In 2016, Inland Fresh Seafood Corporation of America established an employee stock ownership plan (ESOP), a type of defined contribution employee benefit plan. The ESOP then purchased 100% of Inland Fresh stock from Inland Fresh’s former shareholders.
Since the ESOP was founded, it has provided substantial benefits to Inland Fresh’s employee participants.
In November 2022, four former Inland Fresh employees filed an Employment Retirement Income Security Act of 1974 (ERISA) class action complaint against Inland Fresh, a number of its executives, its outside counsel, the ESOP Committee and the ESOP’s independent trustee.
The complaint alleged that the defendants breached their ERISA fiduciary duties, engaged in transactions prohibited by ERISA and ultimately caused the ESOP to pay more than fair market value for Inland Fresh stock during the initial transaction.
This case is one of a growing number of ERISA class actions filed by plaintiff firms across the country targeting ESOPs.
McDermott secured a decisive victory for Inland Fresh, obtaining a dismissal with prejudice of the class action. The plaintiff is now barred from filing a lawsuit on the same issue at a later date.
To achieve the favorable outcome, the McDermott team moved that plaintiffs failed to exhaust their administrative remedies before filing suit (as required under precedent established by the US Court of Appeals for the Eleventh Circuit), lacked standing to pursue their claims and failed to state a plausible claim for relief.
Rather than responding to the initial motion to dismiss, plaintiffs attempted to plead around the Eleventh Circuit’s exhaustion requirement in an 80-page amended complaint—which McDermott also moved to dismiss.
The court dismissed the plaintiffs’ claims with prejudice, adopting McDermott’s exhaustion arguments in full.
The court rejected the plaintiffs’ argument that the Eleventh Circuit’s exhaustion requirement was inconsistent with Supreme Court precedent, refused to excuse the plaintiffs from exhausting their administrative remedies and rejected their claim that exhaustion would be futile.
The court also denied the plaintiffs’ request to stay the case so that they could belatedly pursue their administrative remedies, agreeing with McDermott that there was no justification for plaintiffs’ intentional refusal to comply with Eleventh Circuit precedent.
Courts often deny motions to dismiss, and in those cases, the defendants are forced to incur substantial discovery and defense costs—in addition to managing business disruption over years of litigation. This victory allowed Inland Fresh to avoid litigation-related costs and disruption.
In addition, the court’s decision makes it clear that ERISA plan participants must adhere to the Eleventh Circuit’s requirement. Before filing a lawsuit, they must exhaust administrative remedies by submitting a claim for determination by the plan administrator, enabling meritorious claims to be resolved without litigation.
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