Lloyd v. Argent Trust Company

Background

Jamaal Lloyd and Anastasia Jenkins brought claims under the Employee Retirement Income Security Act (ERISA) on behalf of a proposed class of employee stock ownership plan participants. The defendants were Herbert Wetanson, Gregor Wetanson, Stuart Wetanson, and Argent Trust Co. The Wetansons were identified as the seller defendants, and Argent served as trustee of the WBBQ Holdings, Inc. Employee Stock Ownership Plan.

In 2016, the plan purchased 400,000 shares of WBBQ stock, representing 80 percent of the company’s outstanding shares. The plaintiffs alleged that the plan paid $98,887,309 for the shares even though they were overvalued. They also alleged that Argent relied improperly on financial projections supplied by the seller defendants, failed to account for foreseeable increases in labor and property costs, and accepted a seller loan with an unreasonably high interest rate. The stock’s value declined substantially after the purchase.

The defendants moved to compel arbitration and stay the case. Alternatively, they moved to dismiss for lack of subject-matter jurisdiction, arguing that the plaintiffs lacked Article III standing because they had not alleged an injury.

Standing

The court rejected the standing argument at the pleading stage. For purposes of a motion under Federal Rule of Civil Procedure 12(b)(1), which challenges the court’s jurisdiction, the court accepted the complaint’s material factual allegations as true and drew reasonable inferences in the plaintiffs’ favor.

The plaintiffs alleged that the stock was overvalued when the plan bought it and that this overvaluation harmed their financial interests in the plan. The court held that an alleged monetary loss of this kind was enough to establish an injury for standing purposes. The defendants’ arguments that the transaction may ultimately have benefited the plaintiffs challenged the merits of the claims rather than whether the plaintiffs had suffered an injury sufficient to sue.

Arbitration

The plan’s arbitration provision required individual arbitration of covered claims. It also prohibited arbitration from providing additional benefits or monetary relief to anyone other than the individual claimant and stated that equitable relief would not bind the plan administrator or trustee as to other participants or beneficiaries.

The court held that these restrictions conflicted with ERISA. ERISA permits representative claims seeking relief for the plan as a whole and authorizes remedies such as removal of a fiduciary. By requiring individualized relief and limiting remedies affecting other participants, the arbitration provision prevented claimants from pursuing statutory rights and remedies.

The court further held that the restrictions were material and non-severable under the plan’s terms. Because the unlawful limitations could not be separated from the remaining arbitration procedures, the entire arbitration procedure could not be enforced. The court therefore denied the motion to compel arbitration.

Disposition

The court denied the defendants’ October 3, 2022 motion to compel arbitration and stay the case or, alternatively, dismiss it for lack of subject-matter jurisdiction. The opinion did not decide whether the defendants were liable for the alleged ERISA violations.