''Vivien v. WorldCom, Inc.'', No. 3:02-cv-01329 (
N.D. Cal.
The United States District Court for the Northern District of California (in case citations, N.D. Cal.) is the federal United States district court whose jurisdiction comprises the following counties of California: Alameda, Contra Costa, Del ...
July. 26, 2002) established a new legal theory permitting workers to recover for losses in their
401(k)
In the United States, a 401(k) plan is an employer-sponsored, defined-contribution, personal pension (savings) account, as defined in subsection 401(k) of the U.S. Internal Revenue Code. Periodical employee contributions come directly out of the ...
retirement plan
A pension (, from Latin ''pensiō'', "payment") is a fund into which a sum of money is added during an employee's employment years and from which payments are drawn to support the person's retirement from work in the form of periodic payments ...
s caused by investment in their employers' stock.
Facts
The Complaint alleged that the WorldCom Retirement Plan administrators were
WorldCom
MCI, Inc. (subsequently Worldcom and MCI WorldCom) was a telecommunications company. For a time, it was the second largest long-distance telephone company in the United States, after AT&T. Worldcom grew largely by acquiring other telecommunic ...
insiders who knew or had reason to know that the price of WorldCom stock was artificially high because public statements concerning the Company's business and prospects were false or misleading to investors. When the facts became public, the stock plummeted, thus resulting in the near total loss of retirement funds.
;Problems With Remedies Under the Securities Law
The allegations of fraud and artificial inflation of WorldCom's stock price formed the basis for a lawsuit brought by investors under the securities laws, but that suit offered inadequate chance for recovery for WorldCom employees who invested in company stock in their 401(k) plan. A common perception is that employees actually own stock in their companies when they invest in company stock funds in their retirement plan. Typically, however, the plan itself owns the stock.
The securities laws provide limited help in the case of 401(k) plans because investors can only recover for shares that they purchased during the period when the stock was artificially inflated by fraud; they cannot recover for losses to stocks that they purchased before the fraud began, but held during the period of artificial inflation. Moreover, suits on behalf of a retirement plan need only prove breach of fiduciary duty and are not required to meet the more difficult fraud standard.
;The Vivien Suit's ERISA-Based Theory of Recovery
Because of the limitations outlined above, plaintiffs in the Vivien action sued under the
Employee Retirement Income Security Act
The Employee Retirement Income Security Act of 1974 (ERISA) (, codified in part at ) is a U.S. federal tax and labor law that establishes minimum standards for pension plans in private industry. It contains rules on the federal income tax e ...
(ERISA) of 1974, a federal statute established to protect the rights of employee benefit plan participants.
ERISA requires that those who run employee welfare plans – including 401(k) retirement plans – have a duty to provide accurate information about the plans to participants, and to invest the assets of the plans prudently. These are "
fiduciary
A fiduciary is a person who holds a legal or ethical relationship of trust with one or more other parties (person or group of persons). Typically, a fiduciary prudently takes care of money or other assets for another person. One party, for examp ...
duties" – the highest duties imposed by law.
Th
Vivien Complaintalleged that the Defendants breached their fiduciary
duty of prudence under ERISA by continuing to invest plan assets in WorldCom stock when the stock was artificially inflated by the false and misleading statements of WorldCom's senior management.
The Defendants moved t
dismiss the complaint arguing that it was "actually a securities-fraud action governed by the
Private Securities Litigation Reform Act The Private Securities Litigation Reform Act of 1995, , 109 Stat. 737 (codified as amended in scattered sections of 15 U.S.C.) ("PSLRA") implemented several substantive changes in the United States that have affected certain cases brought under the ...
masquerading as an ERISA action." The Court disagreed.
Judgment
Giving the judgment of the Court, Judge
William Alsup
William Haskell Alsup (born June 27, 1945) is a Senior United States district judge of the United States District Court for the Northern District of California.
Early life and career
Born in Jackson, Mississippi, Alsup received a Bachelor of ...
held that the plaintiff's complaint adequately alleged that the defendants acted in a fiduciary capacity and had breached that duty by their imprudent investment in company stock.
{{Expand section, date=April 2010
Significance
The Vivien decision provided the legal framework for many similar suits filed by employees of companies such as
AOL Time Warner
Warner Media, LLC ( traded as WarnerMedia) was an American multinational mass media and entertainment conglomerate. It was headquartered at the 30 Hudson Yards complex in New York City, United States.
It was originally established in 1972 by ...
,
Reliant Energy
Reliant Energy is an American energy company based in Houston, Texas.
History
Headquartered in Houston, Texas, Reliant Energy, a subsidiary of NRG Energy, is one of the largest Texas electricity providers serving over 1.5 million Texans. Relian ...
,
Cardinal Health
Cardinal Health, Inc. is an American multinational health care services company, and the 14th highest revenue generating company in the United States. Its headquarters are in Dublin, Ohio and Dublin, Ireland (EMEA). The company specializes in ...
,
Tyco International
Tyco International plc was a security systems company incorporated in the Republic of Ireland, with operational headquarters in Princeton, New Jersey, United States (Tyco International (US) Inc.). Tyco International was composed of two major b ...
,
Merck, and
Dell. As a result of these suits, many major companies have begun to restructure their 401(k) plans, eliminating the requirement to own company stock.
External links
WorldCom Amicus BriefSecond Amended ComplaintU.S. District Court Southern District of New York Court Order, 11.21.2002
2002 in United States case law
United States District Court for the Northern District of California cases
Employee Retirement Income Security Act of 1974
Retirement plans in the United States
MCI Communications