Dann v. Lincoln National Corp., No. 08-5740 (E.D. Pa., Feb. 10)

Posted by Aaron Juckett, CPA, CPC, QPA, QKA on Mon, Mar 07, 2011
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The March 1, 2011 Employee Ownership Update is online and discusses the following:

  • ESPP Participation Rising
  • Beyster Fellows Symposium Participants Report on New Research on Employee Ownership
  • IRS Clarifies When Valuations Are Needed for Thinly Traded ESOP Companies
  • Court Offers Affirms One More Defense in Stock-Drop Cases

The Update discusses how Dann v. Lincoln National Corp., No. 08-5740 (E.D. Pa., Feb. 10) found that fiduciary cannot be held accountable for stock losses unless fiduciary decisions actually caused the investment losses:

A district court has added another possible line of defense for fiduciaries in stock-drop cases by agreeing with the defendants that, unless fiduciary decisions actually caused investment losses in employer stock, fiduciaries could not be held accountable for them. In Dann v. Lincoln National Corp., No. 08-5740 (E.D. Pa., Feb. 10), a district court ruled that even though Lincoln National's stock dropped 90% during the class period, the loss was not caused by any act, omission, or fault of the fiduciaries.

If sustained at higher court levels, this defense could make it almost impossible for plaintiffs to prevail in these cases.

The March 2011 ERISA Litigation newsletter provides another perspective:

In Dann v. Lincoln National Corporation, No. 08-5740, 2011 WL 487207 (E.D. Pa. Feb. 10, 2011), a stock-drop case, the district court granted plaintiffs' motion to strike certain of defendants' allegedly "bare bones" affirmative defenses as insufficiently pled because they failed to allege legal elements and lacked factual support. The court struck (without prejudice and with leave to amend) the statute of limitations defense, and a defense alleging the plan administrator had discretion to interpret the plan and make factual determinations. The court refused to strike the "loss causation" and/or Section 404(c) defenses. It explained that, although such defenses may not technically be "affirmative," because plaintiffs bear the burden to prove a breach of fiduciary duty caused a loss to the plan, they "go to the heart" of fiduciary breach claims, as fiduciaries are not liable for plan losses that result from a participant's investment choices.

The Update also discusses the Mid-Year Fellows Workshop in Honor of Louis O. Kelso, Is it Time to Reconsider Company Stock?, and the Final Definition of "Readily Tradable on an Established Market".

Topics: litigation, ESOP, employee stock ownership plan

Aaron Juckett, CPA, CPC, QPA, QKA
Written by Aaron Juckett, CPA, CPC, QPA, QKA

Aaron is President and Founder of ESOP Partners and provides implementation, administration, and consulting services to hundreds of companies. He is a member of The ESOP Association (TEA) and the National Center for Employee Ownership (NCEO).

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