Solis v. Webb
931 F. Supp. 2d 936
N.D. Cal.2012Background
- ERISA Secretary sued ESOP fiduciaries for causing ESOP to buy EVI stock above fair market value.
- ESOP trustees Fidiam and Gallucci and officer Webb served as ESOP fiduciaries and Plan Committee members; CFI was Independent Fiduciary/Investment Manager.
- ESOP purchased 90.03% of EVI on Nov. 21, 2002 for $28.3 million, funded by ESOP debt and Webb-related payments.
- Appraisals valued EVI stock at $76.01/share; later Allen/12 million deferred compensation and $4 million payment to Webb allegedly reduced value.
- Secretary contends appraisal flaws (excluded prior 2001 valuation and Webb deferred comp) and that fiduciaries failed to ensure adequate consideration.
- Court denied three motions to dismiss and held ESOP can be joined; directed trustees may be liable even when following independent fiduciary’s directions.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether fiduciaries owe ERISA duties before ESOP funding | Solis argues fiduciaries owed duty once ESOP existed | Fidiam/Gallucci contend no fiduciary duty pre-funding | Fiduciaries owe duty if ESOP established; pre-funding timing not bar |
| Whether directed trustees can be liable despite following directions | Secretary alleges knowledge of flawed appraisal and value-overpayment | Directed trustees immune when acting on proper directions | Directors not shielded; liability for knowing misconduct persists |
| Whether appointment of CFI as investment manager bars liability | Monitor duties remain; co-fiduciary liability for monitoring failures persists | Investment-manager appointment limits liability | Appointment does not erase fiduciary duties; co-fiduciary liability and monitoring duties remain |
| Whether plan trustees had duty to monitor independent fiduciary | Failure to monitor CF I’s performance breached ERISA | Monitoring not required beyond delegation | Board/Plan Committee had ongoing monitoring duty; breach found under knowledge standard |
| Whether Parrot Cellular ESOP can be joined under Rule 19(a) | Joinder necessary for complete relief | ESOP not a proper fiduciary; rule not applicable | Rule 19 joinder proper; ESOP join allowed for complete relief |
Key Cases Cited
- Shaw v. Delta Air Lines, Inc., 463 U.S. 85 (U.S. 1983) (ERISA remedial purpose; fiduciary duties defined broadly)
- Scott v. Gulf Oil Corp., 754 F.2d 1499 (9th Cir. 1985) (ERISA protective purposes; fiduciary standards emphasized)
- John Hancock Mut. Life Ins. Co. v. Harris Trust & Sav. Bank, 510 U.S. 86 (U.S. 1993) (ERISA fiduciary standards and duties clarified)
- Donovan v. Cunningham, 716 F.2d 1455 (5th Cir. 1983) (Duties of loyalty and care for ERISA fiduciaries)