Tharaldson Motels, Inc. Employee Stock Ownership Plan
Practice Area: ERISA
Summary of the Lawsuit
This is a class action lawsuit on behalf of participants and beneficiaries in the Tharaldson Motels, Inc. Employee Stock Ownership Plan (the “TMI ESOP”) alleging violations of the federal pension law (ERISA) in connection with two Transactions in which Gary Tharaldson and his family sold shares to the ESOP for $500 million in December 1998 and December 1999. The lawsuit alleges that Gary Tharaldson, as the Trustee of the TMI ESOP, caused the TMI ESOP to purchase the stock in Tharaldson Motels, Inc. (“TMI”) at more than fair market value and as a result, the TMI ESOP paid too much for the stock and incurred an excess amount of debt. The TMI ESOP incurred debt, which was financed in large part by loans from Gary Tharaldson and his family, to purchase the shares from the Tharaldsons. This lawsuit alleges that these loans were designed to allow the Tharaldsons to nominally place the ownership of TMI in the hands of the TMI ESOP while retaining management control and draining the company’s cash flow in order to service the debt undertaken by the ESOP to purchase of these shares. The lawsuit also claims that the TMI ESOP paid too much for the shares purchased in the second transaction because the price was not adjusted to take into account the effect of the debt from the first transaction, and alleges that the debt imposed by the second transaction substantially reduced the value of the ESOP. The lawsuit also alleges that these transactions were undertaken not in the interest of the ESOP and its participants, but for the benefit of Gary Tharaldson and his family. As a result, the lawsuit seeks relief against Gary Tharaldson and family for the amount of the purchase price which they received in excess of fair market value at the time of the Transaction and seeks to restore any losses suffered by the ESOP as a result of Gary Tharaldson’s fiduciary breaches.
Class Action
On May 7, 2010, the Court certified the case as a class action with two subclasses: a Former Employee Class and a Current Employee Class. Cohen Milstein Sellers & Toll PLLC has been appointed Counsel for the Former Employee Class. The subclasses are defined as follows:
Former Employee Class
The Former Employee Class is defined as all persons, other than the Defendants in this action, members of their immediate families, their legal representatives, heirs, successors or assigns or any excluded party, who were participants in the Tharaldson Motels, Inc. Employee Stock Ownership Plan at any time from December 30, 1998 to the present and who received an allocation of Plan assets to their accounts which they did not subsequently forfeit under the terms of the Plan and the beneficiaries of such Plan participants and who are Plan Participants or beneficiaries in the Plan on or after May 15, 2006 and who are no longer employees of TMI
Current Employee Class
The Current Employee Class is defined as all persons, other than the Defendants in this action, members of their immediate families, their legal representatives, heirs, successors or assigns or any excluded party, who were participants in the Tharaldson Motels, Inc. Employee Stock Ownership Plan at any time from December 30, 1998 to the present and who received an allocation of Plan assets to their accounts which they did not subsequently forfeit under the terms of the Plan and the beneficiaries of such Plan participants and who are Plan Participants or beneficiaries in the Plan on or after May 15, 2006 and who are present employees of Tharaldson Motels, Inc.
Current Status
The litigation was stayed for over 6 months as Plaintiffs, Defendants, the Trustee and Counsel for the TMI Board explored settlement; however, it was the collective view of the Plaintiffs, the Trustee and TMI that future settlement discussions with Defendants would not be fruitful and that it was in the best interests of the participants of the ESOP to continue this litigation. In March 2010, the Court lifted the stay and placed the litigation back on a trial schedule. Subsequently, the parties have completed fact discovery.
Trial is set to begin January 11, 2011 at 9:30 am in Fargo Courtroom 1 before Judge Ralph R. Erickson.
Whom to Contact for More Information:
If you are a member of the proposed class or you have information which might assist us in the prosecution of these allegations, please contact one of the following persons:
Bruce F. Rinaldi, Esq., brinaldi@cohenmilstein.com
R. Joseph Barton, Esq., jbarton@cohenmilstein.com
Jason Kolcun, Paralegal, jkolcun@cohenmilstein.com
Cohen Milstein Sellers & Toll PLLC
1100 New York Avenue, N.W., Suite 500
Washington, D.C. 20005
Telephone: (202) 408-4600
Or Toll Free: 1-888-240-0775