Monday, October 4, 2010

Yet Another Stock-Drop Case Dismissed

On September 24, 2010, the U.S. District Court for the Middle District of Florida dismissed a the second in a series of ERISA “stock-drop” lawsuits against Community National Bank Corp. ("CNB"). See Guididas v. Community National Bank Corp., M.D. Fla., No. 8:10-cv-1410-T-30TBM, 9/24/10). In June of this year, the same court had granted CNB's motion to dismiss a lawsuit by two employees who claimed CNB and certain of its officers and directors breached fiduciary duties by continuing to hold and acquire CNB stock for the bank's retirement plan at a time when the stock was allegedly an "imprudent" investment. The court dismissed the earlier lawsuit, holding that that the employees in that case should have first exhausted the plan's administrative remedies before heading to federal court. See Swetic v. Community National Bank Corp., 49 EBC 2305 (M.D. Fla. 2010).

The plaintiffs in the Guididas case asserted claims identical in all respects to those brought in Swetic. As in Swetic, the court dismissed the Guididas case for the employees'/participants' failure to exhaust their administrative remedies. The court based its decision on Lanfear v. Home Depot Inc., 536 F.3d 1217 (11th Cir. 2007), a case where the Eleventh Circuit held that exhaustion of administrative remedies is required before plaintiffs can pursue ERISA fiduciary breach claims, unless the plaintiffs can show it would have been futile to go through the administrative appeals process.

In Guididas, the plaintiffs attempted to get around the Lanfear ruling by arguing that they exhausted their administrative remedies when they filed a claim for individual benefits. The court was not persuaded by this argument, finding the plaintiffs' claim for individual benefits did not put CNB on notice that the plaintiffs were alleging a fiduciary breach claim. According to the court, “[p]laintiffs cannot meet the administrative exhaustion requirement under ERISA by merely making requests for individual benefits that are completely unrelated to their claims in this case. Plaintiffs' complaint involves putative class-wide complaints of breaches of fiduciary duty. It is axiomatic that these claims should have first been presented to the administrative review process as outlined in the Plan.” Although the court granted CNB's motion to dismiss, it did so without prejudice so as to allow the plaintiffs to exhaust their administrative remedies before refiling their lawsuit, if necessary.