Opinion

UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF ALABAMA

NORTHEASTERN DIVISION

SECRETARY OF LABOR, }

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Plaintiff, }

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v. } Case No.: 5:24-cv-01352-MHH

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GLEASON RESEARCH }

ASSOCIATES, INC., et al., }

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Defendants. }

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MEMORANDUM OPINION AND ORDER

This is an action under the Employee Retirement Income Security Act of

1974—ERISA, 29 U.S.C. § 1001 et seq. Plaintiff Lori Chavez-DeRemer, Secretary

of the United States Department of Labor, alleges that defendants Charles Vessels,

James Kelley, and Brenda Showalter breached their duties of loyalty and prudence

as fiduciaries and designated plan administrators of the Gleason Research

Associates, Inc. Employee Stock Ownership Plan. (Doc. 1, pp. 2–3, ¶ 1–3).1 The

Secretary also alleges that defendant Gleason Research Associates, Inc., the plan

administrator, failed to monitor the plan’s fiduciaries. (Doc. 1, p. 3, ¶ 4). Pursuant

to Rule 12(b)(6) of the Federal Rules of Civil Procedure, the defendants have asked

1 Pursuant to Rule 25(d) of the Federal Rules of Civil Procedure, Secretary of Labor Lori Chavez-

DeRemer is automatically substituted as the plaintiff in this action.

the Court to dismiss the Secretary’s claims, arguing that the claims “are either based

on discredited legal theories, deficiently pleaded, or otherwise invalid as a matter of

law.” (Doc. 11, p. 3).

To address the defendants’ motion, the Court first summarizes the procedural

standard for Rule 12(b)(6) motions to dismiss. Applying those standards, the Court

then summarizes the Secretary’s factual allegations, viewing the allegations in the

light most favorable to the Secretary. Finally, the Court examines those allegations

under the substantive law concerning ERISA and determines whether the Secretary

has stated plausible ERISA claims in her complaint.

***

Under Rule 12(b)(6), a defendant may move to dismiss a complaint for

“failure to state a claim upon which relief can be granted.” Fed. R. Civ. P. 12(b)(6).

A Rule 12(b)(6) motion to dismiss tests the sufficiency of a complaint against the

“liberal pleading standards set forth by Rule 8(a)(2).” Erickson v. Pardus, 551 U.S.

89, 94 (2007). Pursuant to Rule 8(a)(2), a complaint must contain “a short and plain

statement of the claim showing that the pleader is entitled to relief.” Fed. R. Civ. P.

8(a)(2). Generally, to withstand a Rule 12(b)(6) motion to dismiss, a complaint must

provide “enough facts to state a claim to relief that is plausible

on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555, 570 (2007). “Specific

facts are not necessary; the statement need only ‘give the defendant fair notice of

what the . . . claim is and the grounds upon which it rests.’” Erickson, 551 U.S. at

93 (quoting Twombly, 550 U.S. at 555).

When evaluating a Rule 12(b)(6) motion to dismiss, a district court accepts as

true the factual allegations in the complaint and construes those allegations in the

light most favorable to the plaintiff. McCullough v. Finley, 907 F.3d 1324, 1330

(11th Cir. 2018). “[C]onclusory allegations . . . are not entitled to an assumption of

truth—legal conclusions must be supported by factual allegations.” Randall v. Scott,

610 F.3d 701, 709–10 (11th Cir. 2010).

***

Gleason Research Associates, Inc. is a privately-owned company that

specializes in engineering and scientific consulting. (Doc. 1, p. 6, ¶ 14). The

company provides logistical support and engineering and analytical services for the

development and integration of advanced weapons systems. (Doc. 1, p. 6, ¶ 14).

The Huntsville-based company serves the United States Department of Defense and

other government agencies. (Doc. 1, p. 6, ¶ 14).

Effective January 1, 2015, Gleason established an Employee Stock Ownership

Plan through a written plan document. (Doc. 1, p. 6, ¶ 16). The ESOP holds shares

of Gleason’s stock. (Doc. 1, p. 6, ¶ 16). Gleason is designated as the plan

administrator and has authority to appoint a committee to oversee the management

of the ESOP. (Doc. 1, p. 6, ¶ 17). According to the plan document—the Plan—the

plan administrator must manage the ESOP solely in the interest of participating

employees and their beneficiaries. (Doc. 1, pp. 4, 6–7, 27–28, ¶¶ 9, 17, 113–116;

Doc. 11-1, p. 19). A trustee selected by the company’s Board of Directors oversees

the assets and investments of the ESOP. (Doc. 1, p. 7, ¶ 20). Under the Plan, the

ESOP’s fiduciaries must comply with ERISA. (Doc. 1, p. 7, ¶ 22).

On December 18, 2015, Gleason’s Board of Directors selected Charles

Vessels, James Kelley, and Brenda Showalter to serve as members of the ESOP

Committee. (Doc. 1, p. 7, ¶ 18).2 As the acting plan administrators and named

fiduciaries, Mr. Vessels, Mr. Kelley, and Ms. Showalter held the discretionary power

and responsibility to manage the ESOP. (Doc. 1, pp. 4–7, ¶¶ 11–13, 18; Doc. 22-1,

p. 3, art. IV(a)).

Also on December 18, 2015, for a total purchase price of approximately $21.5

million, or $33.08 per share, the ESOP acquired 100% of Gleason’s outstanding

shares from two individuals, Mary Yates and Thomas Gleason. (Doc. 1, p. 8, ¶ 23).

The ESOP financed this purchase through a loan from Gleason, which was to be

repaid over a period of 25 years using annual contributions from the company to the

plan. (Doc. 1, p. 9, ¶ 26). As part of the transaction, Gleason’s management,

2 Mr. Vessels was President and Chief Executive Officer of Gleason and served as a member of

the Board of Directors. (Doc. 1, ¶ 11). Mr. Kelley was Gleason’s Chief Financial Officer. (Doc.

1, ¶ 12). Ms. Showalter was Gleason’s Chief Operating Officer and served as a member of the

Board of Directors. (Doc. 1, ¶ 13).

including Mr. Vessels, Mr. Kelley, and Ms. Showalter, bought 150,000 stock

warrants from Gleason for a total of $748,000. (Doc. 1, p. 10, ¶ 29). These warrants

gave the holders the right to buy Gleason’s shares for $4.30 per share. (Doc. 1, p.

10, ¶ 29). In addition, Gleason implemented a Stock Appreciation Rights Plan.

(Doc. 1, p. 10, ¶ 30). Mr. Vessels and Ms. Showalter each received 20,000 stock

appreciation rights, and Mr. Kelley received 10,000 stock appreciation rights; Mr.

Vessels, Mr. Kelley, and Ms. Showalter later received a total of 32,000 additional

SARs. (Doc. 1, pp. 10–11, ¶¶ 30–31).

In July 2016, Mr. Vessels, Ms. Showalter, and Paula Cushman became the

sole members of Gleason’s Board of Directors. (Doc. 1, p. 6, ¶ 15). On August 1,

2017, Gleason appointed Neil M. Brozen as the ESOP trustee, replacing Wilmington

Trust, N.A. (Doc. 1, p. 7, ¶¶ 20–21).

On December 1, 2017, the Board amended Gleason’s articles to authorize the

issuance of up to three million shares of common stock. (Doc. 1, p. 12, ¶ 36). As

the ESOP trustee, Mr. Brozen reviewed and authorized the amendment. (Doc. 1, p.

12, ¶ 36). Under Mr. Vessels’s signature, the Board amended the Plan to allow

employees to transfer assets from their 401(k) accounts into the ESOP, subject to the

plan administrator’s approval. (Doc. 1, p. 12, ¶ 37).

On December 15, 2017, the ESOP bought 441,963 newly-issued shares from

Gleason at $8.39 per share, for a total of approximately $3.7 million. (Doc. 1, p. 13,

¶ 41). Mr. Kelley communicated this share price to employees in October 2017,

before employees received a formal valuation report from the firm Stout Risius Ross,

LLC. (Doc. 1, p. 13, ¶ 40). Most employees participating in the transaction were

subject to investment limits due to their status as non-accredited investors under

federal securities regulations. (Doc. 1, p. 13, ¶ 43). Mr. Vessels, Mr. Kelley, Ms.

Showalter, and Sharlene Bierbaur qualified as accredited investors and transferred

$2.4 million from their 401(k) accounts into the ESOP and received 65% of the

newly issued shares. (Doc. 1, pp. 13–14, ¶ 44). These shares were allocated to their

ESOP accounts and vested immediately. (Doc. 1, pp. 13–14, ¶ 44). Mr. Vessels

authorized Gleason’s participation in the 2017 stock purchase transaction, while Mr.

Brozen, in his capacity as the trustee, provided approval on behalf of the ESOP.

(Doc. 1, p. 14, ¶ 45).

On July 23, 2021, Gleason’s Board of Directors approved the purchase of the

150,000 stock warrants held by members of Gleason’s management, including all

the warrants issued to Mr. Vessels, Mr. Kelley, and Ms. Showalter. (Doc. 1, p. 15,

¶ 54). Under the terms of the warrant agreements, redemption payments were to be

made based on the difference between the exercise price ($4.30) and the fair market

value of the shares, as determined by an independent valuation. (Doc. 1, p. 16, ¶¶

55–57). In its annual valuation report on December 31, 2020, Stout stated that the

fair market value of Gleason’s stock was $13.55 per share. The Board of Directors

and members of management who held warrants agreed to redeem them. (Doc. 1,

p. 16, ¶ 58). Based on the December 31, 2020 valuation report, the redemption

payments should have been $9.25 per share, but Gleason instead paid $26.27 per

share. (Doc. 1, p. 16, ¶ 59). Mr. Vessels and Ms. Showalter, acting as members of

the Board of Directors, approved the warrant payments issued to Mr. Vessels, Ms.

Showalter, and Mr. Kelley. (Doc. 1, p. 17, ¶ 62).

Also on July 23, 2021, Gleason’s Board of Directors authorized the purchase

of 50,000 SARs issued under the stock appreciation rights plan to Mr. Vessels, Ms.

Showalter, and Mr. Kelley. (Doc. 1, p. 17, ¶ 64). Under the stock appreciation plan,

the redemption value of SARs is the difference between the SAR value ($4.30) and

the fair market value ($13.35, based on Stout’s April 2021 valuation). (Doc. 1, p.

18, ¶¶ 65–68). Accordingly, the redemption payments should have been $9.25 per

SAR, but Gleason instead paid $25.36 per SAR. (Doc. 1, p. 18, ¶¶ 69–70). Mr.

Vessels and Ms. Showalter, acting as members of the Board of Directors, approved

the payment. (Doc. 1, p. 19, ¶ 72).

***

To establish a claim for breach of fiduciary duty under ERISA, the Secretary

must show that the defendants held a fiduciary role under an ERISA plan; the

defendants violated their fiduciary duty; these actions took place while the

defendants were acting in their fiduciary capacity; and because of the breach, the

ERISA plan experienced harm or incurred a financial loss. See Pizarro v. Home

Depot, Inc., 111 F.4th 1165, 1173 (11th Cir. 2024); Pension & Emp. Stock

Ownership Plan Admin. Comm. of Cmty. Bancshares, Inc. v. Patterson, 547 F. Supp.

2d 1230, 1238 (N.D. Ala. 2008) (citations omitted); Chelf v. Prudential Ins. Co. of

Am., 31 F.4th 459, 464 (6th Cir. 2022); Brosted v. Unum Life Ins. Co. of Am., 421

F.3d 459, 465 (7th Cir. 2005). “[N]on-fiduciaries cannot be held liable under

ERISA.” Baker v. Big Star Div. of the Grand Union Co., 893 F.2d 288, 289 (11th

Cir. 1989).

In support of their motion to dismiss, the defendants argue that the Secretary

has not plausibly alleged that Mr. Vessels, Mr. Kelley, and Ms. Showalter acted in

a fiduciary capacity in connection with the 2017 stock purchase transaction. (Doc.

11, p. 2). The defendants contend that Mr. Brozen, the trustee, had the exclusive

authority to approve the 2017 stock purchase transaction on the ESOP’s behalf.

(Doc. 11, p. 2). Additionally, the defendants contend that Mr. Vessels and Ms.

Showalter’s service as members of the Gleason Board, standing alone, is insufficient

to establish fiduciary status under ERISA. (Doc. 11, p. 2).

In the complaint, the Secretary asserts that Mr. Vessels, Mr. Kelley, and Ms.

Showalter were fiduciaries of the ESOP and, as such, had to manage and administer

the ESOP. (Doc. 1, p. 1, ¶ 1). Under the terms of the Plan, “[t]he Employer shall be

the Administrator” and “may appoint a committee to perform the duties of the

Administrator in whole or in part.” (Doc. 11-1, p. 14, § 2.2).3 It is undisputed that,

on December 18, 2015, Gleason’s Board of Directors appointed Mr. Vessels, Mr.

Kelley, and Ms. Showalter to the ESOP Committee. (Doc. 22-1, p. 8). In their

written acceptance of their appointments as members of the ESOP Committee, Mr.

Vessels, Mr. Kelley, and Ms. Showalter acknowledged that the ESOP Committee

was a named fiduciary of the Plan. (Doc. 22-1, p. 8). Under ERISA, individuals

who exercise discretionary authority or control with respect to the management of a

plan or its assets or have discretionary authority or responsibility in the

administration of the plan are deemed fiduciaries. 29 U.S.C. § 1002(21)(A). Based

on this statutory authority, the Secretary’s allegations, and the Plan documents, the

Secretary properly has pleaded that Mr. Vessels, Mr. Kelley, and Ms. Showalter

owed fiduciary obligations to the ESOP and its participants and beneficiaries.

The defendants argue that even if Mr. Vessels, Mr. Kelley, and Ms. Showalter

were fiduciaries in the abstract, they lacked power to direct the trustee, who was

solely responsible for approving the 2017 stock purchase transaction. (Doc. 17, pp.

3 The Plan and other plan documents discussed in this opinion are incorporated by reference in the

Secretary’s complaint, so the Court does not have to convert the defendants’ motion to dismiss

into a motion for summary judgment to consider the documents. See Swinford v. Santos, 121 F.4th

179, 187 (11th Cir. 2024) (citation omitted) (“Under the incorporation-by-reference doctrine, a

district court may consider evidence attached to a motion to dismiss without converting the motion

into a motion for summary judgment ‘if the document is (1) central to the plaintiff's claim; and (2)

undisputed, meaning that its authenticity is not challenged.’”), cert. denied, 146 S. Ct. 204 (2025)

17–26). The Secretary contends that as ESOP Committee members, Mr. Vessels,

Mr. Kelley, and Ms. Showalters had power to direct the ESOP’s trustee and

authorized the 2017 Stock Purchase Transaction. (Doc. 1, p. 6–8, ¶ 17–18, 53; see

also Doc. 11-6 at 6–7, 30 § 1.1 & sched. 1 (providing trustee was generally subject

to direction of the plan administrator); (Doc. 11-7, p. 4, § 4.8(a)) (providing that the

consent of the plan administrator was necessary to transfer funds from 401(k) plans

to the ESOP)).

The defendants also argue that the Secretary has not alleged a plausible

violation of ERISA in connection with the 2017 stock purchase transaction. (Doc.

11, p. 2). They assert that the Secretary has not presented facts indicating that the

price paid for the newly-issued shares was improper or inadequate. (Doc. 11, p. 2).

The Secretary alleges that Mr. Vessels, Mr. Kelley, and Ms. Showalter, in their role

as ESOP Committee members, authorized the issuance of Gleason’s stock at $8.39

per share, significantly less than the $33.08 per share paid by ESOP participants to

release the shares. (Doc. 1, p. 20, ¶¶ 78–79). The Secretary asserts that the

transaction diluted the equity interests of Plan participants without providing

compensation or protection to mitigate such dilution. (Doc. 1, p. 20, ¶ 79). These

facts support a plausible inference that the defendants violated their duty of loyalty

under ERISA. See 29 U.S.C. § 1104(a)(1). At this stage, the Secretary does not

have to prove these violations; the Secretary only must allege sufficient factual

matter to raise a reasonable expectation that discovery will reveal evidence of

wrongdoing. Her pleading meets that threshold.

Likewise, ERISA prohibits self-dealing and prevents fiduciaries from

engaging in transactions where they have a conflict of interest. 29 U.S.C. § 1106(a)–

(b). The Secretary sufficiently alleges that Mr. Vessels, Mr. Kelley, and Ms.

Showalter benefitted from discounted stock acquisitions in violation of ERISA’s

prohibition on self-dealing.

The defendants challenge the Secretary’s allegations not only with respect to

the 2017 share transactions but also with respect to the December 2021 transactions.

(Doc. 11, p. 2). The Secretary alleges that Mr. Vessels and Ms. Showalter, through

their decisions as Board members, caused Gleason to redeem these defendants’

warrants and stock appreciation rights at inflated prices, and the Secretary alleges

that Mr. Kelley benefited similarly. (Doc. 1, p. 24, ¶ 101). As ESOP Committee

members, these three defendants did not prevent or correct these overpayments,

which harmed the ESOP’s economic interests. (Doc. 1, p. 24, ¶ 102). These

allegations raise a reasonable inference that the individual defendants breached their

fiduciary duties by prioritizing their financial gain over the interests of the ESOP

participants and violated ERISA’s duties of loyalty and prudence. 29 U.S. Code

§ 1104(a).

At this stage, these well-pleaded factual allegations are sufficient to support

claims that the individual defendants harmed the ESOP such that the defendants

must restore the Plan’s losses and disgorge any profits. 29 U.S.C. § 1109(a).

Finally, the defendants assert that the claims for co-fiduciary liability against

Mr. Kelley and for failure to monitor against Gleason are derivative of the primary

fiduciary breach claims and should be dismissed if Counts I through III fail. (Doc.

11, p. 3). Because the primary claims for fiduciary breach in Counts I through III

will proceed, the derivative claims for co-fiduciary liability and failure to monitor

also survive.

As Chief Financial Officer, Mr. Kelley was familiar with Gleason’s financial

condition and the value of its stock, and he reviewed the annual Stout valuations that

assessed Gleason’s stock value. (Doc. 1, p. 26, ¶ 106). The Secretary alleges that

Mr. Kelley, as a member of the ESOP Committee, knew that Mr. Vessels and Ms.

Showalter had fiduciary obligations to the ESOP and that they caused Gleason to

purchase Mr. Kelley’s warrants and stock appreciation rights at inflated prices not

supported by the relevant valuations. (Doc. 1, p. 26, ¶ 107–108). These allegations

demonstrate that Mr. Kelley was aware of the fiduciary breaches committed by Mr.

Vessels and Ms. Showalter and failed to take reasonable steps to prevent or remedy

them. A fiduciary who knowingly participates in or conceals breaches committed

by other fiduciaries can be held liable for those violations. 29 U.S. Code § 1105(a).

Mr. Kelley’s alleged conduct of enabling and failing to address these breaches, while

profiting from the transactions, supports a plausible claim for breach of fiduciary

duty and liability to restore losses and disgorge profits. See 29 U.S. Code § 1109(a).

Similarly, the Secretary’s claim against Gleason is plausible because the

Secretary sets forth specific factual allegations that, taken as true, establish a viable

theory of fiduciary breach based on Gleason’s failure to monitor other fiduciaries.

Under ERISA, a fiduciary who has the authority to appoint other fiduciaries has a

corresponding duty to monitor their performance. See ITPE Pension Fund v. Hall,

334 F.3d 1011, 1012 (11th Cir. 2003) (stating that “[c]ertain persons, including those

who ‘exercise[ ] any authority or control respecting management or disposition of

[fund] assets,’ bear fiduciary responsibility to an ERISA fund.”).

The Secretary alleges that Gleason, as the named plan administrator under the

Plan, appointed Mr. Vessels, Ms. Showalter, and Mr. Kelley to the ESOP Committee

and was therefore obligated to oversee their conduct. (Doc. 1, p. 28, ¶ 116). The

Secretary alleges that Gleason failed to carry out this oversight function, allowing

the appointed fiduciaries to engage in fiduciary breaches and prohibited transactions.

(Doc. 1, p. 28, ¶ 117). Additionally, the Secretary asserts that Gleason failed to take

corrective action after those breaches occurred. (Doc. 1, p. 28, ¶ 118). These

allegations, viewed in the light most favorable to the Secretary, are sufficient to state

a plausible claim for relief, as they support the inference that Gleason’s failure to

monitor and respond to known or knowable misconduct contributed to losses

suffered by the ESOP. 29 U.S.C. § 1109(a).

KRRK

For the reasons discussed in this order, the Court denies the defendants’

motion to dismiss. The Clerk of Court shall please TERM Doc. 11.

DONE and ORDERED this March 27, 2026.

uae E HUGHES HAIKALA

UNITED STATES DISTRICT JUDGE

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