Are remedies under the Employee Retirement Income Security Act (ERISA) available when a company owned by an employee stock ownership plan (ESOP) is drained by outsized compensation packages approved by officers and directors mired in self-dealing? Routine business decisions, such as compensation matters, at ESOP-owned companies are not typically scrutinized under ERISA. Rather, plan participants and beneficiaries who wish to take issue with the company’s business decisions are usually left with only those remedies available to shareholders under applicable corporate law. However, in Johnson v. Couturier, 2009 U.S. App. LEXIS 16559, the U.S. Court of Appeals for the Ninth Circuit concluded that ERISA’s fiduciary and self-dealing rules should apply in cases where an ESOP fiduciary who also serves as a corporate director or officer makes a business decision from which the individual could directly profit. This ruling could have widespread significance for ESOP participants and beneficiaries, as well as officers and directors of ESOP-owned organizations.
Background
Noll Manufacturing Company (Noll) maintained an ESOP that obtained full ownership of the company in 2001. Two years earlier, Clair R. Couturier Jr., became president of the company and was designated the ESOP’s sole trustee. That same year, Noll’s board approved an equity incentive plan (EIP), an incentive stock option agreement (ISO) and a value enhancement incentive plan (VEIP), all of which had been drafted by attorney David R. Johanson and offered generous payments to Mr. Couturier. Soon thereafter, Mr. Johanson became a director of Noll.
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