Home Depot 401(k) Participants Can Sue, Court Rules

A lawsuit that 401(k) participants filed against Home Depot and former executives—including Robert Nardelli and Ken Langone—has been given new life.

The suit, which was dismissed in district court, has now been revived by an appeals court ruling that asserted participants may sue the company to recover losses that were sustained from holding Home Depot stock in their 401(k) plans.

“It looks like we’ll have our day in court now,” said Robert Harwood, attorney for the plaintiffs in the class-action suit, which was led by former employee Raymond Lanfear, a Colorado resident. “We think the appeals court made the right decision.”

But before the suit can go back to the district court, the workers have to file an administrative appeal with the retirement committee at Home Depot, noted Ron DeFeo, a spokesman for the company.

“We’re pleased with this decision,” he said.

The district court had stated that the former employees leading the suit did not qualify as plan participants and dismissed the case, in part, for lack of subject-matter jurisdiction as a result. Technically, the district court argued, the former employees were suing to recover damages, not benefits—a ruling the appeals court stated was erroneous.

In the original complaint, the suit alleged that Home Depot and several of its executives breached their fiduciary duties to 401(k) participants by “failing to prudently and loyally manage the Plan’s investment in Home Depot Stock.” Specifically, the plaintiffs argued that the company’s stock was an imprudent investment option for plan participants after Home Depot’s share price began to decline in June 2001.

The former employees also contended that company contributions to the 401(k) should not have been made with Home Depot stock after this time, when shares of Home Depot were trading at roughly $50. By January 2003, the company’s stock had dipped below $21.

The former employees also argued that the decline began and occurred throughout a period when several of Home Depot’s top executives were improperly backdating their stock option grants—a charge that the company admitted to in 2006. The litigants claim the backdating played a role in further deflating the value of the company’s stock.

Filed by Mark Bruno of Financial Week, a sister publication of Workforce Management. To comment, e-mail editors@workforce.com