Home Depot Retirement Fund Holders Get Second Chance in Court

August 19, 2008, 04:15:00PM. By Julia Browne

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Atlanta, GA: Former Home Depot employees get a second chance at recovering losses to their ERISA portfolios after a federal appellation court reversed a dismissal of their lawsuit. Several lawsuits have been filed against Home Depot's former CEO and retirement plan management for the imprudent investment of employee retirement funds.
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On July 31, in the case of Lanfear vs Home Depot, the 11th Circuit Court of Appeals partially reversed a decision to dismiss a class action claim of breach of fiduciary duty. Plaintiffs said the benefits they received under the defined contribution plan were far below the level expected, caused by the artificial inflation of Home Depot stock value by the plan administrators.

Defense attorneys were able to have the case dismissed on the basis of the employees seeking damages and not benefits. The Employee Retirement Income Security Act of 1974 permits the recovery of benefits but not of damages. The defense also named the plaintiffs as 'participants', which means they are not entitled to sue for fiduciary duty. A federal court further added that the plaintiffs failed to exhaust all administrative remedies before filing a lawsuit.

One key question was whether such a complaint against the duty of the plan's administrators to act in the best interest of the fund holders states a claim for benefits. According to The Circuit Court, participant payments under a benefits plan were not affected by the value of the plan's assets, unlike those under a contribution plan, where a participant is entitled to the value of the assets in their account. Home Depot provides a contribution plan for its employees, therefore entitling them to the value of the assets in their account.

This case was originally filed in the Eastern District of New York then transferred to the Northern District of Georgia. In this suit, the complaints alleged that Home Depot's plan management allowed the investment of 401(k) retirement assets in company stock even though corporate officials were backdating the stock options, carrying out fraudulent transactions, which in turn falsely inflated the value of the stock, causing the value of the employees stock portfolio to plummet. The complainant's goal was to compel the restoration to the plan of the losses incurred on or after June 30, 2001.

Home Depot moved to have the suit dismissed on the grounds that the former employees were qualified as participants under ERISA law, did not exhaust their administrative remedies, and did not stake a claim on which relief could be granted. The district court concurred, dismissing the case. Unresolved at the time of the dismissal was whether litigation would be stayed so that former employees could administrative remedies.

The reversal of the dismissal allows the case to move forward. Although this case is two years old, the reversal extends a lifeline to retirees. Lawyers involved in the case see the decision as pro-business because it forces employees to take their complaint first to the company as an administrative remedy before filing a lawsuit.

Joelle Sharman, a partner at Atlanta's Ford & Harrison, likes the opinion because it 'puts all these extra procedural hurdles infront of the retiree and allows the employer time to fix the error if it did have an error'.

The case is estimated to be worth tens of millions of dollars, most likely to come from insurance money and not the pockets of the alleged miscreants--Home Depot's former CEO Robert Nardelli and the plan's administrators--or Home Depot's coffers. The company employs 330,000 in the U.S.

If your employee retirement fund has been affected by stock fraud, seek legal counsel for further advice.

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