In the contentious Vinoskey ESOP case, the trustee recently asked for a new trial, arguing the Secretary of Labor, representing the plaintiff, lacked the statutory authority to seek monetary damages on behalf of the ESOP and the court lacked the authority to hear this claim. The court rejected this argument. For now, the $6.5 million verdict against the trustee and company owner stands.
Statute authorizes damages: As reported earlier, this litigation arose out of a 2010 transaction in which the owners of a successful Virginia company sold the remaining 52% of company stock to an ESOP. The Department of Labor argued the independent trustee and owner had breached their duties to the plan by causing it to overpay for the stock. The trustee had failed to scrutinize the appraisal underlying the transaction, and the owner/seller had accepted a price for his shares that he knew exceeded fair market value.
In August 2019, the trial court, in a 100-page opinion, agreed with the DOL’s position. Following the analysis in the Brundle ESOP case, the Vinoskey court found there was ample evidence that the trustee did not act “solely in the interests” of the plan participants, as required under the controlling case law. The trustee could not meet its burden of showing that the ESOP did not pay more than “adequate consideration,” the court concluded. By the court’s calculation, the loss to the ESOP from overpayment was $6.5 million.
In a post-trial motion, the trustee, “for the first time in this case” (court’s words), claimed the ERISA provisions under which the DOL had sued did not authorize the secretary to pursue monetary relief against the defendants. The secretary only had the right to ask for injunctive relief, the trustee said.
The court agreed with the DOL, which said this particular argument came “far too late in this litigation.” The court noted that, even if the argument were timely, it would fail. “The Court need not look any further than the plain language of the statute to reject [the trustee’s] statutory argument,” the court said. Specifically, 29 U.S.C. § 1132(a)(2) says the secretary or a plan participant, beneficiary, or fiduciary may file a civil action “for appropriate relief under section 1109 of this title.” Section 1109, among other things, says a fiduciary who breaches fiduciary duties is “liable to make good to such plan any losses to the plan resulting from each such breach.”
“A clearer authorization for the Secretary to pursue damages would be difficult to find,” the court said. The statutory provisions contemplate the legal action and relief for the recovery of losses suffered “by the exact manner of breach proven in this case.” Related provisions in the statute support “this plain interpretation,” the court said.
Further, decisions from the U.S. Supreme Court, the 4th Circuit (in which this case is litigated), and other circuits have recognized the secretary’s ability to seek monetary relief on behalf of employee benefits plans, the court pointed out.
Stay tuned for reporting on further developments in this case.
A digest of Pizella v. Vinoskey (II), 2020 U.S. Dist. LEXIS 15464, 2020 WL 476669 (Jan. 29, 2020), and the court’s opinion will be available soon at BVLaw.
Subscribers to BVLaw have access to the court’s 2019 decision in Pizzella v. Vinoskey (earlier Acosta v. Vinoskey), 2019 U.S. Dist. LEXIS 129579 (Aug. 2, 2019), and the court’s opinion, as well as the 4th Circuit’s decision, in Brundle v. Wilmington Trust, N.A., 919 F.3d 763 (2019), and that court’s opinion.