United States District Court, E.D. Virginia, Alexandria Division
ROBERT NEIL, in his capacity as Trustee of the CSR, Incorporated Employee Stock Ownership Plan, Plaintiff,
JOHN FOSTER-BEY, Defendant.
C. CACHERIS UNITED STATES DISTRICT COURT JUDGE.
matter is before the Court on Defendant John Foster-Bey's
Motion to Dismiss [Dkt. 49]. Defendant's Motion rests
largely upon a single argument: that the Trustee of an
Employee Stock Ownership Plan cannot, as a matter of law,
violate ERISA by voting stock held by the Plan in a
self-interested manner. For the reasons that follow, the
Court rejects that argument and will deny Defendant's
following allegations of fact from Plaintiff's Complaint
are taken as true for purposes of Defendant's Motion.
See E.I. du Pont de Nemours & Co. v. Kolon Indus.,
Inc., 637 F.3d 435, 440 (4th Cir. 2011).
CSR, Incorporated is a “government contractor providing
professional and technical consulting services and
research.” Compl. [Dkt. 1] ¶ 7. Defendant joined
CSR in 2008 as Project Director, and within three years was
promoted to Vice President of Operations. On December 2,
2011, Defendant was elected as both CEO and sole member of
CSR's Board of Directors. Id. ¶¶ 18,
maintains an Employee Stock Ownership Plan - “a
qualified, defined contribution, stock bonus (or combination
stock bonus plan and money purchase pension) plan governed by
ERISA” that owns “100% of the outstanding common
stock of CSR.” Id. ¶¶ 8-9. The Plan
is administered “for the exclusive benefit of eligible
employees and their beneficiaries.” Id. ¶
9. On June 20, 2012, Defendant was appointed Trustee of the
Employee Stock Ownership Plan, assuming the fiduciary duties
appurtenant to that position. Id. ¶ 19.
August of 2013, Defendant appointed Thomas Edgar and Robert
Neil to CSR's Board. Cynthia Mardsen was added to the
Board in January of 2016. Of the four Board members, only
Defendant served as both Board member and management. See
id. ¶ 16.
alleges that, beginning in early 2015, Defendant's
performance as President, CEO, and Trustee began to
deteriorate. Id. ¶ 21. Defendant ceased keeping
regular business hours and failed to “perform the
business development activities required of a CEO, and . . .
bec[a]me, essentially, an absentee CEO.” Id.
After repeated warnings, the other Board members informed
Defendant on September 12, 2016, that they intended to
terminate him as President, CEO, and Board member of CSR, and
as Trustee of CSR's Employee Stock Ownership Plan.
Id. ¶¶ 22, 23.
asked that the other Board members reconsider. Id.
¶ 24. They responded with specific terms Defendant would
be required to meet to retain his positions at the company.
Id. ¶ 25. The Board also scheduled a meeting
with Defendant to take place on September 19, 2016, to
discuss the issue of Defendant's employment. Id.
appeared late to the meeting on September 19, 2016, and
rejected the Board's mandates. Id. ¶ 26. In
particular, Defendant took issue with the requirement that he
be present in the office for six hours a day, four days a
week. Id. As a result, the other Board members
informed Defendant that they would terminate him from his
various positions at CSR. Id. ¶ 27.
responded that he would not recognize the Board's
authority to remove him because the membership terms of Edgar
and Neil had expired the prior month. Id. ¶ 28.
The Board, however, had earlier voted unanimously to extend
those members' terms to the end of September.
Id. ¶ 29. Reminded of this resolution,
Defendant stated that he would not renew those Board
members' terms when they expired at the end of September,
and would use his position as Trustee to elect new Board
members who would retain him. Id. ¶ 30.
September 21, 2016, the other Board members sent Defendant a
formal notice terminating him from his roles as President,
CEO, and Board member of CSR. Id. ¶ 31. The
notice included the caveat that it would not become effective
while the parties attempted to reach an amicable resolution.
Id. Shortly thereafter, it became apparent that no
such resolution would be possible. See id. ¶
32. On September 26, 2016, the other Board members notified
Defendant that the earlier notice had become effective, and
provided him with a separate notice purporting to terminate
him as Trustee of the Employee Stock Ownership Plan.
Id. The same day, the remaining Board members
purported to appoint Neil as interim successor Trustee of the
Plan. Id. ¶ 32.
nonetheless continued to hold himself out as President and
CEO of CSR, as well as Trustee of the Employee Stock
Ownership Plan. Id. ¶ 43. Plaintiff alleges
that this has caused confusion, damaging the business.
Id. Defendant also appointed new Board members at
the expiration of Edgar's and Neil's terms. See
id. ¶ 36. He did so “purely in retaliation
and in his own self-interest, to prevent his own termination
from his positions as President, CEO, member of the Board,
and Trustee.” Id. ¶ 34.
September 28, 2016, Plaintiff brought suit alleging that
Defendant's actions violated his fiduciary duty as
Trustee of the Employee Stock Ownership Plan. Plaintiff
sought a preliminary injunction, which this Court denied upon
provisionally finding that Defendant had successfully been
removed from his various positions at CSR, rendering
injunctive relief unnecessary. Defendant later moved for a
temporary restraining order seeking to prevent the removal of
the Board members he had installed during his final days at
CSR. The Court likewise denied Defendant's Motion.
Finally, Defendant filed, and the Court denied, a ...