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North Highland ESOP Retirement Plan Breach of Fiduciary Duty Class Action

Retirement plans, like the North Highland Company Employee Stock Ownership and 401(k) Plan, rely on fiduciaries to take action to benefit them. But this class action alleges this plan’s fiduciaries undermined the plan in a number of ways, including using prohibited transactions, exceeding caps on executive pay, taking back corporate control, and improperly seizing the benefits of tax subsidies, violating the Employee Retirement Income Security Act (ERISA).

The class for this action is all participants in the North Highland Company Employee Stock Ownership and 401(k) Plan, and their beneficiaries, who held shares in the employee stock ownership plan (ESOP) in North Highland ESOP Holdings, Inc. at any time after October 1, 2016 (or earlier as permitted by the applicable statute of limitation).

The defendants include Argent Trust Company, North Highland ESOP Holdings, Inc., the North Highland Company, Inc. (“Oldco”), its successor the North Highland Company, LLC (“Newco”), and four individual executives.

In early 2016, the ESOP owned all the stock of the Oldco, an S corp. The complaint alleges, “Georgia-based ESOP-owned S Corps operate free of federal and state income tax, effectively increasing net income by 30% or more to encourage employee ownership.” So that this benefits primarily employee-owners, ERISA caps executive equity ownership.

The complaint alleges the defendants got around this by putting a shell S corp between the ESOP and the Newco, using it to award equity to the individual defendants. The complaint alleges this “diluted the economic interests of the ESOP and diverted the massive taxpayer subsidies from benefiting the employee-owners.”

Argent also diluted control via a complicated prohibited transaction, the complaint says, “by allowing the operations to drop down” into the Newco and converting the ESOP’s shares in the Oldco into shares in a new holding company, which in turn acquired shares in the Newco.

This reorganization took place on October 1, 2016, affecting stock options, warrants, and debt, the complaint alleges, so that the ESOP no longer owned 100% of the stock but only 80%, owned indirectly through the shell S corp of Newco.

The complaint alleges the arrangement was then used to dilute the ownership further by claiming the caps on executive ownership no longer applied. “By December 31, 2020,” the complaint claims, “the ESOP’s ownership had been diluted to 42%” with the other 58% effectively given to the individual defendants.

After that came a redemption transaction, in which the ESOP received cash and a promissory note, the complaint claims, “in anticipation of terminating the ESOP.” The complaint alleges that in the redemption, the stock was not properly priced at its fair market value.

Under ERISA, fiduciaries for a retirement plan have the duties of prudence and loyalty to the plan, acting in the sole interest of its participants and beneficiaries. The complaint asks for compensation “for the losses suffered by the ESOP and for restoration to the ESOP of improper profits received by the ESOP’s fiduciaries and parties in interest to the detriment of the ESOP’s participants and beneficiaries…”

Article Type: Lawsuit
Topic: Employment

Most Recent Case Event

North Highland ESOP Retirement Plan Breach of Fiduciary Duty Complaint

September 30, 2022

Retirement plans, like the North Highland Company Employee Stock Ownership and 401(k) Plan, rely on fiduciaries to take action to benefit them. But this class action alleges this plan’s fiduciaries undermined the plan in a number of ways, including using prohibited transactions, exceeding caps on executive pay, taking back corporate control, and improperly seizing the benefits of tax subsidies, violating the Employee Retirement Income Security Act (ERISA).

North Highland ESOP Retirement Plan Breach of Fiduciary Duty Complaint

Case Event History

North Highland ESOP Retirement Plan Breach of Fiduciary Duty Complaint

September 30, 2022

Retirement plans, like the North Highland Company Employee Stock Ownership and 401(k) Plan, rely on fiduciaries to take action to benefit them. But this class action alleges this plan’s fiduciaries undermined the plan in a number of ways, including using prohibited transactions, exceeding caps on executive pay, taking back corporate control, and improperly seizing the benefits of tax subsidies, violating the Employee Retirement Income Security Act (ERISA).

North Highland ESOP Retirement Plan Breach of Fiduciary Duty Complaint
Tags: ERISA, Employee Stock Ownership Plan (ESOP), Employment Violations, Prohibited Transactions, Retirement Plans