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News Release

Dairy Fresh ESOP Administrator And Trustee Are Permanently Removed In Court Action

Archived News Release — Caution: Information may be out of date.

Dairy Fresh Corporation in Greensboro, Ala., and Victor Poole, the trustee of its Employee Stock Ownership Plan (ESOP) were removed as fiduciaries of the ESOP and immediately and permanently barred from serving as its fiduciaries in a summary judgment issued by the U.S. District Court in Mobile, Ala. on Aug. 9.

The action resulted from the Labor Department’s intervention in an independent lawsuit filed by Daily Fresh against Poole as the ESOP’s trustee. In that action, Dairy Fresh had alleged Poole breached his fiduciary duty to the ESOP by his refusal to redistribute the ESOP’s assets according to a revised schedule that Dairy Fresh had created for the ESOP. Dairy Fresh also had alleged, based upon a 1995 report, due to an alleged mistake that, it claimed, had occurred in a 1988 transaction, the ESOP should have received less stock in that transaction and that participant pensions should be reduced, eight years later, by almost half.

In its Aug. 9 ruling, the court agreed with the department that Dairy Fresh’s action had no legal basis and that, by filing the lawsuit, Dairy Fresh had violated the Employee Retirement Income Security Act (ERISA). The court found that Dairy Fresh had no authority to redistribute the ESOP’s assets; that Dairy Fresh’s directions to Poole as the ESOP’s trustee were contrary to ERISA; that no mistake had actually taken place in 1988; that even had there been a mistake as Dairy Fresh claimed, no legal theory supported the redistribution sought by Dairy Fresh; and that the proposed redistribution would harm the ESOP’s participants by decreasing their pensions by almost half.

The court also agreed with the department that Dairy Fresh had violated provisions of ERISA by failing to act prudently and in the best interests of plan participants, and that Dairy Fresh violated provisions that pertained to self- dealing, when it sought to redistribute the ESOP’s plan assets. The court maintained if the redistribution had occurred, Dairy Fresh and three of its directors stood to gain financially. In that instance, the ESOP would have lost majority ownership of Dairy Fresh and the three directors personally would have had effective control and ownership of the company.

Finally, the court found that Poole also violated provisions of ERISA pertaining to prudent plan management and loyalty to plan participants when he failed to vigorously defend the ESOP against Dairy Fresh’s lawsuit, opposed the department’s motion to intervene, and made, little, if any, inquiry into the basis for the proposed redistribution.

Herman v. Dairy Fresh
Civil Action No. 96-0187-CB-C

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Archived News Release — Caution: Information may be out of date.

Employee Benefits Security Administration
August 18, 2000
Release Number