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Bankers Trust Co. of South Dakota can’t escape a proposed class action challenging its role in a $37.5 million transaction for the employee stock plan of Telligen Inc., an Iowa health management company ( Innis v. Bankers Tr. Co. of S.D. , S.D. Iowa, No. 4:16-cv-00650, order denying in part motion to dismiss 10/13/17 ).
A federal judge on Oct. 13 refused to dismiss key portions of the lawsuit, saying that former Telligen employee Deborah Innis was sufficiently injured when her shares of the company’s stock were valued at $6.25 each just weeks after the plan paid $37.50 per share to acquire 1 million shares. The judge also allowed Innis to move forward with some of her prohibited transaction claims against Bankers Trust, which served as trustee of the stock plan.
The lawsuit against Bankers Trust follows a decadelong national enforcement project by the Department of Labor against full-service trust companies that specialize in ESOP oversight. In recent months, the DOL has filed lawsuits challenging transactions involving the ESOPs of companies including Cactus Feeders Inc., Triple T Transport Inc., Sentry Equipment Erectors Inc., Kurt Manufacturing Co., and HCMC Legal Inc.
In this ruling, the judge said Innis stated a valid claim for a violation of an Employee Retirement Income Security Act rule that bars plan fiduciaries from engaging in transactions with certain interested parties. According to Innis, Bankers Trust facilitated a transaction that allowed Telligen and its principal shareholders to unload their shares of the company at an inflated price in a deal that saddled plan participants with a loan.
However, the judge dismissed Innis’ claim accusing Bankers Trust of acting on behalf of an adverse party when it should have been representing the plan. This claim failed because Innis never claimed that Bankers Trust had a “formal relationship” with any specific adverse party.
Telligen, a 550-employee company that provides health-care technology services for Medicare and Medicaid populations, isn’t named as a defendant in the lawsuit. The lawsuit seeks class treatment for as many as 661 participants in Telligen’s ESOP.
Judge Rebecca Goodgame Ebinger of the U.S. District Court for the Southern District of Iowa wrote the decision.
Innis and the proposed class are represented by Bailey & Glasser LLP and Brady Preston Gronlund PC. Bankers Trust is represented by Ahlers & Cooney PC and Groom Law Group.
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