Target Defeats Challenge Over Company Stock in Its 401(k) Plan

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By Carmen Castro-Pagan

Target Corp. defeated a lawsuit by employees challenging the retailer’s decision to allow company stock in its 401(k) plan despite allegedly knowing its value was artificially inflated because of its now-defunct Canada operations ( In re Target Corp. ERISA Litig. , 2017 BL 265739, D. Minn., 0:16-cv-01315, 7/31/17 ).

The participants didn’t sufficiently allege any alternative action that Target could’ve taken that would have been consistent with the securities laws and that a prudent fiduciary wouldn’t have viewed as more likely to harm the fund than to help it, Judge Joan N. Ericksen of the U.S. District Court for the District of Minnesota held July 31.

Ericksen expressly rejected the participants’ six alternative actions that Target could’ve taken to protect the plan from artificially inflated stock prices, including freezing the fund, holding plan contributions in cash instead of buying more stock, and disclosing nonpublic information to the participants.

Since a 2014 U.S. Supreme Court decision that changed the pleading standard for stock challenges under the Employee Retirement Income Security Act, employers have consistently defeated these challenges. With Ericksen’s decision, Target joins a growing list of companies that have defeated such lawsuits, including Reliance Trust Co., Lehman Brothers Holdings Inc., State Street Bank & Trust Co., RadioShack, Citigroup, Eaton Corp., Whole Foods Corp., JPMorgan Chase & Co., IBM Corp., and BP Plc.

Ericksen’s decision is a major victory for Target, which also faced claims under the Securities Exchange Act. In addition to dismissing the ERISA claims, Ericksen dismissed the securities action, holding that the proposed class’s allegations were founded on hindsight.

Alternative Actions Rejected

Ericksen found that the participants primarily alleged in a “conclusory way” that the alternative actions would’ve saved them from future losses. These “naked assertions” are similar to those that the Supreme Court has found insufficient, she said.

The participants’ lawsuit didn’t include sufficient allegations supporting their proposition that a prudent fiduciary couldn’t have concluded that refraining from buying stock by freezing the fund would do more harm than good, Ericksen said. The participants’ theory on holding contributions in cash suffered the same fate because they failed to adequately allege this alternative action, the judge said.

The participants’ theory that Target should’ve disclosed nonpublic information about the problems it was facing in Canada rested on hindsight, Ericksen said. The complaint didn’t include any facts showing that a reasonable fiduciary couldn’t have concluded that disclosure during that time would’ve done more harm than good, Ericksen said.

Ericksen denied requested leaves to amend both lawsuits, saying that the court had discretion to do so when an informal request is unaccompanied by proposed amendments.

Levi & Korsinsky LLP, Stull Stull & Brody, and David E. Krause Law Office, Chtd. represented the participants. Faegre Baker Daniels LLP represented Target.

To contact the reporter on this story: Carmen Castro-Pagan in Washington at ccastro-pagan@bna.com

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

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