18th Annual Workplace Class Action Report - 2022 Edition

Annual Workplace Class Action Litigation Report: 2022 Edition 327 determine whether any person violated or was about to violate the ERISA. Defendant CSG served as financial advisor for four of the five ESOP transactions. As part of its investigation, the DOL issued informal document requests to Defendant concerning the ESOP transactions and its communications with its business clients. Thereafter, Defendant produced more than 25,000 documents, and provided privilege logs for each of the four ESOPs, which listed thousands of documents withheld on the basis of attorney-client privilege. In addition to withholding documents for which it asserted privilege, Defendant objected to producing any documents for the period following the closing date of each ESOP. The DOL moved to compel the documents withheld on the assertion of attorney-client privilege and to produce post-closing documents. The Court explained that privilege generally was deemed to have been waived if, as was the case here, communications between an attorney and the client were shared with a third-party. However, when the third-party was intimately involved in the transaction or event about which the attorney advises their client, the Court observed that case law authorities had found that the attorney-client privilege could be maintained even when a third-party was involved in the communications. Id . at *5. The Court ruled that even though Defendant provided expert advice and knowledge about ESOP transactions, there was no evidence that Defendant had a primary responsibility for "a key corporate job" at any one of its clients. Id . at *9. Further, although Defendant maintained a close working relationship with company leadership, there was no evidence that it did so with respect to the company’s position in litigation. Id . at *10. The Court further opined that this direct issue had been ruled previously, and case law authorities had determined that including the investment banks in communications with the ESOP companies and their attorneys precluded or waived the companies’ attorney-client privilege with respect to those communications. Id . at *12. The Court reasoned that it was clear from both Second Circuit’s precedent and the weight of case law authority that the assertion of privilege under the facts of this case should not be sustained. The Court therefore granted the DOL’s motion to compel with respect to the documents withheld from attorney- client privilege. The Court further ordered Defendant to produce all post-closing communications with the sellers concerning the four ESOPs. U.S. Department Of Labor v. Maine, Oxy-Acetylene Supply Co., 2021 U.S. Dist. LEXIS 115125 (D. Me. June 21, 2021). The U.S. Department of Labor (“DOL”) filed an ERISA enforcement action against Defendants alleging that the company’s repurchase of outstanding ESOP shares at a discounted rate per share violated the ERISA. One of the Plan trustees, Carl Paine, filed a motion to dismiss, which the Court denied. In September 2012, Defendants Daniel Guerin and Bryan Gentry purchased 25,500 shares of Maine Oxy, thus securing a 51% ownership interest in the company, for $654.62 per share (the "Private Sale"). In early 2013, Maine Oxy was subject to its annual valuation and valued Maine Oxy’s ESOP share price at $134.92 per share. The Board of Directors (“BOD”) thereafter ended the ESOP and Maine Oxy then bought back the outstanding ESOP shares for $134.92 per share (the "buyback"), the price in the valuation. The DOL argued that Paine breached his fiduciary duties by: (i) failing to perform a good faith investigation of Maine Oxy’s value; (ii) failing to address inconsistencies in the valuation; (iii) relying on the valuation; (iv) causing the ESOP to receive significantly less than fair market value in the buyback; (v) failing to assess how the Private Sale might have affected the valuation; and (vi) failing to consider whether the Valuation reflected the fair market value of the ESOP shares at the time of the buyback. Id . at *9. The Court found that the complaint clearly alleged that Paine had continuing duties as the trustee of the ESOP and that he breached his duties by omission. The Court determined that the DOL’s complaint also clearly alleged that Paine had reason to question the valuation, that he had a fiduciary duty to do so, and that he failed to do act consistent with his duty. The Court therefore denied Paine’s motion to dismiss on the first cause of action. The DOL further alleged that Paine has violated § 406(a)(1)(A) and (D) of the ERISA, which prohibit an ESOP fiduciary from causing “the plan to engage in" certain transactions between the plan and an interested party (a "prohibited transaction"). Id . at *15. The Court accepted as true the allegations in the complaint that Paine was a member of the BOD at the time the BOD voted to authorize the buyback, and therefore as a member of the BOD, he "caused," in some manner, the buyback to happen. Id . at *17. The Court found the DOL’s allegations sufficient to state a viable claim. For these reasons, the Court denied Paine’s motion to dismiss. U.S. Department Of Labor v. Puccio, 2021 U.S. Dist. LEXIS 27934 (D. Conn. Feb. 12, 2021). The U.S. Department of Labor (“DOL”) filed an enforcement action alleging that Defendant violated the ERISA when she and her late husband (“Puccio”), as fiduciaries of the Thomas P. Puccio Pension Plan (the "Plan"), drained the assets of the Plan for their personal use, to the detriment of participants entitled to pension benefits. The DOL