Vanderbilt Law Review

First Page



Catherine Stevens had built her retirement savings "a dollar at a time over a lifetime of hard work" when it was "reduced to virtually zero" at Enron's collapse. "I feel very strongly that we have all been wronged," she said. Her plans for a secure future had been destroyed. Almost eight years after Enron's failure, stories like Catherine's persist, and employee retirement income security remains as comforting as an imaginary friend. A falling stock market in the wake of financial finagling leaves many employee retirement plans dangerously insecure. Employees like Catherine who bet their futures on their company's stock have seen some of the worst losses, with catastrophic results. Like imaginary friends, the reality of retirement security becomes clearer with age and utterly disappointing. As we grow up, we realize it doesn't exist.

In response to the financial finagling, many employees have filed lawsuits under the Employee Retirement Income Security Act of 2011] CERTIFYING THE ERISA STOCK-DROP CLASS 303 1974 ("ERISA"). According to legal and financial analysts, ERISA "stock-drop" litigation is steadily on the rise. But the proliferation of these lawsuits may be a cause for academic concern. ERISA law on its own already provides a complex yet shaky foundation, and with the inability of some plaintiffs to aggregate their claims, savings built "a dollar at a time over a lifetime of hard work" may crumble without recourse in the law.

Further complicating ERISA stock-drop litigation is the overlapping and evolving relationship with claims under Securities and Exchange Commission ("SEC") Rule 10b-5. One of the most common claims in an ERISA stock-drop lawsuit is that the pension plan's fiduciaries breached their duty of loyalty to plan participants by either misrepresenting the value of company stock or failing to disclose material information.' Because Rule 10b-5 lawsuits also challenge communications affecting the value of corporate securities, securities fraud and ERISA lawsuits often arise from the same underlying facts. Central to both of these claims is the security holder's feeling that she has been "wronged" by the fraudulent or otherwise dishonest conduct of the employer-defendant. The 10b-5 and ERISA plaintiffs both allege financial loss in connection with artificially inflated company stock and material omissions or misstatements of corporate insiders. Both target the same accounting errors, irregularities, or otherwise fishy corporate conduct and involve an overlapping set of defendants. Even so, courts maintain that 10b-5 and ERISA lawsuits are two different causes of action, which must be analyzed in different ways.