Exxon Beats 401(k) Investors’ Lawsuit Over Inflated Stock

  • United States
  • 04/03/2018
  • Bloomberg Law

Exxon Mobil Corp. defeated, for now, a lawsuit by investors in the company’s 401(k) plan accusing the company of violating federal benefits by allegedly knowing that company stock had become artificially inflated in value due to fraud and misrepresentation related to climate change research.

The investors failed to allege sufficient facts to bring a duty of prudence claim based on publicly available information against Exxon and its plan fiduciaries, Judge Keith P. Ellison of the U.S. District Court for the Southern District of Texas held March 30.

The investors also failed to bring a claim that Exxon violated the duty of prudence on the basis of non-public information, Ellison said. The investors failed to allege alternative actions the fiduciaries could have taken that a prudent fiduciary under the same circumstances wouldn’t have viewed as more likely to harm the fund than to help it. The investors raised three alternative actions the fiduciaries could have taken to lessen the damage to them, including early corrective disclosures, halting new investments, and investing in a low-cost hedging product.

The decision is the latest defeat for workers who have been challenging losses in retirement savings following drops in company stock price under the Employee Retirement Income Security Act. These challenges have seen almost no success since 2014, when a U.S. Supreme Court decision made it harder to bring fiduciary breach claims under ERISA.

Since then, a growing list of companies and their executives have defeated stock-drop lawsuits, including RadioShack Corp., Wells Fargo, Target Corp., Cliffs Natural Resources Inc., Reliance Trust Co., Lehman Brothers Holdings Inc., State Street Bank & Trust Co., Citigroup, Whole Foods Corp., JPMorgan Chase & Co., L-3 Communications, and BP Plc. Last month, SunTrust agreed to pay $4.75 million to settle allegations that it imprudently offered company stock as an investment option in its 401(k) plan.

Ellison’s decision is the latest development in the investors’ 2016 lawsuit accusing Exxon of failing to disclose to them the true state of its hydrocarbon extraction business, allowing the company’s stock to be inflated. When Exxon made disclosures about its business state, the stock price plummeted, causing workers who invested in the company’s stock to lose large amounts of money in their retirement accounts.

While “Exxon’s decades-long misinformation campaign about the causes and effects of climate change” shouldn’t be “understated,” the lawsuit didn’t provide sufficient reason to believe that the risks of climate change weren’t incorporated into the stock price, Ellison said.

Ellison granted the investors leave until April 30 to amend their allegations.

Zamansky LLC and Skelton & Wood represent the investors. Paul, Weiss, Rifkind, Wharton & Garrison LLP and Haynes & Boone LLP represent Exxon.

The case is Fentress v. Exxon Mobil Corp., 2018 BL 112905, S.D. Tex., No. 4:16-cv-03484, order granting defendants’ motion to dismiss 3/30/18.

To contact the reporter on this story: Carmen Castro-Pagan
in Washington at ccastro-pagan@bloomberglaw.com

To contact the editors responsible for this story: Jo-el J.
Meyer at jmeyer@bloomberglaw.com; Martha Mueller Neff at