Category: ERISA Litigation

Federal Appeals Court Reinforces Protection for Worker Class Action Rights in ESOP Action

Bailey Glasser’s ERISA litigation team won another victory before the U.S. Court of Appeals for the Second Circuit, which declined to reconsider a May 2024 ruling that an employee stock ownership plan trustee and selling shareholders in a stock sale to the plan can’t compel individual arbitration of a representative action on behalf of the plan accusing them of overcharging the plan, rejecting the trustee’s argument that the panel unfairly displayed “hostility to arbitration.”

In an order filed on July 9, the Second Circuit rejected Argent Trust Co.’s petition for panel rehearing or rehearing en banc, doubling down on its divided May 1 opinion that found allowing arbitration would have prevented a plan participant from seeking plan-wide remedies authorized by federal benefits law.

The case involves a proposed class of employees seeking relief under federal ERISA law. This decision addressed one of the most important issues in employee benefits litigation today: whether ERISA plan sponsors can force employees to waive plan-wide relief in favor of individualized arbitration, thereby gutting participants’ ability to enforce the core private right of action ERISA affords. This repeated victory for participant rights follows a victory by BG’s ERISA litigation team on the same issue before the Third Circuit in June 2023.

The Court’s May 2024 opinion backed the Southern District of New York’s November 2021 order denying a motion to compel arbitration of an ESOP participant’s suit alleging mismanagement by Argent, which served as trustee to debt relief company Strategic Financial Solutions’ ESOP, and the selling shareholders and their trusts.

The Bailey Glasser team in this matter is comprised of partner and Practice Group Leader Gregory Porter and partner Ryan Jenny, both in Bailey Glasser’s Washington, D.C. office. Co-counsel in this case is Tillman J. Breckenridge, Peter K. Stris, Rachana A. Pathak, and John Stokes of Stris & Maher LLP.

To learn more about our award-winning ERISA practice – including our 2025 nationwide Chambers & Partners ranking, visit this link: https://www.baileyglasser.com/services-erisa-employee-benefits-and-trust-litigation

The case is Dejesus Cedeno v. Argent Trust Co., docket number 21-2891, U.S. Court of Appeals for the Second Circuit.

For more, read this Law 360 article: https://www.law360.com/articles/1856532?e_id=e710f5b1-e0ec-4910-bc7f-0d1e404a2625&utm_source=engagement-alerts&utm_medium=email&utm_campaign=similar_articles?copied=1

Bailey Glasser Defeats Motion to Dismiss in Schwab Managed 401(k) Action

BG secured an important win for employee participants of the Vituity and MedAmerica 401(k) retirement plan. On Friday, U.S. District Court Judge Richard Seeborg of the Northern District of California ruled on a motion to dismiss filed by CEP America and the MedAmerica Retirement & Benefits Committee, which oversees the 401(k) plan offered to employees and retirees of Vituity and MedAmerica. In his ruling denying the motion in part, Judge Seeborg noted that the Complaint alleges that the fees charged by recordkeepers to other 401(k) plans “were multiples less than those charged” by Schwab.

The employees, represented by Greg Porter, BG’s ERISA Practice Group Leader, and ERISA partner Mark Boyko, allege that the Defendants violated ERISA laws by allowing millions of dollars of their retirement savings to go to Schwab’s recordkeeping arm and to MedAmerica. The Plaintiffs also alleged that Schwab’s excessive compensation included Schwab receiving benefits from the 401(k) Plan’s use of Schwab’s bank savings account.

“Employers need to understand and accept their responsibility for prudently managing 401(k) plans free from conflicts of interest and self-dealing,” Boyko said. “We look forward to pursuing this matter on its merits.”

The case is Nagy, et al., v. CEP America, LLC, et al, No. 23-cv-5648, and is pending in the Northern District of California.

BG’s award-winning ERISA, Employee Benefits & Trust Litigation practice has been ranked by Chambers & Partners in the Nationwide ERISA Litigation: Mainly Plaintiffs category. Learn more about our ERISA services here.

Greg Porter, BG’s ERISA Practice Group Leader, has also received top rankings by Chambers in Nationwide ERISA Litigation: Mainly Plaintiffs (Band One). Learn more about his practice here.

And for more on ERISA partner Mark Boyko, visit here.

#ERISA #401k #Retirement

Federal Appeals Court Protects Worker Class Action Rights, Rejecting Demands for Individual Arbitrations

Bailey Glasser’s ERISA litigation team won a victory before the U.S. Court of Appeals for the Second Circuit on behalf of a proposed class of employees seeking relief under federal ERISA law.

The Second Circuit ruled May 1st that an employee stock ownership plan (ESOP) trustee and former shareholders of the ESOP’s wholly-owned financial services firm can’t compel individual arbitration of a proposed class action accusing them of overcharging the ESOP for company stock, saying that doing so would prevent a plan participant from seeking plan-wide remedies authorized by federal benefits law. In a 2-1 decision, the court ruled that the lower court was right to deny the motion to compel arbitration by Argent Trust Co., which served as trustee to Strategic Financial Solutions, LLC’s ESOP, and the former shareholders. Plaintiff and BG client, employee Ramon Dejesus Cedeno, filed the Employee Retirement Income Security Act (ERISA) suit in November 2020, alleging the defendants cost the retirement plan and its participants millions when they overcharged the ESOP in a $242 million sale of company stock.

The ruling comes more than a year after oral arguments in which a three-judge federal appeals panel questioned whether individual arbitration could be forced on Dejesus Cedeno given a plan participant’s right to seek relief on behalf of a plan as a whole under ERISA Sections 409(a) and 502(a)(2). The majority decision held that arbitration could not be so compelled, writing: “Because Cedeno’s avenue for relief under ERISA is to seek a plan-wide remedy, and the specific terms of the arbitration agreement seek to prevent Cedeno from doing so, the agreement is unenforceable.” This decision addressed one of the most important issues in employee benefits litigation today: Whether ERISA plan sponsors can force employees to waive plan-wide relief in favor of individualized arbitration, thereby gutting participants’ ability to enforce the core private right of action ERISA affords. This victory for participant rights follows a victory by BG’s ERISA litigation team on the same issue before the Third Circuit in June 2023.

The Bailey Glasser team in this matter is comprised of partner and Practice Group Leader Gregory Porter and partner Ryan Jenny, both in Bailey Glasser’s Washington, D.C. office. Co-counsel in this case is Tillman J. Breckenridge, Peter K. Stris, Rachana A. Pathak, and John Stokes of Stris & Maher LLP.

To learn more about Gregory Porter, visit this link.

To learn more about Ryan Jenny, visit this link.

To learn more about our award-winning ERISA practice, visit here.

To read a Law 360 article about this win, visit this link.

BG Files Amicus Brief on Behalf of Military Veterans

Bailey Glasser filed an amicus brief supporting military families opposing arbitration sought by Citibank in the case Pablo Espin v. Citibank, N.A., currently pending before the United States Court of Appeals for the Fourth Circuit. The Amici Curiae represented are the National Guard of the United States, the Military Officers Association of America, and the Reserve Organization of America. This case involves a proposed class of military members who are arguing that Citibank cannot force them to arbitrate claims the bank overcharged credit card fees, arguing federal laws on military-member lending negate arbitration agreements.

ERISA Practice Group Leader and former veteran Greg Porter stated: “We are proud to support military families in opposing Citibank’s efforts to force their claims into arbitration. As a veteran who served overseas, I understand the challenges that military families face when members are serving outside the country.”

Greg served four years in the United States Army, including 18 months on the demilitarized zone in Korea where he was part of the Joint Security Area forces in Pan Mun Jom. We thank Greg and all veterans for their service.

To learn more about Greg Porter visit this link.

To learn more about our ERISA and ESOP practice visit this link.

Bailey Glasser Wins Partial Summary Judgment in Symbria ESOP Litigation

On March 25, 2024, Bailey & Glasser, LLP won a motion for partial summary judgment in the U.S. District Court for the Northern District of Illinois in the case Placht v. Argent Trust Company, Case No. 21-cv-5783. The lawsuit claims that Argent, the trustee for the Symbria Inc. Employee Stock Ownership Plan (the “ESOP”), caused the ESOP to purchase $66,500,000 of Symbria, Inc. stock for more than fair market value, violating federal pension law in the ERISA statute. The court held that the plaintiff proved every element of her ERISA prohibited transaction claims, removing the need to provide additional proof of these elements at trial.

The court made important rulings of law in favor of the plaintiff and beneficiaries of employee benefit plans generally.

First, the court rejected Argent’s argument that the plaintiff’s claim that Argent caused the ESOP to engage in a prohibited transfer of plan assets to “parties in interest” to the ESOP requires a showing of subjective intent to benefit such parties through the transfer. The court explained that rejecting a subjective intent requirement comports with Congress’ intent for the statute to set forth per se violations, for which the parties’ intent should have no bearing as to whether a violation occurred. This has been a hotly contested issue in ERISA litigation.

Second, the court rejected Argent’s argument that an affirmative defense that the ESOP paid “adequate consideration” thwarted the plaintiff’s claims concerning the allegedly prohibited and imprudent stock transaction. Referring to facts adduced by the plaintiff and the plaintiff’s experts’ analyses, the court held that “factual questions exist as to whether Argent acted prudently and ensured that the Plan paid no more than ‘adequate consideration’ for the Symbria stock.” Therefore the plaintiff’s “claims and Argent’s defenses with respect to the ESOP Transaction must proceed to trial.” This decision puts plan fiduciaries to their proof and is precedent that, rather than being decided on a premature summary judgment, trials are required on the fact-intensive inquiry into the diligence of trustees’ stock valuations and transaction negotiations.

For more visit here.

BG ESOP Lawsuit Noted in New York Times Article

The New York Times reported on a lawsuit filed by Bailey Glasser. The article, titled “He Grew Up in the Shadow of the ‘Wolf of Wall Street.’ Then He Got Into Debt Settlement” (Saturday, February 10, 2024), details a debt settlement operation run by Ryan Sasson (the stepson of Stephen Drescher, a close associate of Jordan Belfort, the self-proclaimed “Wolf of Wall Street”) across several states and involving various entities and law firms – and even shoe designer Steve Madden – now facing serious civil fraud changes brought by the Consumer Financial Protection Bureau and the attorneys general of New York, Colorado, Delaware, Illinois, Minnesota, North Carolina and Wisconsin.

To cash out his stake in the company before the regulators pounced, Sasson sold the company to “to its employees, through a financial transaction known as an ESOP (Employee Stock Ownership Plan). The deal valued the company at $242 million. Mr. Sasson described the transaction as something of a gift to the employees — ‘our Strategic family,’ he called them — who had built the company. Mr. Sasson had, effectively, cashed out. His employees now owed 100 percent of Strategic.”

Bailey Glasser’s highly experienced ESOP team filed a lawsuit challenging the fair market value of the $242 million ESOP transaction, which the Times linked to in its article. In 2019, the ESOP trust allowed Sasson and others to reap an additional $104.5 million from the ESOP, supposedly because the company met certain targets. Sasson and the other defendants are trying to move the lawsuit to a secret arbitration proceeding and limit the damages to a fraction of the excess money paid to Sasson and others. A decision from the Second Circuit Court of Appeals on that issue is forthcoming.

Our award-winning and nationally ranked ERISA/ESOP team has deep experience in handling matters such as the one described by the New York Time article and has recovered hundreds of millions of dollars on behalf of employees and retirees. To learn more about our ERISA group visit here.

To read the New York Time article, visit here

Law360 Covers ERISA Team’s Win Over Attempted Motion to Dismiss

Bailey Glasser’s ERISA team achieved another litigation win in the fight to protect employee retirement funds. In an order issued Tuesday, a North Carolina federal judge denied industrial refrigeration company, Morris & Associates’ motion to dismiss former CEO Bryan John’s ERISA case that alleged the company mismanaged an employee stock ownership plan by grossly undervaluing the business.

According to a Law360 article covering the ruling, the court found that the plaintiff could still sue on behalf of the plan even if he’s no longer a trustee because he is still a plan participant.

Bailey Glasser partner Mark Boyko, who is representing Mr. Johns, told Law360 he is “looking forward to seeing the case resolved on the merits.”

Originally filed in June, the lawsuit against Morris & Associates and nine ESOP trustees, alleged that the family company’s patriarch used the company and the plan to benefit himself and his family by undervaluing the company and issuing bonuses and high salaries not approved by the ESOP trustees, which hurt employee shares.

In addition to Boyko, the plaintiff is represented by Bailey Glasser partner Gregory Porter, associate Laura Babiak, as well as attorneys from Tuggle Duggins PA.

Read the full Law360 article here.

To learn more about our ERISA, Employee Benefits & Trust Litigation practice, please visit here.
#ERISA #ESOP #BaileyGlasser

ERISA Partner Mark Boyko Quoted in Law360 on 401(k) Forfeiture Case

Bailey Glasser partner Mark Boyko was quoted in the Law360 article, “3 Arguments, Hearing Benefits Attys Should Watch in Feb.,” commenting on the significance of a new theory of liability under ERISA against Clorox Co. in a California federal court. The case challenges the company’s use of 401(k) forfeitures, created when employees leave before fully vesting, to offset corporate contributions into the plan.

“The two main issues in the case involve the plaintiffs’ standing and industry practice of how to treat 401(k) plan forfeitures,” Mark said. “A decision for defendants on standing or for plaintiffs on the merits would have meaningful consequences that sweep beyond the case itself.” Read the full article here.

Mark is a pioneer in ERISA class action litigation and represents 401(k) plan participants alleging breach of fiduciary duties by their employers and has secured judgments and settlements in this area exceeding $500 million. Learn more about his experience here.

#ERISA #ClassActions #EmployeeBenefits #BaileyGlasser

BG Defeats Attempt to Dismiss Federal Class Action ESOP Lawsuit

Another win on behalf of protecting company employees’ hard-earned money: today, our ERISA team defeated a motion to dismiss that challenged a class action brought on behalf of a class of investors in the Churchill Holdings, Inc. Employee Stock Option Plan where we alleged that the trustees breached their fiduciary duties and engaged in prohibited transactions in violation of ERISA law.

The federal court in Arnold v. Parades (filed in the Middle District of Tennessee), rejected virtually every argument made by defendants. Judge Crenshaw held that the plaintiffs’ individual releases did not bar them from suing on behalf of their ESOP, that the plan’s class action waiver was unenforceable because it prevented effective vindication of statutory rights and violated ERISA’s anti-exculpatory provision, section 410, and that plaintiffs adequately alleged breaches of fiduciary duty and prohibited transactions. Plaintiffs are challenging the fair market value of the stock determination made by the trustee when it terminated the Churchill Holdings, Inc. ESOP.

The Bailey Glasser team includes partner and ERISA Practice Group Leader Greg Porter, partners Mark Boyko, Ryan Jenny, and Patrick Muench, and associate Laura Babiak. Our ERISA team is a leader in protecting ERISA and ESOP plans, and is ranked nationally by Chambers & Partners and Best Law Firms, with Greg Porter also being ranked Band One in ERISA Litigation, Mainly Plaintiffs – USA-Nationwide. For more about our ERISA work, please visit here.

To read the Court’s opinion, visit this link.

ERISA Partner Patrick Muench a Panelist on ABA ERISA Litigation Virtual Webinar

Join Bailey Glasser Partner Patrick Muench December 12, 2023, at 1pm EST for a virtual webinar discussion on ERISA litigation involving Employee Stock Ownership Plans (“ESOPs”) hosted by the American Bar Association’s Joint Committee on Employee Benefits. This event will include a review of some common areas of dispute in ESOP cases and a summary of trends and recent court decisions.

Patrick litigates complex commercial cases with emphasis on ERISA, antitrust, and oil and gas disputes. He handles all aspects of these matters from discovery through trial. His experience includes winning a $30 million trial judgment in Brundle v. Wilmington Trust, a case involving breaches of duty by a trustee and complex valuations in an ESOP transaction. Learn more about Patrick Muench here.

To register and learn about CLE credits for this event, visit this link.

#BaileyGlasser #ERISA #ABA #EmployeeBenefits

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