ERISA-Sixth Circuit Rules That Plaintiffs Must Show A Net Loss To Bring A Stock-Drop Case

In Taylor v. KeyCorp, Nos. 10-4163/4198/4199 (6th Cir. 2012), plaintiff Ann Taylor was appealing the district court’s dismissal of her complaint for lack of subject-matter jurisdiction. The case had been brought on behalf of participants and beneficiaries of the KeyCorp 401(k) Savings Plan (the “Plan”), under sections 409 and 502 of ERISA. The named defendants were KeyCorp (“Key”) and numerous individually named fiduciaries of the Plan (the “defendants”).

The plaintiffs asserted five claims, including breach of fiduciary duty under ERISA which caused inflation, and then a price drop, of Key stock (that is, a breach that led to a stock drop) . However, the Court focused on the issue of whether the plaintiffs had constitutional standing to bring this case. It said that, in order to establish standing, a plaintiff must allege: (1) injury in fact, (2) a causal connection between the injury and the conduct complained of, and (3) redressability. Here, the Court found that plaintiff Taylor failed to meet condition (1).
The Court found the facts to be as follows during the applicable period. As of December 31, 2006, Taylor owned 1,678.32 units of the Key stock fund held by the Plan. Taylor sold all of those units on January 11, 2007, when Key stock was trading at over $37 per share. Key stock reached its peak price of $39.90 per share on February 22, 2007. Following her sale of the fund units in January, 2007, Taylor never purchased another unit in the Key stock fund. She did acquire an additional 387.31 units in Key stock-presumably under the Plan- through Key’s matching program. On February 22, 2008, she sold 268.01 of those units and sold the remainder of her 119.30 units of Key stock fund on June 25, 2008. Overall, through the Plan, Taylor sold her Key stock for more money than she actually paid for it, earning a net profit of $6,317. The Court said that, if the facts alleged in the complaint are true, Taylor benefitted from the defendants’ alleged breach of fiduciary duty. There is no out-of-pocket loss. The Court specifically rejected the argument that loss could be shown based on the profit that could have been obtained by making alternative investments instead of buying and holding the employer stock.

Taylor argued that, even if the correct measure of her injury is out-of-pocket loss, there was an actual injury because she suffered a loss on the Key stock she obtained under the Plan through Key’s matching program. The Court responded by saying that all of her purchases and sales of the Key stock under the Plan must be netted, since the complaint did not allege separate breach of duty causing separate damages. Here, taking all purchases and sales under the Plan into account, there was no net loss. Thus, Taylor had not been injured, and therefore had no standing to bring the suit. The Court affirmed the district court’s dismissal of Taylor’s complaint.

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