AHRENDSEN v. PRUDENT FIDUCIARY SERVICES, LLC

IN THE UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF PENNSYLVANIA

SHARI AHRENDSEN, et al. : CIVIL ACTION

:

v. :

:

PRUDENT FIDUCIARY SERVICES, LLC : NO. 21-2157

et al.

MEMORANDUM

Bartle, J. February 1, 2022

Plaintiffs Shari Ahrendsen, Barry Clement, and Lisa

Bush have sued defendants Prudent Fiduciary Services LLC, Miguel

Paredes, James A. Wells, James R. Wells, and Richard G. Wells in

this putative class action under the Employee Retirement Income

Security Act of 1974 (“ERISA”), 29 U.S.C. §§ 1001 et seq.

Plaintiffs are former employees of World Travel, Inc. and

current and former participants in the World Travel, Inc.

Employee Stock Ownership Plan (“the Plan”), a pension plan.

Defendants Prudent Fiduciary Services LLC (“PFS”) and Miguel

Paredes are alleged to have been the Trustee of the Plan at the

time of a transaction in which defendants James A. Wells,

James R. Wells, and Richard G. Wells (collectively “the Wells

defendants”), the founders of World Travel, sold all their

shares to the Plan.1 In essence, plaintiffs claim that they and

1. The amended complaint refers to both Paredes and the

company he founded, PFS, collectively as “the Trustee” in the

singular. The court will likewise refer to both defendants as

“the Trustee” for purposes of this memorandum.

the class they seek to represent were deprived of their

hard-earned retirement benefits due to the actions of

defendants. Plaintiffs seek declaratory, injunctive, and

monetary relief.

Before the court are the motions of defendants to

dismiss this action pursuant to Rule 12(b)(6) of the Federal

Rules of Civil Procedure.2 Defendants rest their argument in

large part on plaintiffs’ failure to meet the pleading

requirements under Rule 8 of the Federal Rules of Civil

Procedure as informed by the Supreme Court’s decisions in

Ashcroft v. Iqbal, 556 U.S. 662 (2009), and Bell Atlantic Corp.

v. Twombly, 550 U.S. 544 (2007).

I

When considering a motion to dismiss for failure to

state a claim under Rule 12(b)(6), the court must accept as true

all well-pleaded factual allegations in the complaint and draw

all reasonable inferences in the light most favorable to the

plaintiffs. See Phillips v. Cty. of Allegheny, 515 F.3d 224,

233 (3d Cir. 2008); Umland v. PLANCO Fin. Servs., Inc., 542 F.3d

59, 64 (3d Cir. 2008).

2. Defendants PFS and Paredes move for dismissal of Counts I,

II, and III as against them. The Wells defendants move for

dismissal of Counts IV and V as against them.

Rule 8 requires that a pleading contain “a short and

plain statement of the claim showing that the pleader is

entitled to relief.” Fed. R. Civ. P. 8(a)(2). As the Supreme

Court has explained, a complaint need not include “detailed

factual allegations,” but it must state “more than labels and

conclusions” and must provide factual allegations “enough to

raise a right to belief above the speculative level.” Twombly,

550 U.S. at 555. Plaintiffs must “nudge[] their claims across

the line from conceivable to plausible.” Id. at 570.

“Threadbare recitals of the elements of a cause of action,

supported by mere conclusory statements, do not suffice.”

Iqbal, 556 U.S. at 678. “[W]here the well-pleaded facts do not

permit the court to infer more than the mere possibility of

misconduct, the complaint has alleged – but it has not ‘shown’ –

‘that the pleader is entitled to relief.’” Id. at 679 (citing

Fed. R. Civ. P. 8(a)(2)).

On a motion to dismiss under Rule 12(b)(6), the court

may consider “allegations contained in the complaint, exhibits

attached to the complaint and matters of public record.”

Pension Benefit Guar. Corp. v. White Consol. Indus., Inc.,

998 F.2d 1192, 1196 (3d Cir. 1993) (citing 5A Charles Allen

Wright & Arthur R. Miller, Federal Practice and Procedure § 1357

(2d ed. 1990)). The court may also consider “matters

incorporated by reference or integral to the claim, items

subject to judicial notice, matters of public record, orders,

[and] items appearing in the record of the case.” Buck v.

Hampton Twp. Sch. Dist., 452 F.3d 256, 260 (3d Cir. 2006)

(citing 5B Charles Allen Wright & Arthur R. Miller, Federal

Practice and Procedure § 1357 (3d ed. 2004)).

II

For present purposes, the court accepts as true the

following well-pleaded facts set forth in the amended complaint.

World Travel, Inc. is a corporate travel management company.

Plaintiffs are all former employees of World Travel and current

or former participants in the Plan. The Plan is sponsored and

administered by World Travel and was adopted with the effective

date of January 1, 2017. It is a leveraged employee stock

ownership plan (“ESOP”) designed to invest primarily in the

securities of World Travel, the employer. It is a defined

contribution plan with individual accounts for each participant.

Paredes, the president and founder of PFS, and PFS served as the

Trustee for the Plan at all relevant times in question. The

Trustee was chosen by the Board of Directors of World Travel

(“the Board”).

The Wells defendants founded World Travel in 1983.

James R. Wells and Richard Wells are brothers. James A. (“Jim”)

Wells is the son of James R. Wells. Jim Wells was and is the

chairman of the Board and is the former president and chief

executive officer of World Travel. Richard Wells is the former

secretary, treasurer, and chief financial officer. The three

Wells defendants were Board directors at all relevant times.

On December 20, 2017, the Trustee negotiated the

purchase by the Plan of 19,860,000 shares of World Travel common

stock from the Wells defendants for $200,573,217. Until this

transaction, the Wells defendants and their families had owned

World Travel since its inception. At the time of the

transaction, World Travel had over 500 employees. The Plan’s

purchase of World Travel stock was financed through a loan for

the full amount from World Travel to the Plan at an annual

interest rate of 2.64%. As a result of this transaction, World

Travel is a 100% employee-owned company.

The Trustee received fees for negotiating the

transaction and obtained an indemnification agreement from World

Travel when it was still owned by the Wells defendants.

Following the transaction, the Wells defendants “retained

control” over World Travel through their positions on the Board.

Plaintiffs claim that the transaction at issue was

prohibited under ERISA as it was a transfer of assets between

the Plan and shareholders of the sponsor company, that is the

Wells defendants. Plaintiffs seek to hold the Trustee and the

Wells defendants liable for their roles in a prohibited

transaction. Plaintiffs also aver that the Trustee breached its

fiduciary duties in negotiating this transaction and that the

Wells defendants are liable as co-fiduciaries for this breach.

In support of these claims, plaintiffs allege,

according to a confidential witness, that Jim Wells exercised

control over World Travel operations prior to and at the time of

the transaction. They assert that he was “centrally involved in

conceiving of, facilitating, and executing” this transaction

which included directing the preparation of financial

projections that formed the basis for the stock appraisal that

the Trustee relied upon in assessing the sale price for this

transaction.

Plaintiffs also claim that the Plan overpaid for World

Travel stock because it did not receive a discount for its lack

of control of the Board as the Wells defendants “retained

control” following the transaction. According to the

confidential witness, the Plan overpaid for World Travel because

World Travel had revenue sharing agreements to refund earned

commissions to its clients which Jim Wells instructed World

Travel employees not to pay unless the clients raised the

subject.

Plaintiffs further allege that World Travel did not

fully disclose these liabilities, that it did not have money on

hand to cover them, and that the sale price did not account for

these liabilities. As a result, the company’s financial

projections on which the Trustee relied for the ESOP transaction

were unreasonably optimistic. Plaintiffs maintain that the

Trustee performed a faulty valuation of World Travel for

purposes of the ESOP transaction.

The amended complaint goes on to claim that the

Trustee did not perform the due diligence for this transaction

that a third-party buyer in a corporate transaction would have

performed and that its due diligence was not extensive and

thorough. According to plaintiffs, the Trustee was incentivized

to act in favor of the Wells defendants by the possibility of

business with those who understood the Trustee to apply less

than due diligence in ESOP transactions as compared to non-ESOP

transactions.

Specifically, the Trustee relied upon unrealistic

growth projections, unreliable or out-of-date financials,

improper discount rates, and inappropriate comparable companies.

The Trustee failed to test assumptions and/or to question or

challenge underlying assumptions. Consequently, plaintiffs

received diminished stock allocations, excessive debt to the

Plan, and losses to their individual accounts. In addition,

plaintiffs contend that the indemnification agreement between

World Travel and the Trustee did not contain an exemption for

violations of per se prohibited transactions under 29 U.S.C.

§ 1106.

Plaintiffs seek to hold the Wells defendants liable

for their knowing participation in a prohibited transaction and

as co-fiduciaries for the Trustee’s breach. Plaintiffs maintain

that as selling shareholders, directors of World Travel, and

participants in the ESOP transaction, the Wells defendants knew

or should have known that the Trustee engaged in a prohibited

transaction and breached its fiduciary duties.

III

Plaintiffs aver in Count I that defendants Paredes and

PFS as Trustee engaged in a prohibited transaction in violation

of 29 U.S.C. § 1106(a) and (b). Section 1106(a) provides:

Except as provided in section 1108 of this

title:

(1) A fiduciary with respect to a plan shall

not cause the plan to engage in a

transaction, if he knows or should know that

such transaction constitutes a direct or

indirect -

(A) sale or exchange, or leasing, of

any property between the plan and a

party in interest;

(B) lending of money or other extension

of credit between the plan and a party

in interest;

. . .

(D) transfer to, or use by or for the

benefit of a party in interest, of any

assets of the plan.

29 U.S.C. § 1106(a)(1)(A)-(D). ERISA includes in the definition

for a “party in interest” any fiduciary of an employee benefit

plan and shareholders with ten percent or more of shares. 29

U.S.C. § 1002(14).

Section 1108, to which § 1106(a) makes direct

reference, allows for an exemption from § 1106(a) for

acquisitions or sales by a plan of qualifying employer

securities when certain conditions are met. It provides that:

Sections 1106 and 1107 of this title shall

not apply to the acquisition or sale by a

plan of qualifying employer securities

. . . -

(1) if such acquisition, sale, or lease is

for adequate consideration . . .,

(2) if no commission is charged with respect

thereto, and

(3) if –

(A) the plan is an eligible individual

account plan.

29 U.S.C. § 1108(e).

The statute defines “adequate consideration” for

securities without a generally recognized market as “the fair

market value of the asset as determined in good faith by the

trustee or named fiduciary pursuant to the terms of the plan and

in accordance with regulations promulgated by the Secretary [of

Labor].” 29 U.S.C. § 1002(18)(B). The Department of Labor has

explained in a proposed regulation that for adequate

consideration, “the value assigned to an asset must reflect its

fair market value” and “must be the product of a determination

made by the fiduciary in good faith.”3 Henry v. Champlain

Enters., Inc., 445 F.3d 610, 618-19 (2d Cir. 2006).

3. As the Court of Appeals for the Second Circuit has

explained, “[a]lthough proposed regulations have no legal effect

Plaintiffs maintain that the Trustee, a plan

fiduciary, caused the Plan to engage in a prohibited transaction

in violation of § 1106(a)(1)(A) when it negotiated the sale of

property, that is World Travel stock, with a party in interest,

that is the Wells defendants who were shareholders with more

than ten percent of shares each in World Travel.4 According to

plaintiffs, the Trustee violated § 1106(a)(1)(B) when it caused

the Plan to borrow money from a party in interest, that is World

Travel, by taking out a loan from World Travel to finance the

ESOP transaction. Finally, plaintiffs assert that the Trustee

violated § 1106(a)(1)(D) when it transferred assets for the

benefit of the Wells defendants and to the detriment of Plan

participants and beneficiaries.

Paredes and PFS move to dismiss arguing that

plaintiffs have failed to allege sufficient facts to infer that

the exemption listed in § 1108(e) does not apply and to infer

deficiencies with the Trustee’s process for reviewing the

transaction.5

. . . numerous circuit courts have adopted the DOL’s proposed

definition of adequate consideration.” Henry, 445 F.3d at 619.

4. PFS disputes that it was a fiduciary. The court at this

pleading stage takes the facts in the light most favorable to

plaintiffs and will therefore not reach the merits of this claim

on a motion to dismiss.

5. PFS and Paredes also move to dismiss based on allegations

that the Plan did not overpay for the World Travel shares. This

Plaintiffs counter that a sale between the Plan and

parties in interest is enough to find a prohibited transaction

under § 1106(a) and that defendants’ motion to dismiss fails

because they are relying on § 1108(e), an affirmative defense,

which plaintiffs have no obligation to negate. Ignoring the

reference to § 1108 in § 1106(a), plaintiffs assert that

§ 1106(a) categorically bars certain transactions such as this

ESOP transaction between the Plan and the Wells defendants as

parties in interest. Plaintiffs are incorrect. See Sweda v.

Univ. of Pa., 923 F.3d 320, 336 (3d Cir. 2019). Section 1108

provides exceptions to the prohibited transactions listed in

§ 1106(a). These exceptions include acquisitions or sales by a

plan of qualifying employer securities as long as there is

adequate consideration. 29 U.S.C. § 1108(e).

Although plaintiffs do not make specific reference to

§ 1108(e) in their amended complaint, they clearly allege that

there was inadequate consideration for this transaction.

Plaintiffs have pleaded that defendant Jim Wells was centrally

involved in the financial projections underlying the stock

appraisal and knew of the accrued liabilities from revenue

sharing agreements. Further, he instructed World Travel

employees not to follow up on amounts due to clients from the

argument goes to the merits and will therefore not be addressed

at this time.

revenue sharing agreements. Plaintiffs also contend that the

liabilities from these revenue sharing agreements were not fully

reported, that World Travel did not have money on hand to cover

these liabilities, and that the price that the Plan paid for

World Travel stock did not account for these liabilities. As a

result, the financial projections for World Travel were

unreasonably optimistic, that the Trustee performed a faulty

valuation of the company as a result, and that World Travel

stock was sold for a higher than fair market value price.

These allegations include specific claims regarding

the deficiency of the sale price and the inadequacy of the

consideration based on this deficiency as well as the Trustee’s

failure to properly evaluate the sale price. The court is

mindful that our Court of Appeals has explained that “Rule

8(a)(2), Twombly, and Iqbal operate with contextual specificity”

and that “ERISA’s protective function is the focal point of the

statute.” Sweda, 923 F.3d at 326.

The court is also aware that plaintiffs do not plead

any specifics as to what the fair market value of World Travel

stock should have been, and they make many of their claims with

the qualifier that these allegations “will likely have

evidentiary support after a reasonable opportunity for further

investigation or discovery.” ERISA, however, was a response to

“‘the lack of employee information and adequate safeguards

concerning [employee benefit plans’] operations.’” Id. (quoting

29 U.S.C. § 1001(a)). Plaintiffs at this stage are limited in

the information to which they have access. In passing ERISA,

Congress intended “‘that disclosure be made and safeguards be

provided with respect to the establishment, operation, and

administration of such plans.’” Id. (quoting 29 U.S.C.

§ 1001(a)).

Bearing in mind this information asymmetry for the

Plan participants and beneficiaries, as well as the purpose of

ERISA to protect employee participants and beneficiaries, the

court finds that plaintiffs have pleaded sufficient facts to

state a plausible claim against the Trustee of a prohibited

transaction under § 1106(a) based on this ESOP transaction

without adequate consideration between the Plan and parties in

interest. The amended complaint is sufficient as to this claim

not because it relates to an ESOP transaction, but because it

involves an alleged ESOP transaction without adequate

consideration and therefore is not exempted under § 1108(e).

The court notes that our Court of Appeals has found

that specific intent is required to state a claim for a

prohibited transaction under § 1106(a)(1)(D), a claim which

plaintiffs plead here. See Reich v. Comptom, 57 F.3d 270, 278

(3d Cir. 1995). The Court in Sweda v. University of

Pennsylvania extended this requirement to claims brought under

§ 1106(a)(1)(C) and found that “absent factual allegations that

support an element of intent to benefit a party in interest, a

plaintiff does not plausibly allege” a prohibited transaction

under § 1106(a)(1)(C). Sweda, 923 F.3d at 337-38.

While the Court did not address whether allegations to

support an element of intent are also required for claims

brought under § 1106(a)(1)(A) and § 1106(a)(1)(B), it did

conclude that reading § 1106(a)(1) with a requirement of intent

to benefit a party in interest “represent[s] a more harmonious

way to interpret the prohibited transactions listed in

§ 1106(a)(1) in the context of the statute as a whole.” Id. at

338. It based this conclusion in part on the Supreme Court’s

identification of the common thread in § 1106(a)(1) as “a

special risk to the plan from a transaction presumably not at

arm’s length.” Id. (citing Lockeed Corp. v. Spink, 517 U.S.

882, 892-93 (1996)).

Plaintiffs allege that the Trustee did not perform due

diligence in conducting this transaction which benefitted the

Wells defendants who sold their shares in World Travel for more

than market value. Plaintiffs further allege that the Trustee

was incentivized to act in favor of the Wells defendants by the

possibility of business from other companies who understand the

Trustee to apply less than due diligence. These allegations can

plausibly be interpreted as including an intent on the part of

the Trustee to benefit the Wells defendants by performing less

than due diligence and acting in their favor with the prospect

of future business. Thus, plaintiffs have pleaded sufficient

facts to state a claim under § 1106(a) against the Trustee in

Count I.

Plaintiffs also bring Count I pursuant to § 1106(b).

This provision relates to transactions between a plan and a

fiduciary and provides that:

A fiduciary with respect to a plan shall

not –

. . .

(2) in his individual or in any other

capacity act in any transaction

involving the plan on behalf of a party

(or represent a party) whose interests

are adverse to the interests of the

plan or the interests of its

participants or beneficiaries, or

(3) receive any consideration for his

own personal account from any party

dealing with such plan in connection

with a transaction involving the assts

of the plan.

29 U.S.C. § 1106(b). Section 1106(b) is concerned with the risk

of fiduciary self-dealing and therefore prohibits per se

transactions between a plan and plan fiduciaries. Sweda, 932

F.3d at 336.

Plaintiffs claim that the Trustee violated

§ 1106(b)(2) when it caused the Plan to overpay for the World

Travel shares to the benefit of the Wells defendants and to the

detriment of the Plan participants and beneficiaries.

Plaintiffs also allege the Trustee violated § 1106(b)(3) by

receiving consideration to its own personal account in the form

of fees and an indemnification agreement from World Travel for

its role in the ESOP transaction as the Trustee.

Defendants argue that the Trustee was not acting as a

fiduciary with respect to its compensation in the form of fees

and an indemnification agreement. As that argument goes to the

merits of plaintiffs’ claim, the court will not address it at

this stage. The court finds sufficient facts in the amended

complaint that the Trustee acted against the interests of the

Plan and the Plan’s participants and beneficiaries to state a

claim under § 1106(b).

IV

Plaintiffs bring Count II for breach of fiduciary

duties in violation of 29 U.S.C. § 1104(a) against defendants

Paredes and PFS. Section 1104(a) provides that a fiduciary will

operate under the “prudent man standard of care.” It requires a

fiduciary, in part, to:

discharge his duties with respect to a plan

solely in the interest of the participants

and beneficiaries and –

(A) for the exclusive purpose of:

(i) providing benefits to

participants and their

beneficiaries; and

(ii) defraying reasonable expenses

of administering the plan;

(B) with the care, skill, prudence, and

diligence under the circumstances then

prevailing that a prudent man acting in

a like capacity and familiar with such

matters would use in the conduct of an

enterprise of a like character and with

like aims.

29 U.S.C. § 1104(a)(1).

The elements of a claim under § 1104(a)(1) are: “(1) a

plan fiduciary (2) breaches an ERISA-imposed duty (3) causing a

loss to the plan.” Sweda, 923 F.3d at 328. Our Court of

Appeals has explained that “a court assesses a fiduciary’s

performance by looking at process rather than results” by

examining the “fiduciary’s conduct in arriving at a . . .

decision . . . and asking whether a fiduciary employed the

appropriate methods to investigate and determine the merits of a

particular investment.” Id. at 329.

Plaintiffs claim that the Trustee violated its

fiduciary duties under ERISA when it failed to conduct an

appropriate and independent investigation into the fair market

value of World Travel stock and the merits of the investment

before approving the Plan’s purchase of World Travel shares. As

previously stated, plaintiffs contend that World Travel did not

fully disclose its liabilities from revenue sharing agreements

and that the Trustee did not account for these liabilities in

performing a financial evaluation of the company prior to the

transaction. Plaintiffs also allege that the Trustee did not

perform due diligence when it relied on unrealistic growth

projections, unreliable or out-of-date financials, improper

discount rates, and inappropriate comparable companies and

failed to test and question assumptions.

Plaintiffs aver that this lack of due diligence

resulted in overpayment by the Plan for World Travel shares

thereby causing plaintiffs as Plan participants and

beneficiaries to receive diminished stock allocations, excessive

debt to finance the transaction, and caused losses to the

individual accounts.

Defendants argue that plaintiffs do not allege

insufficient process on the part of the Trustee. Defendants

further argue that plaintiffs should be held to the Rule 9

pleading standard for fraud because these claims sound in fraud.

The court finds sufficient facts in the amended

complaint to support a plausible claim that the Trustee breached

its fiduciary duties as imposed by ERISA in failing to conduct a

proper investigation into the sale price of World Travel shares

for purposes of this ESOP transaction. Plaintiffs include facts

about financial information that the Trustee failed to evaluate

when it approved the sale price as well as the information the

Trustee did not take into account. Plaintiffs also allege

losses as a result of the Trustee’s actions in approving this

sale. These claims are properly pleaded as a breach of

fiduciary duty rather than fraud. The motion of Paredes and PFS

to dismiss Count II of the amended complaint will therefore be

denied.

V

The amended complaint states in Count III that Paredes

and PFS violated § 1110 by having an indemnification agreement

that relieves them from liability and that accepting this

indemnification agreement was a breach of their fiduciary

duties. Section 1110 provides that, with some exceptions, “any

provision in an agreement or instrument which purports to

relieve a fiduciary from responsibility or liability for any

responsibility, obligation, or duty under this part shall be

void as against public policy.” 29 U.S.C. § 1110(a).

Plaintiffs allege that World Travel agreed to indemnify the

Trustee in connection with the ESOP transaction and that this

agreement is void as against public policy.6 Plaintiffs do not

6. The only reference to Count III in the motion of Paredes

and PFS to dismiss is in a footnote and asserts that the court

must also dismiss this count if it dismisses Counts I and II.

As our Court of Appeals has noted, “arguments raised in passing

(such as, in a footnote), but not squarely argued, are

considered waived.” John Wyeth & Bro. Ltd. v. CIGNA Int’l

Corp., 119 F.3d 1070, 1076 n.6 (3d Cir. 1997).

attach a copy of the indemnification agreement to the amended

complaint.

The Department of Labor has interpreted § 1110(a) to

mean that “indemnification agreements which do not relieve a

fiduciary of responsibility or liability” are permitted,

including those that “leave the fiduciary fully responsibly and

liable, but merely permit another party to satisfy any liability

incurred by the fiduciary in the same manner as insurance

purchased.” 29 C.F.R. § 2509.75-4. In contrast, the Department

of Labor interprets § 1110(a) as “rendering void any arrangement

for indemnification of a fiduciary of an employee benefit plan

by the plan” since such a provision would “in effect, relieve

the fiduciary of responsibility and liability to the plan by

abrogating the plan’s right to recovery from the fiduciary for

breaches of fiduciary obligations.” Id.; see also Sec’y U.S.

Dep’t of Labor v. Koresko, 646 F. App’x 230, 244 (3d Cir. 2016).

Plaintiffs plead that World Travel agreed to indemnify

the Trustee prior to the ESOP transaction. As a result of the

ESOP transaction, the Plan owns World Travel outright. Our

Court of Appeals has explained in dicta citing a

non-precedential opinion from the Central District of

California, Harris v. GreatBanc Trust Co., that an

indemnification is not necessarily void as against public policy

when the sponsor, rather than the plan, agrees to indemnify the

fiduciary. Koresko, 646 F. App’x at 244 (citing Harris, 2013 WL

1136558, at *1 (C.D. Cal. 2013)).

In Harris, however, the district court found that the

indemnification agreement between the trustee and the sponsor

company, which was fully owned by the ESOP, did not violate

ERISA because the agreement contained a provision that

prohibited indemnification if a court enters a final judgment

that finds the trustee liable for a breach of fiduciary duties.

Harris, 2013 WL 1136558, at *1. Plaintiffs allege in the

amended complaint that no such exemption exists in the

indemnification agreement as to violations of § 1106(a).

Accordingly, the court will permit Count III to proceed.

VI

Plaintiffs assert Count IV against the Wells

defendants pursuant to 29 U.S.C. § 1132(a)(3) for a prohibited

transaction. Section 1132(a) states that:

A civil action may be brought . . .

(3) by a participant, beneficiary, or

fiduciary

(A) to enjoin any act or practice which

violates any provision of this

subchapter or the terms of the plan, or

(B) to obtain other appropriate

equitable relief (i) to redress such

violations or (ii) to enforce any

provisions of this subchapter or the

terms of the plan.

29 U.S.C. § 1132. The Supreme Court has read this provision to

authorize a participant, beneficiary, or fiduciary to bring a

civil action against a nonfiduciary who knowingly participates

in a transaction prohibited by § 1106(a). Harris Tr. & Savs.

Bank v. Salomon Smith Barney, Inc., 530 U.S. 238, 248-49 (2000).

Plaintiffs claim that the Wells defendants, as parties

in interest, directors, and selling shareholders, participated

in a transaction they knew or should have known to be prohibited

under § 1106(a)(1)(A) and (D) when they sold their shares in

World Travel to the Plan. Specifically, plaintiffs plead that

Jim Wells was centrally involved in this transaction and the

financial projections underlying the transaction. Plaintiffs

also recite that he knew of the liabilities from revenue sharing

agreements and had directed World Travel employees not to follow

up on amounts due. Plaintiffs claim that these liabilities were

not reflected in the sale price. These allegations are

sufficient to plead that Jim Wells knowingly participated in the

alleged prohibited transaction, that is a sale between the Plan

and parties in interest not for adequate consideration.

Plaintiffs, however, fail to plead any specific facts

as to how James R. Wells or Richard Wells knowingly participated

in a prohibited transaction. As previously explained, an ESOP

transaction for adequate consideration is not prohibited per se

under § 1106(a) even if between a plan and parties in interest.

Their knowledge of the transaction itself is therefore not

enough to plead that they knew the transaction was prohibited,

that is it was not for adequate consideration under § 1108(e).

The facts in the amended complaint regarding the lack

of adequate consideration, that is that the Plan paid the Wells

defendants too much, do not implicate in any way James R. Wells

or Richard Wells. Plaintiffs do not plead any specific

allegations that these two defendants knew that the transaction

was not for adequate consideration. There is nothing in the

amended complaint stating that they knew of liabilities not

reflected in the sale price or that they were involved in

preparing the company’s financial projections, in contrast to

what is pleaded as to Jim Wells. The fact that both

James R. Wells and Richard Wells were selling shareholders and

are directors of World Travel or that Richard Wells is a former

secretary and chief financial officer of World Travel does not

state a plausible claim that either had any knowledge that the

ESOP transaction at issue was prohibited. Any claims against

James R. Wells and Richard Wells are speculative. In addition,

it is not relevant that Richard Wells wanted to monetize his

interest in the company. ESOP transactions are permitted by

ERISA when they occur for adequate consideration. See 29 U.S.C.

§ 1108(e).

In the absence of any specific allegations regarding

the knowing participation of James R. Wells or Richard Wells in

a prohibited transaction pursuant to 29 U.S.C. § 1132(a)(3), the

court will dismiss Count IV against James R. Wells and Richard

Wells. Count IV as to Jim Wells will remain.

VII

Finally, plaintiffs allege in Count V that the Wells

defendants are liable as co-fiduciaries for breach of fiduciary

duties under 29 U.S.C. § 1105(a). This provision of ERISA

provides that:

In addition to any liability which he may

have under any other provisions of this

part, a fiduciary with respect to a plan

shall be liable for a breach of fiduciary

responsibility of another fiduciary with

respect to the same plan in the following

circumstances:

(1) if he participates knowingly in, or

knowingly undertakes to conceal, an act

or omission of such other fiduciary,

knowing such act or omission is a

breach;

(2) if . . . he has enabled such other

fiduciary to commit a breach; or

(3) if he has knowledge of a breach by

such other fiduciary, unless he makes

reasonable efforts under the

circumstances to remedy the breach.

29 U.S.C. § 1105(a). Actual knowledge of the breach is

necessary for liability under § 1105(a)(1) and (3). Renfro v.

Unisys Corp., 671 F.3d 314, 324 (3d Cir. 2011).

Plaintiffs allege that the Wells defendants, as

directors of World Travel with access to World Travel’s

financial information and as selling shareholders in the ESOP

transaction, knew or should have known of the Trustee’s breach

of its fiduciary duties in failing to perform due diligence in

approving the sale price for more than fair market value. As

previously stated, plaintiffs also aver that Jim Wells was

centrally involved in this transaction and the preparation of

the financial projections underlying the transaction. They

claim that he knew of the liabilities from the revenue sharing

agreements and instructed employees not to follow up on amounts

due.

Plaintiffs have sufficiently pleaded facts that

defendant Jim Wells had actual knowledge that the sale price was

more than fair market value due to his knowledge of the

liabilities from revenue sharing agreements that were not

reflected in the financial projections and his role in the

transaction.

As for defendants James R. Wells and Richard Wells,

plaintiffs have not pleaded any facts that these two defendants

“participate[d] knowingly” in a fiduciary’s breach, enabled a

fiduciary to commit a breach, or “ha[d] knowledge of a breach”

as is required to state a claim under 29 U.S.C. § 1105(a). Our

Court of Appeals has found that “sections 1105(a)(1) and (3)

require actual knowledge of the breach.” Renfro, 671 F.3d at

324-35. The fact that they are directors and were selling

shareholders in this transaction is not enough to make plausible

the assertion that they had actual knowledge that the Trustee

failed to conduct a proper investigation and exercise due

diligence in approving the sale price. Whether either defendant

should have known of the fiduciary’s breach, as plaintiffs

claim, is therefore irrelevant.

There is also nothing in the amended complaint as to

how James R. Wells or Richard Wells enabled the fiduciary’s

breach. Any claim against these two defendants is merely

speculation. Count V of the amended complaint will therefore be

dismissed as to James R. Wells and Richard Wells. Count V

against Jim Wells will stand.