Stock Slump Sets Up Stock Suit

The surging stock market may have muted suits brought by participants regarding employer stock holdings – but a new one claims to be “about the defendants’ abject failure, as plan fiduciaries, to protect the interests of the participants.”

The plan at issue this time is Sears Holdings Corp., which, according to plaintiff Robert A. Catalfamo, kept its own stock as an investment option in its 401(k) plan when it knew or should have known that the retailer was in “extremely poor” financial condition.

The suit, Catafalmo v. Sears Holdings Corp. (N.D. Ill., No. 1:17-cv-05230), filed July 14 in the U.S. District Court for the Northern District of Illinois, claims that the company “has not had a profitable year since 2011, and has not had a profitable quarter from business operations since 2010.” Sears stock lost 80% of its value in the three years prior to the suit.

The suit notes that while the plan froze purchases of Sears shares at the end of 2016, that was “too little, too late, to protect a great deal of [the] participants’ retirement savings” – “tens of millions of dollars of losses” on Sears stockholdings in the past three years, according to the suit. Those losses would have been “minimized or avoided” if plan administrators had stopped offering Sears shares as an investment option sooner, according to the plaintiff.

“Defendants were empowered and obliged by ERISA to remove Sears Stock from the Plan, yet they failed to do so, or to act in any way to protect the interests of the Plan or its Participants, until it was too late to make any material difference, in violation of ERISA,” according to the suit.

As for the notion that the plan was designed to include Sears stock as an option, the plaintiff alleges that “…even if the Plan purportedly required that Sears Stock be offered, the Plan’s fiduciaries were obligated by law to disregard that directive once it became clear Company Stock was no longer a prudent investment for the Plan.”

The suit, which seeks class action status, is asking for:

  • a payment to make good to the plan the losses to the plan resulting from the breaches of fiduciary duties alleged above in an amount to be proven at trial based on the principles described above, as provided by ERISA § 409(a), 29 U.S.C. § 1109(a);
  • injunctive and other appropriate equitable relief to remedy the breaches alleged above, as provided by ERISA §§ 409(a) and 502(a), 29 U.S.C. §§ 1109(a) and 1132(a);
  • reasonable attorney fees and expenses, as provided by ERISA § 502(g), 29 U.S.C. § 1132(g), the common fund doctrine, and other applicable law;
  • taxable costs;
  • interests on these amounts, as provided by law; and
  • such other legal or equitable relief as may be just and proper.

Add Your Comments

2 Comments

  1. David J. Kupstas
    Posted July 20, 2017 at 1:29 pm | Permalink

    Even poor stocks can go up. Just today, it said Sears shares were up 13% on news that Amazon would be selling its appliances.

  2. Nevin E. Adams, JD
    Posted July 22, 2017 at 6:56 am | Permalink

    To your point David, there has been at least one suit filed against fiduciaries who dumped a stock “too soon”. http://www.napa-net.org/news/technical-competence/erisa/fiduciary-decision-to-dump-employer-stock-upheld/ Prudent, well documented fiduciary decisions are essential.

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