Participants Lose Second Attempt in Medtronic Stock Suit

January 7, 2011 (PLANSPONSOR.com) – After filing an amended complaint, participants of Medtronic Inc.’s retirement plan failed to convince the court that the company breached its fiduciary duties by continuing to offer company stock as an investment option.

The U.S. District Court for the District of Minnesota concluded that declines of 19% and 16%, respectively, after Medtronic announced the recall of its Fidelis lead and disclosed declining sales of Infuse and a Department of Justice investigation into off-label uses of its Infuse product are nowhere near the type of allegations courts have held to be necessary to overcome the presumption of prudence for eligible individual account plans.  

In addition, the court ruled that the plaintiffs failed to plead reliance on any alleged misrepresentation about the condition of the company or its products. The court noted that the plaintiffs did not even allege that they read the alleged misrepresentations, much less that they relied on those misrepresentations, so a loss could not have “resulted from” those misrepresentations.  

The district court also addressed the question of whether the Employee Retirement Income Security Act (ERISA) requires a corporate insider who is also an ERISA fiduciary to disclose non-public information to plan participants and concluded that ERISA should not be read to impose a wide-ranging duty of disclosure on corporate insiders who serve as ERISA fiduciaries. “As other courts have observed, imposing such a duty ‘would either render much of securities law a dead letter, or (more likely) dissuade employers from offering company stock to employees in the first place, in direct contravention of Congress’s objectives when it passed ERISA,’” the opinion said.   

In March 2010, the district court found the plan participants who brought the suit were unable to overcome the presumption of prudence that applies to retirement plans that invest in employer stock. The court rejected their arguments that the presumption of prudence applies only when a plan is a true employee stock ownership plan, or when a plan mandates that employer stock be offered as an investment option.   

The court allowed for the participants to file a third amended complaint to try to present sufficient facts to overcome the presumption of prudence (see Medtronic Wins Company Stock Suit).  

The case is Wright v. Medtronic Inc., D. Minn., No. 09-CV-0443 (PJS/AJB).

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