Income Security Act, the court clarified that he could assert claims only for individual losses and not on behalf of the plan as a whole.

The court explained that both Wagner and the other plaintiffs “have done nothing to notify or otherwise involve other Plan participants” in the lawsuit, making their claims for plan-wide relief inappropriate.

However, the court rejected Stiefel's attempt to dismiss the bulk of Wagner's individual ERISA claims.

Non-Disclosure Claim Survives 

In particular, the court said that Wagner stated a valid claim for failure to disclose material information related to the proposed merger.

Although Stiefel argued that ERISA contains no duty to disclose confidential business information to plan participants, the court noted that the cases relied on by Stiefel concerned only publicly traded companies.

On that point, the court emphasized that Stiefel's status as a nonpublic company meant that Wagner was in a “vulnerable position” with regard to the valuation of his stock shares. Rather than relying on the share price set by the open market, Wagner had to trust that the Stiefel fiduciaries had properly valued company stock in the course of the buyback, the court said.

In a similar vein, the court also allowed Wagner to proceed with his claim that Stiefel fiduciaries breached their duties by not ordering an interim valuation of the stock prior to the buyback and merger.

Prohibited Transactions 

Wagner also accused Stiefel of engaging in a prohibited transaction with respect to the buyback of his stock.

Stiefel argued that a transfer of benefits to a plan participant can't be considered a prohibited transaction, but the court noted an “exception” to this general rule for instances in which benefit payments “were merely a sham.”

The court found that Wagner's claims satisfied this exception, because he alleged that the defendants engaged in a scheme of redeeming company stock from plan participants “by various means, including purposefully triggering statutory redemption rights by laying off employees, offering optional diversification, and re-purchasing the stock for grossly inadequate consideration.”

Judge Mark H. Cohen issued the court's June 18 decision.

The participants were represented by David J. Ko, Derek W. Loeser, Gary A. Grotto, Gary D. Greenwald and Lynn L. Sarko of Keller Rohrback LLP, Seattle and Phoenix, and Joshua A. Millican of Law Office of Joshua A. Millican P.C., Atlanta. Stiefel was represented by David A. Coulson, Hilarie Bass, Lindsey C. Edelmann and Todd D. Wozniak of Greenberg Traurig LLP, Miami and Atlanta.

To contact the reporter on this story: Jacklyn Wille in Washington at

To contact the editor responsible for this story: Jo-el J. Meyer at

Text of the opinion is at

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