US District Judge Leonard Davis of the US District Court for the Eastern District of Texas added as a footnote to his decision that he felt approving the settlement “could send the wrong message to the United States Department of Labor (DoL) “ and that the settlement was unfair. The DoL is investigating EDS’s 401(k) plan. “The Court believes that investigation should run its due course and not be prematurely influenced by the Court approving what it has found to be an unfair de minimis settlement to the class members,” Davis wrote.
In March 2003, claims were brought against EDS and some of its officers that they breached fiduciary duties by allowing EDS stock investments when it was imprudent, failing to monitor other fiduciaries, and failing to act in the best interests of the participants. According to a BNA report, the lawsuit claims that after the company issued a news release in September 2002 announcing that its earlier revenue estimate was incorrect and it would actually suffer a revenue decrease, the market value of the company’s stock plummeted more than 50% “wiping out some $8 billion in market value.”
The loss to around 90,000 participants in the class is estimated at $352 million. Davis’ opinion estimates the net settlement amount to be $11.3 million after attorneys’ fees and expenses. He said the settlement may be good for the attorneys and for EDS, but would result in a payment of only two or three cents on the dollar for the participants, which he called a “mere pittance” of their losses.
A second part of the settlement included proposed changes to the plan including continuing employer match contributions, but paying them in cash rather than stock, and discontinuing the company stock investment option after five years. But Davis discounted the benefit of these proposals as “more illusory than real”.
>The case is In re Electronic Data Systems Corp. “ERISA” Litigation, E.D. Texas, No. 6:03-CV-126, 6/30/05. The US 5th Circuit Court of Appeals is considering an appeal in the case.