The U.S. District Court for the District of Minnesota found the plan participants who brought the suit were unable to overcome the presumption of prudence that applies to retirement plans that invest in employer stock. The court rejected their arguments that the presumption of prudence applies only when a plan is a true employee stock ownership plan, or when a plan mandates that employer stock be offered as an investment option.
The court pointed out that the presumption can apply to plans other than ESOPs, such as eligible individual account plans (EIAPs) that invest in employer stock, and there is no requirement that the plan mandate investment in employer stock before the presumption of prudence can apply.
The court allowed for the participants to file a third amended complaint to try to present sufficient facts to overcome the presumption of prudence by May 14.
The participants alleged that Medtronic stock was not a prudent investment during a time when the company had not disclosed that its subsidiaries were subject to two patent-infringement lawsuits. The two lawsuits were settled for hundreds of millions of dollars, and when the settlements were announced, the price of Medtronic stock dropped 13%.
The case is Wright v. Medtronic Inc., D. Minn., No. 09-CV-0443 (PJS/AJB), 3/17/10.