Compliance January 2, 2009

Federal Judge Executes Turnaround on Company Stock Suit

A federal judge in Ohio has reversed course on a company stock suit filed by former Owens-Corning employees with a new ruling that the suit was filed too late.
Reported by

U.S. District Judge Jack Zouhary of the U.S. District Court for the Northern District of Ohio issued the new ruling last week after the company asked him to reconsider his earlier holding that the ex-employee suit alleging a fiduciary breach under the Employee Retirement Income Security Act (ERISA) had been filed in time. ERISA sets out a three-year statute of limitations for fiduciary breach claims.

The employees had argued the breach occurred when the company continued to offer its stock as an investment option right before its 2000 bankruptcy filing.

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However, after considering additional legal papers filed in the case and the most recent federal case law on ERISA fiduciary breach claims related to company stock offered in retirement plans. Zouhary ultimately agreed with the company that the employees had “actual knowledge” that was enough to start the three-year legal “clock” ticking when the bankruptcy filing occurred.

The court rejected the employees’ contention that the statute of limitations should not have begun at the bankruptcy filing because they did not know that their tax code Section 401(k) plan had fiduciaries responsible for the plan’s investment options. Zouhary said that the communications received by the employees in the fall of 2000 did not specifically name the plan’s fiduciaries, but the communications did demonstrate that someone was exercising discretionary oversight of the plan.

That represented a stark turnaround from Zouhary’s first ruling when Zouhary turned away Owens Corning’s request to throw out the employee suit as being too late. In that first decision, Zouhary said that while the employees knew in 2000 that “something was awry” at Owens Corning, the knowledge was not enough to trigger the running of the statute of limitations.

Between 1996 and 2000, Owens Corning paid over $2.4 billion to resolve asbestos liability claims. Although it made attempts to manage its asbestos liability, by October 2000 the company was forced to file for bankruptcy.

The latest opinion in Brown v. Owens Corning Investment Review Committee, N.D. Ohio, No. 3:06 CV 2125, 12/24/08 is available here.


The Markets December 31, 2008

U.S. Mutual Fund Asset Fall Slows in November

The combined assets of the nation's mutual funds decreased by $261.65 billion, or 2.7%, to $9.355 trillion in November, according to the Investment Company Institute (ICI).
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Long-term funds—stock, bond, and hybrid funds—had a net outflow of $41.31 billion in November, compared to an outflow of $127.55 billion in October (see “Mutual Fund Assets Plunge in October“).

Stock funds posted an outflow of $21.74 billion in November, compared with an outflow of $72.44 billion in October, ICI data showed. World equity funds (U.S. funds that invest primarily overseas) posted an outflow of $8.70 billion for the month, while funds that invest primarily in the U.S. had an outflow of $13.04 billion.

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Bond funds had an asset loss of $14.51 billion in November, compared with a $40.72 billion asset loss in October. Taxable bond funds posted an outflow of $13.36 billion, and municipal bond funds posted a $1.15 billion outflow.

Hybrid funds saw an asset loss of $5.06 billion for the month, a smaller outflow than the $14.39 posted in October.

Money market funds were the only asset winners with an inflow of $122.43 billion in November, compared with an inflow of $143.52 billion in October. Funds offered primarily to institutions posted an inflow of $108.79 billion, while funds offered primarily to individuals had an inflow of $13.64 billion.

The ICI data are here.

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