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.

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.

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.