Settlement Reached in Couturier Case

A settlement has been reached between the former ESOP participants, the Department of Labor, and the defendants in Solis v. Couturier (Civ. 2:08-cv-02732-RRB-GGH, E.D. Ca., filed Mar. 10, 2010). The long-running, complex case has attracted considerable attention for a variety of reasons, most notably the issue of the propriety of the executive compensation received by the former CEO (Clair Couturier) and a Ninth Circuit ruling that enjoined the advancement of legal costs to the defendants. Many people also interpreted the Ninth Circuit ruling as making indemnification in a 100% ESOP ineffective, although it is not clear whether the ruling should be read that way (a district court decision in the Kelly-Moore case in the same circuit was more explicit and broader on this question).

The issue that drove the case was the contention that Couturier received an executive compensation package in excess of $34 million, or about one-third of the company's value. Most of that came from a package granted to him prior to the ESOP. When the company was sold at a considerable profit, some former participants sued. Aside from the sheer amount involved, a key to the complaint was whether ERISA applied to this transaction. Plaintiffs also charged that some of the advisors and fiduciaries were conflicted because they played multiple roles in the transaction. Defendants argued they took all the proper steps to insure the compensation package was legitimate; plaintiffs argued they were working more for Couturier than the trust. Because the case was never fully adjudicated, defendants did not have an opportunity to fully state their position.

Settlements are non-precedential. The settlement requires the various defendants (the corporate attorney, fiduciaries, Couturier, and other parties involved in the transaction) to pay $8 million in cash into a settlement fund for the ESOP and $800,000 to the Department of Labor. The lion's share of that comes from Couturier, who also is giving up property worth an estimated additional $5 million. The settlement specifically enables insurance costs to be used to pay for part of this settlement. In addition, the defendants in the transaction are enjoined from serving in multiple roles in future transactions. Most notably, the corporation's attorney must not serve on a board where he represents the plan; serve as a fiduciary, trustee, or administrator of a plan; and not enter into an indemnification agreements funded by an ERISA-covered plan. The agreement then lists a number of documentary requirements the attorney must provide to clients, all of which essentially restate common good practices about advising clients on valuation procedures, fiduciary duties, and document retention. In short, given all the attention the case has received, the settlement ends up simply reaffirming what are almost universally seen as elements of good practice for ESOP advisors (including practices the corporate attorney has said he already practices).