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Compliance January 7, 2011
Participants Lose Second Attempt in Medtronic Stock Suit
After filing an amended complaint, participants of Medtronic Inc.’s retirement plan failed to convince the court that the company breached its fiduciary duties by continuing to offer company stock as an investment option.
Reported by PLANADVISER staff
Medtronic employees’ case against their employer has been struck down twice in less than a months’ time; the U.S. District Court for the District of Minnesota and the U.S. Court of Appeals for the Eighth Circuit both said employees failed to prove the medical device manufacturer was liable for retirement plan losses incurred by employees who invested in the company’s stock.
The Court of Appeals decision focuses on the employees’ claim that Medtronic and its top officials breached their Employee Retirement Income Security Act (ERISA) disclosure duties by: 1) incorporating allegedly misleading Securities and Exchange Commission filings into plan documents and 2) failing to disclose to employees nonpublic information about Medtronic stock.
Judge Patrick J. Schiltz ruled against the employees on both of these claims. Schiltz said the employees failed to show that they relied on the allegedly misleading statements. “No recovery is possible—on behalf of the Plan, or on behalf of anyone else—unless someone read and relied on the misrepresentation,” the court said. “Medtronic may have lied in its SEC filings, those lies may have caused the market to value Medtronic stock, and thus Medtronic may be liable to plaintiffs (and other investors) under the securities law. But this is an ERISA action, not a securities-fraud action.”
As for the second ruling—if company executives who serve as plan fiduciaries are required to disclose nonpublic information regarding company stock—Judge Schlitz said they are not required to do so. “It is difficult to believe that Congress intended that ERISA—a statute governing employee-benefit plans—supplant the comprehensive and delicately balanced system of laws and regulations that define the information that a corporation must disclose to the investing public,” the court said.
The case has been ongoing since March 2010 (see “Medtronic Wins Company Stock Suit”).
The case is Wright v. Medtronic Inc., D. Minn., No. 09-CV-0443 (PJS/AJB).