Brock v. Self

• Decision Date: 17 April 1986
• Docket Number: Civ. A. No. 84-0194.
• Citation: 632 F. Supp. 1509
• Court: U.S. District Court — Western District of Louisiana
• Parties: William E. BROCK, Secretary of U.S. Dept. of Labor v. Paul D. SELF, et al.

632 F. Supp. 1509

William E. BROCK, Secretary of U.S. Dept. of Labor v. Paul D. SELF, et al.

Civ. A. No. 84-0194.

United States District Court, W.D. Louisiana, Lake Charles Division.

April 17, 1986.

William P. Tedesco, U.S. Dept. of Labor, Washington, D.C., D.H. Perkins, Jr., Asst. U.S. Atty., Shreveport, La., for plaintiff.

Robert B. Mitchell, Ellis B. Murov and Graham Stafford, McGlinchey, Stafford, Mintz, Cellini & Lang, New Orleans, La., for Paul D. Self, David Self, Amanda Self, Ollie Mae Sharp, Charles C. Peveto, Sel-Mart of Sulphur, La., Inc., & Danor Wholesale, Inc.

Alvin B. King, Lake Charles, La., for Louise Shelton.

G. Duffield Smith, Jr., and Susan E. Fenner, Gardere & Wynne, Dallas, Tex., Fred H. Sievert, Stockwell, Sievert, Viccellio, Clements and Shaddock, Lake Charles, La., for Hancel McCord, Hancel McCord Co., S. Courtney McCord and Adell Houston.

OPINION

VERON, District Judge.

INTRODUCTION

This matter is before the Court for a determination of liability on those causes of action set forth in the Third-Party complaint of Paul Self, Amanda Self, David Self, Charles Peveto, Ollie Mae Sharp, Louise Shelton, Sel-Mart of Sulphur, La., Inc., and Danor Wholesale, Inc., against Third-Party Defendants, Hancel McCord Company, Inc., Hancel McCord, Adell Houston, and A. Courtney McCord.¹ The principal action filed by William E. Brock, Secretary of the United States Department of Labor against the aforementioned Third-Party Plaintiffs having been settled by means of a Consent Order, a trial on the merits of the Third-Party complaint alone was heard by this Court, sitting without a jury, on October 22 and 23, 1985 in accordance with the following "Trial Stipulations Between Third-Party Plaintiffs and Third-Party Defendants" agreed to and filed by the parties:

1. Plaintiff, William E. Brock, in his capacity as Secretary of the United States Department of Labor, brought the principle sic action against the Defendants Third-Party Plaintiffs, under the provisions of the Employee Retirement Income Security Act of 1974 ("ERISA").

2. The principle sic case concerned allegations by the United States Department of Labor ("DOL") that the Defendants/Third-Party Plaintiffs breached fiduciary obligations that they owed to the Gibson Products Company of Lake Charles and Orange Profit Sharing Plan (the "Plan"), thereby violating multiple provisions of ERISA.

3. The DOL Complaint contained three basic charges of wrongdoing:

a. First, Defendants/Third-Party Plaintiffs were charged with a failure to require payment of fair rent on leases executed in 1977 between the Plan and the Defendant Employers (Sel-Mart of Sulphur, Louisiana, Inc., and Danor Wholesale, Inc.) for the use of Orange, Texas and Sulphur, Louisiana store buildings that were owned by the Plan. The DOL claimed that the trustee Defendants/Third-Party Plaintiffs permitted the Plan to engage in a prohibited transaction by allowing it to lease the Orange and Sulphur store buildings to parties in interest, i.e., the Defendant employers. The Sulphur store was leased to Sel-Mart of Sulphur, Louisiana, Inc. and the Orange store was leased to Danor Wholesale, Inc. 29 U.S.C. § 1106. On the same basis, DOL alleged that Defendant/Third-Party Plaintiff Self was guilty of managing the Plan properties in his own self interest. These two claims were both alleged to represent breaches of fiduciary duty as defined by ERISA. See, 29 U.S.C. § 1104.

b. Second, the Complaint alleged that the Defendants/Third-Party Plaintiffs Trustees had failed to revalue the market value of the Orange and Sulphur store buildings each year as required by the Plan documents.

c. Finally, it was claimed that the trustees failed to adequately diversify the Plan's assets; investing the vast bulk of the Plan's money assets in the Orange and Sulphur store buildings instead.

4. The factual disputes central to the principle sic claim were:

a. Whether the Defendant/Third-Party Plaintiff employers had leased the Orange and Sulphur properties for adequate consideration as that term is defined by ERISA § 3(18), 29 U.S.C. § 1002(18); and

b. What the fair market value of the Orange and Sulphur properties was for the period 1978 to 1985 (Defendants/Third-Party Plaintiffs conceded their error in not annually revaluing the buildings, however, they had not conceded the actual valuations that should have been placed in those buildings for purposes of calculating whether additional monies were owed to the Plan.)

5. The potential losses that could have arisen from a finding of Defendant/Third-Party Plaintiff liability were substantial. Undetermined payments would have been due to the terminated Plan participants as a result of the reevaluation of the Orange and Sulphur property values for the period of 1978 to 1985. The fair lease issue raised the largest spectre of potential liability. Liability in the event of an adverse judgment on the DOL's claim could have exceeded $700,000. Additionally, an adverse judgment entered on the DOL claim would have triggered an obligation on the part of the trustees to report their participation in a prohibited transaction to the Internal Revenue Service. Such a report would have caused the levy of a penalty that also would have approximated $700,000. The total potential liability on the lease question was $1.4 million.

6. The DOL's claims have been compromised by the Plaintiff, and Defendant/Third-Party Plaintiff. The terms of the compromise are memorialized in a Notice of Agreement to Enter Consent Decree, which has been filed with this court....

7. The Third-Party Defendants agree that the Third-Party Plaintiff's compromise with the DOL was reasonable. The Third-Party Plaintiffs also agree to waive any defense that they might have, to the claim of Third-Party Plaintiffs, based upon a theory that Third-Party Plaintiffs had, in fact, no liability to the DOL. For purposes of the action between the Third-Party Plaintiffs and Third-Party Defendants only, Third-Party Defendants concede that Third-Party Plaintiffs were liable to the DOL for the amounts and in the manner agreed upon in the Notice of Agreement to Enter Consent Decree.

8. Third-Party Plaintiffs and Third-Party Defendants also agree as to the elements of damage upon which the Court has been asked to rule in the action between them; the issue of quantum being reserved for subsequent disposition. Those damages claims are:

a. An obligation for reimbursement by Third-Party Defendants to Third-Party Plaintiffs of all amounts agreed to be paid in settlement of the lease transaction claims, as stated in paragraph No. 1 of the Notice of Agreement to Enter Consent Decree;

b. Reimbursement by Third-Party Defendants to Third-Party Plaintiffs of any amounts Third-Party Plaintiffs are compelled to pay out-of-pocket pursuant to the terms of paragraph nos. 3, 4, 5 and/or 6 of the ... Notice of Agreement to Enter Consent Decree pertaining to an adjustment in the 1978-1984 fair market sales values and to a recalculation of all past and present Plan participants' accounts to reflect increases in the valuations of the Plan's Orange, Texas and Sulphur, Louisiana properties; and

c. The propriety of Third-Party Defendants reimbursing Third-Party Plaintiffs for the attorneys' fees and other costs of defense incurred by Third-Party Plaintiffs in contesting the DOL claims.

Accepting, and being bound by these stipulations, the Court now rules as follows:

FINDINGS OF FACT

1. Third-Party Plaintiffs, Sel-Mart of Sulphur, Inc. ("Sel-Mart") and Danor Wholesale Corp. ("Danor") are both part of the Sel-Mart, Inc. chain of retail discount stores. Sel-Mart, Inc. and its various subsidiaries operate several such stores in the Lake Charles, Louisiana area. Sel-Mart operates a store located in Sulphur, Louisiana. Danor operated a store in Orange, Texas, until approximately March 1, 1985.

2. Third-Party Plaintiffs, Paul Self, Amanda Self, David Self, Charles Peveto, Ollie Mae Sharp and Louise Shelton are former and present Trustees of the Gibson Products Company of Lake Charles and Orange Profit Sharing Plan (the "Plan"). Paul Self was and is the principal owner and chief executive of Sel-Mart, Inc. and its subsidiaries, Sel-Mart and Danor. Paul Self was and is, as a practical matter, the primary decision maker among the Trustees.

3. The Orange, Texas, building used as a retail store by Danor is owned by the Plan. The Plan also owns a large part of the store operated by Sel-Mart in Sulphur, Louisiana. In each case, the Plan leases or leased the stores back to the operating company.

4. Sel-Mart and Danor were part of the Gibson's Products discount retail store chain and were known as "Gibson's" stores until 1982, when the stores withdrew from their Gibson's franchises and were renamed "Sel-Mart" and "Danor Wholesale."

5. Third-Party Defendant Hancel McCord Company, Inc. ("HMC") is a pension plan service company located in Dallas, Texas. Third-Party Defendant Hancel McCord is the chief executive officer and principal stockholder of HMC. McCord has been in the insurance, pension, profit-sharing plan and employee benefits business since prior to 1941. Third-Party Defendant Adell Houston has worked for HMC and its predecessors since 1957. She manages the pension and profit-sharing plan servicing operations of HMC, and is also an HMC stockholder.

6. McCord maintained a booth at the Gibson's Discount Stores Trade Shows in Dallas, Texas for several years. He met with Gibson's franchisees, explained employee profit-sharing plans for their individual Gibson's stores, and encouraged the franchisees to have him establish and service such plans.

7. McCord made various representations to Paul Self about the services which McCord would provide if Self agreed to the establishment of employee profit-sharing plans for the Gibson's stores in Orange, Texas and Sulphur, Louisiana (subsequently renamed Danor Wholesale and Sel-Mart, respectively) in 1965....