November 05, 2019

Kimberly Jones Comments on SCOTUS Case Involving Workers' Stock-Drop Suit

Law360 reports on the U.S. Supreme Court hearing on whether the Second Circuit was right to revive IBM workers' claims that they were kept in the dark about the overvaluation of IBM stock in their retirement plan, setting the stage for an opinion that could slam the door on ERISA stock-drop class actions.

The federal government weighed in, once the case was taken up by the Supreme Court, with the Departments of Labor and Justice saying that, while they weren’t taking a side, they believed the Second Circuit applied the wrong standard. Rather than asking if the fiduciary would have done “more harm than good” by acting on information about stock overvaluation, courts should ask if the fiduciaries followed securities laws regarding disclosures, the government said.

That switch in standards would place courts in an interesting position, according to Law360, because securities suits often have an easier time getting past the motion-to-dismiss stage than ERISA stock-drop suits. Eliminating the Dudenhoeffer standard in favor of a standard more consistent with securities lawsuits could raise the question of whether many unsuccessful ERISA suits could be revived.

The legal industry publication turned to Employee Benefits and Executive Compensation partner Kim Jones for insight into the case.

"I think the court is going to pay special attention to the government's brief," Jones said. "I think it's going to play a big part in the Supreme Court's decision, seeing how the government and SEC view this tension between securities laws and ERISA."

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