District Court Explores Application of Dudenhoeffer to Private Companies

The District Court of Northern California dismissed a class-action lawsuit against the ESOP company Singler-Ernster, a California pizza-franchise operator, but left open the possibility of an amended complaint. The plaintiffs argued that it was not prudent to invest an additional $250,000 for the ESOP to purchase more company shares. In Fifth Third Bancorp v. Dudenhoeffer, the Supreme Court ruled that plaintiffs must show an alternative action, and in Hill v. Hill Brothers Construction, a district court in Mississippi extended that principle to privately held companies. The judge ruled that the plaintiffs had not alleged sufficient plans to support a claim, but also allowed the plaintiffs to amend their complaint.