Court Refuses to Dismiss AOL Time Warner Company Stock Suit

March 23, 2005 (PLANSPONSOR.com) - A federal court has refused to dismiss a claim brought by retirement plan participants against AOL Time Warner that alleged that the company breached its fiduciary duty by allowing investment in company stock.

>US District Judge Shirley Wohl Kram of the US District Court for the Southern District of New York stated that the plaintiffs had sufficiently alleged that the Employee Retirement Income Security Act (ERISA) was possibly violated by allowing retirement plan participants to hold company stock, according to BNA. The ruling came as a result of a motion to dismiss from the defendants, which include AOL, Time Warner, the administrative committees of the plan, trustees Fidelity Management Trust and other individual executives.

>The claim is comprised of four individual complaints: that it was imprudent for the plans to hold AOL stock when the company lost its online revenue base, that the defendants made misrepresentation and failed to disclose material necessary for informed decisions by participants, that certain board members failed to appoint knowledgeable fiduciaries, and that certain executives breached their duties of loyalty by selling their own AOL stock while allowing plan participants to continue to hold onto such investments.

>In her denial of dismissal, Kram ruled that the fiduciary status of AOL was properly alleged, but dismissed the allegations against TWE, a corporate partnership subsidiary of Time Warner. For TWE, the plaintiffs alleged that it was the plan sponsor, which Kram ruled did not confer fiduciary status. Since TWE was only a fiduciary through its role in appointing and removing trustees and certain committees, Kram ruled that the plaintiffs did not allege that the company breached its duties in this respect.

>Kram also stated that further factual development needed to be pursued to determine what discretion each defendant had to act in removing the stock option from the plan, and thus the case should not be dismissed.

>The court upheld the second and third claim in the case, but dismissed the fourth, which was in regards to executives selling their stock and violating their duties of loyalty. Kram said that fiduciary liability attaches only to actions that are performed in a fiduciary capacity and a sale of securities held in a personal capacity is not a fiduciary act.

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