Law360 (November 14, 2019, 5:59 PM EST) — Reliance Trust Co. should face a proposed class action accusing the company of allowing RNVB Holdings Inc. workers to grossly overpay for their employer’s stock in federal court, not in arbitration, a Texas federal magistrate judge recommended Wednesday.
U.S. Magistrate Judge Caroline Craven said that the former workers of the storage and moving company made the case that Reliance added an arbitration clause to their 2012 employee stock ownership plan without telling them, only after they filed the suit in federal court alleging Reliance violated the Employee Retirement Income Securities Act by making workers pay too much — $85 million — for shares of the company’s stock.
Explaining that the participants in the suit aren’t bound by an arbitration clause Reliance added after getting sued, Judge Craven wrote, “Plaintiffs have produced evidence in support of their assertions that they were former employees when the 2012 plan was amended in 2018 to include the arbitration clause, and they were not notified about the existence of the arbitration procedure in the 2018 amendment until after this action was filed.”
Reliance had argued in its motion to compel arbitration in March that plan participants didn’t need to consent to the amendment to make it valid and that by accepting the plan’s benefits, they were agreeing to its terms and any subsequent amendments.
But the former workers said that just because they kept assets in the plan doesn’t mean they consented to arbitration.
“At bottom Reliance argues that arbitration can be imposed on persons who didn’t agree to arbitrate,” the workers said in a September brief. “That is not nor ever has it been the law.”
Judge Craven agreed with the workers on Wednesday, saying Reliance never presented a circumstance allowing it to invoke the amendment’s arbitration procedure and that the workers aren’t seeking to enforce the plan or any claims that arise from the plan document.
“There is no evidence plaintiffs seek to derive benefits from the plan or brought suit against Reliance as the former trustee at the time of the ESOP transaction premised on an agreement which is intertwined with an arbitration clause,” Judge Craven wrote.
Jessica Casey and Jason Coleman filed the proposed class action in June 2018 against Reliance, the trustee for the RNVB stock ownership plan. Reliance violated its fiduciary duties under ERISA by failing to perform due diligence when the plan acquired 100% of RNVB’s common stock in 2012 for an $85 million note, which was later revalued at $24 million, according to the complaint.
Months after the suit was filed, Reliance asked a federal judge to transfer the case to Georgia, a request the judge denied in January, before attempting to compel arbitration in March.
Casey and Coleman said Reliance was merely “rolling the dice” with the transfer bid in order to delay proceedings, a move that was only compounded by its latest attempt to arbitrate.
Counsel and representatives for the parties did not immediately respond to requests for comment on Thursday.
The proposed class is represented by Gregory Y. Porter and Ryan T. Jenny of Bailey & Glasser LLP and Thomas R. Ajamie and John S. Edwards Jr. of Ajamie LLP.
Reliance is represented by Keith M. Aurzada, W. Bard Brockman and Bradley Purcell of Bryan Cave Leighton Paisner LLP.
The case is Casey v. Reliance Trust Company, case number 4:18-cv-00424, in the U.S. District Court for the Eastern District of Texas.