Court Dismisses Company Stock Suit against Harley-Davidson

The U.S. District Court for the Eastern District of Wisconsin has dismissed a lawsuit accusing Harley-Davidson and some of its executives of breaching fiduciary duties by continuing to offer company stock as an investment option in the company's retirement plans.

After first determining that former employee Lisa Bosman had standing to sue even though she had cashed out her retirement plan account, Chief U.S. District Judge C. N. Clevert, Jr., said that “stating a valid claim of imprudence under these circumstances requires more than allegations that there were gaps between supply and demand and a corresponding bad quarter.”

Dismissing the suit for failure to state a claim, Clevert likened Bosman’s claims to those in Edgar v. Avaya, in which the 3rd U.S. Circuit Court of Appeals found that a disruption in sales and the corresponding drop in stock price do not create the type of dire situation which would require defendants to disobey the terms of the plans by not offering company stock as an investment option, or by divesting plans of company stock (see “Case Sensitive: ‘Dire’ Circumstance”).

In addition, Clevert said, “Bosman’s assertions are even more dubious given that the April 2005 stock price drop was in no way indicative of a chronic, deteriorating financial condition.” He noted the company’s stock prices generally increased throughout the remainder of the class period.

According to the opinion, the retirement plans at issue gave participants a choice of 19 funds, including the Harley-Davidson Stock Fund, and company match contributions were invested in the company stock fund, but were only required to remain there until participants were fully vested at three years of service or until age 55. The opinion also said that the SPD warned in bold, all-capital letters that “IT IS VERY IMPORTANT THAT YOU NOT PUT ALL OF YOUR RETIREMENT SAVINGS IN JUST ONE FUND – AND THIS INCLUDES THE HARLEY DAVIDSON COMMON STOCK FUND.”

Bosman had invested all of her plan assets in company stock.

She asserted in her suit that Harley-Davidson was shipping to dealers more motorcycles than were being sold, and that Harley-Davidson Financial Services (HDFS) lowered credit standards to boost sales. The complaint asserts that these practices were intended to deceive the market and to cause Harley stock to trade at inflated prices, leading to an April 13, 2005, announcement that Harley was adjusting its shipment and earnings projections, which caused a 23% drop in the value of Harley stock over the next several days of trading.

The case is In re Harley-Davidson Inc. Securities Litigation, E.D. Wis., No. 05-C-0547-CNC, 10/8/09.