SunTrust Stock-Drop Complaint Moves Forward Post-Dudenhoeffer

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.

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.