Ninth Circuit Confirms Dismissal of “Company Stock” Claims Against Edison International

ESOPs and so-called “company stock funds” are designed to hold the stock of the sponsoring employer.  They are designed by their nature to be undiversified, and ERISA exempts them from any contrary obligation.  Still, ERISA’s fiduciary duties still apply to those who administer and manage the company stock investments.   Reconciling these two principles has bedeviled courts for over two decades.

Just recently, the Ninth Circuit confirmed that a company stock claim against Edison International’s 401(k) plan fiduciaries was properly dismissed.  The plaintiffs alleged that the stock of Edison was artificially inflated because the company had failed to disclose to the market allegedly inappropriate communications with regulators, which would later result in a $16.7 million fine against the company.   Following the Supreme Court’s 2014 Dudenhoeffer decision, the Ninth Circuit held that the plaintiffs had failed to allege why an earlier disclosure of the alleged misconduct would have benefited the plan as a whole, thus failing to satisfy the Dudenhoeffer standard.

Once a common, lucrative claim to raise, these company stock claims are increasingly difficult for plaintiffs to successfully bring.  The Edison International case is one more brick in the wall.