The U.S. 11th Circuit Court of Appeals has vacated its previous ruling on an employee lawsuit filed against Inland Seafood, now doing business as Inland Foods, bringing the full court together to rehear the case.
The lawsuit involves an employee stock ownership plan established by the Atlanta, Georgia, U.S.A.-based company in 2016. Under the plan, Inland Seafoods would distribute company stock to employees’ pension accounts based on tenure, providing them with a minority ownership of the company. The arrangement also tied the value of the employees’ pensions to the company’s stock value, incentivizing staff to prioritize the business’s growth.
To launch the plan, Inland Seafoods took out a USD 92 million (EUR 79 million) loan to purchase 100,000 shares of common stock from four of its officers and directors to then redistribute to the company’s employees. However, in 2022, five of those employees sued the company, accusing company leadership of using inflated sales projections and inventory to overvalue those stocks. Not only did that ensure the officers and directors who sold their shares back to the company received more money than they should have, it also meant that the stocks placed into employees’ pensions accounts were worth less. In their suit, the five employees claimed the company’s action removed tens of millions of dollars in value from their collective pension plans.
In 2023, a district court dismissed the lawsuit, ruling in Inland Seafoods’ favor by determining that the employees should have exhausted any administrative claims procedures in the employee stock ownership plan (ESOP) before filing suit.
The employees appealed the case in 2024, asking the 11th Circuit Court of Appeals to overturn the lower court decision and rule that they did not have to exhaust administrative remedies before suing the company. The U.S. Department of Labor joined the plaintiffs, filing a brief on their behalf arguing that the administrative procedures included in the stock ownership plan did not apply to the issue they were suing over.
“Plaintiffs’ complaint is not that defendants misapplied the plan and improperly denied them individual benefits but that defendants transgressed [the Employee Retirement Income Security Act]’s fiduciary standards and harmed the plan as a whole,” the department wrote in its brief. “Even if a plan’s benefit-review procedures could be used to assert statutory violations, plan fiduciaries – aside from potentially being conflicted – often are utterly incapable of providing the full relief enumerated by ERISA. For example, the Inland plan administrator has no inherent power to compel the Inland executives who sold their stock to the ESOP to make restitution to the plan or disgorge their ill-gotten profits. In short, there is no sound basis to require participants to bring their statutory claims to plan fiduciaries who are powerless and disincentivized to do anything about it.”
Still, the appeals court ultimately ruled in favor of Inland Seafood, determining in a 15 October opinion that the district court was correct in dismissing the case.
“After reviewing the parties’ briefs and the record, and with the benefit of oral argument, we agree with the district court that dismissal was warranted because no valid excuse relieves the plaintiffs of that obligation,” the court stated.
However, Circuit Judge Adalberto Jordan wrote in a separate opinion that the precedent used to dismiss the case – Mason v. Continental Group – ought to be reconsidered and invited the plaintiffs to request an en banc hearing. While most appeals court cases are decided with a three-person panel, an en banc hearing convenes all the judges on the bench. En banc hearings are rare and are typically used to sort out differences between an appeals court ruling and U.S. Supreme Court precedent.
In November, the plaintiffs requested an en banc hearing, and on 27 January, the 11th Circuit Court of Appeals announced that a majority of its justices were in favor of such a hearing. In doing so, the court vacated its October ruling and offered another lifeline to the plaintiffs.
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