A plan sponsor prevailed in a recent stock drop case – but not for the customary reasons.
In Forte v. U.S. Pension Committee, S.D.N.Y., No. 1:15-cv-04936, 9/30/16, Joseph D. Forte had filed a class action lawsuit alleging that his employer, Sanofi-Aventis U.S. LLC, breached its fiduciary duties under ERISA by allowing participants in its 401(k) plan to continue investing in company stock (ADRs) despite knowing that its value was artificially inflated following news of an illegal kickback scheme to boost sales of Sanofi’s diabetes product line.
Forte also alleged that the fiduciaries failed to disclose what they knew about the scheme. According to him, this cost participants millions in lost retirement savings.
Most of these stock drop suits allege that the imprudent investment had a negative impact on retirement savings, either by participants purchasing stock at an inflated price or by seeing the value of their accounts decline precipitously, or both. The fiduciary defendants in these cases nearly always prevail – first under a “presumption of prudence” standard, and then under a “more harm than good” standard articulated by the U.S. Supreme Court in Fifth Third Bancorp et al Dudenhoeffer et al.
In the Forte case, the U.S. District Court for the Southern District of New York dismissed Forte’s claims, holding that he lacked standing to bring the action against the company’s investment committee and its executives. Forte didn’t allege that he purchased stock at an artificially inflated price, nor that he was forced to sell it at a loss. Rather, he alleged that he was injured when he was deprived of the opportunity to transfer his stock “into a different, prudent investment and thus sparing themselves greater losses when the correction ultimately took place.”
Consequently, the court held that a plaintiff has to do more than simply cite a stock price drop throughout the proposed class period to establish standing to bring such an action – particularly since, as in this case, Forte failed to allege any actual loss.
