Compliance October 10, 2007

Court: No Need to Question 14,000+ 401(k) Class Action Participants

October 10, 2007 (PLANSPONSOR.com) - Efforts by a health care products manufacturer to get details from more than 14,000 401(k) participants on their outside investments as part of an ongoing class action fiduciary breach lawsuit have been blocked by a federal judge.
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The ruling by U.S. Magistrate Judge Nan R. Nolan of the U.S. District Court for the Northern District of Illinois involves the October 2004 suit against theDeerfield , Illinois-based Baxter International, which claims the company violated the Employee Retirement Income Security Act (ERISA) by continuing to offer company stock as an investment option when plaintiffs alleged the shares were overvalued.

Nolan asserted in the latest ruling that Baxter had not proven its need to know the size and composition of investments outside the plan held by 14,511 participants, or the particular materials or advice participants relied on in deciding to invest in company shares.  

According to court documents, Baxter announced in July 2002 it had inflated its earlier earnings – a development prompting a sharp share price drop. The company announced in July 2004 it was restating several years’ worth of financial statements because of accounting problems with its Brazilian operations.

Named plaintiff David E. Rogers filed the suit against Baxter, the plan’s administrative and investment committees, and several corporate officers, alleging they presented the stock as an option when it was no longer prudent to do so.  

Rogers also charged that defendants misrepresented information about the company’s operations and that executives engaged in a scheme to artificially drive up the share price so they could benefit from more valuable stock options.

Nolan ruled that the answers to Baxter’s questions were not relevant to whether the company committed an ERISA fiduciary breach. Also, since Rogers’ claim of company misrepresentations was levied on behalf of the plan, Nolan said Baxter did not need to have the information it sought about each class member to prepare for trial.

In February 2006, the court denied the defendants’ motion to dismiss the lawsuit, and in March 2006 the court granted Rogers’ motion to certify the case as a class action.

The latest ruling in Rogers v. Baxter International Inc.,N.D. Ill., No. 04 C 6476, 10/4/07, is  here .

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