JPMorgan CoStocks K Plan Suit Dismissed

September 12, 2005 ( - A court ruling in a case involving company stock in the K plan of JPMorgan Chase has brought to the forefront a key issue about whether stock plan participants can sue over a fiduciary breach under the Employee Retirement Income Security Act (ERISA).

The issue of whether K plan participants who allege their employer imprudently acquired company stock for the plan can sue in federal court revolves around ERISA’s requirement that relief sought must be at the plan level and not just for one or a handful of employees, according to a BNA report.

In the most recent case, US District Judge Sidney Stein of the US District Court for the Southern District of New York ruled that the JPMorgan Chase participants were actually seeking individual gain rather than awards for the whole plan so their lawsuit under ERISA could not proceed.

Stein agreed with JPMorgan Chase, finding that the participants were not suing to recoup plan assets, but were seeking to recover benefits to which the class members believed they were individually entitled to receive. According to the court, the alleged injury to the participants could only be redressed by awarding individual relief to each of the participants.

The JPMorgan participants alleged that the company and its plan fiduciaries breached their duties by imprudently investing in JPMorgan Chase stock, misrepresenting the status of JPMorgan Chase stock and negligently supervising those who were appointed to manage the plan.

Stein’s ruling joins a number of other federal court decisions that illustrate a disagreement among federal trial and appellate judges about whether the company stock cases can be filed under ERISA.

Some courts, such as the US 5 th Circuit Court of Appeals, have ruled that the retirement plan participants are barred from such ERISA suits (See  Appeals Court Upholds Suit Dismissal in Conversion/Blackout Case ) while the US 3 rd Circuit Court of Appeals has drawn the opposite conclusion ( Recovering Losses For Individual Participants Is RecoveryFor The Plan ).

Stein found support in the US District Court for the District of New Jersey’s unpublished decision in In re Schering-Plough Corp. ERISA Litigation.  In that case, the New Jersey district court found that because the 401(k) plan at issue was an individual account plan, any monetary relief would go to the individual accounts of each participant instead of to the plan itself.

The Third Circuit recently reversed the Schering-Plough decision, finding that the nature of the plan as an individual account plan would not mean that the plan itself did not sustain losses   ( Rulings Show Participants Invested in Co. Stock Have Recourse ).

The latest case is Fisher v. JPMorgan Chase & Co., S.D.N.Y., No. 03 Civ. 3252 (SHS), 8/25/05.