Kloss v. Argent Trust Co.

Background

Jessica Kloss sued on behalf of the TPI Hospitality Employee Stock Ownership Plan and a proposed class of similarly situated plan participants. She is described as a former employee of Torgerson Properties, Inc., doing business as TPI Hospitality, and a vested participant in the plan. The defendants are Argent Trust Co.; Torgerson Properties, Inc.; the TPI Hospitality ESOP Committee; and Thomas R. Torgerson.

TPI Hospitality established the employee stock ownership plan in 2015 and appointed Argent as its trustee. The plan acquired all of TPI Hospitality’s stock for $10 million. In December 2020, TPI Hospitality terminated the plan, and Argent sold the stock to John Dammermann for $500,000. The complaint alleges that this price was below fair market value and that Dammermann was Torgerson’s friend and co-investor in several properties, including the Margaritaville Resort development.

Kloss asserted three claims under the Employee Retirement Income Security Act, a federal law governing employee benefit plans. Count I alleges that Argent breached its duties of prudence and loyalty by selling the plan’s shares below fair market value. Count II alleges that Torgerson Properties, Inc., the ESOP Committee, and Torgerson were liable as co-fiduciaries for Argent’s alleged breach. Count III alleges that those defendants failed to monitor the fiduciaries’ activities.

Judicial Notice

Argent asked the court to recognize several documents outside the complaint. The court granted that motion as to Exhibits 7 and 23, but only to recognize that the documents exist—not to accept the truth of their contents. The court denied the motion as to Exhibits 1 through 5, 11 through 20, 22, 24, and 25. The court also rejected Argent’s alternative argument that the exhibits were incorporated into the complaint.

Kloss asked the court to recognize five additional exhibits. The court denied that motion because the exhibits did not concern the specific parties in the case and were not incorporated into the complaint.

Argent’s Motion to Dismiss

A motion to dismiss for failure to state a claim tests whether the complaint alleges enough facts to make relief plausible, assuming the factual allegations are true. The court denied Argent’s motion as to Kloss’s prudence claim. Kloss alleged that Argent failed to investigate the value of the plan’s shares before selling them and supported that allegation with circumstantial facts, including TPI Hospitality’s reported revenue, its receipt of more than $600,000 in Paycheck Protection Program loans, and the $500,000 sale price.

The court also denied Argent’s motion as to the loyalty claim. Kloss alleged that Argent failed to negotiate a fair price in order to benefit Torgerson and that Argent knew Torgerson would receive a substantial benefit from the allegedly below-market sale. The court held that circumstantial allegations could be sufficient at the pleading stage for this claim.

The court granted Argent’s motion to dismiss the co-fiduciary liability claim. It reasoned that such a claim requires an underlying fiduciary breach by another fiduciary and that the court was dismissing the claims against Torgerson because the complaint did not adequately allege that he was an ERISA fiduciary.

TPI Defendants’ Motion to Dismiss

The court granted the motion as to the claims against Torgerson. Although the complaint alleged that Torgerson was TPI Hospitality’s longtime board chair and executive and would benefit from a discounted stock sale, it did not allege what role he played in administering the plan or directing the sale. The court treated the assertion that he was a fiduciary as a legal conclusion rather than a fact it had to accept. It also noted that the complaint identified TPI Hospitality or the ESOP Committee—not Torgerson—as part of the plan’s administrative structure.

The court denied the motion as to the co-fiduciary liability claims against Torgerson Properties, Inc. and the ESOP Committee. The complaint alleged that TPI Hospitality or the ESOP Committee administered the plan, appointed Argent as trustee, and retained authority to manage Argent’s actions involving plan assets. The court held that the complaint sufficiently alleged fiduciary responsibility and knowledge under the Eighth Circuit’s “knew or should have known” standard.

The court likewise denied the motion as to the failure-to-monitor claims against Torgerson Properties, Inc. and the ESOP Committee. The complaint alleged that TPI Hospitality established the plan trust with Argent as trustee and that TPI Hospitality had authority to direct certain of Argent’s actions. The complaint also pleaded in the alternative that the ESOP Committee had responsibility to appoint and remove the trustee. The court held that these allegations were sufficient at the pleading stage. It granted the motion as to Torgerson for the same reasons stated in the fiduciary-status analysis.

Order

The court ordered the following:

- Argent’s motion for judicial notice was granted as to Exhibits 7 and 23 and denied as to the remaining identified exhibits. - Kloss’s motion for judicial notice was denied. - Argent’s motion to dismiss was granted as to the co-fiduciary liability claim and denied on all other grounds. - Torgerson Properties, Inc., the TPI Hospitality ESOP Committee, and Torgerson’s motion to dismiss was granted as to the claims against Torgerson and denied on all other grounds.

The order addressed the sufficiency of the complaint at the pleading stage; it did not determine whether Kloss’s allegations would ultimately be proven.