Eleventh Circuit Affirms Dismissal Of Stock Drop Suit

Author:Goodwin Procter's ERISA Litigation Practice
Profession:Goodwin Procter LLP
 
FREE EXCERPT

In Lanfear v. Home Depot, Inc., Case No. 10-13002 (11th Cir. May 8, 2012), the U.S. Court of Appeals for the Eleventh Circuit adopted the presumption of prudence for the holding of employer stock in a retirement plan (the "Moench presumption") in affirming dismissal of a putative class action complaint filed by participants in an eligible individual account plan ("EIAP") and employee stock ownership plan ("ESOP").

Lanfear involved a retirement plan sponsored by The Home Depot, Inc. (the "Company"). The complaint alleged that plan fiduciaries breached ERISA fiduciary duties by (i) continuing to purchase and failing to sell the Company's stock even though they knew based on nonpublic information that the stock price probably was inflated; (ii) providing inaccurate information to plan participants in fiduciary communications; and (iii) failing to disclose to plan participants certain Company business practices that had inflated the Company's stock price. The plaintiffs' allegations arose from certain losses that the Company's stock suffered in 2005 and 2006 due to an announcement that Company executives had engaged in stock-options backdating practices that resulted in an underestimation of compensation expenses and improper accounting of product chargebacks to vendors.

While the appeals court affirmed dismissal of the complaint, it disagreed with the district court's reasons for dismissal. First, it disagreed with the district court's conclusion that the plaintiffs' prudence claim was a diversification claim barred by ERISA...

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