ESOP Shareholder Claims Not Preempted by ERISA

April 12, 2013 ( – A federal court has remanded a case filed by an employee stock ownership plan (ESOP) participant back to state court as a shareholder derivative action.

By Rebecca Moore | April 12, 2013

U.S. District Judge Edmund A. Sargus, Jr. of the U.S. District Court for the Southern District of Ohio agreed with a magistrate judge that the claims are not preempted by the Employee Retirement Income Security Act (ERISA). Sargus said the participant’s claims do not focus on recovery under the ESOP’s plan terms, but instead are based on defendant’s corporate actions—separate from administration of the plan—that allegedly devalued Mattingly Foods’ stock.  

In addition, Sargus said the claims are not for breach of fiduciary duties that defendants owed to the ESOP; they are derivative shareholder claims based on a legal duty defendants had to the company. He noted that the participant may have been able to file a claim based on the ESOP administrator’s failure to take action, but he did not file such a claim. “Although the complete preemption analysis requires the Court to look beyond the labels within a complaint, it does not require the Court to entirely transform Plaintiff’s claims into something they are not,” Sargus wrote.  

Sargus also noted, “Although any damages may ultimately impact the assets of the now-terminated ESOP, and thereby flow through the ESOP, such an impact is not sufficient to create federal jurisdiction.”  

The case was remanded to the Muskingum County Court of Common Pleas.  

James R. Rodgers brought the suit against Mattingly Foods and certain officers, claiming that the officers diverted employees, resources and business away from Mattingly and into other companies they or their family members owned, which caused the Mattingly share value to dramatically decline and caused the company to terminate the ESOP.  

The opinion in Rodgers v. Mattingly Foods, is here.