Claim for ESOP Benefits Under State Law Preempted by ERISA

October 24, 2011 ( – The U.S. District Court for the Northern District of California ruled a plan participant’s claim that a California state law for the recovery of stock shares in a company’s non-operational employee stock ownership plan (ESOP) is preempted by the Employee Retirement Income Security Act (ERISA).  

In the case of Sender v. Franklin Resources, Inc., the judge found John Sender’s claim for recovery of stock certificates in a prior employer’s ESOP was a claim for the receipt of benefits due under the plan.

The court found that ERISA preempted Sender’s state law claim. The court also found that his right to recovery depended on the existence of an ERISA plan and the required distributions on the plan’s benefits. The stock certificates were the benefits of the plan, so their distribution was a required administrative duty of the ERISA plan. Therefore, there was no legal duty under California state law for Franklin Resources to issue Sender’s ESOP stock certificates. 

Sender was employed by Franklin Resources Inc. from 1972-1978 and participated in the company’s ESOP. He left his job with the company in 1978,but his benefits remained in Franklin’s ESOP because according to court documents, the ESOP did not permit immediate distributions to participants younger than 55 years old.

In 1981 Franklin terminated the ESOP, and upon termination, the company was to distribute the ESOP assets to the ESOP participants.

Sender claimed when he tried to obtain his ESOP benefits, Franklin contended he had already received the benefits. The company also said it no longer had records showing that Sender received his shares. Therefore, Sender filed a lawsuit in California state court to receive his ESOP benefits under the California Corporations Code. Sender was seeking Franklin to issue and deliver his stock certificates in the amounts accrued by him in the ESOP, or a financial equivalent. Franklin Resources then moved the case to the federal court on the basis that Sender’s state law claims are completely preempted by ERISA.

According to the court opinion, Sender is being allowed to amend his complaint, under an ERISA claim.

The case is Sender v. Franklin Resources, Inc., N.D. Calif., No. 3:11-cv-03828-EMC.