Thursday, October 21, 2010

The Stock Drops -- On First Horizon

The United States District Court for the Western District of Tennessee recently denied First Horizon National Corp.'s motion for reconsideration of the court's earlier ruling refusing to apply the “presumption of prudence” at the pleadings stage of an ERISA “stock-drop” lawsuit. See Yost v. First Horizon National Corp., W.D. Tenn., No. 08-2293-STA-cgc, 10/19/10. As we have reported on this blog, a number of federal courts recently have decided such cases and have been divided on the issue of whether the “presumption of prudence” used in such cases should be applied at the pleadings stage. Although the courts have been somewhat divided, the majority of courts have applied the presumption at the pleadings stage.

The case against First Horizon was filed in 2008 after the value of the company's stock dropped by nearly 90 percent, due primarily to First Horizon's exposure to subprime and related mortgage loans. The lawsuit, brought by First Horizon employees, alleged that the company's stock was an imprudent investment and that the fiduciaries of First Horizon's defined contribution plan breached their duties by continuing to offer the stock as an investment choice. The court initially (about a year ago) granted in part and denied in part First Horizon's motion to dismiss the case. The Court allowed the employees to go forward with their "stock-drop" claim -- that the plan's fiduciaries breached their duties by failing to remove company stock as a plan investment option as the company's losses from subprime mortgage lending mounted. First Horizon then sought interlocutory review from the United States Court of Appeals for the Sixth Circuit, which declined to hear the appeal. After the Sixth Circuit refused to take up the case, First Horizon returned to the district court and filed a motion for reconsideration, which the Court denied, saying the motion was “not well taken” because First Horizon failed to show any basis for reconsideration. Among other things, the court said that while First Horizon cited an extensive body of case law that applied the presumption of prudence at the pleadings stage, the vast majority of those cases came from courts outside the Sixth Circuit and, therefore, were not of precedential value.