Penalties not appropriate where ESOP trustee failed to provide participant with stock sale documents

An ESOP participant was not entitled to statutory penalties, despite an ESOP trustee’s failure under ERISA §104(b)(4) to provide the participant with bank statements associated with the sale of company stock, the U.S. Court of Appeals in San Francisco (CA-9) has ruled.

An ESOP trustee, acting on advice given to him by a TPA, declined to provide a participant with copies of official bank statements related to the sale of all company stock to a new owner. The participant filed suit seeking (1) statutory penalties for the failure to provide the documents and (2) an accounting, in part because the trustee allegedly received $100,000 in compensation for the sale of stock privately owned by him. A magistrate judge denied the motions.

Statutory penalties

The participant failed in his initial complaint to properly plead his request for penalties and never availed himself of the opportunity to amend his complaint afforded him by the magistrate at a case management conference. Further, the appellate court held, the magistrate did not abuse his discretion when he ruled that, even if the request for penalties had been properly pled, he would have declined to impose penalties. The trustee acted not in bad faith but upon professional advice, and the participant demonstrated no harm from the delay (the trustee had responded promptly to an interim order from the magistrate to produce the bank statements).


The appellate court also upheld the magistrate’s denial of the participant’s request for an accounting. No evidence suggested the trustee breached any fiduciary duty by receiving payment for the sale of his privately owned stock shares. Common stock transactions that resulted in the ESOP owning less than 100% of the stock occurred before formation of the ESOP and are not relevant to ERISA claims.

Source: Kronzer v. Hintz (CA-9).

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