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Case Details for "Kelly-Moore Paint Co."
Kelly-Moore Paint Co. settles ERISA class action lawsuit
A class of Kelly-Moore Paint Co. employees who claim that they overpaid for company stock as part of an employee stock ownership plan (ESOP) received preliminary approval Jan. 23 on an agreement that would settle the class action dispute for $40 million
On Nov. 29, 2006, Thomas Fernandez, Lora Smith and Tosha Thomas sued K-M Industries Holding Co., the ESOP committee, North Star Trust Co., the William and Desiree Moore Revocable Trust and its trustees in federal court. North Star has operated as the trustee for the ESOP since 2003.
The plaintiffs claim that the ESOP overpaid for company stock when it initially purchased the stock in 1998 and 1999. The plaintiffs claim that the defendants' actions constituted a breach of fiduciary duty and violated the Employee Retirement Income Security Act (ERISA). The claims arose out of the Oct. 13, 1998, sale of nearly 34 million shares of K-M Industries stock to the ESOP for $232 million and the Oct. 18, 1999, sale of 8.4 million shares of K-M Industries stock to the ESOP for $55 million.
The plaintiffs claim that the valuations were not performed properly because they failed to consider the effect that asbestos litigation pending against Kelly-Moore would have on the value of the stock. The plaintiffs claim that the share price in both transactions was too high. The plaintiffs say the defendants breached their fiduciary duty and engaged in prohibited transactions by causing the ESOP to purchase the shares at an inflated price.
Settlement Terms
Under the terms of the agreement, the plaintiffs would settle all claims with K-M Industries, the ESOP committee and the Moore family trust and its trustees. Claims will proceed against North Star. The plaintiffs claim that North Star failed to act prudently upon becoming successor trustee for the ESOP.
The settlement class is defined as all persons who were participants or beneficiaries in the K-M Industries ESOP on Oct. 13, 1998, or at any time thereafter and/or beneficiaries of ESOP participants on Oct. 13, 1998, or at any time thereafter.
A settlement fund of $40 million will be established by which a maximum of $10.2 million will be paid to class counsel to cover attorney fees and legal costs. Each of the three named plaintiffs would receive $15,000 payments as incentive awards under the terms of the agreement. The agreement provides that payments are to be made to the ESOP and allocated based on purchases made by ESOP participants and their beneficiaries.
Posted on:2009-02-05
Company: Kelly-Moore Paint Co.
Class: Employee participants of ESOP
Scope: Nationwide
Type of Case: ERISA
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