Fiduciary’s Personal Property Among ESOP Damages Owed

The U.S. District Court for the Southern District Of Mississippi, Northern Division, has ruled once again in the case Perez v Bruister, granting the plaintiff’s motion to enforce while rejecting several motions from defendants.

This is actually the second time plaintiffs have succeed in making their case in the district court. During the initial trial, the owner of Bruister and Associates (BAI) and trustees of its employee stock ownership plans (ESOPs) were found responsible for causing their ESOP plan to pay too much for employer stock. The ruling was subsequently affirmed by the 5th U.S. Circuit Court of Appeals, which ruled the plan’s fiduciary had actually fired the ESOP’s counsel for being “too thorough,” and otherwise caused his personal lawyer to influence an appraiser’s valuations to get the highest selling price he could for himself.

The basic tenants of the underlying case go as follows: During a three-year period from 2002 to 2005, BAI’s owner Herbert C. Bruister sold 100% of his BAI shares (also representing 100% of BAI’s outstanding shares) to BAI’s employees through a series of transactions with the ESOPs. Bruister and Amy O. Smith are named defendants in the suit.

According to both the district and appellate court rulings, the trustees set the sales price for each transaction based on valuations of BAI’s fair market value performed by Matthew Donnelly. The Department of Labor (DOL) and other named plaintiffs working at the company disputed whether Donnelly was truly independent and whether the trustees’ reliance on his valuations was reasonably justified. The basic claim was that the valuations were inflated, which caused the ESOP, and therefore BAI’s employees, to pay too much for the BAI stock. BAI suffered serious business reverses and went out of business in August 2008, especially pinning the employees with an outsized financial loss.

The latest consideration of the case was again conducted in Mississippi district court, post-judgment, on several motions that included one plaintiff’s motion to enforce a stay order and other relief, as well as defendants’ motion for further relief from a temporary restraining order, as modified by the preliminary injunction. There was also a motion to release funds in the case.

In short, the district court granted the plaintiff’s motion to enforce, while the motion to release funds and the motion for further relief were denied without prejudice.

NEXT: Details from the decision 

Pertaining to the successful motion to enforce a stay filed on behalf of plaintiff Vincent Sealy, the charge was that Bruister did not comply with a previous court order requiring him to provide security within 14 days. As such, Sealy asked that the court again order Bruister to do a number of specific things to rectify his non-compliance.

The text of the suit explains: “By the time Sealy replied, some of the original requests were moot, so the outstanding requests are that the court order Bruister to: (1) transfer title to three vehicles; (2) provide information, including medical records, pertinent to conducting a valuation of Bruister’s life insurance policy or policies; and (3) satisfy the Judgments and the Fee Award no later than May 20, 2016.”

Bruister argued that the order is unenforceable, “as the stay order was conditioned upon Bruister timely posting the required security, and that, as a result of his failure to do so, a stay was never in place and he cannot now be held responsible for his failure to comply with the court’s order … He says that, when he failed to post the collateral security, plaintiffs’ remedy was to continue their post-judgment collection activities under Federal Rule 69.”

Sealy responded that the court effectively granted the relief Bruister sought—a stay—and conditioned that stay on Bruister offering the enumerated security. Sealy points to the mandatory nature of the language used in the Court’s order, that Bruister “will be required to offer substitute security.”

“Indeed, the concluding paragraph of the order expressly granted the stay Bruister sought,” the district court observes. “Sealy argues that it would be manifestly unjust to allow Mr. Bruister to benefit from this dilatory conduct by getting the benefit of the stay he sought and received without providing the security he offered … Neither party cites any law on this point, but the court agrees with Sealy that to permit Bruister to benefit from his failure to comply with the court’s order, which was entered at defendants’ behest to stay collection efforts pending appeal, would be patently unfair.”

NEXT: More from the decision 

Regarding defendants’ motion for relief from injunction, they had asked the court to unfreeze three bank accounts to help provide for the Bruisters’ normal activities of daily living. The amounts in these three accounts, as of May 31, 2016, totaled $41,070.95.

“The court froze the accounts in question in an effort to prevent defendants from dissipating assets that could be used to satisfy the judgment,” the text of the decision lays out. “There also remains an unresolved question whether these funds were transferred in an effort to avoid judgment. Once Bruister begins to satisfy the judgment, the freeze may need to be lifted. For now, it shall remain in place.”

The closing portions of the decision go on to lay out several reasons why plaintiff Sealy’s motion to release certain other funds (primarily life insurance) in the case cannot be granted (at least not yet).

“Bruister has already informed the court that he controls 50% of the assets in question,” the court explains. “And if he determines that the proceeds from the sale of the viaticals should be used to pay down the judgment, then he may move to have them released to plaintiffs. If he is able to satisfy the judgment without recourse to the viaticals, BFLLC may move to have the funds released to it. Finally, if plaintiffs remain unsatisfied with Bruister’s compliance with the court’s order, they may again move to have the funds disbursed to them, at which time Bruister will be in a position to respond to the arguments raised in Sealy’s rebuttal on the instant motion.”

The full text of the decision is here.