Foster v. Adams and Associates, Inc.

Background

Carol Foster and Theo Foreman brought an Employee Retirement Income Security Act (ERISA) class action on behalf of participants and beneficiaries of the Adams and Associates Employee Stock Ownership Plan (ESOP). They alleged that Adams and Associates, Inc., Roy A. Adams, Leslie G. Adams, Daniel B. Norem, Joy Curry Norem, and The Daniel Norem Revocable Trust Dated January 9, 2002 breached fiduciary duties, engaged in prohibited transactions, and failed to make required disclosures.

The claims arose from an October 2012 transaction in which certain defendants sold all of the stock of Adams and Associates, Inc. to the Adams ESOP, along with alleged later breaches by ESOP fiduciaries. Plaintiffs alleged that the transaction was not in the ESOP participants’ best interests and that defendants failed to disclose information about the ESOP trustee, Alan Weissman. The opinion states that the court previously denied a motion to dismiss filed by some defendants, and that those defendants later answered the complaint.

Proposed Class

Plaintiffs sought certification of a class consisting of all participants in the Adams and Associates ESOP from October 25, 2012, or any time afterward, who vested under the plan’s terms, together with those participants’ beneficiaries. The proposed class excludes defendants and their immediate families, ESOP fiduciaries, officers and directors of Adams and Associates, Inc. and certain entities controlled by a defendant, and the legal representatives, successors, and assigns of excluded persons.

Class-Certification Analysis

Federal Rule of Civil Procedure 23 requires a proposed class to satisfy four requirements: numerosity, commonality, typicality, and adequacy of representation. The plaintiffs also had to satisfy at least one category under Rule 23(b).

The court found numerosity because defendants’ discovery responses identified 2,766 vested plan participants. It found commonality because the class members shared legal questions about alleged prohibited transactions, fiduciary-duty breaches, failures to notify participants about Weissman’s removal, and the legality of indemnification provisions in Weissman’s engagement agreement.

The court found typicality because plaintiffs alleged that defendants’ conduct injured all ESOP participants in the same way and that the claims concerned the plan as a whole rather than individual circumstances. It also found that Foster and Foreman were adequate class representatives. The defendants argued that Foster’s disputes concerning performance evaluations, an ergonomic evaluation form, and statements about reporting a supervisor showed animus that might prevent her from accepting a suitable settlement. The court concluded that these matters involved alleged conduct by supervisors who were not defendants and were unrelated to the ERISA claims. The court also relied on Foster’s participation in the litigation and her statement that she would accept a resolution in the class’s best interests. The defendants did not challenge Foreman’s adequacy. The court found the proposed class counsel adequate as well.

The court held that certification was proper under Rule 23(b)(1) because separate cases could produce inconsistent directions concerning the ESOP and because decisions about the single transaction and defendants’ conduct could affect the rights of other plan participants. Certification was also proper under Rule 23(b)(2) because plaintiffs sought uniform injunctive or declaratory relief based on conduct allegedly affecting the class as a whole. Because certification was proper under Rules 23(b)(1) and 23(b)(2), the court did not decide plaintiffs’ alternative request under Rule 23(b)(3).

Ruling

Judge Corley granted plaintiffs’ motion for class certification. The court certified the stated class, appointed Foster and Foreman as class representatives, and appointed Feinberg, Jackson, Worthman & Wasow LLP and Block & Leviton LLP as co-lead counsel under Rule 23(g). This order decided whether the case could proceed as a class action; it did not decide whether defendants ultimately violated ERISA.