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Rare Settlement in Stock Drop Case

Plaintiffs have frequently come up short in taking plan fiduciaries to court over company stock investments – but sometimes they choose to settle instead.

That’s what happened in the case of Ramirez v. J.C. Penney Corp., in which, the Dallas Morning News reports, U.S. District Judge Robert W. Schroeder III has preliminarily approved a $4.5 million settlement between J.C. Penney and a class of participants who claim they suffered retirement account losses due to false and misleading statements regarding Penney’s financial condition and its prospects.

The case, filed in 2014, was based on allegations similar to those in Coburn v. Evercore Tr. Co., N.A. (2016 BL 435165, D.C. Cir., No. 16-7029, 12/30/16), a case that was dismissed recently in the U.S. Circuit Court of Appeals for the District of Columbia, albeit against a different plaintiff (Evercore Trust Company, N.A., the plan trustee). The plaintiff in that case alleged that plan participants had suffered $300 million in damages.

Acknowledging the difficulty that these types of cases face in court, Jake Zamansky, an attorney representing Roberto Ramirez, a former Penney employee who brought this suit, said, “We're pleased. It's very difficult for any of these cases to even survive and settlements have been few and far between," according to the Morning News.

According to the report, there’s another hearing in May, and distributions are expected to be made this summer. Judge Schroeder certified the class of participants and beneficiaries of Penney’s 401(k) plan from November 2011 to May 2016, as long as their plans included Penney stock.

In Fifth Third Bancorp v. Dudenhoeffer, the U.S. Supreme Court ultimately held that while the fiduciaries of an ESOP have the same duty of prudence and loyalty as the fiduciaries of other retirement plans, and that, absent “special circumstances affecting the reliability of the market price,” allegations that a fiduciary should have recognized the overvaluation of the stock based on publicly available information are “implausible” and that allegations based on non-public information are similarly “problematic.”

Since Fifth Third replaced the previous “presumption of prudence” standard, a number of these so-called “stock drop” cases have been relitigated, but most have resulted in judgments for the defendants, including BP and Delta Air Lines, Lehman and GM. In Dennis Smith v. Delta Airlines Inc., et al., the 11th Circuit noted that, “while Fifth Third may have changed the legal analysis of our prior decision, it does not alter the outcome.”

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