A federal judge has certified a class action ERISA suit against Comcast Corp. in which employees of the cable television giant claim they suffered losses in the company stock fund because it was heavily invested in Comcast stock during a period when its price was falsely inflated.
At the heart of the suit are accusations that Comcast executives made overly optimistic predictions about the company's growth in early 2007, driving the price of the stock up, despite being aware of market forces that were sure to result in significantly lower growth.
Many of Comcast's subscribers had joined under a promotional package known as the "Triple Play" -- a bundle consisting of telephone, video and Internet services that was discounted to $99 per month for the first year -- but the company was facing intense competition from AT&T and Verizon, which were offering similar discounts. As a result, the suit said, Comcast saw tens of thousands of subscribers defect to its competition in 2007.
The plaintiffs team -- led by attorneys Mark C. Rifkin of Wolf Haldenstein Adler Freeman & Herz in New York and Michael D. Donovan of Donovan Searles in Philadelphia -- alleges that the truth was revealed in a series of disclosures over the course of 2007 that caused Comcast's stock price to plummet from a high of more than $28 in February to just over $18 in December.
Nearly identical accusations were also lodged in a securities fraud suit brought by outside investors. But Comcast dodged a bullet in 2008 when a federal judge tossed out the securities fraud suit after concluding that the investors had failed to back up their claims that Comcast executives were aware of the falsity of their bullish statements at the time they made them.
"Plaintiffs do not identify specific documents that would contain facts or figures indicating that any of the 'undisclosed true facts' were true or known to the defendants, much less any other details about the content of those documents," Chief U.S. District Judge Harvey Bartle III wrote.
Instead, Bartle found, the allegations in the suit were limited to a "barebones sketch" of how budget and subscriber data documents are purportedly compiled and reviewed at Comcast.
Now the same judge, in Moore v. Comcast Corp., has ruled that similar claims by investing employees are subject to a less exacting standard because the Employee Retirement Income Security Act allows company stock plan participants to allege that the company breached its fiduciary duty by failing to make "prudent" investments.
The ERISA class action was filed on behalf of a class of more than 89,000 participants in the plan which, at the end of 2006, had assets of about $2.2 billion, with approximately 13 percent, or $293 million of the plan assets, consisting of Comcast stock.
Comcast's defense team, led by M. Norman Goldberger of Ballard Spahr Andrews & Ingersoll, argued that lead plaintiff Janell Moore had no standing to sue because she can't claim to have suffered a loss since she realized a profit of nearly $8,000 in her sale of Comcast stock options.
In their motion to dismiss, the defense team argued that any loss that Moore suffered in her plan holdings must be offset by the enhanced gain that she realized through her sale of Comcast options.
Bartle disagreed, saying, "In our view, Moore's unrelated sale of Comcast stock options has no relevance as to whether she has suffered any injury from defendants' purported breach of ERISA fiduciary duties with respect to the plan." Moore's stock options were granted to her and sold by her "in transactions outside of and independent of the plan," Bartle noted.
"The defendants fail to cite to a single case where a court has applied non-plan profits to the calculation of an ERISA plaintiff's plan losses," Bartle wrote.
Bartle also rejected a defense argument that Moore would be barred from suing by the terms of a release she signed at the time her employment with Comcast was terminated.
Such a release would not bar Moore from pursuing the sort of ERISA claim she filed, Bartle found, because Comcast had a "continuing duty" under ERISA to review the prudence of the plan's holdings and divest the plan of imprudent funds.
"If the defendants failed properly to exercise that duty throughout the class period, defendants have committed a continuing wrong," Bartle wrote.
"As a continuing wrong, the breach of fiduciary duty is continually arising anew. Thus, the release does not bar Moore from proceeding with the claim," Bartle wrote.
Goldberger could not be reached for comment on the ruling.