After flip-flopping through federal district and appeals courts, the Elmore vs. Cone Mills Corp. case will be back in district court to decide whether plan participants' reliance on a plan sponsor promise to repay the company's ESOP was reasonable.
The case stems from a 1983 hostile takeover bid of Cone Mills Corp., Greensboro, N.C. To avert the takeover, senior management terminated the pension plan and used the $69 million surplus toward a leveraged buy-out of the company.
In December 1983, an ESOP was created, and senior management promised that money taken from the pension plan for the buy-out would be restored.
In May, the 4th U.S. Circuit Court of Appeals, Richmond, Va., decided Cone Mills' plan sponsors did not breach fiduciary duty in not repaying the full $69 million to the ESOP. (The management did repay $54.8 million to the ESOP, but left $14.2 million in the balance.)
The appeals court said the promise was not written in the plan documents. But the court split on its decision whether the participants had reason to rely on that promise.
Because of the split, participants won the right to decide the matter in a trial.