The parties in a decade-old stock drop lawsuit have come to terms with a multimillion-dollar settlement.
The proposed settlement (In Re SunTrust Banks, Inc. ERISA Litigation, N.D. Ga., No. 1:08-cv-03384-RWS, unopposed motion for settlement 3/9/18) would end a 10-year lawsuit that had accused SunTrust of breaching its fiduciary duties under ERISA. As has been the case in similar stock drop litigation, the plaintiffs here alleged a breach of fiduciary duty by:
- continuing to offer SunTrust stock as a plan investment option when it was imprudent to do so;
- failing to provide complete and accurate information to plan participants regarding the company’s financial condition and the prudence of investing in SunTrust stock; and
- maintaining the plan’s pre-existing significant investment in SunTrust stock when company stock was no longer a prudent investment for the plan.
Indeed, plan participants lost hundreds of millions of dollars as the market price of SunTrust stock plunged 73% between May 2007 and October 2009 during the financial crisis.
Settlement Terms
After nearly 10 years of litigation, the parties reached a proposed settlement for a monetary payment of $4,750,000, as well as certain non-monetary relief, which “yields substantial benefits to Settlement Class Members,” including:
- quicker vesting of matching contributions, and a guarantee that the vesting schedule will not be changed to a less generous schedule for a period of three years after the effective date of the settlement;
- funding of matching contributions in cash or cash equivalents – rather than SunTrust stock – for at least three years from the effective date of the settlement; and
- enhanced fiduciary training to the fiduciary committee for at least five years from the effective date of the settlement.
In making the case for the court’s approval of the settlement, the parties explained that the settlement occurred after “arm’s-length negotiations by experienced counsel which spanned several months and a full-day mediation session overseen and facilitated by Robert A. Meyer, Esq., of JAMS, a well-respected and experienced mediator, demonstrating the absence of any fraud or collusion.” Moreover, they noted that discovery efforts throughout the litigation were “intense on both sides,” with plaintiffs having “served 94 document requests and received more than 55,000 documents totaling more than 650,000 pages from Defendants.”
Determining Damages
The key issue in calculating damages is determining at what point SunTrust would be determined that they should have frozen or liquidated the employer stock holding, the so-called “breach date.” The settlement agreement explained that, under one set of assumptions, the defendants’ expert estimated a damages figure of about $36 million, while the plaintiffs said their assumptions produced a loss approximately twice that large (albeit under what was admittedly a “best case” scenario). The agreement concludes that “…one thing remains clear; damages in this Action would have involved a battle of experts, subjecting each side to risk,” concluding that the Settlement Amount of $4,750,000 “…is thus an excellent result in relation to the possible recovery at trial, reflecting no less than 6.6% of best-case recoverable damages…”
The parties also noted what has been evident in previous litigation; since the point in time when “Amgen clarified the Supreme Court’s prior decision in Fifth Third Bancorp v. Dudenhoeffer, no plaintiff in a similar action has survived a motion to dismiss, let alone a trial ... In light of the substantial risks of continued litigation, including recent potentially adverse authorities, Plaintiffs and Class Counsel believe the proposed Settlement, which provides for an immediate and meaningful recovery, is fair, reasonable, and adequate under governing law.”
“In sum,” they wrote, “the Settlement was achieved after substantial investigation and litigation by experienced counsel and lengthy settlement discussions presided over by an experienced neutral, confirming the propriety of the Settlement.”
