Xerox Company Stock Suit Survives First Challenge

April 20, 2007 (PLANSPONSOR.COM) - Xerox Corp. employees suing the company over its handling of their 401(k) investments in shares of company stock fell short of proving their allegations of a breach of fiduciary responsibility.

But U.S. District JudgeAlvin W. Thompson of the U.S. District Court for the District of Connecticut told lawyers for the plaintiffs they could refile their lawsuit against Xerox, its present and former directors and officers, and members of various committees that administered the two Xerox 401(k) plans.

Thompson accepted an argument by Xerox that the suit failed to explain how each defendant was a fiduciary and how each purportedly breached his or her fiduciary duties. The court said the new lawsuit needed to fix that problem.

The employees alleged in the lawsuit that during the class period running from May 12, 1997, to Nov. 15, 2002, the defendants breached their Employee Retirement Income Security Act (ERISA) fiduciary duties by retaining the Xerox Stock Fund as an investment option when it was imprudent because Xerox had purportedly engaged in accounting fraud that overstated the stock’s value.

Among other things, the suit charged that the defendants breached their duties under ERISA by not giving employees investing in the Xerox Stock Fund complete and accurate information about Xerox. According to the court, the defendants argued that the employees were attempting to impose on them a duty to provide investment advice.

“[A] duty to inform participants is not the same as a duty to provide investment advice,” Thompson declared in his ruling.

Also, the defendants charged they did not exercise authority or control with respect to investment in the Xerox Stock Fund, so they were not acting as fiduciaries, because the decision to invest in the fund was made by the participants themselves.

But, according to Thompson, participants could not have exercised control within the meaning of ERISA Section 404(c) unless the plan fiduciaries provided them with complete and accurate information.   

The employees alleged that Xerox had made false public statements and filed false Securities and Exchange Commission (SEC) filings that were later disseminated to employees.

While it is true that the preparation and filing of documents with the SEC and making statements in press releases is not a fiduciary act in and of itself, “that fact does not mean that statements in those documents cannot become fiduciary representations if they are disseminated to Plan participants and beneficiaries,” Thompson pointed out.

The case is In re Xerox Corp. ERISA Litigation, D. Conn., No. 3:02cv01138 (AWT), 4/17/07.