Court Dismisses Stock Drop Case Against UBS

A federal district court judge has found a participant in the UBS Savings and Investment Plan (SIP) lacks standing to sue regarding the offering of UBS company stock in the plan’s investment lineup.

In part due to the lack of standing, the judge also denied the participant’s request to amend her complaint following the U.S. Supreme Court’s decision in Fifth Third Bancorp v. Dudenhoeffer that fiduciaries of employee stock ownership plans (ESOPs) are not entitled to any special presumption of prudence under the Employee Retirement Income Security Act (ERISA). 

U.S. District Judge Richard J. Sullivan, of the U.S. District Court for the Southern District of New York, first noted that to establish standing, a participant must show a personal injury was suffered due to the breaches alleged to have been committed by plan fiduciaries. He rejected plaintiff Debra Taveras argument that a plan participant need not show a direct, individualized injury to establish standing. Taveras said, “All of the cases that are relevant and germane and talk about damages in an ERISA case, talk about harm to the plan, as opposed to harm to individuals,” and that all of the cases to which she refers look at damages at the plan level, not the individual investor level. Sullivan said Taveras’ reliance on those cases “is misplaced, since those decisions involved ERISA plans that managed assets on behalf of plan participants, with each participant’s financial fortune tied to the plan’s overall success (or failure).” 

He noted that SIP participants directed the SIP to make investments on their behalf by choosing from a menu of investment options selected by the plan’s fiduciaries. Each participant’s individual SIP account was comprised of only the investments they personally selected, so it necessarily follows that Taveras can only demonstrate a constitutionally sufficient injury by pointing to her individual account’s specific losses during the class period. Sullivan pointed out that the complaint only says “as a direct and proximate result of the breaches of fiduciary duties alleged herein, the Plan, and indirectly Plaintiff and the Plan[’s] other Participants and beneficiaries, lost a significant portion of [its] investments meant to help Participants save for retirement.” According to Sullivan’s opinion, the complaint does not allege whether or when Taveras, through the SIP, purchased shares of the UBS Company Stock fund or when she sold those shares or the amounts of those investments. 

Regarding Taveras’ motion to amend her complaint in light of the Dudenhoeffer decision, the judge noted that Taveras had filed multiple complaints in the case, and the court already denied one such motion to amend, saying the time for Taveras to make a motion to amend has “come and gone.” Secondly, Sullivan said Taveras’ assertion that the Dudenhoeffer decision has changed the landscape for claims arising under ERISA “overshoots the mark.” He noted that, in this case, the 2nd U.S. Circuit Court of Appeals already determined that the presumption of prudence does not apply to the SIP because the company stock fund was not required to be offered as an investment choice by the plan document. So, the Supreme Court’s rejection of the presumption of prudence in general has little impact on Taveras’ case. 

Finally, Sullivan said Taveras’ lack of standing renders any attempt to amend the complaint “an exercise in futility.” 

Taveras alleged that the UBS defendants breached their duties to the SIP by failing to eliminate the UBS Company Stock fund from the menu of investments between April 26, 2007, and October 16, 2008. At the time, UBS suffered losses due to its heavy investments in residential mortgage-backed securities and collateralized debt obligations. 

Sullivan’s court opinion is here.