Home Depot Cleared in Stock Drop Suit

June 10, 2010 (PLANSPONSOR.com) – A federal judge in Georgia has cleared Home Depot of wrongdoing in a stock drop lawsuit.

U.S. District Judge Orinda D. Evans of the U.S. District Court for the Northern District of Georgia said its defined contribution plan was an eligible individual account pension investing in company stock so it was not covered by the diversification mandate in the Employee Retirement Income Security Act (ERISA). The company stock allegations were actually claims the plan should have been better diversified, Evans said.

Participants claimed it was no longer prudent to continue offering the company stock after its share price fell 16% when Home Depot announced its executives had been backdating stock options for 19 years. The participants also claimed the company misclassified nondefective merchandise for vendor credits.

Evans said the court would not adopt a position the 3rd Circuit Court of Appeals took in 1995 when it held that fiduciaries of employer stock plans have a duty, in very limited situations, to halt investment in employer stock when the stock is no longer a prudent investment.

“A 16% decline in Home Depot stock is not dramatic enough to show that the prudent course of action would have been for the Investment Committee to disregard the Plan document to cease matching contributions in Home Depot stock and delete Home Depot stock from the list of available investment funds,” the court said.

The case is Lanfear v. Home Depot Inc., N.D. Ga., No. 1:07-CV-197ODE.

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