Compliance

SunTrust Stock-Drop Complaint Moves Forward Post-Dudenhoeffer

The case has an extensive procedural history and is one among a handful of lawsuits winning reconsideration after the Supreme Court’s landmark 2014 decision in Fifth-Third Bancorp vs. Dudenhoeffer.

By John Manganaro editors@plansponsor.com | August 22, 2016
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The U.S. District Court for the Northern District of Georgia, Atlanta Division, has handed down another complicated ruling in an impressively long-lived employer stock drop lawsuit filed by employees of SunTrust Bank under the Employee Retirement Income Security Act (ERISA).

The case has an extensive procedural history and is one among a handful of lawsuits winning reconsideration after the Supreme Court’s landmark 2014 decision in Fifth-Third Bancorp vs. Dudenhoeffer.

In short, this latest ruling seems to be a partial victory and partial defeat for SunTrust Bank, which won summary judgement and dismissal on certain claims while seeing other plaintiffs’ claims certified as a class action, slated for a full trial. SunTrust will also undoubtedly be pleased to see the district court has denied a plantiffs' motion to remove from consideration a key report that supports SunTrust decisionmaking related to its offering of employer stock.

The current complaint being considered was brought “pursuant to Sections 409 and 502(a)(2) of the Employee Retirement Income Security Act (ERISA).” Plaintiffs are participants in the SunTrust Banks, Inc. 401(k) Savings Plan, and they brought the latest amended action on behalf of themselves, the plan, and a class of similarly situated plan participants. The plan is a defined contribution (DC) retirement plan sponsored by SunTrust, “with the primary purpose of allowing participants to save for retirement.”

Pursuant to the requirements set forth in Fifth-Third Bancorp v. Dudenhoeffer (and following a previous set of dismissals and appeals from the United States District Court for The Northern District of Georgia, Atlanta Division, as well as the 11th U.S. Circuit Court of Appeals) plaintiffs pleaded alternative actions that plan fiduciaries could have taken consistent with securities laws to avoid large losses to participant accounts when SunTrust stock lost value. Defendants, in response, filed an expert report prepared by Lucy P. Allen (referred to as the Allen Report) which analyzed the validity of the proposed alternatives raised according to Dudenhoeffer .

By way of background, the Supreme Court in Dudenhoeffer held that “to state a claim for breach of the duty of prudence on the basis of inside information, a plaintiff must plausibly allege an alternative action that the defendant could have taken that would have been consistent with the securities laws and that a prudent fiduciary in the same circumstances would not have viewed as more likely to harm the fund than to help it.”

NEXT: Win some, lose some 

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