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Neil v. Foster-Bey

United States District Court, E.D. Virginia, Alexandria Division

January 11, 2017

ROBERT NEIL, in his capacity as Trustee of the CSR, Incorporated Employee Stock Ownership Plan, Plaintiff,
v.
JOHN FOSTER-BEY, Defendant.

          MEMORANDUM OPINION

          JAMES C. CACHERIS UNITED STATES DISTRICT COURT JUDGE.

         This 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 Motion.

         I. Background

         The 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).

         Plaintiff 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, 19.

         CSR 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.

         In 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.

         Plaintiff 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.

         Defendant 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.

         Defendant 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.

         Defendant 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.

         On 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.

         Defendant 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.

         On 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 ...


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