>US District Court Judge William Pauley of the US District Court for the Southern District of New York turned away company arguments that it was unable to change the plan’s company stock investments because the plan required investments in such shares, according to BNA.
Four Polaroid employees sued the company and 18 of its directors and officers, leveling the fiduciary breach charges because the officials:
- continued to offer Polaroid stock as an investment option
- failed to provide complete and accurate information about Polaroid stock and the soundness of the stock as a retirement plan investment
- had a conflict of interest with respect to the plan’s investment in Polaroid stock because they were compensated with Polaroid stock and stock options.
In his ruling, Pauley ruled that the employees had put forth an adequate case for allegations that Polaroid directors and officers, as corporate insiders, had a duty to halt investment in Polaroid stock when there was a precipitous decline in the stock price. In 1997, Polaroid’s stock was valued at around $60 per share in 1997, but the stock was valued at $.01 by 2002, the court noted.
The court also refused to dismiss the employees’ claim that the defendants breached their duty to disclose nonpublic information about Polaroid’s financial situation to employees who invested in Polaroid stock. In so ruling, the court rejected the defendants’ contention that there is no Employee Retirement Income Security Act (ERISA) information disclosure requirement beyond the mandate to give participants accurate information.
Polaroid filed for Chapter 11 bankruptcy protection in October 2001 after technological advances in photography placed a strain on Polaroid’s instant photographic products. A special examiner appointed in Polaroid’s Chapter 11 bankruptcy case issued a report in August 2003 concluding that Polaroid’s financial condition between December 31, 2000, and July 31, 2001, was “more negative” than its public filings reflected because of questionable accounting measures.
The court went on to find that the employees adequately alleged in their complaint that each of the named defendants was a fiduciary.
While Pauley did green light a number of the allegations for further proceedings, the court said it would dismiss the employees’ claim that the defendants as officers and directors of Polaroid had a conflict of interest because they received compensation in Polaroid stock. “Plaintiffs fail to allege that the conflict of interest impeded their prudent decision-making with respect to the Plan and Plan participants,” Pauley said.
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