Senior US District Judge William Schwarzer of the US District Court for the Northern District of California ruled that the participants’ case that the company committed a breach of fiduciary duty under the Employee Retirement Income Security Act (ERISA) was strong enough to proceed, according to a BNA report.
The class-action lawsuit against JDS Uniphase (JDSU), a San Jose, California fiber optics manufacturer, charged that the company should have told participants it was no longer prudent to invest in company stock because of the firm’s failing financial condition.
The suit against JDSU, its board of directors, and individual members of the 401(k) plan’s administrative committee stems from a company announcement in 2001 that its fiber optics sales had collapsed and that it had lost $51 billion in a 12-month period. According to the court, on making the announcement, JDSU laid off 9,000 employees and said it would cut 7,000 more jobs. As a result of the announcement, JDSU’s stock price fell in the following months from a high of $145 per share to $5 per share.
Schwarzer dismissed the directors’ contention that they would have violated insider trading rules if they had forced participants to sell off their JDSU stock based on the directors’ knowledge that the demand for fiber optics was falling, and impacting JDSU’s finances.
In addition, the court rejected the defendants’ contention that the participants’ fiduciary breach claims should be thrown out because they sought individual relief instead of plan-wide relief. According to the court, the participants sought plan-wide relief because all participants were affected by the alleged fiduciary breaches because all employer matching contributions made on behalf of the participants were made to the plan in the form of JDSU stock.
The case is In re JDS Uniphase Corp. ERISA Litigation, N.D. Cal., and No. C 03-04743 CW (WWS), 7/14/05.
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