Breach of Fiduciary Duty

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What do you do if you’re a milling and animal feed manufacturer saddled in scandal because you produced horse and cattle feed containing a fatal amount of monensin?  Apparently, you sell your stock to an ESOP at an overly inflated price.  That’s at least what the plaintiff alleges in this week’s notable decision, Zavala v. Kruse-Western, Inc., et al., No. 119CV00239DADSKO, 2019 WL 3387102 (E.D. Cal. July 26, 2019).  

Following Kruse-Western’s expensive settlements related to monensin poisoning of horses and cattle, and allegedly with the knowledge of significant future liabilities, the Western Milling Employee Stock Ownership Plan (the “ESOP”) was created.  Zavala, a current ESOP participant, alleges various violations related to the sale of Kruse-Western stock to the ESOP.  The ESOP purchased the stock from Kruse-Western and the other defendant “selling shareholders,” which the ESOP financed by borrowing the entire purchase price of $244 million from Kruse-Western.  The value of Kruse-Western stock fell shortly thereafter, with only marginal recovery, such that within two years of the ESOP’s creation, the ESOP had purchased Kruse-Western’s outstanding stock for nearly ten times its actual value.  And like monensin, that’s a hard pill to swallow.
Continue Reading Dudenhoeffer Does Not Defeat Breach of Fiduciary Duty Claims Related to ESOP Purchase of Inflated Company Stock

Good morning, ERISA Watchers!  It’s been a beautiful sunny weekend here in San Francisco.  Unfortunately, it hasn’t been so sunny for participants investing in SunEdison stock.  This week’s notable decision is Usenko v. MEMC LLC, No. 18-1626, __F.3d__, 2019 WL 2344827 (8th Cir. June 4, 2019), where the Eighth Circuit affirmed the district court’s dismissal of this putative class action alleging that Defendants breached their duty of prudence with respect to keeping SunEdison stock in the defined-contribution retirement savings plan.  Plaintiffs alleged that Defendants knew, or should have known, that between July 20, 2015 and April 21, 2016 that SunEdison was in poor financial condition and they should have removed SunEdison stock from the plan’s assets.  
Continue Reading Second and Eighth Circuits Affirm Dismissal of Imprudent Investment Lawsuits Involving SunEdison Stock

Good morning, ERISA Watchers!  There were several appellate court decisions this past week, but I want to highlight a district court case that presents a good lesson for employers and plan participants alike when it comes to changes to plan benefits.  In Boyles, Jr. v. American Heritage Life Insurance Company, et al., No. 3:15-CV-274, 2019 WL 1767565 (W.D. Pa. Apr. 22, 2019), Plaintiff Boyles brought suit for the denial of disability benefits against his former employer, St. Marys Insurance Agency; the president of his former employer, Jeffrey Azzato; the employer’s former long-term disability insurer, Allstate; and the employer’s current LTD insurer, Unum.  He also alleged that Azzato and St. Marys breached their fiduciary duties to him.
Continue Reading Court Holds Employer Has No Affirmative Duty to Inform Participant of Change in Disability Insurers