Squitieri & Fearon Blog

Just For Men Investigation:

Squitieri & Fearon, LLP is investigating claims against Just for Men hair dye maker Combe, Inc.

A class action lawsuit was filed on January 25, 2017 accusing Just for Men hair dye maker Combe, Inc., and other Combe companies, of deceptive advertising.  The complaint alleges that Just for Men brand hair dye does not properly warn consumers about its ingredients and the potential side effects of those ingredients, such as chemical burns and severe allergic reactions.

The complaint alleges that “Even if used as directed, [the Just for Men] Defendants failed to adequately warn against the negative effects and risks associated with this product,” such as “burns, scarring, allergic reactions, anaphylactic shock, skin depigmentation, and other severe injuries” associated with prolonged use.

The lawsuit points to the chemical ingredient p-Phenylenediamine (PPD) as especially harmful and states that the U.S. Environmental Protection Agency has linked PPD to “severe dermatitis,” “renal failure,” “vitiligo” (which is loss of skin pigment), and even “convulsions and comas.” The complaint further claims PPD is also considered a “strong sensitizer” by the Consumer Product Safety Commission and was once named “allergen of the year” by the American Contact Dermatitis Society and that “Defendants knew or should have known that more than 5% of the population will have an adverse reaction to PPD, yet, Defendants concealed and withheld this information from the public,” the Just for Men class action asserts.  The class action lawsuit goes on to state that the risk of adverse reaction to PPD is higher for African Americans, up to 10% or 21% based on different studies.

If you or someone you know purchased Just for Men hair dye and suffered chemical burns and/or a severe allergic reaction, you may be eligible to file a suit.  Please contact Stephen J. Fearon, Jr. by e-mail at stephen@sfclasslaw.com or by phone at (212) 421-6492.  You can also complete the following form, and someone from the firm will contact you.


Just For Men

    Any information that you submit will be maintained as confidential. If Squitieri & Fearon, LLP, in its sole discretion, believes that you might be an appropriate lead plaintiff candidate, Squitieri & Fearon, LLP will contact you to discuss the matter and whether to establish an attorney client relationship.

Nissan Exploding Sunroofs Investigation:

Squitieri & Fearon, LLP is investigating claims by people who owned or leased a Nissan that had a sunroof or moon roof unexpectedly shatter. Drivers have reported that the sunroofs in their Nissan vehicles have shattered or exploded under normal driving conditions and sometimes when parked.  There have been hundreds of complaints online and to government agencies about exploding sunroofs.  Consumers who bought or leased the cars paid too much because of this defect and often have incurred out-of-pocket costs to repair the defective sunroofs. The defective models include:

Nissan Rogue (since 2008)

Nissan Maxima (since 2008)

Nissan Murano (since 2009)

Nissan Juke (since 2011)

Squitieri & Fearon, LLP has significant experience prosecuting class actions on behalf of consumers.

If you wish to discuss your rights in connection with the this investigation please contact Stephen J. Fearon, Jr. by e-mail at stephen@sfclasslaw.com or by phone at (212) 421-6492. You can also complete the following form, and someone from the firm will contact you.


Nissan Exploding Sunroofs Investigation

    Any information that you submit will be maintained as confidential. If Squitieri & Fearon, LLP, in its sole discretion, believes that you might be an appropriate lead plaintiff candidate, Squitieri & Fearon, LLP will contact you to discuss the matter and whether to establish an attorney client relationship.

NYC Teachers’ Pension Investigation:

Squitieri & Fearon, LLP is pursuing claims for New York City teachers who have been shortchanged on their pension payments. In particular, the firm is representing teachers who retired but were not credited with their payments in July and August that they earned while teaching during the regular school year.  Teachers earned those payments by teaching during the school year but when  the Retirement Board calculates pensions for retiring teachers  it excludes from the teachers’ “Final Average Salary” the payments that were due in July and August, leading to teachers receiving too little in retirement benefits.

The law firm is investigating claims on behalf of teachers who are receiving retirement benefits that are less than the amount to which they are entitled.

If you retired from the New York City school system, are receiving a pension, and are interested in finding out more about the class action or whether you have a claim for increased retirement benefits, please fill out our online form or contact us by email at stephen@sfclasslaw.com or by phone at (212) 421-6492.

To view a copy of the complaint click HERE

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NYC Teachers' Pension Investigation

    Any information that you submit will be maintained as confidential. If Squitieri & Fearon, LLP, in its sole discretion, believes that you might be an appropriate lead plaintiff candidate, Squitieri & Fearon, LLP will contact you to discuss the matter and whether to establish an attorney client relationship.

1-800 Contacts Investigation:

Squitieri & Fearon, LLP Investigates Claims For People Who Bought Contact Lenses From 1-800-Contacts and Paid Too Much As A Result Of Secret Agreements By The Company

Squitieri & Fearon is investigating claims for people who bought contact lenses from 1-800-Contacts and may have paid too much as a result of secret agreements that the company had with some its rivals.  Those agreements may have resulted in consumers paying increased prices even if the consumers did not realize it.

The law firm is investigating claims on behalf of consumers from across the country who purchased the contact lenses by telephone or on-line through 1-800-Contacts for personal use any time after September 2012.

If you bought contact lenses from 1-800-Contacts and are interested in finding out more about the class action claims,please fill out our online form, or contact stephen@sfclasslaw.com or by phone at (212) 421-6492.


1-800 Contacts

    Any information that you submit will be maintained as confidential. If Squitieri & Fearon, LLP, in its sole discretion, believes that you might be an appropriate lead plaintiff candidate, Squitieri & Fearon, LLP will contact you to discuss the matter and whether to establish an attorney client relationship.

Navient Corporation and Navient Solutions Investigation:

Squitieri & Fearon, LLP is investigating a Potential Class Action Lawsuit Against Navient Corporation and Navient Solutions, Inc. (“Navient”) on behalf of student loan borrowers.

Navient is one of a select group of companies chosen to service student and parent federal loans for the U.S. Department of Education.  Navient also services a large portfolio of private student loans.  Navient is currently the largest student loan servicer in the United States, servicing the loans of more than 12 million borrowers.  Following a corporate reorganization in 2014, Navient was the successor to Sallie Mae Corporation and Navient, LLC.  Navient continued to service the existing loans in the Sallie Mae portfolio while servicing new loans via contracts with the U.S. Department of Education.

We are investigating claims that Navient intentionally engaged in unfair, deceptive and unlawful practices such as creating a system to apply student loan debtors’ partial pre-payments against future interest payments and purported fees rather than reducing a loan’s outstanding principal balance.  As a result of this practice, student loan debtor’s unpaid principal balance increased over time resulting in the student loan debtors paying more in interest over the life of the loan, thereby generating larger revenues and profits for Navient.

If you or someone you know has a student loan serviced by Navient, fits the above criteria, and would like to learn more about our investigation, please fill out our online form, or contact stephen@sfclasslaw.com or by phone at (212) 421-6492.


Navient Corporation and Navient Solutions Investigation

    Any information that you submit will be maintained as confidential. If Squitieri & Fearon, LLP, in its sole discretion, believes that you might be an appropriate lead plaintiff candidate, Squitieri & Fearon, LLP will contact you to discuss the matter and whether to establish an attorney client relationship.

Ocwen Financial Corp Forced-Place Insurance Class Action:

We are pursuing a class action against Ocwen Financial Corp. for its improper force placed insurance practices (sometimes called “lender placed insurance”). Recently the federal judge overseeing the case upheld many of the claims in the case and allowed it to proceed. When a borrower’s homeowner’s, hazard, flood or wind insurance policy lapses, the bank or servicer may “force place” insurance on the borrower.  However, many banks and servicers have turned this into a profit center by placing that insurance through their own affiliates at premiums rates that are significantly higher than market rates.  By doing this, the banks and servicers are able to profit because the higher premiums flow to the banks and servicers through the insurance agents that are affiliated with the banks and servicers.

If you are an Ocwen Financial Corp customer and believe you have been harmed through the bank’s forced place insurance practices, fill out this form, and someone from our firm will contact you shortly.

    Any information that you submit will be maintained as confidential. If Squitieri & Fearon, LLP, in its sole discretion, believes that you might be an appropriate lead plaintiff candidate, Squitieri & Fearon, LLP will contact you to discuss the matter and whether to establish an attorney client relationship.

OxyElite Pro Investigation:

Squitieri & Fearon, LLP is currently investigating claims on behalf of people who took OxyElite Pro and suffered from acute hepatitis, liver failure, or liver damage.  We believe that these individuals may be able to sue the maker of OxyElite Pro, USPlabs LLC, to recover compensation for medical bills, pain and suffering, and other damages stemming from their injuries.

On November 9, 2013, certain OxyElite Pro dietary supplements were recalled due to a risk of potentially life-threatening liver injury.  The products covered by the recall include certain packages of the following weight loss products:

  • OxyElite Pro Super Thermo capsules
  • OxyElite Pro Ultra-Intense Thermo capsules
  • OxyElite Pro Super Thermo Powder
  • Raspberry Lemonade OxyElite Pro Super Thermo Powder

The FDA issued a warning letter on October 11, 2013 to USP Labs LLC of Dallas Texas informing the company that the dietary supplements OxyElite Pro and VERSA-1 are deemed to be adulterated, and that failure to immediately cease distribution of those products may result in enforcement action by the FDA.  The agency warned that some of its OxyElite Pro and VERSA-1 dietary supplements were linked to an outbreak of liver illnesses in Hawaii and that similar injuries were also reported by OxyElite Pro users in other states.

The FDA reviewed 46 records from the Hawaii Department of Health and found that 58% percent of these patients used an OxyElite Pro supplement prior to becoming ill. Approximately 63% of these patients reported that this was the only dietary supplement they were taking at the time.  One patient has died as a result of his illness, while several others will require liver transplants.  According to news reports, Hawaii’s liver transplant center was the first to notice a trend of otherwise healthy patients suffering from severe hepatitis.

If you or a loved one suffered complications after taking  OxyElite Pro, you may be eligible to file a suit.  Please contact Stephen J. Fearon, Jr. by e-mail at stephen@sfclasslaw.com or by phone at (212) 421-6492.  You can also complete the following form, and someone from the firm will contact you.

OxyElite Pro Investigation

    Any information that you submit will be maintained as confidential. If Squitieri & Fearon, LLP, in its sole discretion, believes that you might be an appropriate lead plaintiff candidate, Squitieri & Fearon, LLP will contact you to discuss the matter and whether to establish an attorney client relationship.

Fast Food Restaurant Wage and Hour Investigation:

Squitieri & Fearon, LLP is investigating claims for current or former employees in fast food restaurants who have not been paid minimum wage, have been denied overtime, have not been paid for all hours that the employee worked because their employer required that some of their work be done “off the clock,” or have not been compensated for the costs of purchasing or maintaining their uniforms.

Compensable Time:  Under federal and state wage and hour laws, employers are required to pay their employees for all hours worked, whether or not those hours are properly recorded. Under these laws, a work day begins when an employee starts their first work-related activity, and ends when they finish their last work-related activity of the day. The wage-and-hour laws also require employers to pay non-exempt employees “time-and-a-half” overtime wages when they work over 40-hours in a given workweek. Some employers in the fast food industry attempt to avoid paying their employees for all hours worked and overtime by requiring them to work “off the clock” or by altering employee payroll records.

Uniform Maintenance: Employers that require their employees to wear uniforms may be required to reimburse that employee for the costs of maintaining the uniforms if those uniforms require daily or special laundering due to heavy soiling or usage, or which require ironing, dry-cleaning or patching and repairs due to the nature of the work.

If you are a current or former employee of a fast food restaurant and would like to discuss your rights as they pertain to this investigation, please contact Stephen J. Fearon, Jr. by email at info@sfclasslaw.com or by phone at (212) 421-6492.

Fast Food Wage and Hour Investigation

    Any information that you submit will be maintained as confidential. If Squitieri & Fearon, LLP, in its sole discretion, believes that you might be an appropriate lead plaintiff candidate, Squitieri & Fearon, LLP will contact you to discuss the matter and whether to establish an attorney client relationship.


Lions Gate Entertainment Corp. Investigation:

Squitieri & Fearon, LLP is investigating claims for shareholders of Lions Gate Entertainment Corp. (NYSE:LGF) , which has admitted that it violated securities regulations in 2010 when it defeated a hostile takeover attempt by Carl Icahn.   Lionsgate has agreed to pay a $7.5 million fine to the SEC.  The firm is pursuing allegations for shareholders that certain directors of Lionsgate, including Mark Rachesky, violated their duties and violated the law by failing to inform the company’s shareholders that a tender offer was being made of Lionsgate shares while the company was fighting a proxy battle.  As part of an improper effort to defeat Carl Icahn’s takeover offer and profit at the expense of the company and its shareholders, Lions Gate e swapped $100 million in notes that it owed to Kornitzer Capital management and obtained notes that could be converted into stock.  One of Lionsgate’s directors, Mark Rachesky, then immediately bought the notes for $6.20 a share and converted them into common stock, diluting Mr. Icahn’s stake in Lions Gate (and diluting the shares held by stockholders), making it impossible for Icahn to buy the outstanding shares of Lionsgate, and depriving the company’s shareholders of a premium for their shares.  The transaction created significant profit for Mr. Rachesky at the expense of Lionsgate shareholders.

The firm is pursuing claims for shareholders of Lionsgate who held their stock any time between 2010 and 2014.  If you suffered  losses as a result of the activities described above, please contact Stephen Fearon Jr. by e-mail at stephen@sfclasslaw.com or by phone at (212) 421-6492.  You can also complete the following form, and someone from the firm will contact you.


Certification Pursuant to Federal Securities Laws - Lions Gate Entertainment Corp. (NYSE:LGF)

1. I make this declaration pursuant to Section 21D(a)(2) Iof the Securities Exchange Act of 1934 and Section 27(a)(2) of the Securities Act of 1933, as amended by the Private Securities Litigation Reform Act of 1995.

2. I have reviewed the Complaint and authorized its filing by Squitieri & Fearon, LLP as well as the filing of a motion on my behalf for appointment as lead plaintiff.

3. I did not purchase the security that is the subject of this action at the direction of plaintiff’s counsel or in order to participate in any private action arising under the Securities Exchange Act of 1934 or the Securities Act of 1933.

4. I am willing to serve as a representative party on behalf of a Class, including providing testimony at deposition and trial, if necessary.

5. To the best of my knowledge, the attached sheet lists all of my transactions during the Class Period in the securities that are the subject of this action.

6. During the last three years, I have not sought to serve as a representative party on behalf of a class under the federal securities laws.

7. I will not accept any payment for serving as a representative party on behalf of the class as set forth in the Complaint, beyond my pro rata share of any recovery, except such reasonable costs and expenses directly relating to the representation of the class as ordered or approved by the Court.

8. I declare under penalty of perjury that the foregoing is true and correct.
  • If seeking lead status on behalf of an institutional investor.
  • DatePurchase or SaleNumberPrice 
    Add a row
    Please enter details of at least one transaction relevant to your claim. Press the "+" button to add additional transactions.
    Any information that you submit will be maintained as confidential. If Squitieri & Fearon, LLP, in its sole discretion, believes that you might be an appropriate lead plaintiff candidate, Squitieri & Fearon, LLP will contact you to discuss the matter and whether to establish an attorney client relationship.

Supreme Court Reverses Class Certification in Wal-Mart Discrimination Case:

The Supreme Court has reversed class certification in the huge Wal-Mart discrimination case.  Here is a copy of the decision.

There is no doubt that this is the most important decision from the Supreme Court about class certification in some time and that defendants’ counsel will use it to argue against class certification in many current and future cases.  more »

Tennessee Federal Court Certifies Class in First Horizon ERISA Action:

The Western District of Tennessee recently certified the First Horizon ERISA case as a class action on behalf of participants in the First Horizon Corporation Savings Plan.  The decision is important because in it the court rejects many of the arguments that defendants typically make in this type of ERISA case when opposing class certification. more »

Supreme Court ERISA Decision in Cigna v. Amara:

On May 16, 2011 the Supreme Court decided Cigna v. Amara, an ERISA case that was brought by participants in a Cigna retirement plan who alleged that changes to the retirement plan deprived them of benefits and that the fiduciaries did not provide proper notice about the changes.  The Supreme Court made a number of findings that will be cited often by both plaintiffs and defendants in future ERISA. more »

Supreme Court Holds that Securities Plaintiffs Do Not Have To Prove Loss Causation For Class Certification:

The Supreme Court (Erica P. John Fund v. Halliburton) reversed the Fifth Circuit’s denial of class certification in a securities case.  The Supreme Court held that securities fraud plaintiffs are not required to prove loss causation at the class certification stage. more »

Seventh Circuit Finds that Plan Cannot Participate in Motorola ERISA Class Action:

The Seventh Circuit in the Motorola securities case found that the retirement plan could not submit a claim for settlement benefits in the securities case because the settlement agreement there excluded “affiliates” of Motorola from the class.  more »

Illinois Federal Court Certifies Class in Tribune Going-Private ERISA Case:

Illinois Federal Court Certifies Class in Tribune Going-Private ERISA Case

I.          Introduction and Procedural Background

In Neil v. Zell, No. 08-C-6833 (N.D. Ill. Mar.4, 2011), the District Court for the Northern District of Illinois, Eastern Division certified an ERISA action alleging breach of fiduciary duty stemming from the leveraged buyout of the Tribune Company by the Employee Stock Ownership Plan (“ESOP”) of which the plaintiffs were participants.  Most notably, in granting the plaintiffs’ motion, Judge Pallmeyer rejected the defendants’ objections with regard to typicality and adequacy under Rule 23(a), distinguishing the recent Seventh Circuit decision in Spano v. Boeing, ___ F.3d ___, 2011 WL 183974, at *8 (7th Cir. Jan. 21, 2011), which had reversed certification of an overbroad class.

The plaintiffs’ claims arose out of a leveraged buyout that transformed the Tribune Company from a publicly-held corporation into an employee-owned company through the creation of an Employee Stock Ownership Plan (“ESOP”) and the ESOP’s purchase of the Tribune Company.  Months after going private, the Tribune Company declared bankruptcy, rendering the stock held by ESOP participants worthless.

This decision follows the district court’s November 2010 grant of summary judgment in favor of the plaintiffs on their claim that GreatBanc breached its fiduciary duty in approving the ESOP’s purchase of $250 million worth of Tribune Company stock because that stock did not meet the Tax Code’s definition of “qualifying employer security” as required by ERISA.  See ERISA § 406(a)(1)(E), 29 U.S.C. § 1106(a)(1)(E); Neil v. Zell, No. 08 C 6833, ___ F. Supp. 2d ___, 2010 WL 4670895, at *9 (N.D. Ill. Nov. 9, 2010).

The plaintiffs proposed a class consisting of “[a]ll individuals who are, or at any time on or after the 2007 Leveraged ESOP Transaction, were (1) participants in the Tribune ESOP who received or were entitled to receive an allocation to their ESOP Stock Account and/or ESOP Cash Account; or (2) beneficiaries of such participants.”  Neil, at *3.  The class would exclude “[the d]efendants and their affiliates”.  Id.

II.        Certification Under Rule 23(a)

A.        Numerosity

First, the court found that the plaintiffs’ allegation that the plan contained 11,000 participants was enough to satisfy numerosity under Rule 23, notwithstanding the defendants’ contention that roughly 4,000 of these participants signed releases waiving ERISA claims.  Id. at *4.

B.        Commonality

The Court also found commonality easily satisfied where the “allegations against Defendants arise from the exact same common nucleus of operative facts, without factual variations between class members, and the legal claims are identical for all class members.”  Id. (internal quotations omitted).

C.        Typicality

The Court held that typicality was satisfied, and in doing so distinguished the Seventh Circuit’s recent decision in Spano v. Boeing, 2011 WL 183974, at *8, demonstrating that decision’s limited application to ERISA class actions.  In Spano, the Seventh Circuit de-certified an excessively broad class that did not require members to hold the stock of the company at issue.  The plaintiffs in Spano were therefore not typical of the class because they did not necessarily have the same investments as all class members.  However, in Neil, “there [was] no dispute […] that Neil and Bailey held the same investment as did all other members of the Tribune ESOP–the ESOP invested only in Tribune Company stock.”  Neil, at *5.

The Court also quickly disposed of defendant GreatBanc’s objection regarding releases signed by class members.  The court stated that “[a] finding that the named plaintiffs have signed a release can defeat typicality,” but because the class representatives had not signed releases, the effect of any release—were it found to be effective at all—would only “serve to whittle down the class, […] not defeat the named representatives’ typicality.”  Id. at *5.

D.        Adequacy

The Neil court rejected the defendants’ numerous challenges to the adequacy of the class representatives.

Defendant GreatBanc contented that the plaintiffs were motivated by concern for the welfare of the Los Angeles Times—a subdivision of the Tribune—and the destruction of the traditional print industry, as well as personal animosity to one of the defendants.  Id. at **8-9.  The court disregarded arguments as to the plaintiffs’ “regional bias” towards the Los Angeles Times, noting that there was “no way this action could be prosecuted solely for the benefit of Los Angeles-based USOP participants without benefitting all Tribune Company ESOP participants.”  Id.  The court concluded that the defendants’ evidence showing that plaintiff Neil sent a profanity-ridden email to the editorial staff of the Los Angeles Times directed at defendant Zell failed to establish “the type of animus or vindictiveness that would render [the plaintiffs] inadequate class representatives.”  Id. at *9.  The court held that the plaintiffs refuted allegations that they were placing personal animus over concerns for the class, noting that passionate language regarding the newspaper industry could be expected from the plaintiffs, each of whom had lengthy, distinguished careers as professional journalists.  Id. at **9-10.  The court noted that the plaintiffs’ zeal and efforts in prosecution of the case weighed in favor of a finding of adequacy.

Additionally, the Court stated that concerns of personal animus were additionally outweighed by the fact that defendant Zell was not liable for damages—only injunctive relief—resulting from the plaintiffs’ claims and that defendant Zell did not intend to continue with the Tribune Company when it emerged from bankruptcy.  Id. at *10.

However, the court held that plaintiff Bailey’s alleged lack of sophistication in a complex ERISA action was not grounds to deny certification.  Id. at **10-11.

Finally, the defendants argued that because some participants in the ESOP received a premium of $34 per share upon the creation of the ESOP, these class members allegedly benefitted from defendants’ conduct, barring recovery in this class action.  In response, the Neil court cited the recent opinion in In re Evanston Northwestern Healthcare Corp. Antitrust Litig., 268 F.R.D. 56 (N.D. Ill. 2010), which required that a defendant demonstrate that a conflict existed between members of the proposed class:

[In Evanston Northwestern, c]lass certification was appropriate because “[u]nlike Bieneman [v. City of Chicago, 864 F.2d 463, 464-65 (7th Cir. 1988)], where some putative class members ‘undoubtedly’ benefited from the alleged wrongful conduct such that they likely would have opposed the class action, here, the court is not convinced that class members who received services of increased quality due to the merger would oppose the instant action.”  Evanston Northwestern, 268 F.R.D. at 64.  The Evanston Northwestern court’s observation brings GreatBanc’s argument into relief–the question is not whether some might have benefitted from parts of the occurrence now being challenged, but whether, going forward, some members of the Plaintiff class would be harmed by the relief being sought.

Neil, at **13-14.

Applying such reasoning, the Neil court found that adequacy was satisfied because “while ESOP participants did unquestionably benefit from the sale of their shares, many, if not all, have since suffered because of the economic troubles afflicting the Tribune Company.”  Id. at *12.  The court continued:

[a]t the time the ESOP was established, some class members who had been Tribune shareholders may indeed have received a premium over the market price for their shares. In the court’s view, that premium does not create a conflict fatal to class certification. There are no members of the proposed class who would, for any reason, prefer that Defendants not pay damages.

Id., at *15.

III.       Certification Under Rule 23(b)

The Court held that class certification was appropriate under 23(b)(1)(A) and (B) because the plaintiffs sought equitable relief and because the claims at issue—breach of fiduciary duty and engaging in a prohibited transaction—must be brought in a representative capacity on behalf of the plan.  Id. at **18-19.

The Court also held that certification was appropriate under Rule 23(b)(2) because of the equitable relief sought and because the incidental damages sought “can be calculated mechanically as in [In re Allstate Ins. Co., 400 F.3d 505 (7th Cir. 2005) (damages sought were “incidental” because “the computation of damages is mechanical, without the need for individual calculation” and individual damages suit would therefore “be a waste of resources”)] and [Berger v. Xerox Corp. Retirement Income Guarantee, 338 F.3d 755 (7th Cir. 2003) (non-opt-out 23(b)(2) class was appropriate because individual plaintiffs had no reason to maintain individual suits once an alleged benefit underpayment had been established)].”  Id. at 20.

Having held that certification under Rules 23(b)(1) and Rule 23(b)(2) was appropriate, the Neil court declined to certify the class pursuant to 23(b)(3), notwithstanding its finding that “no individualized determinations will need to be made in this case.”  Id. at *21.

Neil et al v Samuel Zell, GreatBanc Trust

Maryland District Court Allows Most ERISA Claims to Proceed Against Coventry:

On March 31, 2011 Judge Williams in the District of Maryland allowed most claims to proceed in a proposed class action brought by participants in the Coventry 401(k) plan who held company stock as one of their retirement investments.  The plaintiffs alleged that their retirement plans lost value when the company experienced massive delays processing claims form one of Coventry’s new business initiatives, the PFFS program.

In assessing the ERISA complaint, the court found that Rule 8 applies, not the higher pleading standard of securities fraud claims.

The court found that dismissal would be inappropriate at this early stage of the case because the plaintiffs had alleged that it was not mandatory for the plan to offer company stock as a retirement investment. The plaintiffs alleged that “nothing in the Plan documents prevented the fiduciaries from taking corrective action to prevent erosion of the Plan assets stemming for the Plan holdings of Coventry Stock during the Class Period.” (page 8 of 14).  As a result, the Court found that “factual development of the record is necessary for just determination of this claim.”  (page 8 of 14).

The court had sustained similar claims in a securities class action and found that in light of its findings in the securities case, there was sufficient evidence for purposes of the motion to dismiss in the ERISA case to allow the claims to proceed that defendants’ public statements were materially misleading.

The court, however, dismissed the plaintiffs’ “conflict-of-interest” claims.  The plaintiffs had alleged that some of the insiders sold $14 million of stock.  But the problem for plaintiffs was that the sales came before the defendants would have known about the problems at the company.  The court found, for example, that the defendants would have first known about the company’s problems by April 2008 but all of their insider sales came before that time.  There were no significant insider sales after April 2008.  As a result, the judge dismissed the conflict-of-interest claims.

The court concluded by rejecting the defendants’ restrictive view of “fiduciary” under ERISA and said that ERISA defines “fiduciary” broadly.

Maryland District Court Allows Most ERISA Claims to Proceed Against Coventry

Judge Sullivan Sounds The Death Knell for Another ERISA Class Action:

Judge Sullivan in the Southern District of New York dismissed the ERISA class action brought by participants in two UBS retirement plans after the stock dropped 69% from $56.02 per share to $17.33 per share.  In re UBS AG ERISA Litigation, No. 08-civ- 6696 (RJS).  The judge followed his reasoning in two earlier, unrelated  ERISA class actions (Wyeth and McGraw Hill) in which he also dismissed ERISA imprudence claims.  As he has done before, Judge Sullivan applied a presumption of prudence to the plaintiffs’ claims and found that the plaintiffs did not overcome that presumption.  He also followed the reasoning of the courts in Citigroup, Lehman and Bear Stearns , each of which dismissed ERISA class actions brought by participants in each company’s retirement plans after the stock collapsed.

In UBS, Judge Sullivan found that one of the plans made it mandatory for the fiduciaries to offer company stock as an investment option because the plan language said that one of the Investment Funds in the plan “shall be the [UBS] Common Stock Fund.”  For the other plan, the judge noted that although the plan’s language wasn’t actually mandatory, other documents “strongly suggest[ed] that the settlor intended the UBS Stock Fund to be one of the funds available to plan members.” (page 7).  As a result, the court applied the presumption of prudence to both plans.

The court applied a very high threshold for the plaintiffs to meet, finding that to overcome the presumption, the plaintiff  must allege “persuasive and analytically rigorous facts demonstrating that reasonable fiduciaries would have considered themselves bound to divest.”  (page 9 applying the standard from Bear Stearns).  It found that the plaintiffs’ allegations “do not rise to the level of catastrophic failure necessary to overcome the presumption of prudence.”  (page 11)   Although UBS had taken a $42 billion write-down and needed a $60 billion bailout from the Swiss government, and its stock fell 69%, the court found that “UBS never reached the brink of imminent collapse[and] there remained a possibility that the value of UBS stock would rebound.”  (page 11).

Relying on his McGraw Hill decision, Judge Sullivan also found that an ERISA fiduciary who incorporates SEC filings into plan documents will not violate ERISA unless the fiduciary intentionally connects the content of those SEC filings to statements about plan benefits.  Page 13).   He also said that if any defendant violated the securities laws, the defendant would be liable to the plaintiffs under the securities laws.

Supreme Court Allows Securities Claims By Matrixx Investors:

In a unanimous decision favoring plaintiffs in a securities class action, the U.S. Supreme Court held that investors had properly alleged the materiality of false statements by Defendants.  Matrixx Initiatives v. Siracusano, No. 09-1156 (March 22, 2011).

The case was brought by investors in Matrixx, a company that obtained 70% of its revenue from the Zicam cold product line.  The Company’s stock price dropped from $13 to $9 when the market began to learn that there had been reports associating Zicam with loss of smell in people who used the product.  The Plaintiffs alleged that while Matrixx was making positive statements about the Company’s financial results, the officers of the Company had reports from physicians and others alerting them to a possible association between the product and loss of smell.

Defendants moved to dismiss the complaint, arguing that the Defendants were not obligated under the securities laws to disclose what Defendants described as anecdotal and isolated reports.  They argued that Defendants had no duty to disclose this information until the reports were statistically significant.

The Supreme Court unanimously rejected this type of bright-line approach and relied upon the test for materiality articulated in Basic v. Levinson.  The Court noted that statistical significance is not the only reliable indication of causation and that statistically significant data are not always available.  Instead, the Court noted that regulatory agencies (including the FDA) often rely on evidence other than statistically significant evidence in order to establish causation.  “Medical professionals and researchers do not limit the data they consider to the results of randomized clinical trials or to statistically significant evidence.”  (Page 13).  “Assessing the materiality of adverse event reports is a fact-specific inquiry that requires consideration of the source, content and context of the reports.”  (page 15).

According to the Court and to Basic, the question is whether a reasonable investor would have viewed the nondisclosed information as having significantly altered the total mix of information.  (page 15).  Applying these standards, the Court held that the Plaintiffs had alleged materiality for purposes of the federal securities laws.

It stressed that the information about adverse reports was material because Zicam accounted for 70% of Matrixx’s sales.  (page 18).

The Court also addressed the Plaintiffs’ scienter allegations and noted that the Court has not decided whether recklessness suffices to fulfill the scienter requirement.  (page 20.  It left that issue for another day but found that Plaintiffs had properly alleged Defendants’ scienter for some of the same reasons that they properly alleged materiality.

The Court once again rejected Defendants’ suggestion of a bright-line rule requiring an allegation of statistical significance to establish scienter.  Instead it looked at the scienter allegations collectively and found that they gave rise to a cogent and compelling inference of scienter.

Supreme Court Allows Securities Claims By Matrixx Investors

Seventh Circuit Allows Equitable ERISA Claim Against Administrator Of Health Insurance Plan:

In Smith v. Medical Benefit Administrators Group, the Seventh Circuit rejected a claim for damages but allowed claims for equitable relief under ERISA against the administrator of a health insurance plan.  The case arose when the administrator of the health plan preauthorized a participant’s gastric bypass surgery and then turned around and denied his claim for benefits after he had the surgery.  The administrator claimed that the health plan excluded this type of surgery.

The Seventh Circuit rejected the participant’s individual claims under ERISA for monetary damages in which he sought to have the plan reimburse him for the cost of the surgery.  Although the Court found that the administrator’s actions “might constitute a breach of [its] duty,” it found that the plaintiff could not obtain the monetary relief it sought under ERISA because he sought relief only for himself, not for the plan. (page 10).  Section 502(a)(3) permits only injunctive and equitable relief.  It does not provide for monetary relief.  The Court, however, allowed the plaintiff to seeks equitable relief – - specifically, a determination that the administrator’s method of handling preauthorizations did not comply with the governing regulations or misled the insured into believing that preauthorization constitutes a determination that the claim will be paid.  But the Court also cautioned that even this equitable claim may fail if the administrator told the participant certain information when it preauthorized the surgery.

Medical Benefit Administrators _ 7th Circuit

Maryland Federal Court Denies Motion To Dismiss Marriott ERISA Claims:

Judge Roger Titus of Maryland recently allowed most of the ERISA plaintiffs’ claims to proceed in the Marriott ERISA case.  England v. Marriott, Case No.: RWT 10-CV-1256 (D. Maryland, Feb. 14, 2011).  The case was brought by former employees of Marriott who had received stock awards (called “Retirement Awards”) during their employment that were supposed to provide them with shares of company stock when they turned 65, retired early, became disabled or died.  However, Marriott never honored its obligations.

When the Plaintiffs sued years later, the Defendants moved to dismiss, arguing that Plaintiffs waited too long to sue, failed to exhaust administrative remedies, and could not bring claims for both equitable relief and legal relief.  Defendants also argued that the Court should dismiss the Plaintiffs’ alternative claim for breach of contract.  The Court rejected each of these arguments, starting with Defendants’ statute of limitation defense.  The Court found that the statute did not begin to run until the Plaintiffs were alerted to the fact that they might have ERISA claims and the judge rejected Defendants’ argument as attempting to “impose an unfair duty of clairvoyance on employees” to ferret out potential ERISA claims.  (page 17).  There were no “red flags” that should have alerted Plaintiffs that they had claims.

The Court also flatly rejected Defendants’ argument that Plaintiffs should have exhausted the Plan’s administrative remedies before bringing their claims.  What made the most difference to the Court was the fact that the Defendants did not create the administrative review procedure until after the Plaintiffs had filed their suit.  “There simply was no claims procedure to exhaust at the time Plaintiffs filed the instant suit.”  (page 28).  The Court also suggested that Defendants should not be able to use the administrative review process “to wear out employees with after-the-fact diversions and detours”.)  (page 23).

On the issue of Plaintiffs claims for equitable relief, the Court found that “[w]here plaintiffs are not merely repackaging a benefits claims, it is entirely appropriate to bring simultaneous § 502(a)(3) and § 502(a)(1)(B) claims to address two separate and distinct injuries that are based in whole or in part on different facts.”  (page 30).

It also found that it would be premature to dismiss Plaintiffs’ breach of contract claims at this point.  The Court noted that the Plaintiffs pled the contract claim in the alternative so that if ERISA did not apply to the Plan, they could proceed with the ERISA claim.  If the Court eventually decides that ERISA applies, then the defendant could move to dismiss it but the motion was premature.

Maryland Federal Court Denies Motion To Dismiss Marriott ERISA Claims

8th Circuit Rejects Objectors Appeal of Derivative Settlement Where Objection Was Untimely:

The Eighth Circuit has rejected the appeal of an objector to the United Health derivative settlement, finding that the objector had filed his objection too late in the district court and that, as a result, he lacked standing to appeal the district’s court order approving the proposed settlement.

The decision arises from the largest derivative action settlement in the United States in which the district court awarded $29 million in fees and $514,000 in expenses to the plaintiffs’ lawyers.  Included in the expenses was an award for $175,000 of computer research costs such as Lexis and Westlaw.

One of the shareholders in the company filed an objection to the fee request one day before the final approval hearing, missing the Court-ordered deadline by a few weeks.  Among other things, he indicated that the plaintiffs’ request for attorneys’ fees was too high and that the Court should not reimburse the plaintiffs for their computer research expenses.  The District Court refused to consider the objection, finding that it was untimely.

On appeal the objector argued that the plaintiffs did not file their detailed fee and expense application until after the deadline for objections had expired and that the district court should have considered his objection.  This is similar to the situation in Mercury Interactive in which the Ninth Circuit found that the date to object to a proposed settlement should come after plaintiffs file their fee and expense application.  The Ninth Circuit reasoned that otherwise, if the date to object was before the date when plaintiffs would file their fee request, the objector would lack information needed in order to properly assess the application for fees and expenses.

The Eight Circuit, however, took a much different approach and found that the objector lacked standing to appeal because his underlying objection was untimely.  “We hold – - at a minimum – - a shareholder must file a timely and proper objection with the district court before appealing a settlement agreement.”  (page 6).  It also said that the objector had cited no authority for his argument that it was unfair to require him to object before seeing the fee and expense application (page 7).  From this it appears that perhaps the objector failed to cite the 9th Circuit’s Mercury Interactive decision to support his appeal.

The Eighth Circuit also deferred deciding whether a shareholder who is not a named plaintiff in a derivative action must formally intervene in order to appeal the settlement of that derivative suit.  Moreover, the Court found that even if the objector had filed a timely objection, the district court acted properly by approving the computer research expenses.

8th Circuit Rejects Objectors Appeal of Derivative Settlement Where Objection Was Untimely

Court Certifies Class In Macy’s ERISA Action:

Macy’s_Opinion_Court Certifies Class in Macy’s ERISA Action

The Southern District of Ohio certified a class of participants in the Macy’s 401(k) plan whose accounts held Macy’s stock.  The Court’s decision rejects each of the arguments that the Defendants raised including the argument that:

●          each individual class member’s reliance on misrepresentations destroys typicality;

●          the 404(c) defense destroys typicality;

●          thousands of class members signed releases; and

●          determining whether Macy’s stock was “too risky” for a participant would require individual determinations.

In certifying the class, the Court stressed that the ERISA claims really are brought for the Plans and not individually.  The focus should be on Defendants’ conduct, not on the individual participant’s investment decision.

“Variations in individual investment patterns do not defeat typicality.”  The Court rejected the Defendants’ “modern portfolio theory” (page 10) as well as their attempt to use ERISA Section 404(c) to defeat class certification (page 11).  It also found that class certification was appropriate even if many class members signed releases.  That argument is more appropriately addressed at a later stage of the case, including possibly using a subclass for participants who signed a release.

The Court also rejected the opines offered by Defendants’ expert (Dr. Turki) suggesting that intra-class conflicts prevented class certification.  (page 14).  Plaintiffs responded with their own expert and the judge suggested that Defendants’ approach, if accepted, “would effectively eliminate all ERISA fiduciary breach of duty class actions.” (page 15.)  The judge called Defendants’ argument a “red herring” and suggested that it was natural and the “nature of the beast” that Plaintiffs’ attorneys in class actions would have to stress certain dates during the Class Period.  That doesn’t rise to the level of an intra-class conflict.  “Plaintiffs’ counsel is perfectly free to advocate for whatever is best for the Plans.” (page 15).  It is then up to the Court to determine whether Defendants breached their duties irrespective of the “preferred” or “optimal” breach dates. (page 15).

The Judge also rejected the Defendants’ challenges to the proposed Plaintiffs serving as class representatives.  One plaintiff had a loss under the alternative investment theory which was good enough for him to continue as a class representative.  (page 17).  Another plaintiff was the cousin-in-law of a non-lead plaintiff’s counsel but there was no reason to reject him.  Another plaintiff may not have known as much detail bout the case as his lawyers knew but he had enough knowledge to serve as a representative because he understood the nature of the claims and the issues involved. (page 17).

Finally, the Court found that a release did not preclude class certification because the release contained an “ERISA-carve out”.

S&F Files Class Action Lawsuit Against CVS on Behalf of Store Managers for Overtime:

S&F represents Franco Taibi who filed a class action lawsuit against CVS, and other entity defendants, for overtime violations in its stores throughout New York State.  The suit, which was filed in New York federal court, alleges that the drug store chain has engaged in a pattern and practice of denying overtime to its store managers by improperly categorizing them as exempt from the overtime requirements of the Fair Labor Standards Act and New York State Labor Laws. Specifically, Plaintiff’s complaint alleges that store managers are not truly “salaried” employees because CVS has a policy and practice of deducting their wages for partial and full day absences.  Click here to view the Complaint. To provide information or to receive further information about this case please contact lee@sfclasslaw.com or caitlin@sfclasslaw.com.

Court Upholds ERISA Class Action Claims Involving Clemens Markets Retirement Savings and Profit Sharing Plan:

The Eastern District of Pennsylvania upheld most of the ERISA claims brought by a former employee of defunct supermarket chain Clemens Markets.  The decision is here.

The plaintiff was a former employee of the company who claimed that he lost money by holding the company’s stock in the plan while the value of that stock declined significantly.  He asserted that the fiduciaries of the plan failed to sell the company’s real estate holdings when the prices for those properties were more favorable.  As the real estate prices dropped, so too did the value of the company’s stock in the plan.

The judge dismissed the plaintiff’s claims against the Plan itself because the Plan is not a person who is a fiduciary under ERISA.  It also dismissed  some of the claims under ERISA section 1132(a)(3) because they asserted claims for monetary damages and the Supreme Court has limited this provision only to claims seeking “appropriate equitable relief.”

However, the court allowed plaintiff to proceed with his “prudent management”, “misrepresentation” and monitoring claims.  Judge Schiller  rejected the defendants’ attempt to avoid liability by arguing that the plan required them to offer company stock.  To support their arguments, the fiduciaries claimed that they had no discretion because the Trust Agreement/Funding Policy required them to offer company stock as a plan investment.  That language provided that “Trust A holds the assets invested in the Clemens …Stock Fund” but the district court found that this language was descriptive and did not require defendants to continue investing in company stock.  It also rejected defendants’ attempt to hide behind the Moench presumption because the court found that the plan language was unclear and discovery was needed in order to assess whether the  Moench presumption should apply.

The court also allowed the plaintiff to proceed with his claims that defendants misrepresented material facts and that they had breached their monitoring duties under ERISA.

Judge Schiltz Applies the Moench Presumption and Dismisses Medtronics ERISA Complaint in District of Minnesota:

On January 5, 2011 Judge Patrick Schiltz of the District of Minnesota dismissed the ERISA plaintiffs’ third amended complaint in a class action against Medtronic and the fiduciaries of the Medtronic, Inc. Savings and Investment Plan. The claims arose when the stock of Medtronic fell 19% and then another 16% after the market learned about problems with the company’s Fidelis defibrillators and problems with the company’s bone-graft product. The stock declined from $56 to $45 per share and later declined from $34 to $29 per share.

The judge dismissed the ERISA complaint and rejected the plaintiffs’ request for a fourth bite at the apple. Applying the Moench presumption, the judge found that the plaintiffs could not meet their pleading burden by showing that Medtronic stock was so risky that no prudent fiduciary would invest any plan assets in the company’s stock. In fact, the judge found that the Plaintiffs’ complaint came “nowhere near” the types of allegations that are necessary to survive a motion to dismiss. (page 7).

The decision is also noteworthy for two other reasons.

First, the judge found that the plaintiffs failed to allege that they relied on defendants’ misstatements. It rejected plaintiffs’ argument that the court should presume that plaintiffs relied on defendants’ misstatements. “[P]laintiffs do not even allege that they read the alleged misrepresentations, much less that they relied on those misrepresentations. The Court cannot fathom — and plaintiffs cannot explain — how a loss could have ‘resulted from’ a misrepresentation made to a Plan participant unless that participant read and relied on the misrepresentation. ” (page 10). It rejected the plaintiff’s argument that they were not required to allege their own reliance because the claims were brought for the plan.

Second, the court accepts defendants’ argument that the plaintiffs’ claims really arise under the securities laws instead of under ERISA. (page s 14 -15). “The Court concludes that ERISA and the securities laws should be confined to their respective spheres … [E]mployee-investors who believe that material information has been unlawfully withheld must, like every other member of the investing public, seek redress under the securities laws.” (page 16). It seems to me that the judge got this issue wrong. Putting aside Moench and the other issues that the court addresses in the Opinion, ERISA protects participants in a retirement plan and they should be able to seek relief under ERISA for conduct that violates that law. The same conduct may violate different laws but there is nothing in either the securities laws or ERISA which requires a participant to forego bringing ERISA claims and instead bring claims pursuant to the securities laws. This is particularly true because, as we’ve explained in other entries, ERISA provides participants with claims and protections that the securities laws do not provide, such as protecting participants who hold the stock instead of only protecting participants who buy the stock.

Ambac SIP Participants May Pursue Claims That Ambac Stock was an Imprudent Retirement Investment in the SIP:

Judge Baer in the Southern District of New York recently denied a request to dismiss an ERISA class action brought by participants in the Ambac Financial Group Savings Incentive Plan.

The participants alleged that the fiduciaries of the Ambac SIP should not have offered the company stock as a retirement investment under the plan and that the participants lost significant amounts of their retirement savings when Ambac’s stock collapsed as the truth about the company’s problems became public.  The participants brought their claims pursuant to the Employee Retirement Income Security Act (“ERISA”).

The judge rejected the notion that the plan’s language required the fiduciaries to offer Ambac stock as a plan investment option.

“In the absence of guidance from the Second Circuit, in my view the better-reasoned decisions are those that conclude that plan managers may not blindly follow plan documents in contravention of the mandates of ERISA and at the same time satisfy their fiduciary obligations,” the judge said.  He also said that the defendants had failed to point to plan language that explicitly removed their discretionary authority or immunized them from liability.

As the company’s financial problems were revealed Ambac’s stock declined from $96 per share to roughly $1 per share.

The judge also rejected defendants’ attempt to dismiss the monitoring claims.

Judge Grants Parties’ Leave to Appeal in In re Suntrust:

On January 3, 2011, Judge Richard Story (N.D. Georgia) granted defendant’s motion seeking an interlocutory appeal of his earlier order denying in part defendants’ motion to dismiss the complaint in In re Suntrust Banks, Inc. ERISA Litig.  Judge Story has also granted plaintiffs leave to appeal of his earlier order insofar as it dismissed one of plaintiffs’ claims.

Judge Denies Motion to Dismiss in Ambac ERISA Action:

On January 6, 2011, Judge Harold Baer denied defendants’ motion to dismiss the class action complaint in Veera v. Ambac Plan Administrative Committee, et al.. Judge Baer ruled that Plaintiffs met their burden in pleading that the fiduciaries of the Ambac Savings Investment Plan (“Plan”) breached their duty of prudence by continuing to offer Ambac stock as an investment option to plan participants even as Ambac was hurtling toward bankruptcy. more »

Fifth Circuit Reverses Class Settlement in Katrina Litigation:

The Fifth Circuit reversed the district court’s approval of a $21 million settlement in In re: Katrina Canal Breaches Litig. in a decision will have lasting implications for parties seeking to settle claims using the non-opt out provision of Rule 23(b)(1) (B).

In this case, the parties had settled other claims relating to Hurricane Katrina and were attempting to use a non-opt-out settlement to resolve the remaining claims.  The appellate court rejected the settlement because the proponents of the proposed settlement did not demonstrate that it was “fair, reasonable and adequate … because there has been no demonstration on the record below that the settlement will benefit the class in any way.”   The parties had not sufficiently explained how much of the settlement would be left once all of the associated fees and expenses were paid.

The appeals court criticized the parties’ silence on how much each class member will get from the settlement.  “The class members in this case suffered a wide variety of injuries, ranging from property damage to personal injury and death, and no method is specified for how these different claimants will be treated vis-à-vis each other.”   The court said that a mandatory (non-opt-out) settlement must treat class members fairly.  Here the parties proposed that a special master would have discretion to prepare a plan for distributing the funds but the Fifth Circuit called that a “punt” that offered no assurance to the court about how much would be distributed or how it would be distributed.

The Court also criticized the settlement because the notice about it was misleading.  One problem with the notice was that although it represented that the plaintiffs’ attorneys would not receive attorneys fees, the settlement agreement allowed the attorneys to apply for an award of “enhanced costs,” which really is just another way of saying attorneys’ fees.  The court was troubled that the attorneys could not represent how much the enhanced costs would be.

“At the certification and fairness hearing, class counsel could not provide any estimate of the costs incurred thus far, other than to admit that litigation had been ‘expensive.’”  In rejecting the settlement, the court noted that the expense reimbursement as well as other administrative costs could swallow up the entire settlement fund,  ”We hold that the district court erred by approving the settlement without any assurance that attorneys’ costs and administrative costs will not cannibalize the entire $21 million settlement.”

Defendants Motion to Dismiss denied in In re Suntrust Banks, Inc. ERISA Litig.:

On October 25, 2010, Judge Richard Story (N.D. Georgia) issued an Order partially denying defendants’ Motion to Dismiss in  In re Suntrust Banks, Inc. ERISA Litig. in which the judge allows some of the claims to proceed.  The Court found that the complaint “adequately pleads the remaining defendants knew of the company’s problems and improper practices, but failed to take any effort to remedy existing breaches of fiduciary duty under ERISA.”

On November 5, 2010, Defendants filed a 1292 motion seeking to appeal the order.

Derivative Settlement Cannot Release Executives of Liability under Sarbanes-Oxley:

On December 30, 2010, the Second Circuit issued a ruling in In re DHB Industries, Inc., Derivative Litig., reversing the district court’s approval of a derivative settlement which had a provision that would release the company’s CEO and CFO from liability under Sarbanes-Oxley § 304 and indemnified them against all liability.  The Department of Justice and Securities and Exchange Commission (“SEC”) had objected to the settlement at the district court level because of this provision and the Second Circuit agreed, finding that only the SEC can exempt someone from liability under Sarebanes-Oxley § 304 and that any attempt to indemnify the officers for Sarbanes-Oxley liability is contrary to public policy.

Ninth Circuit Adopts Moench in Quan v. Computer Sciences:

In the recent case of Quan v. Computer Sciences Corp. et al., the Ninth Circuit adopted the Moench Presumption.

The case involved claims that the defendant corporation backdated options to its executives.  When the scheme was disclosed, the stock price dropped 12% but then quickly rebounded.  The stock went from $55 per share to $48 but then quickly rebounded to $53 and then $61 per share.  The district court granted class certification and shortly before trial granted the Defendants’ motion for summary judgment, finding against the participants in almost all issues including:

  • no breach of duty;
  • no losses;
  • no materiality of misstatement; and
  • no evidence of reliance.

The Ninth Circuit affirmed the grant of summary judgment to Defendants and in the process adopted the Moench presumption which the Ninth Circuit had declined to adopt in Syncor.

The Court held that the Moench presumption “is fully reconcilable with ERISA’s statutory text and does not encourage insider trading, when properly formulated.”  (page 16682.)

It also noted that:

  • “Where employer stock is only one of the possible plan investments, and Plaintiffs assert a claim that the fiduciary should have divested the Plan of employer stock, the fiduciaries would be entitled to the presumption that investment in employer stock was prudent.”  (p. 16683.)
  • “We adopt the Moench presumption because it provides a substantial shield to fiduciaries when Plan terms require or encourage the fiduciary to invest primarily in employer stock.”  (p. 16684.)
  • “If there is room for reasonable fiduciaries to disagree as to whether they are bound to divest from Company stock, the abuse of discretion standard protects a fiduciary’s choice not to divest.”
  • “Plan participants can only rebut the Moench presumption by showing publicly known facts that would trigger the kind of careful and impartial investigation by a reasonable fiduciary that the Plan’s fiduciary failed to perform.”  (p. 16686.)
  • To overcome the presumption of prudent investment, Plaintiff must therefore make allegations that “clearly implicate the Company’s viability as an ongoing concern “or show” a precipitous decline in the employer’s stock . . . combined with evidence that the Company is on the brink of collapse or is undergoing serious mismanagement.”  (p. 16686.)
  • There is no bright-line rule as to how much evidence is needed to rebut the Moench presumption.  (p. 16687.)
  • The burden varies directly with the strength of a Plan’s requirement that fiduciaries invest in employer stock.  (p. 16687.)
  • The Moench presumption would be difficult to rebut. (p. 16687.)

This decision sets a difficult threshold for Plaintiffs to overcome in bringing ERISA actions for breaches of fiduciary duty.

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