District Court Rejects DOL Position, Upholds Indemnification Agreement

In Harris v GreatBanc, Judge Manuel Real of the U.S. District Court for the Central District of California dismissed the argument of the U.S. Department of Labor (DOL) that an indemnification provision violates ERISA. Sierra Aluminum hired GreatBanc in 2005 to serve as trustee of its ESOP, and the agreement included an indemnification provision. The DOL argued that because the ESOP owns 100% of Sierra Aluminum's stock, payments of defense cost or indemnification would decrease the value of company stock, and noted that the court invalidated an indemnification agreement in Johnson v Courturier. The court ruled that Couturier is "inapplicable" to the indemnification agreement in this case, noting, among other arguments, that the Sierra Aluminum agreement "expressly prohibits indemnification if a court enters a final judgment from which no appeal can be taken finding GreatBanc liable for breach of its fiduciary duties under ERISA."