A federal judge has dismissed a complaint by participants in an Allergan defined-contribution plan, rejecting allegations that company and plan executives violated their fiduciary duties by offering company stock in the plan menu.
The plaintiffs argued Allergan's stock was artificially inflated because the company had "misrepresented and failed to disclose adverse facts related to Allergan's business, operational and financial results," according to original lawsuits, filed in February 2017 and March 2017, that were consolidated into the single case, In Re: Allergan ERISA Litigation.
The lawsuits affect the Allergan Inc. Savings and Investment Plan and predecessor 401(k) plans. The Allergan plan had $2.43 billion in assets as of Dec. 31, according to the latest Form 5500 filing.
The plan participants, who sought class-action status, alleged that Allergan colluded with drug industry peers to fix generic drug prices that created excess revenues and that Allergan lacked "effective internal controls" over financial reporting.
Judge Susan Wigenton of the U.S. District Court in Newark, N.J., wrote in a July 2 opinion that such allegations were "insufficient" to show that some defendants — Allergan and Allergan's board of directors — were fiduciaries and that all defendants violated the Employee Retiree Income Security Act.
The judge also rejected the participants' claim that the defendants had violated ERISA's duty of prudence provision.
"Plaintiffs have not set forth sufficient facts to establish or even infer that defendants engaged in collusive and/or fraudulent activity," the judge wrote, adding that a series of suggestions by participants on what the defendants could have done failed to illustrate in detail whether such actions would have done more harm than good.
After dismissing the complaint about violating ERISA's duty of prudence, the judge then dismissed the complaint about violating ERISA's duty of loyalty provision, noting that "courts have routinely dismissed duty of loyalty claims that are derivatives of insufficiently pled duty of prudence claims."
The plaintiffs arguments about duty of loyalty "are premised on the same theories set forth in plaintiffs' breach of prudence claims," the judge wrote.
Having dispatched the prudence and loyalty complaints, the judge also dismissed the participants' complaint that plan executives failed to monitor the stock holdings in the retirement plan. Without either of these underlying complaints, the judge wrote the claim for an ERISA duty-to-monitor violation failed.
Robert Steyer is a reporter at InvestmentNews' sister publication Pensions&Investments.