DOL, First Bankers Move Closer to Trial Over ESOP Transaction

Employee Benefits News examines legal developments that impact the employee benefits and executive compensation employers provide, including federal and state legislation, rules from federal...

By Carmen Castro-Pagan

The Labor Department moved closer to trial in a case in which it accuses First Bankers Trust Services Inc. of violating ERISA by causing an employee stock ownership plan to overpay for the stock of metal manufacturer Rembar Co. ( Hugler v. First Bankers Trust Servs. , 2017 BL 102293, S.D.N.Y., No. 7:12-cv-08649, 3/29/17 ).

A federal judge in New York March 29 denied motions for summary judgment by the department and First Bankers, holding that there were disputed issues of fact that couldn’t be resolved at this stage. The issues to be resolved at trial include whether First Bankers failed to investigate the financial adviser’s independence, whether it properly reviewed the valuation and if it negotiated the $15.5 million the ESOP paid for Rembar’s stock.

With his ruling, Judge Vincent L. Briccetti of the U.S. District Court for the Southern District of New York rejected First Bankers’ argument that the DOL’s claims were untimely. Because First Bankers agreed to not raise a timeliness defense in exchange for the DOL’s agreement to delay the filing of the lawsuit, the company can’t argue that the DOL’s claims are untimely. “To argue otherwise, after more than three years of litigation, is not just wrong, it is ridiculous,” Briccetti said.

In declining to resolve the case at the summary judgment stage, Briccetti also rejected First Bankers’ argument that the ESOP didn’t suffer any economic loss because of a subsequent debt forgiveness.

The decision is the latest in a series of challenges by the DOL against full-service trust companies that specialize in ESOP oversight. In addition to this lawsuit, the DOL has also challenged the participation of First Bankers and GreatBanc Trust Co. in transactions that allegedly violated the Employee Retirement Income Security Act by causing the ESOPs to pay more than fair market value for stock of denim maker Maran Inc. and Sierra Aluminium Co.

The Sierra Aluminum case settled for more than $5 million in 2014.

In May 2016, the DOL reached a $1.1 million settlement with Rembar’s chief executive officer, Frank Firor. In September, a federal judge in New York denied the parties’ cross-motions for summary judgment in the Maran case, which is now scheduled for trial April 3.

The Office of the Solicitor of the U.S. Department of Labor represents the DOL. Fox Rothschild LLP represents First Bankers.

To contact the reporter on this story: Carmen Castro-Pagan in Washington at

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

Copyright © 2017 The Bureau of National Affairs, Inc. All Rights Reserved.

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