Compliance August 22, 2016

SunTrust Stock-Drop Complaint Moves Forward Post-Dudenhoeffer

The case has an extensive procedural history and is one among a handful of lawsuits winning reconsideration after the Supreme Court’s landmark 2014 decision in Fifth-Third Bancorp vs. Dudenhoeffer.

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The U.S. District Court for the Northern District of Georgia, Atlanta Division, has handed down another complicated ruling in an impressively long-lived employer stock drop lawsuit filed by employees of SunTrust Bank under the Employee Retirement Income Security Act (ERISA).

The case has an extensive procedural history and is one among a handful of lawsuits winning reconsideration after the Supreme Court’s landmark 2014 decision in Fifth-Third Bancorp vs. Dudenhoeffer.

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In short, this latest ruling seems to be a partial victory and partial defeat for SunTrust Bank, which won summary judgement and dismissal on certain claims while seeing other plaintiffs’ claims certified as a class action, slated for a full trial. SunTrust will also undoubtedly be pleased to see the district court has denied a plantiffs’ motion to remove from consideration a key report that supports SunTrust decisionmaking related to its offering of employer stock.

The current complaint being considered was brought “pursuant to Sections 409 and 502(a)(2) of the Employee Retirement Income Security Act (ERISA).” Plaintiffs are participants in the SunTrust Banks, Inc. 401(k) Savings Plan, and they brought the latest amended action on behalf of themselves, the plan, and a class of similarly situated plan participants. The plan is a defined contribution (DC) retirement plan sponsored by SunTrust, “with the primary purpose of allowing participants to save for retirement.”

Pursuant to the requirements set forth in Fifth-Third Bancorp v. Dudenhoeffer (and following a previous set of dismissals and appeals from the United States District Court for The Northern District of Georgia, Atlanta Division, as well as the 11th U.S. Circuit Court of Appeals) plaintiffs pleaded alternative actions that plan fiduciaries could have taken consistent with securities laws to avoid large losses to participant accounts when SunTrust stock lost value. Defendants, in response, filed an expert report prepared by Lucy P. Allen (referred to as the Allen Report) which analyzed the validity of the proposed alternatives raised according to Dudenhoeffer .

By way of background, the Supreme Court in Dudenhoeffer held that “to state a claim for breach of the duty of prudence on the basis of inside information, a plaintiff must plausibly allege an alternative action that the defendant could have taken that would have been consistent with the securities laws and that a prudent fiduciary in the same circumstances would not have viewed as more likely to harm the fund than to help it.”

NEXT: Win some, lose some 

Taking all this together, the district court again had to decide defendants’ motion for partial summary judgment, to determine first of all whether the case could proceed with all named plaintiffs. The court then had to determine whether it should consider the Allen Report when deciding plaintiffs’ motion for class certification, and then whether the class is proper for certification.

On the first matter, SunTrust was successful, arguing that claims brought by plaintiffs Danielle Clay, Paul Hellman, Betty Pickens, Phyllis Reagan, and Demetria Whisby could be dismissed summarily. The court agreed. Case documents show that critically important to SunTrust’s victory here were a series of agreements signed by these participants and/or their benefices, which in effect waived their rights to initiate or join class actions.

SunTrust was also successful in arguing the Allen Report should be considered, whether during consideration around summary judgement issues or if the case should come again to trial, as now appears likely. Important to note is that the Allen Report in essence argues that SunTrust could not have taken other actions proposed by the plaintiffs without violating securities laws or otherwise seriously harming the plan.

Plaintiffs were more successful in seeking to have a large group of plan participants and beneficiaries certified as a class, which will now have a chance to make its case in yet another trial before the district court. After weighing a variety of evidence and argumentation, the court agreed with plaintiffs that the best way to resolve the underlying legal matters at hand would be to certify a class of complainants as follows: “All persons, other than Defendants and members of their immediate families, who were participants in or beneficiaries of the SunTrust Banks, Inc. 401(k) Savings Plan (the “Plan”) at any time between May 15, 2007 and March 30, 2011, inclusive (the “Class Period”) and whose accounts included investments in SunTrust common stock (“SunTrust Stock”) during that time period and who sustained a loss to their account as a result of the investment in SunTrust Stock.”

This class is now left to make their argument, vis a vis Dudenhoeffer, that there were actions SunTrust plan officials could have taken to reduce losses to participants without violating insider trading laws. 

Full text of the decision can be found here. 

Compliance August 22, 2016

EBSA Says Plan Consultant Mistreated Small Businesses

Improper asset transfers and process failures are at the heart of a complaint filed by EBSA on behalf of clients of a Pennsylvania-based advisory firm.
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An investigation by the U.S. Department of Labor’s Employee Benefits Security Administration (EBSA) suggests a Pennsylvania-based advisory and benefits consultant, Belanger and Co. Inc., violated the Employee Retirement Income Security Act (ERISA) by improperly transferring plan assets and failing to fully disclose fees, among other allegations.

Belanger and Co. describes itself as is “a fee-only, independent, qualified retirement plan administrator and consultant for small to medium sized companies.” According to EBSA, the firm on a variety of occasions “failed to timely remit assets to certain plans, fully and timely terminate some plans and process some plan distributions, destroying documents, and making errors in the administration of some plans.”

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The complaint seeks restoration of all plan losses, lost earnings, and disgorgement to the plans of “all unjust enrichment received by the defendants, and removal of the defendants as fiduciaries and service providers to any ERISA-covered employee benefit plan that they serve as fiduciaries and service providers.” Additionally, it seeks an injunction permanently preventing the defendants from exercising custody, control, or decisionmaking authority with respect to the assets of any employee benefit plan covered by ERISA, preventing the defendants from acting directly or indirectly as a service provider for any employee benefit plan subject to ERISA. It also seeks to bar the defendants from engaging in any future violations of ERISA.

EBSA filed the complaint in the U.S. District Court for the Eastern District of Pennsylvania. In the text of the complaint, EBSA investigators note the firm serves as an “administrator of employee benefit plans within the meaning of Sections 3(3) and (16) of ERISA, 29 U.S.C. §§ 1002(3), (16),” working with plans in this capacity throughout Montgomery, Pennsylvania. A number of small businesses are called out by name in the complaint as having been mistreated, ranging from manufacturers to ambulatory care centers and a yoga studio.

NEXT: EBSA allegations 

According to the text of the compliant, Belanger carried sufficient discretion over clients’ plan assets to serve as a 3(21) fiduciary “and a party-in-interest as that term is defined in Sections 3(14) (A) and (C) of ERISA, 29 U.S.C. §§ 1002(14) (A) and (C).”

“During the relevant period, the defendants had the ability to withdraw plan assets from each plan’s custodial account,” EBSA explains. “This included the ability to transfer plan assets to the company. The defendants were able to make these transfers without notifying the plans’ sponsors.”

Using this authority, EBSA says the defendants enacted a variety of ERISA violations against a significant number of clients. For example, when one client decided to move to a different adviser following an audit, Belanger “did not transfer all of the plan assets to the new service provider. Instead, approximately $30,000 was left in the plan’s account. [The plan sponsor] was not notified of this action.”

In another case, EBSA says Belanger was called on to terminate a plan in 2005. “However, as of November 1, 2010, assets remained in the plan’s account. In November 2010, all of the assets remaining in the plan’s account were transferred to the [Belanger] company’s account with the plan’s asset custodian and then transferred to the company’s corporate bank account.”

In other examples called out by EBSA, Belanger is accused of willingly destroying documents and obscuring fees or assets rightfully owed back to clients. As such, alongside damages for plaintiffs, EBSA is seeking an order permanently enjoining the defendants from acting, directly or indirectly, as a service provider for any employee benefit plan subject to ERISA.

Kenneth Belanger, president of Belanger and Co., Inc., tells PLANSPONSOR his firm has “cooperated fully in this investigation by the DOL and we are determined to rectify any errors which occurred as a result of inadequate training and/or supervision.”  

The full complaint is available online here. 

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