Ninth Circuit Affirms Stock Drop Case Dismissal Against Executives

A three-judge panel from the U.S. Court of Appeals for the Ninth Circuit has affirmed a California federal court’s 2016 decision to dismiss a proposed stock drop ERISA class action, stating that the plaintiff “failed plausibly to allege the requisite alternative action” as required by the standard established in a 2014 U.S. Supreme Court ruling in Fifth Third Bancorp v. Dudenhoeffer.


The case — Wilson v. Craver — was filed in 2015 by Cassandra Wilson, an employee of Edison International Inc., against the company’s CEO and its treasurer for allowing the company’s employee stock ownership plan (ESOP) to continue to invest in company stock even after a company scandal caused the stock to fall. 

In her suit, Wilson alleged that the plan’s fiduciaries breached their duty of prudence under ERISA by allowing Edison’s ESOP to remain invested in company stock while the stock price was artificially inflated. Wilson contended that the company’s stock was artificially inflated because of misrepresentations the company allegedly made to California public utility regulators regarding a retired Edison power plant. Once these alleged misrepresentations came to light, the company’s stock price fell by 15%.

The Decision

In its April 19, 2021, ruling, the Ninth Circuit applied the pleading standard established by the Supreme Court in Fifth Third, which held that the “recitation of generic economic principles, without more, is not enough to plead a duty-of-prudence violation.” 

The Ninth Circuit panel held that the plaintiff failed to articulate any alternative actions so clearly beneficial that a prudent fiduciary could not conclude it would be more likely to harm the Plan than to help it, instead relying on unspecified “generic economic principles” to support her claim. That failure to satisfy Fifth Third’s “more harm than good” standard led the Ninth Circuit panel to affirm the dismissal of the case.

Citing decisions in the Second, Fifth, Sixth, and Eighth Circuits, the Court also noted that “nearly every court to consider duty-of-prudence claims post Fifth-Third has rejected the notion that general economic principles, such as the Plaintiff relied on, are enough on their own to plead duty-of-prudence violations.”

HBL has experience in all areas of benefits and employment law, offering a comprehensive solution to all your business benefits and HR/employment needs. We help ensure you are in compliance with the complex requirements of ERISA and the IRS code, as well as those laws that impact you and your employees. Together, we reduce your exposure to potential legal or financial penalties. Learn more by calling 678-439-6236.

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HBL offers employers comprehensive legal guidance on benefits in mergers and acquisitions, Employee Stock Ownership Plans (ESOPs), executive compensation, health and welfare benefits, healthcare reform, and retirement plans. We counsel a wide spectrum of clients including small, mid-sized, and large companies, 401(k) investment advisors, health insurance brokers, accountants, attorneys, and HR consultants, just to name a few. HBL is passionate about advising clients, and we are dedicated to our mission: to provide comprehensive, personalized, and practical ERISA and benefits legal solutions that exceed client expectations.
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