Allen v. Greatbanc Trust Co.

Dist. Ct. erred in dismissing for failure to state valid cause of action plaintiffs' ERISA action alleging that defendant-as trustee of plaintiffs’ employee stock ownership plan (ESOP) breached its fiduciary duty and engaged in prohibited transactions by purchasing privately-held company stock for ESOP at inflated price and financing said purchase under circumstances where plaintiffs incurred substantial losses arising out of said transactions. Although Dist. Ct. found that plaintiffs failed to sufficiently plead breach of duty by asserting special circumstances surrounding instant purchase and financing of said stock, record showed that instant purchase and financing were prohibited transactions under section 406(a) of ERISA, and as such, plaintiffs were not required to allege absence of adequate consideration or unreasonableness of interest rate on loan. Moreover, plaintiffs were not required to plead absence of any section 408 exemptions to instant prohibited transactions, since such exemptions are essentially affirmative defenses that must be pleaded by defendant. Also, plaintiffs alleged viable breach of fiduciary action, where they asserted that defendant either failed to conduct adequate inquiry into proper valuation of stock or by intentionally facilitating improper transaction.