U.S. Labor Department sues upstate New York auto supply company and official for alleged violations of federal employee benefits law

Syracuse, New York – The U.S. Department of Labor has sued Kellogg Auto Supply Co. Inc. of Cortland, New York, and company president and general manager Richard Coates for alleged violations of the Employee Retirement Income Security Act (ERISA), the federal law that protects private sector pension and employee benefit plans.

An investigation by the Labor Department’s Employee Benefits Security Administration (EBSA) Boston Regional Office determined that the defendants failed to carry out a key requirement of the Kellogg Auto Supply Co. Inc. Employee Stock Ownership Plan.

The plan is an employee stock ownership arrangement sponsored and administered by the company. The plan document sets forth the requirements that allow participants to receive a distribution based on the then-current value of the company’s stock. It mandates that, in the event any participant is entitled to a distribution in a given calendar year, a valuation of the stock is to be conducted based on the company’s performance during the prior calendar year.

The Labor Department investigation found that, during the period 1999 through 2008, a number of participants were entitled to distributions, but the defendants only caused a valuation of Kellogg stock based on its performance in calendar year 1998, and no further valuations were conducted by the defendants until 2008. As a result, at least nine eligible plan participants failed to receive proper distributions from the plan.

“Such a breach of trust and violation of the law will not be tolerated by the Labor Department,” said Jean Ackerman, the regional director for EBSA in Boston.

The Labor Department’s lawsuit, filed in the U.S. District Court for the Northern District of New York, alleges that both Coates and the company, as fiduciaries for the plan, failed to have the company’s stock valuated during the stated period, thus depriving plan participants and beneficiaries of benefits due them.

The suit asks the court to enter an order requiring the defendants to restore all losses, plus interest or lost opportunity costs; permanently enjoining the defendants from serving as fiduciaries or service providers to any ERISA-covered plan; ordering an accounting of the financial status of the plan; and appointing an independent fiduciary to conduct the affairs of the plan, including commissioning a valuation of Kellogg’s stock for the years 1999 to the present.

Workers and employers can contact EBSA’s Boston Regional Office at 617.565.9600 or toll-free at 866.444.3272 for help with problems relating to private sector pension and health plans. In fiscal year 2008, EBSA achieved monetary results of $1.2 billion related to pension, 401(k), health and other benefits for millions of American workers and their families. Additional information about the agency is available at www.dol.gov/ebsa.

Secretary of Labor v. Richard Coates
Civil Action Number: 3:09-CV-109

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