NEW YORK (Reuters) - Richard Fuld, the former chief executive officer of Lehman Brothers Holdings Inc [LEHLO.UL], is not liable to onetime employees who suffered millions of dollars in losses in company stock as the bank descended into bankruptcy, a federal appeals court has ruled.
By a 3-0 vote, the 2nd U.S. Circuit Court of Appeals in Manhattan said Fuld and a Lehman benefit committee were not legally at fault for letting employees participate in an employee stock ownership plan that invested in company stock.
Friday’s decision upheld a July 2015 ruling by U.S. District Judge Lewis Kaplan in Manhattan, and could end one of the last lawsuits stemming from Lehman’s September 2008 collapse.
The Lehman plaintiffs lost despite a 2014 U.S. Supreme Court decision involving Fifth Third Bancorp (FITB.O) that lessened the defenses available to banks in similar cases.
Daniel Krasner, a lawyer for the employees, and Fuld’s lawyer, Todd Fishman, did not immediately respond to requests for comment.
Jonathan Youngwood, a lawyer representing benefit committee members, said the ruling “confirms that fiduciaries are not responsible for market and other forces beyond their control.”
Lehman workers sued under the Employee Retirement Income Security Act, a law often invoked when the prices of stocks included in corporate investment and retirement plans plunge.
The employees said Lehman’s benefit committee breached its duty of prudence by letting them invest in Lehman stock, while Fuld wrongly hid from the committee the imminence of the Wall Street bank’s demise.
But the appeals court said there had been a “cacophony of mixed signals” from investors, credit rating agencies, analysts and media about Lehman, and committee members were not at fault for “failing to recognize the imminence of Lehman’s collapse.”
Fuld, meanwhile, had no duty under ERISA to apprise the committee of material, nonpublic information about the soundness of Lehman stock as an investment, the court added.
Other director defendants were dismissed from the case in December 2014.
Lehman’s Chapter 11 filing helped trigger the 2008 global financial crisis. Its bankruptcy is the largest in U.S. history.
The case is In re Lehman ERISA Litigation, 2nd U.S. Circuit Court of Appeals, No. 15-2229.
Editing by Jeffrey Benkoe