US Labor Department files suit to recover losses to employee stock ownership plan of a masonry company in Lynchburg, Virginia

Date of Action: Aug. 31, 2015

Type of Action: Complaint

Name(s) of Defendant(s): BAT Masonry Co. Inc., Wayne Booth, Gregory Booth, Melvin Hinton, John Rosser, James Joyner, Wayne Booth Revocable Trust (WB Trust), BAT Masonry Co. Inc. Employee Stock Ownership Plan & Trust, Wayne B. Booth Investments LLC, BST Enterprises LLC, M.H. Masonry & Associates Inc., and Sheldrick, McGehee & Kohler LLC (SMK)

Allegations: Based on an investigation conducted by the U.S. Department of Labor’s Employee Benefits Security Administration, the Secretary of Labor filed a complaint alleging the following:

BAT Masonry Co. Inc. was the sponsor and administrator of the BAT Masonry Co. Inc. Employee Stock Ownership Plan, established on May 1, 2009.  The trustees of the plan were Wayne B. Booth, Gregory Booth and Melvin Hinton. In July 2010, the ESOP purchased all the stock of the company from the Wayne Booth Revocable Trust, an entity controlled by Wayne Booth, for $1.6 million in cash and two promissory notes in the amount of $11.9 million, a total purchase price of $13.5 million. The purchase price was based on a valuation of the company conducted by SMK, which the company had hired for that purpose.  The transaction was approved by Joyner, whom the company’s board appointed as a Special Independent Trustee to review the fairness of the transaction.  In December 2010, the company hired another valuation firm, which valued the company at $163,590, over $13 million less than what the ESOP had paid only months before.

SMK’s valuation of the company was flawed in several respects, resulting in the ESOP overpaying the Wayne Booth Revocable Trust for the company stock.  SMK failed to account for the deteriorating fundamentals of the company’s business and improperly treated $5.8 million that Wayne Booth had previously withdrawn from the company’s account, and which he never intended to repay, as an account receivable, among other errors.  The trustees of the plan relied on SMK’s valuation, despite knowing the financial condition of the company was deteriorating.

Wayne Booth continued drawing cash out of the company after the ESOP transaction, even though he no longer held any ownership interest.  These withdrawals totaled at least $1.25 million. The company treated these withdrawals as payments from the ESOP to Wayne Booth, even though Booth’s withdrawals bore no relationship to the terms of the ESOP note, and the ESOP never received company shares in return for Booth’s withdrawals.

BAT Masonry Co. went out of business in mid-2012, rendering the shares held by the ESOP valueless. At this time Gregory Booth and Hinton started their own company, M.H. Masonry.  M.H. Masonry employs many of the same employees as the now-defunct BAT Masonry, purchased equipment owned by BAT at a significant discount, and is located at the same address as BAT.

The complaint alleges that the fiduciary defendants breached their duties of prudence and loyalty to the ESOP and engaged in prohibited transactions in connection with the ESOP’s purchase of the company stock and Wayne Booth’s withdrawals of cash thereafter, in violation of the Employee Retirement Income Security Act. The complaint further alleges that Hinton and Gregory Booth effectively abandoned the plan and breached their fiduciary duties.

Resolution: The lawsuit seeks to require each of the fiduciary defendants, BAT Masonry, Joyner, Wayne Booth, Greg Booth, Hinton, and Rosser, jointly and severally to restore all losses caused to the plan as a result of their fiduciary breaches. It further seeks each of the fiduciary defendants, BAT Masonry, Joyner, Wayne Booth, Gregory Booth, Hinton, and Rosser, to disgorge any and all unjust enrichment they have received as a result of their fiduciary breaches.

Additionally, the lawsuit seeks to require the party in interest defendants WB Booth Trust, WB Investments, BST Enterprises, MH Masonry, and SMK to disgorge any and all unjust enrichment they have received as a result of the fiduciary breaches, and to enjoin BAT Masonry, Wayne Booth, Greg Booth, Hinton, and Joyner from serving as fiduciaries or service providers to ERISA plans in the future.

Court: United States District Court for the Western District of Virginia

Docket Number: 6:15-cv-00028-NKM

U.S. Department of Labor news materials are accessible at www.dol.gov. The department’s Reasonable Accommodation Resource Center converts departmental information and documents into alternative formats, which include Braille and large print. For alternative format requests, please contact the department at (202) 693-7828 (voice) or (800) 877-8339 (federal relay).