McDonald’s will pay $50,000 to settle a sex discrimination suit brought by the U.S. Equal Employment Opportunity Commission (EEOC), the agency announced. The EEOC charged that McDonald’s USA, LLC unlawfully subjected an employee to sexual harassment at one of its Perth Amboy, N.J., restaurants. According to the EEOC’s lawsuit (Civil Action No. 2:09-Civ-05028 (WJM)(MF)), filed September 29, 2009 in U.S. District Court for District of New Jersey, an assistant store manager made lewd comments to a teenage crew member and touched, spanked and hugged him in a way that made him very uncomfortable. The crew member was only 16-17 years of age when these incidences took place. The case was resolved pursuant to a consent decree signed by Judge William J. Martini on October 19. Besides paying the victim $50,000 in compensatory damages, McDonald’s will also take steps to prevent future workplace harassment. The company will post and maintain EEOC remedial notices and posters; train all employees and managers at the restaurant on the federal laws that prohibit discrimination; maintain an anti-discrimination policy and complaint procedure; and cooperate with EEOC’s compliance monitoring.
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.
Wednesday, October 13, 2010
DOL Grants Prohibited Transaction Exemption to General Motors
The United States Department of Labor's ("DOL") Employee Benefits Security Administration ("EBSA") has granted an individual prohibited transaction exemption -- PTE No. 2010-30 --that will allow General Motors Co. to transfer company securities (including common stock, preferred stock, and a $2.5 billion promissory note) to a health plan established for GM retirees. The exemption, which covers the the United Auto Workers GM Retiree Medical Benefits Plan and its associated UAW Retiree Medical Benefits Trust is effective retroactive to July 10, 2009. Generally speaking, the exemption allows GM to transfer certain assets to its voluntary employees' beneficiary association ("VEBA") plan to provide for post-retirement health benefits. Without the exemption, the large transfer of employer securities to the plan likely would have resulted in a violation of ERISA's prohibited transaction rules, which prohibit certain benefit plans from holding large percentages of plan assets in the form of employer securities. See www.dol.gov for more information and the text of the PTE.
Transgender Woman Sues LPGA Over Right to Golf Professionally
The New York Times reported yesterday that a transgender woman has filed a federal lawsuit against the Ladies Professional Golf Association ("L.P.G.A."), alleging that the LPGA's requirement that competitors be “female at birth” violates California civil rights law (California is one of 14 states, including the District of Columbia, that has laws prohibiting discrimination on the basis of gender identity). According to the Times article, Lana Lawless, a 57-year-old retired police officer who had gender-reassignment surgery in 2005, made her name as an athlete in 2008 after winning the women’s world championship in long-drive golf. But this year, Lawless was ruled ineligible in the same championship because Long Drivers of America, which oversees the competition, changed its rules to match the policy of the L.P.G.A. Lawless wrote a letter in May asking for permission to apply for L.P.G.A. qualifying tournaments and was told by a tour lawyer that she would be turned down. Lawless has also named as defendants in her law suit Long Drivers of America, two of its corporate sponsors — Dick’s Sporting Goods and Re/Max — and CVS, the sponsor of the L.P.G.A. Challenge. According to the article, Lawless has claimed that she has no competitive edge over other female golfers - she asserts that the reassignment surgery she underwent removed her testes, and her hormones and muscle strength are in line with someone who is genetically female. See http://www.nytimes.com/ for the full article.
Tuesday, October 5, 2010
Another "Stock-Drop" Case Dismissed - But for Different Reasons...
On September 30, 2010, the United States District Court for the Eastern District of Michigan dismissed a putative class action law suit brought by General Motors Corp. employees against State Street Bank and Trust Co. ("State Street"). See Pfeil v. State Street Bank and Trust Co., E.D. Mich., No. 09 CV 12229. The lawsuit alleged that State Street breached its fiduciary duties owed to the employees by waiting too long to divest GM's tax code Section 401(k) plans of their holdings in GM stock. The District Court found that, although the GM employees were likely to overcome the “presumption of prudence” that attaches to pension plans that invest in employer stock, State Street did not cause losses to the employees' pension accounts because the employees retained control over their investment selections in their 401(k) accounts. According to the Court, “[a]s alleged in their complaint, Plaintiffs had knowledge at the time State Street became the fiduciary, that GM was in financial trouble yet they continued to invest in the [employee stock ownership plan]. State Street cannot be held liable for actions which Plaintiffs controlled."
Two GM employees filed the lawsuit against State Street in June 2009, alleging that as a fiduciary of the ESOP component of GM's Section 401(k) plans, State Street had a duty to rid the plans of GM stock by no later than July 15, 2008, because at that point the stock was no longer a prudent investment for plan participants. State Street was, at the time, the independent fiduciary for the ESOP. The GM employees alleged that in that same year, analyst reports consistently warned that GM's future was bleak, and that despite these warnings and numerous others that followed in 2007 and 2008, State Street kept the plans invested in GM stock. State Street eventually began to sell off GM stock in March 2009 and completed the sale of all GM stock on April 24, 2009. GM filed Chapter 11 bankruptcy on June 1, 2009. The lawsuit alleged that in its role as the independent fiduciary of the ESOP, State Street had a fiduciary duty under ERISA to determine whether GM stock remained a prudent investment for the plan. According to the lawsuit, GM stock became an imprudent investment for the plans long before the date in which State Street began to sell off the GM stock.
State Street argued in a motion to dismiss the lawsuit that the GM employees had not alleged facts that would overcome the “presumption of prudence” that attaches to plans that invest in employer stock - commonly referred to as the "Moench" presumption. In addition, State Street asserted that the plaintiffs failed to allege facts showing that State Street proximately caused any loss to plan participants. As to the Moench presumption, the court found that the trustee agreement between GM and State Street limited State Street's discretion over the ESOP. The agreement required State Street to invest exclusively in GM stock unless: (1) there was a serious question concerning GM's short-term viability as a going concern without resorting to bankruptcy proceedings, or (2) there was no possibility in the short-term of recouping any substantial proceeds from the sale of stock in the bankruptcy proceedings. In rejecting State Street's Moench defense, the court found that the employees had sufficiently alleged that GM was in serious financial trouble in June 2006 when State Street became the ESOP plan fiduciary. The court further found that the complaint alleged sufficient facts to allow the reasonable inference that there existed a serious question concerning GM's short-term viability as a going concern without resorting to bankruptcy proceedings or there was no possibility in the short-term of recouping any substantial proceeds from the sale of stock in bankruptcy proceedings sufficient for State Street to exercise its fiduciary discretion. The court further noted that the complaint sufficiently alleged numerous “red flags” that should have placed State Street on notice of a need to cease offering GM stock to Plan participants or to liquidate the ESOP funds prior to March 2009.
Two GM employees filed the lawsuit against State Street in June 2009, alleging that as a fiduciary of the ESOP component of GM's Section 401(k) plans, State Street had a duty to rid the plans of GM stock by no later than July 15, 2008, because at that point the stock was no longer a prudent investment for plan participants. State Street was, at the time, the independent fiduciary for the ESOP. The GM employees alleged that in that same year, analyst reports consistently warned that GM's future was bleak, and that despite these warnings and numerous others that followed in 2007 and 2008, State Street kept the plans invested in GM stock. State Street eventually began to sell off GM stock in March 2009 and completed the sale of all GM stock on April 24, 2009. GM filed Chapter 11 bankruptcy on June 1, 2009. The lawsuit alleged that in its role as the independent fiduciary of the ESOP, State Street had a fiduciary duty under ERISA to determine whether GM stock remained a prudent investment for the plan. According to the lawsuit, GM stock became an imprudent investment for the plans long before the date in which State Street began to sell off the GM stock.
State Street argued in a motion to dismiss the lawsuit that the GM employees had not alleged facts that would overcome the “presumption of prudence” that attaches to plans that invest in employer stock - commonly referred to as the "Moench" presumption. In addition, State Street asserted that the plaintiffs failed to allege facts showing that State Street proximately caused any loss to plan participants. As to the Moench presumption, the court found that the trustee agreement between GM and State Street limited State Street's discretion over the ESOP. The agreement required State Street to invest exclusively in GM stock unless: (1) there was a serious question concerning GM's short-term viability as a going concern without resorting to bankruptcy proceedings, or (2) there was no possibility in the short-term of recouping any substantial proceeds from the sale of stock in the bankruptcy proceedings. In rejecting State Street's Moench defense, the court found that the employees had sufficiently alleged that GM was in serious financial trouble in June 2006 when State Street became the ESOP plan fiduciary. The court further found that the complaint alleged sufficient facts to allow the reasonable inference that there existed a serious question concerning GM's short-term viability as a going concern without resorting to bankruptcy proceedings or there was no possibility in the short-term of recouping any substantial proceeds from the sale of stock in bankruptcy proceedings sufficient for State Street to exercise its fiduciary discretion. The court further noted that the complaint sufficiently alleged numerous “red flags” that should have placed State Street on notice of a need to cease offering GM stock to Plan participants or to liquidate the ESOP funds prior to March 2009.
Although the court found that the employees had alleged sufficient facts to rebut the Moench presumption, the court agreed with State Street that the GM employees had not shown that State Street proximately caused any loss to the employees. According to the court, the plans offered several diverse investment options for participants to choose for themselves and the participants had total control over how to allocate their investments. The court said that the participants had knowledge at the time State Street became the fiduciary that GM was in financial trouble yet they continued to invest in GM stock. The Court found that State Street could not be held liable for the employees' investment choices, and, therefore, determined that State Street had not caused the participants' investment losses.
EEOC Sues Fox News
Fox News Network allegedly retaliated against news reporter Catherine Herridge after she complained to Fox that she was subjected to disparate pay and unequal employment opportunities because of her gender and age, the U.S. Equal Employment Opportunity Commission ("EEOC") announced in a lawsuit filed earlier this week. According to the EEOC’s complaint, during 2007 Herridge made several complaints to management officials at Fox News about employment practices that she believed were discriminatory. Fox conducted an investigation into Herridge's allegations beginning around December 2007, but notified Herridge that no evidence of age and sex discrimination had been found. The complaint alleges that, around the summer or fall of 2008, Fox News included language in Herridge's employment contract, which was set for renewal, that referenced Herridge's discrimination complaints and was intended to stop Herridge from making more of them in the future. Herridge refused to sign the employment contract until the language was removed. Thereafter, Fox refused to negotiate further with Herridge, would not respond to counteroffers as to substantive issues in the proposed contract, and ceased speaking to her agent or to her about her contract. As a result of Fox’s refusal to proceed with a new employment contract absent the retaliatory language, Herridge became an “at-will” employee without any job protections, causing her considerable stress, the EEOC alleged. It was only after Herridge filed a charge of discrimination with the EEOC, and an EEOC investigator conducted an on-site investigation, that Fox agreed to take out the retaliatory language and presented Herridge with a new contract with the retaliatory language removed, in June 2009 which she signed. The EEOC filed suit in the U.S. District Court for the District of Columbia (EEOC v. Fox News Network LLC, Civil Action No. 1:10-cv-01660) after first attempting to reach a pre-litigation settlement. The EEOC’s lawsuit seeks monetary relief for Herridge, including compensatory and punitive damages and an injunction enjoining Fox News from engaging in further retaliation against employees based on their opposition to employment practices which the employee reasonably believes to be unlawful under the federal statutes enforced by the EEOC. More information on this case and the EEOC may be found at www.eeoc.gov.
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.
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.
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