Searching over 5,500,000 cases.

Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.

Allen v. GreatBanc Trust Co.

United States Court of Appeals, Seventh Circuit

August 25, 2016

Lisa Allen and Misty Dalton, Plaintiffs-Appellants,
GreatBanc Trust Co., Defendant-Appellee.

          Argued April 12, 2016

         Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 15 C 3053 - James B. Zagel, Judge.

          Before Wood, Chief Judge, and Flaum and Williams, Circuit Judges.

          WOOD, CHIEF JUDGE.

         GreatBanc is the fiduciary for an employee stock ownership plan ("the Plan") for employees of Personal-Touch, a home-health-care company. In that role, it facilitated a transaction in which the Plan purchased a number of shares in the company with a loan from the company itself. Unfortunately, the shares turned out to be worth much less than the Plan paid, leaving the Plan with no valuable assets and heavily indebted to the company's principal shareholders. The Plan's participants, all employees of Personal Touch, wound up being on the hook for interest payments on the loan. Employees Lisa Allen and Misty Dalton brought this action under section 502 of the Employee Retirement Income Security Act (ERISA), 29 U.S.C. § 1132, raising two theories of recovery: first, that GreatBanc engaged in transactions that section 406 of ERISA prohibits, see 29 U.S.C. § 1106; and second, that GreatBanc breached its fiduciary duty under ERISA section 404, 29 U.S.C. § 1104, by failing to secure an appropriate valuation of the Personal-Touch stock. The district court initially dismissed the complaint without prejudice, but it later converted the judgment to one with prejudice after plaintiffs opted not to amend their complaint. Because the plaintiffs plausibly alleged both a prohibited transaction and a breach of fiduciary duty, we reverse the judgment of the district court and remand for further proceedings.


         At this stage, we present the facts as alleged in the complaint in the light most favorable to plaintiffs. Employee stock ownership plans (ESOPs) are meant to be a way for companies to provide employees with a stake in the enterprise. See 29 U.S.C. § 1002. Personal-Touch, a privately held entity, is the sponsor of the Plan at issue here. See 29 U.S.C. § 1002(16)(B). Sponsors are responsible for administering ESOPs and often appoint independent trustees to carry out that job. Personal-Touch appointed GreatBanc as Trustee of the Plan in 2010 for the purpose of representing the Plan in the proposed stock-purchase transaction.

         On December 9, 2010, GreatBanc instructed the Plan to acquire an unknown amount of stock from Personal-Touch's shareholders for $60 million. Before this acquisition, Personal-Touch's principal shareholders owned 100 percent of its shares. The plaintiffs do not know whether GreatBanc hired any financial advisors to review the transaction. The principal shareholders arranged for the Plan to finance this transaction through a loan they gave to the Plan at a 6.25% interest rate; the record does not reveal why the Plan did not use outside funding.

         The ink was hardly dry on the acquisition papers when the value of Personal-Touch's stock began to tank. Twenty-two days later, the complaint asserts and GreatBanc accepts for present purposes, the Plan's stock was estimated to be worth some $13 million (almost 22%) less than what the Plan paid for it. By late 2011, the estimated value of the stock had declined by almost 50%, and by December 31, 2013, the Plan's shares were worth only around $26.6 million. The selling shareholders, however, were relatively untouched by these developments. Rather than holding a rapidly depreciating asset in the form of the stock, they had become creditors of the Plan (and thus indirectly the employees) and the recipients of a secure flow of principal and interest payments on the original $60 million loan. The plaintiffs felt that they had drawn the short straw: they sued GreatBanc, alleging that it violated its fiduciary responsibilities under ERISA by approving a purchase of stock at too high a price and by facilitating two prohibited transactions: (1) the Plan's purchase of stock from the company, and (2) the loan to the Plan that funded the purchase. See 29 U.S.C. § 1106(a) and (b).

         The complaint alleges that GreatBanc did not conduct any inquiry into whether whoever was responsible for Personal-Touch's financial projections had a conflict of interest, did not undertake an independent investigation of Personal-Touch's revenues, and failed to seek any remedy for the overpayment for the stock. The complaint originally alleged that 4.25% was the customary interest rate for an ESOP transaction such as the one that took place, but it retracted that detail in surreply. Last, the complaint notes that GreatBanc entered into a settlement with the Department of Labor in 2014 (after the transaction), binding it to specific policies and procedures for analyzing stock valuation in ESOP transactions; the settlement, plaintiffs imply, was designed to address its record of shortcomings as a fiduciary.

         The district court dismissed the complaint, finding that the plaintiffs had not sufficiently pleaded breach of fiduciary duty according to the standard outlined in Fifth Third Bancorp v. Dudenhoeffer, 134 S.Ct. 2459 (2014). Dudenhoeffer held that "where a stock is publicly traded, allegations that a fiduciary should have recognized from publicly available information alone that the market was over- or undervaluing the stock are implausible as a general rule, at least in the absence of special circumstances." Id. at 2471 (emphasis added). A plaintiff in this type of case must therefore point to those "special circumstances" in her complaint, in order to survive a motion to dismiss. Believing that this rule applied and that no special circumstances existed, the district court dismissed the breach-of-fiduciary-duty claim. It rejected the prohibited-transaction claim for much the same reason, finding that the question whether the Plan paid a fair price for the stock was not properly alleged.


         We apply the usual de novo standard of review to the district court's rulings and accept the facts as alleged for present purposes. Wilczynski v. Lumbermens Mut. Casualty Co., 93 F.3d 397, 401 (7th Cir. 1996); Alexander v. United States, 721 F.3d 418, 423 (7th Cir. 2013). No heightened pleading standard applies here; it is enough to provide the context necessary to show a plausible claim for relief. See Dudenhoeffer, 134 S.Ct. at 2471 (citing Ashcroft v. Iqbal, 556 U.S. 662, 677-80 (2009), and Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 554-63 (2007)). We consider first the plaintiffs' prohibited-transaction argument, and then their broader claim for breach of fiduciary duty.


         ERISA identifies a number of transactions that are flatly prohibited between a plan and a party in interest, or a plan and a fiduciary. See ERISA § 406, 29 U.S.C. § 1106. The provision at issue here ...

Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.