Tharaldson Motels, Inc. Employee Stock Ownership Plan
Practice Area: ERISA
Cohen Milstein is prosecuting a putative class action lawsuit on behalf of current and former Tharaldson Motels, Inc. Employee Stock Ownership Plan (the "Plan" or the "ESOP") participants and their beneficiaries alleging violations of the federal pension law (ERISA) in connection with two Transactions in which Gary Tharaldson and his family sold a total of 10,000,000 shares to the ESOP for $500 million in December 1998 and December 1999. The goal of this litigation is to recover the proceeds from Gary Tharaldson and his family which were received in excess of the fair market value of the stock at the time of the Transactions and/or restore losses suffered by the ESOP as a result of fiduciary breaches engaged in by Gary Tharaldson as Trustee of the ESOP in connection with the Transactions. If successful, any recovery by the ESOP would be allocated to the accounts of former and current participants of the ESOP who were affected by the alleged fiduciary breaches. The lawsuit is captioned: Hans v. Tharaldson, No. 05-115 (D.N.D.).
Summary of the Claims
This lawsuit alleges that Gary Tharaldson caused the Tharaldson ESOP to purchase the stock in Tharaldson Motels, Inc. ("TMI") from him and his family at more than fair market value and as a result the ESOP paid too much for the stock and incurred an excess amount of debt in the Transaction. In order to purchase the shares from the Tharaldsons, the ESOP incurred debt, which was financed in large part by loans from Gary Tharaldson and his family. This lawsuit alleges that these loans were designed to allow Gary Tharaldson to nominally place the ownership of the company in the hands of the ESOP while retaining management control and draining the company’s entire cash flow in order to service the debt undertaken by the ESOP to finance the purchase of these shares. The lawsuit also claims that the 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. As a result, the lawsuit 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.
Status of the Litigation
On September 26, 2007, the Court issued opinions on Defendants' Motions to Dismiss by granting in part and denying in part their motions. The Court denied the Motion to Dismiss filed by the non-fiduciary defendants who sold their shares of stock to the ESOP in the transactions, finding that Plaintiffs had sufficiently alleged claims for equitable relief. The Court initially granted the Motions to Dismiss as to the Plaintiffs who had taken distributions from the plan prior to the filing of the complaint and dismissed those plaintiffs; however, Plaintiffs sought reconsideration of that decision which the Court granted on March 4, 2009. As a result, all participants in the TMI ESOP are eligible to be members of the class.
Following the denial of Defendants’ motions to dismiss, Plaintiffs requested that the Court certify a class of “all persons, other than the Defendants herein, members of their immediate families, the legal representatives, heirs, successors or assigns of any such excluded party, who were participants of the Tharaldson Motels, Inc. (“TMI”), Employee Stock Ownership Plan (“ESOP” or “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 participants.”. The Court held a 3 day hearing on Plaintiffs motion in December 2008, but has not yet issued a decision.
Plaintiffs have completed virtually all fact discovery in the case.
While Plaintiffs were vigorously pursuing this litigation, North Star Trust Company, the Trustee of the ESOP, engaged in secret negotiations with Defendant Gary Tharaldson to settle the claims of the class. In order to assess this proposed settlement, Plaintiffs engaged a financial expert, a hotel industry expert and a tax expert. Based on their opinions, Plaintiffs have opposed this "settlement" as being unfair to the ESOP participants, including because it provides virtually no, if any, value to TMI and the ESOP and actually provides value to Gary Tharaldson. Plaintiffs' opposition to the settlement is attached on this website.
Shortly before a hearing before the Court on whether to approve the settlement, North Star advised the Court that it had recently discovered that one of the persons who had approved the settlement, Rick Larson, the President of TMI, a member of the Board of Directors and a member of the ESOP Committee had substantial conflicts of interest as a result of a substantial business relationship with Gary Tharaldson and should not have participated in the approval of the settlement. The settlement has been re-presented to the other members of the Board of Directors, who to-date have not yet approved the settlement negotiated by North Star.
Following the Board of Directors' failure to approve this "settlement," Plaintiffs have agreed to engage in a mediation with North Star and Defendants in an effort to attempt to negotiate a settlement of these claims that would provide real value and benefits to the ESOP participants. This mediation is expected to occur in August and the further proceedings in the litigation will be stayed during that period.
To Contact For More Information Regarding This Lawsuit:
If you have any information that may be useful to this lawsuit or are interested in discussing the possibility of serving as a class representative in such a lawsuit, please contact us via our toll free number, email or mail.
Bruce F. Rinaldi, Esq., brinaldi@cohenmilstein.com
R. Joseph Barton, Esq., jbarton@cohenmilstein.com
Abby Gustafson, Paralegal, agustafson@cohenmilstein.com
Cohen Milstein Sellers & Toll PLLC
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