Washington, DC (March 16, 2005): On March 8, 2005, The ESOP Association joined two other leading employer benefits associations in filing an amicus brief in Langbecker, et al., v. Electronic Data Systems Corporation, et al., Civil Action No. 6:03-MD-1512; 6:03-CV-126. [Referred to as the EDS case]. The other two are the ERISA Industry Committee, frequently referred to as ERIC, and the American Benefits Council, or ABC.
Led by an aggressive plaintiffs bar, certain employees have sued EDS alleging, in general, violations of ERISA because EDS did not dispose of EDS stock in EDS’s 401(k) and ESOP after EDS share value dropped. In addition to the EDS case, there are over 60 cases pending in Federal courts alleging violations of ERISA because the corporate sponsor did not dispose of company stock in a 401(k) plan, or ESOP, or continued to contribute company stock to the ESOP, or did not eliminate company stock as an option for employees’ investments in the 401(k) plan when the companies stock price dropped. Some cases involve publicly traded companies, and some involve private companies.
And oddly, a few cases allege violations of ERISA when the company sponsor of an ESOP or 401(k) plan did dispose of company stock in the plans after share value dropped, then share value increased. In these cases, the plaintiffs sue the plan sponsor for making the wrong decision for disposing of the stock when its value was low, as later the share value increased!
“It appears that the lawsuits are into a “heads I win, and tails you lose” mode, as no matter which way the stock goes, the plaintiffs are going to sue,” President J. Michael Keeling of The ESOP Association said. “For private companies, the mere threat of law suits over company stock plans, such as an ESOP, makes the economic pain greater than any gain current owners might perceive from creating an ESOP. Thus these stock drop cases need to be cut off at the start, before the judges gives a green light to the class action.”
In the EDS case, the Federal district court has granted class standing to EDS employees, and thus the case absent an appeal to the Fifth Circuit Court of Appeals and reversal, will proceed to further costly proceedings.
The amicus brief, primarily drafted by the Washington, D.C. law firm Covington and Burling, which serves as counsel to ERIC, cites Congressional intent in support of ESOPS, including the 1978 law [Pub. L. No. 94-455] proclaiming Congressional support of ESOPs and warning regulatory agencies not to hinder their creation and operation, as well as the leading stock drop cases that are favorable to contributing company stock to ESOPs, Moench v. Robertson, Wright v. Oregon, and Kuper v. Iovenko. [All cases reported on in Legal Update columns when decisions issued in 1995, 2004, and 1995 respectfully.] These cases, decided at the Appeals Court level all stated that in view of Congressional policy supporting ESOPs, the burden would be on the plaintiff to prove ERISA violations when share value dropped, and that the burden would be met only in usual circumstances such as the trustees and fiduciaries knew the company was on the verge of bankruptcy, or would soon implode due to corruption.
For additional information on this case, please contact Association President J. Michael Keeling.
Founded in 1978, The ESOP Association represents over 1,300 ESOP companies and 750,000 employee owners who believe that employee ownership will improve American competitiveness, increase productivity through greater employee participation and strengthen our free enterprise economy.