JACKSON LEWIS IMPLICATED IN NEW SUIT INVOLVING ESOP FAILURE OF DIRECTV INSTALLER

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Employment law firm Jackson Lewis PC and two of its former attorneys are in the cross hairs of a new lawsuit stemming from an allegedly flawed employee stock ownership plan valuation (Sealey v. Johanson, S.D. Miss., No. 3:15-cv-00137-DPJ-FKB, complaint filed 2/27/15).

The lawsuit, brought by a participant in an ESOP sponsored by a Mississippi-based DirecTV installation company, comes on the heels of a $6.5 million judgment against the company's owner for causing the ESOP to purchase his company stock at an inflated price (Perez v. Bruister, 2014 BL 291439, S.D. Miss., No. 3:13-cv-01001-DPJ-FKB, 10/16/14).

The nine-count complaint, filed Feb. 27 in the U.S. District Court for the Southern District of Mississippi, challenges a settlement agreement between the company and its liability insurers, which allegedly thwarted the plan's ability to collect on its $6.5 million judgment.

According to the participant, the former Jackson Lewis attorneys negotiated a settlement agreement between the company and its insurers that required the insurers to use the policy coverage to pay the company's legal fees in defending twin suits challenging the ESOP valuation. The defendants allegedly kept this agreement a secret from the plaintiffs in the ESOP suits, causing Jackson Lewis to continue racking up legal fees that ultimately depleted the amount of promised coverage, leaving nothing left to pay the eventual $6.5 million judgment in favor of the plan.

In addition to bringing claims against the company owner and the insurers, the participant accuses Jackson Lewis and the attorneys of legal malpractice, fraud and violations of the Employee Retirement Income Security Act, including entering into a “Secret Fee Agreement” that involved overbilling the company's liability insurers.

A spokeswoman for Jackson Lewis declined to comment on the allegations, other than to say that the firm plans to “vigorously defend” the matter.

Underlying Litigation

The instant complaint has its roots in a set of transactions in which the Bruister & Associates Inc. ESOP paid $18.4 million for just over 50 percent of the company.

After a 19-day bench trial, Judge Daniel P. Jordan III of the Southern District of Mississippi found that the deal relied on flawed valuations by an appraiser who was improperly influenced into issuing valuations above fair market value.

In recent months, the Department of Labor has pointed to this case as a glaring example of poor reliance on an appraiser, given the appraiser's lack of college education and felony convictions for embezzlement from a trust.

In addition to slapping the company's owner, Herbert C. Bruister, with a $6.5 million judgment, the court also called out the actions of former Jackson Lewis lawyer David Johanson, the company's attorney and Bruister's agent. Although Johanson wasn't a party to these earlier actions, the court noted in its 2014 decision that Johanson was “clearly the driving force” behind the disputed transactions.

Excerpted from a story that ran in Pension & Benefits Daily (03/03/2015).

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