IPALCO Suits Gains Class-Action Status

October 6, 2003 (PLANSPONSOR.com) - Nearly 2,000 employees of Indianapolis Power & Light Co. (IPALCO) will be allowed to join a class-action case alleging that IPALCO improperly promoted company stock as an investment in the employer's thrift savings plan.

Class action status was determined to be the appropriate method to pursue claims by employees of IPALCO that alleged an ERISA fiduciary breach through its actions in the company’s thrift savings plan.   US District Judge David Hamilton of the US District Court for the Southern District of Indiana found awarding class action status was the only way many of the employees could join in the suit , according to Hamilton’s unpublished opinion.

Among the issues to be considered were whether the IPALCO’s mandated match of contributions in company stock rather than cash constituted a fiduciary breach.   Additionally, Hamilton found questions about IPALCO’s fiduciary duty surrounding its decision not to eliminate company stock as an investment option.  

With the class action decision, Hamilton rejected IPALCO’s arguments against such status.   IPALCO had contended class action status could not be granted because approximately 600 employees, including ones seeking to join the class, had signed liability releases that covered the claims asserted in the lawsuit.   However, Hamilton found significant questions of fact still existed as to whether the signed release even applies to the claims asserted in the lawsuit.

Further, IPALCO arguedthe case should not proceed as a class action because“each Plan participant’s claim will depend on individualized proof of oral inducements and misrepresentations by defendants, and reliance by each participant.”   However, Hamilton found this not to be a barrier because “other cases…have allowed class certification in fraud claims based on alleged broad campaigns of fraud or ERISA allegations similar to those here.”

Case History

The legal action stems from the AES acquisition that took place in 2001.  Shortly after the acquisition was complete, IPALCO’s stock price plunged 90%, costing some employees their retirement savings.

The original suit was filed by four former employees who claim IPALCO executives dumped company stock at the same time they were encouraging workers to buy it for their retirement plans.  They seek approximately $100 million in compensation for losses in the value of their 401(k) and retirement plans stemming from IPALCO’s acquisition by AES.

The case is Nelson v. IPALCO Enterprises Inc., Southern District of Indiana, Number IP02-0477-C-H/K.