Pasternack v. Shrader
2017 U.S. App. LEXIS 12513
2d Cir.2017Background
- Three retired Booz Allen officers (Pasternack, Boudinot, Kocourek) sued after Booz Allen sold a division to Carlyle; Kocourek still held common stock and received ~$20M in the sale.
- Plaintiffs amended complaints asserting ERISA, RICO, securities-fraud, and common-law claims; the district court dismissed most claims and denied leave to amend in part.
- Central factual feature: Booz Allen’s Stock Rights Plan (SRP) granted a mix of Class B and common stock over rolling ten-year tranches; Class B converted to common over time, voting/management rights were exercised during employment, and repurchase rules applied post-retirement.
- Plaintiffs argued the SRP was an ERISA “employee pension benefit plan”; Booz Allen maintained it was a capital/partnership-style buy-in mechanism, not a pension plan.
- Kocourek signed a Letter of Transmittal containing a broad release of claims to receive payment; he later sought to add securities-fraud claims, which the district court denied as waived and untimely.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the SRP is an ERISA "employee pension benefit plan" under 29 U.S.C. §1002(2)(A) | SRP results in deferred income/provides retirement income to participants | SRP is a capital-raising/partnership-style buy-in that confers present ownership and management rights, not deferred retirement benefits | SRP is not covered by ERISA; dismissal affirmed |
| Whether Kocourek’s execution of the Letter waived securities-fraud claims under §29(a) of the Exchange Act | Release cannot bar federal securities claims because §29(a) voids waivers of compliance with the securities laws | Release is a valid waiver (Booz Allen contended retrospective/settlement-like release) | Release is void under §29(a) for securities-fraud claims here; waiver ineffective as to those claims |
| Whether the district court properly denied leave to amend to add securities-fraud claims for undue delay/prejudice | Leave to amend should be allowed; little/no discovery and no showing of bad faith or prejudice | Defendants argued prejudice from prolonged litigation and delay | Denial for delay was an abuse of discretion; remand to permit amendment |
| Whether securities-fraud amendment was futile (pleading particularity/statute of repose) | Proposed amendment met pleading requirements or should be allowed to replead with specificity; motion to amend filed within repose period | District court found PSLRA/Rule 9(b) deficiencies and argued repose barred claims | Court said futility dismissal premature; plaintiff should be allowed to replead; motion to amend filed within repose treated as timely for repose purposes |
Key Cases Cited
- Murphy v. Inexco Oil Co., 611 F.2d 570 (5th Cir. 1980) (cautioning against expansive readings of ERISA’s pension-plan definition)
- Vacold LLC v. Cerami, 545 F.3d 114 (2d Cir. 2008) (§29(a) prevents enforcement of blanket releases waiving securities-law claims)
- Harsco Corp. v. Segui, 91 F.3d 337 (2d Cir. 1996) (upholding certain contractual limitations where parties did not waive rights to bring suits and negotiated at arm’s length)
- McMahan & Co. v. Wherehouse Entm’t, Inc., 65 F.3d 1044 (2d Cir. 1995) (federal securities rights cannot be contractually waived in sales of securities)
- Rich v. Shrader, 823 F.3d 1205 (9th Cir. 2016) (addressing Booz Allen SRP and concluding it was not ERISA-covered)
- Block v. First Blood Assocs., 988 F.2d 344 (2d Cir. 1993) (standards on undue delay/prejudice when denying leave to amend)