The trustee of an RV rental company's employee stock ownership plan has agreed to pay $22.5 million following a Department of Labor lawsuit alleging ERISA breaches.
The Labor Department in 2019 filed a lawsuit in U.S. District Court in Phoenix against RVR Inc. and Reliance Trust Co., the trustee for the RVR employee stock ownership plan, that centered around the value of RVR's stock in 2014.
In an Aug. 30 consent judgement, Judge Roslyn O. Silver said Reliance and Labor Department attorneys negotiated an agreement to settle matters. The consent judgment requires Reliance to pay more than $20.4 million to workers who participated in the RVR ESOP to resolve fiduciary breach claims alleged in the lawsuit. The court also ordered Reliance to pay a penalty of more than $2 million for its ERISA violations.
In 2014, RVR, led by brothers Randall Smalley and Robert Smalley Jr., decided to establish an ESOP and hired Reliance to serve as the trustee and independent fiduciary of that plan.
The ESOP then agreed to purchase 100% of RVR's stock for $105 million, but the Labor Department said that price was far too high and was only worth about $15 million at the time of the transaction, according to court documents.
In its lawsuit, the Labor Department claimed that Reliance failed to hire a truly independent appraiser and then failed to provide its appraiser with complete information necessary to produce a reliable valuation report. It also did not negotiate in good faith over the stock purchase price and other terms of the transaction, the Labor Department said.
The defendants maintained that the $105 million purchase price was correct.
"When a trustee purchases stock on behalf of a retirement plan, such as the RVR Employee Stock Ownership Plan, its first responsibility is to make sure that the plan's participants get a fair deal and don't pay more than the worth of the stock," said Assistant Secretary for Employee Benefits Security Lisa M. Gomez in a Sept. 13 statement. "Plan fiduciaries' duty of loyalty is owed to the plan's participants, not to sellers looking out for their own bottom line. When fiduciaries cut deals for the financial benefit of sellers at the expense of their employees, the Department of Labor will take appropriate action to ensure that plan participants get full value for their money."
A representative for Reliance could not immediately be reached for comment.
The department's lawsuit also alleges ERISA violations by additional fiduciaries of the RVR ESOP and other defendants for failing to monitor Reliance prudently and allowing the trustee to purchase the stock for more than its fair value. The department's claims against defendants other than Reliance remain pending and the case is scheduled for trial in January.
