Malpractice Claim Against Investment Firm not Preempted by ERISA

January 9, 2006 ( - The US District Court for the District of Nebraska has rejected the argument that employee stock ownership plan (ESOP) participants' malpractice claim against an investment firm that undervalued the plan's stock is preempted by the Employee Retirement Income Security Act (ERISA).

The judge granted two participants’ motion to remand the case to a Nebraska state court, saying that resolution of the case would not hinge on interpretation of the plan.   The court also said that the claims against Ameritas Investment Corp. did not fall within the scope of ERISA’s civil enforcement provisions because the participants had not charged Ameritas with fiduciary breach, nor had the participants attempted to recover benefits from the firm.

Ameritas was hired to perform a valuation of the stock held in an ESOP sponsored by Clark Brothers Transfer.   The court said Ameritas knew its valuation of Clark Brothers’ stock would be relied on when selling, buying, and redeeming the stock and that the ESOP was scheduled to be terminated effective December 31, 2002, according to BNA.

After Ameritas rendered its stock valuations, all company stock held in the ESOP was redeemed by participants and the plan was terminated.   However, after Clark Brothers was sold to another company for a substantially higher amount per share than the ESOP participants had been paid when they redeemed their stock, the participants sued the company and the plan’s fiduciaries, alleging they had breached their fiduciary duties.  The parties reached a settlement in that suit, according to the district court.

Two plan participants also filed a lawsuit in state court against Ameritas, charging Ameritas with professional malpractice, negligent misrepresentation, and breach of contract.   Ameritas removed the case to federal court, arguing that the participants’ claims were preempted by ERISA.

The judge remanded the case back to a state court, pointing out that the participants did not argue that the terms of the plan defined the method of valuation of the stock.

The case is Clark v. Ameritas Investment Corp., D. Neb., No. 4:05CV3251, 12/27/05.