Court Grants Class Certification in First Horizon 401(k) Suit

The U.S. District Court for the Western District of Tennessee has granted conditional class certification in a lawsuit concerning the 401(k) plan of First Horizon National Corporation (FHN).

The suit seeks to recover lost funds for employees of First Horizon National Corporation due to their investments in First Horizon stock and/or the First Funds, a family of First Horizon mutual funds, when it was no longer prudent to do so.   

According to an announcement from law firm Stember Feinstein Doyle & Payne, LLC, in granting conditional class certification, the district court found that plaintiffs put forward sufficient evidence to conditionally certify two subclasses of participants of the FHN 401(k) plan. The court found that plaintiffs needed to present an additional named plaintiff in order to represent participants who signed releases when they terminated their employment.   

The suit alleges that the FHN Stock Fund was an imprudent retirement investment from at least January 1, 2006, through July 14, 2008, because (1) First Horizon had assumed massive new risks of default and loss through its banking practices in an effort to fuel national growth; (2) the Company lacked the credit review, audit, or accounting infrastructure to adequately identify and manage those risks; and (3) it did not properly reserve for the losses on its risky products, so that the plan was purchasing shares of FHN Stock at an inflated price.

According to plaintiffs, First Horizon was taking undue risks related to the lowering of its underwriting standards; the scope and circumstances of its involvement with subprime, Alt-A, second-lien loans (i.e., home equity loans), and “One Time Close” home building loans; its growing dependence on real estate construction loans fueled by the increase in subprime mortgages; problems with its accounting for loan losses and loan reserves which did not reflect its higher risk business plan; and its increasing use of off-balance sheet transactions and proprietary securitizations of loans which did not comply with government-sponsored entity conforming mortgage guidelines.   

As for the First Funds, plaintiffs assert that from May 9, 2002, through June 5, 2006, the plan’s fiduciaries maintained investment offerings in the First Funds even though most of those funds under-performed their peers. Plaintiffs also allege that plan fiduciaries did not select the First Funds because they were prudent retirement investments but rather because offering such funds generated fees to First Horizon and its affiliates and helped maintain the viability of the funds.   

The case is Yost v. First Horizon National Corporation, Case No. 08-2293-STA-cgc.