Booz Allen Executive's $21M ERISA Claim Gets Booted

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By Carmen Castro-Pagan

May 24 —A former Booz Allen Hamilton Inc. executive seeking to recover more than $21 million he allegedly would have received from the sale of his stock if he hadn't been forced to retire before one of the firm's divisions was sold to another company couldn't persuade an appeals court that his claim was covered by ERISA.

In affirming a federal district court's decision, the U.S. Court of Appeals for the Ninth Circuit held May 24 that the Booz Allen stock rights plan wasn't covered by the Employee Retirement Income Security Act because it wasn't designed or intended to provide retirement or deferred income.

With this ruling, the Ninth Circuit joins the Third, Fifth and Eighth circuits in holding that to qualify as an employee pension benefit plan subject to ERISA, “the paramount consideration is whether the primary purpose of the plan is to provide deferred compensation or other retirement benefits.”

Throughout Foster Rich's employment at Booz Allen, he participated in the company's stock plan. At the time of his retirement in 2005, Rich had accumulated 30,500 shares of Booz Allen stock. Two years later, under the terms of the stock plan, the company bought back Rich shares for $147.80 each—a total of about $4.5 million.

In 2008, Booz Allen sold a portion of its business to the Carlyle Group, for which the shareholders received $763 per share. Rich sued Booz Allen and its top executives.

Plan's Primary Purpose

In granting the firm's motion to dismiss, the district court determined that the stock plan wasn't an employee pension plan and thus wasn't covered by ERISA ( 189 PBD, 9/29/11 ). As to the remaining claims of breach of contract, the court later held that they were filed too late.

The appeals court relied on the plan terms to determine that the plan's main purpose wasn't to provide retirement or systematically deferred income, but to meet the firm's capital needs and give officers incentives to stay with the company.

The court rejected Rich's argument that the Booz Allen plan was ERISA-covered because it allowed participants to hold their shares until the end of their employment. Rich's interpretation of the Fifth Circuit decision in Tolbert v. RBC Capital Mkts. Corp., 758 F.3d. 619 (5th Cir. 2014), on this point was incorrect, the court said.

Unlike here, in Tolbert, the plan was referred to by the company as a “deferred compensation plan” and its main purpose was to allow for the deferral of compensation, the court said. “The mere possibility that income can be deferred does not mandate ERISA coverage,” the court concluded.

The appeals court also affirmed the district court's ruling that Rich's claims were time-barred.

The opinion was written by Judge Frederic Block, sitting by designation from the U.S. District Court for the Eastern District of New York, and joined by Judges Richard R. Clifton and Sandra S. Ikuta.

Karman Coleite & Bence, Squire Patton Boggs LLP and William H. Roth represented Rich. Latham & Watkins represented Booz Allen.

To contact the reporter on this story: Carmen Castro-Pagan in Washington at ccastro-pagan@bna.com

To contact the editor responsible for this story: Jo-el J. Meyer at jmeyer@bna.com