Employee Benefits News examines legal developments that impact the employee benefits and executive compensation employers provide, including federal and state legislation, rules from federal...
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.
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 email@example.com
To contact the editor responsible for this story: Jo-el J. Meyer at firstname.lastname@example.org
Copyright © 2017 The Bureau of National Affairs, Inc. All Rights Reserved.
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to email@example.com.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to firstname.lastname@example.org.
Put me on standing order
Notify me when new releases are available (no standing order will be created)