Lifetouch, Board of Directors Hit with Class Action Over Alleged Employee Stock Missteps

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Seven named plaintiffs have filed a proposed class action on behalf of current and former Lifetouch Inc. employees who participated in the company’s employee stock ownership plan and who were invested in the photography company’s stock between June 30, 2015 and the present. 

Though Lifetouch once ranked among of the country’s top-five employee-owned companies—at one point operating J.C. Penney’s and Target’s portrait studios—the rise of the digital age did the company no favors to help maintain its prominent position in the photography industry, the complaint begins. The 34-page lawsuit against Lifetouch, Inc., its board of directors and Newport Trust Company says the price of stock held by more than 16,000 employees began to decline in 2015; a year later, Lifetouch stock dipped five percent more, while 2017 saw a 36 percent drop. This “downward spiral” continued right up until Lifetouch announced in January 2018 that it would acquire Shutterfly for $825 million, a price the complaint claims “indicates a further decrease of 17.5% in only a few months’ time.” Per the suit, while Lifetouch was seemingly intent on making moves to better position itself within a rapidly changing, digitalized industry, things did not add up for those involved in its employee stock plan.

“Since June 30, 2015, the value of Lifetouch stock held by the Plan decreased by over $840 million, or over 50%,” the lawsuit charges, adding that a rough calculation shows this as an average loss of more than $52,000 in retirement savings for nearly everyone of Lifetouch’s employee stockholders.”

Between 2015 and Lifetouch’s acquisition of Shutterfly, the defendants allegedly shirked their responsibilities to stockholders in violation of the Employee Retirement Income Security Act (ERISA). As the lawsuit frankly claims, making Lifetouch stock the largest single investment purchased and held by the employee stock plan was imprudent in that it was overvalued in 2015 and 2016 and was evidently in rapid decline. This was no surprise to the defendants, the case alleges: 

“The Trustee knew both of these facts because it was responsible for determining the value of Lifetouch stock,” the plaintiffs allege. “The Board not only knew both of these facts, because it controlled the entire company and had unfettered access to and knowledge of all operational and financial data, but also because it actively condoned the overvaluation period for the benefit of Lifetouch’s retiring senior executives, including one of the Board’s own members, then-CEO (and current Defendant) Paul Harmel.”

Lifetouch’s senior executives were able to redeem company stock they held during 2015 and 2016 at favorable share prices even as Lifetouch was facing widespread closures of its J.C. Penney and Target studios, the lawsuit continues. While top execs began to retire in 2015 and 2016, taking their liquidated plan accounts with them, the defendants allegedly continued to welcome contributions to Lifetouch’s stock plan and buying shares at overvalued prices. Though no prudent fiduciary would’ve continued investing in Lifetouch stock or keeping such holdings in the employee plan, the defendants did nothing to plug the dam as employees’ retirement savings suffered catastrophic losses, the suit claims.