By: Amanda Sonneborn and Chris Busey,           

In Metyk v. KeyCorp, No. 10-CV-2112 (N.D. Ohio Jan. 29, 2013),Judge Donald C. Nugent of the Northern District of Ohio granted Keycorp’s motion to dismiss in a sister case to  Taylor v. KeyCorp, Nos. 10-4163, -4198, -4199, (6th Cir. May 25, 2012), which was previously covered on this blog. 

Plaintiffs, on behalf of a putative class, brought claims against KeyCorp that mirrored those alleged in Taylor.  Specifically, they alleged that defendants breached various fiduciary duties by imprudently investing plan assets in KeyCorp stock despite knowing of the company’s financial problems. 

In Taylor, the Sixth Circuit held that the named plaintiff lacked standing because she did not suffer any actual loss. She had sold most of her stock in KeyCorp during the period in which it was alleged to be artificially inflated, thereby realizing a net profit from the sale.  The Sixth Circuit explicitly rejected plaintiff’s alternative investment theory.  Under that theory, her injury could be measured by comparing her actual position from the KeyCorp sale to what she would have realized had her money been invested in an entirely different investment option such as the S&P 500.

By contrast, Metyk involved plaintiffs who had purchased KeyCorp stock at the allegedly inflated price and who later sold it after the price declined.  Now, with plaintiffs capable of showing an apparent injury, the  jurisdictional issue was remedied and the court was able to proceed and rule on whether they could satisfy the requisite pleading standard in ERISA stock drop cases.  In analyzing that question, the court adopted the Supreme Court’s standard enunciated in Dura v. Pharmaceuticals, Inc. v. Broudo, 544 U.S. 336 (2005).  Although Dura was a securities fraud case, the Metyk court noted that “its common-sense analysis is equally applicable” in the ERISA context.  Under that standard, plaintiffs must plead sufficient facts to show not only economic loss, but that the loss was caused by the alleged breach of fiduciary duty.  That is, plaintiffs must present facts showing that they bought the stock at the inflated price and that the market later learned the truth about the alleged misrepresentation, causing the share price to fall significantly.  Plaintiffs here did not identify any instance where the truth regarding an alleged misrepresentation was revealed to the market or in which KeyCorp’s stock price dropped as a result.  Accordingly, the court dismissed plaintiffs’ claims. 

This decision further signals a general skepticism among the courts with respect to ERISA stock drop claims.  The adoption of the Dura pleading standard in the ERISA context raises the bar for plaintiffs seeking to challenge plan investments in company stock.  It also provides defendants with another chance to defeat these claims before costly discovery can ensue.