In a potentially important ruling, a district court has dismissed a case against the defendants at Inland Fresh Seafood Company because the plaintiffs did not first exhaust the administrative remedies for complaints provided by the plan. In Bolton v. Inland Fresh Seafood Employee Stock Ownership Plan, No. 1:22-cv-04602-AT (N.D. Ga. Dec. 5, 2023), the plaintiffs contended that a 2016 $92 million sale to the ESOP was overpriced. The plaintiffs alleged that the defendants (including the independent trustee) and sellers to the ESOP (all of whom were executives of the company) and the executives each were acting as fiduciaries. The suit alleged the executives had already received multiple bids for the company at lower prices. The plaintiffs alleged that management provided the appraiser with highly unrealistic projections about significant increases in revenues and profits, which they alleged were accepted to provide a higher than fair value. The plaintiffs said the defendants sought multiple valuations for the stock and accepted the highest one.
The defendants did not respond to the substance of the claim in their legal filings but instead argued the case should be dismissed because the plan required the plaintiffs to exhaust their administrative remedies under the plan first.
The court agreed, dismissing the case against the outside trustee, James Urbach. This case arose in the Eleventh Circuit, which requires ERISA plaintiffs to exhaust administrative remedies before suing in federal court. Here, the court said the plaintiffs had failed to exhaust their legal remedies under the plan first by filing a complaint with the plan committee. The plaintiffs argued that would be futile given the composition of the committee and that the plan language, in any event, gave them the option to sue.
The court said the Inland Seafood plan “provides the ESOP committee with the power to ‘construe and interpret the Plan and decide all questions arising in the administration, interpretation and application of the Plan and Trust Agreement.’” The court said the purpose of these clauses is to prevent frivolous lawsuits. The court also ruled against the argument that efforts to pursue remedies would be futile, saying that if conflicts of interest negated the exhaustion remedy, almost any case should be brought to trial.