• In Re: Citigroup ERISA Litigation: Has the Death Knell Sounded for Stock Drop Cases?
  • December 21, 2011 | Authors: Evan Miller; Sara R. Pikofsky; Steven J. Sacher
  • Law Firm: Jones Day - Washington Office
  • Following the spectacular collapse of Enron in 2001, a cottage litigation industry was created, in which a handful of plaintiffs’ firms now routinely rush to bring ERISA class actions whenever a pension plan invests in the stock of the corporate sponsor and the stock price declines significantly. Known in the trade as “stock drop cases,” these actions allege that the affected company, and its of ficers and directors, breached their ERISA fiduciary duties of care and loyalty by permitting employees who were 401(k) and ESOP plan participants to continue to hold and invest plan assets in company stock during the period of decline. In the vast majority of these cases, the litigation pattern is the same. Defendants respond to the complaint with a motion to dismiss for failure to state a claim. If the motion is denied in whole or in substantial part, most defendants promptly settle. Class counsel are only too happy to oblige, and they frequently litigate with an eye solely on muscling a settlement. Thus, successfully defending such suits at the 12(b) (6) stage has become crucial. In recent years, district courts have been more willing to grant such dismissals, but there have been few appellate decisions examining the propriety of a grant of 12(b)(6) relief.