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Eley v. General Cable Corp

United States District Court, E.D. Kentucky, Northern Division, Covington

July 23, 2018

LONNIE E. ELEY, on behalf Of the General Cable Savings And Investment Plan, himself, And a class consisting of Similarly situated participants Of the Plan PLAINTIFFS
v.
GENERAL CABLE CORP., ET AL. DEFENDANTS

          MEMORANDUM OPINION AND ORDER

          William O. Bertelsman United States District Judge

         This matter is before the Court on defendants' motion to dismiss (Doc. 29). The Court previously heard oral argument on this motion and took the matter under advisement. (Doc. 45).

         Upon further study, the Court issues the following Memorandum Opinion and Order.

         Factual and Procedural Background

         Plaintiff Lonnie M. Eley, on behalf of a putative class of participants in the General Cable Savings and Investment Plan (“the Plan”), brings this action under §§ 404, 405, 409 and 502 of the Employee Retirement Income Security Act of 1974, as amended, for defendants' alleged breaches of fiduciary duties. (Am. Compl. ¶ 1) (Docs. 20, 25).[1] Count One of the Amended Class Action Complaint alleges breach of the duty of prudence; Count Two alleges breach of the duty of loyalty; and Count Three alleges breach of the duty to monitor. (Doc. 20 ¶¶ 153-188).

         Plaintiff contends that defendants permitted the Plan to continue to offer General Cable stock as an investment option even after defendants knew or should have known that the stock was artificially inflated because the company had not disclosed that employees of its foreign subsidiaries had violated the Foreign Corrupt Practices Act of 1997 (“FCPA”) by paying bribes to foreign government officials. (Id. ¶¶ 6-7). Plaintiff alleges that the stock was thus an imprudent investment, and defendants breached their duties of prudence and loyalty in offering the stock to Plan participants. (Id. at 5).

         From 2014 to 2016, General Cable publicly disclosed the possible FCPA violations. As a result, General Cable's stock price dropped, and Plan participants lost a significant portion of their retirement investments. (Id. ¶ 110-114).

         In December 2016, the company entered into agreements with the Department of Justice and the Securities and Exchange Commission to pay millions of dollars to settle FCPA-related charges against it. (Id. ¶¶ 115-117).

         In his Amended Complaint, plaintiff alleges that defendants should have taken steps to protect Plan participants from harm: (1) making early and candid disclosures of the company's FCPA violations (Id. ¶¶ 122-125); (2) freezing further purchases of company stock and holding contributions in cash “or some other short-term investment” (Id. ¶¶ 126-139); (3) seeking guidance from the Department of Labor or Securities and Exchange Commission (Id. ¶ 140); (4) resigning as Plan fiduciaries to the extent that could not act loyally and prudently (Id.); and (5) retaining outside experts to serve as advisors or independent fiduciaries for the Plan (Id.).

         Defendants have moved to dismiss the Amended Complaint, arguing that it fails to state a claim under applicable law. For the reasons that follow, the Court agrees.

         Analysis

         A. Breach of the Duty of Prudence

         ERISA requires a fiduciary to discharge his or her duties with respect to a Plan solely in in the interest of the participants and beneficiaries and “with the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent man acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims.” 29 U.S.C. § 1104(a)(1)(B).

         This duty of prudence applies to employee stock ownership plans (“ESOPs”) such as the General Cable plan, except that ESOPs need not be diversified. Fifth Third ...


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