Current ESOP Participant Can Represent Former Participants in Suit discusses how a U.S. District Court determined that a current ESOP participant can represent the interests of cashed out former participants:
"Defendant David R. Johanson argued that Darleen Stanton cannot adequately represent the interest of those individuals whose interests in the plan have been cashed out and terminated because the interests of Stanton and other current participants is antithetical to the interests of the former participants as a distribution to one "class" necessarily reduces the amount distributable to the other. Johanson said that creates an adversarial relationship.
The court disagreed, saying Stanton's first claim seeks recovery for the benefit of the plan, which concerns the financial integrity of the plan - a common interest of both classes. The court pointed out that irrespective of the sharing arrangement of any recover - which is yet to be determined - the interests of the current participants and former participants is "coextensive - maximize recovery."
Since the plan is currently in existence, any recovery can be paid directly to the plan, and the extent to which former participants will share in that recovery is not a matter to be addressed at this stage of proceedings, the court noted."
The Court also decided that the Complaint Need Not Identify Specific Funds for Imposition of Constructive Trust:
"To accept Johanson's argument would require a person seeking to impose a constructive trust to engage in a significant degree of pre-filing investigation and obtain information peculiarly in the possession of the defendant that is normally part of the discovery process in civil actions. Whether or not the evidence proffered by Stanton (1) identifies specific funds or property that Johanson received from the ESOP and (2) traces those funds or that property to funds or property currently in the possession or under the control of Johanson, remains to be seen. However, that cannot be determined at this stage of the proceedings; it can only be determined after Stanton has an opportunity to conduct discovery and fully develop the facts.
Stanton v. Couturier, Slip Copy, 2007 WL 4570699 (E.D.Cal.) (December 26, 2007)"
The Memorandum Decision and Order (12/26/2007) defines the Procedural Background/Jurisdiction:
"The procedural background and status of this case is well known to the parties and, in the interests of brevity, is not recounted here except to the extent necessary to understanding this decision.
Stanton's First Claim for Relief alleges numerous acts by the individual defendants, including Johanson, that are contended to be in violation of the Employee Retirement Income Security Act of 1974, as amended, 29 U.S.C. §§ 1001, et seq ["ERISA"]. Stanton seeks to recover the amounts lost and impose a constructive trust on the profits and gains realized by the individual defendants as a result of the violations of their fiduciary obligations to the Noll ESOP.
The Second Claim for Relief, a "double" derivative action, i.e., a derivative action on behalf of one entity to bring a derivative action on behalf of another, seeks relief from the individual defendants Couturier and Johanson, for breach of their state-law fiduciary duties as officers and directors of Noll, N&NW, and TEOHC.
The Third Claim for Relief, also a "double" derivative action, is professional malpractice claim against Johanson and Johanson and Berenson LLP on behalf of Noll, N&NW, and TEOHC. This Court has jurisdiction over the First Claim for Relief under 28 U.S.C. § 1331 and supplemental jurisdiction over the state law claims, the Second and Third Claims for Relief, under 28 U.S.C. § 1367."
For more information on this case, check out Governance Cases - Johnson v. Couturier, E.D. Cal., No. 2:05-cv-02046-RRB-KJM, 10/26/07, which provides the following links:
- Complaint - Filed 10/11/2005
- Answer - Filed 11/28/2005
- Amended Complaint - Filed 5/31/2006
- Motion for Summary Judgment - Filed 7/7/2006 =
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