Holden Industries Beats Lawsuit Over ESOP Distribution

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

Nov. 22 — Holden Industries Inc. didn’t violate federal law by denying $36,651 in additional benefits to a participant in the manufacturing company’s employee stock ownership plan ( Lee v. Holden Indus., Inc. , 2016 BL 386285, N.D. Ill., No. 1:15-cv-06405, 11/21/16 ).

Judge John Robert Blakey of the U.S. District Court for the Northern District of Illinois granted summary judgment to Holden Industries Nov. 21, finding the company’s decision to deny the participant’s request for additional benefits was based on a reasonable explanation of the plan. Holden Industries didn’t make any oral misstatements or mischaracterizations regarding the terms of the ESOP, and thus the company didn’t breach its fiduciary duties under the Employee Retirement Income Security Act, Blakey also said.

The lawsuit, brought by an ESOP participant whose account was distributed shortly after he departed the company, alleged that if Holden Industries would have waited one year to make the distribution, the participant’s stock value would have increased from $146,832 to $183,483.

The participant challenged a plan amendment adopted in 2013 that altered the distribution process and specified that the exchange rate to be used when purchasing stock allocated to former workers would be based on the value determined at the most recent valuation date. Before the amendment, the company could purchase the stock held by former employees at “fair market value.”

Blakey rejected the participant’s position that the language in the summary plan description controlled the distribution process since the company advised him that the SPD was “where to go to determine his rights.” Although “novel,” the participant’s position fails because even if an SPD contradicts the full plan, the terms of the full plan continue to govern the participant’s entitlements, Blakey said.

There was no suggestion that Holden Industries intended to mislead or disadvantage plan participants, Blakey said.

In ruling for Holden Industries, Blakey said that the SPD authorized the company to purchase stock allocated to the participant’s account at fair market value, which was exactly what Holden Industries did. The company’s decision to seek simplicity over exacting detail in the SPD didn’t amount to a breach of its fiduciary duty, Blakey said.

Pinzur Cohen & Kerr Ltd. represented the participant. Drinker Biddle & Reath LLP represented Holden Industries.

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

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