Trustees of the former Seventy Seven Energy Inc. agreed to pay $15 million to settle a lawsuit alleging the company’s 401(k) plan violated ERISA rules against undiversified holdings when it retained shares of its former parent company, Chesapeake Energy Corp.
The settlement agreement was filed April 21 in a U.S. District Court in Oklahoma City.
The settlement, which must be approved by the court, covers a class of 401(k) plan participants from July 1, 2014 through February 28, 2021. About 4,000 participants could be affected by the settlement, according to the settlement document. .
Seventy Seven Energy, Oklahoma City, was taken public by Chesapeake Energy in June 2014. Its 401(k) plan contained both company stock and Chesapeake stock.
In April 2017, Seventy Seven Energy, an oil services company, was acquired by Patterson-UTI Energy Inc.
Patterson-UTI, Chesapeake and their trustees were not defendants in Christopher Snider v. Administrative Committee, Seventy Seven Energy Inc. Retirement & Savings Plan, et al.
The Seventy Seven Energy plan held Chesapeake stock from July 1, 2014 through December 31, 2017, when the Seventy Seven Energy plan was merged into the Patterson-UTI Inc. 401(k) profit sharing plan.
Mr. Snider, a participant in the 401(k) plan, sued in September 2020, arguing that the plan’s holding of Chesapeake stock was reckless and violated an ERISA rule prohibiting offering undiversified investments. Company shares are exempt from this requirement.
The defendants decided to dismiss the case, but Timothy D. DeGiusti, Chief Judge of the U.S. District Court in Oklahoma City, ruled in October 2021 that most of Mr. Snider’s allegations could go to trial. The parties then requested mediation.
“Defendants deny all allegations of wrongdoing, fault, liability or damages to Plaintiff and the Settlement Class and deny any wrongdoing or violation of law or breach of fiduciary duty,” reads the settlement document.
“Defendants argue that the plan trustees used a robust and thorough process to select, monitor and remove investment options from the plan, informed plan participants of the risk of investing in Chesapeake stock, (and) n ‘have not authorized new investments in Chesapeake stock after the plan was established,’ the document states.
Seventy Seven Energy Inc., Oklahoma City’s retirement and savings plan had $77 million in assets as of December 31, 2016, the company’s most recent Form 5500 filing.
The Patterson-UTI Inc. 401(k) Profit Sharing Plan, Snyder, Texas, had assets of $209 million as of December 31, 2020, according to the latest Form 5500.