ESOP Attorney Restricted in Advising Plan Fiduciaries

A federal judge has entered a consent order expanding substantially the scope of a previous judgment and order between the U.S. Department of Labor (DOL) and attorney David R. Johanson, former chair of The ESOP Association’s advisory committee chairs council and ex-officio member of the board of directors, and his prior law firm, Johanson Berenson LLP, arising from their involvement in three Mississippi cases.

This judgement settles the department’s allegations that Johanson and his prior law firm committed contempt of the previous consent order. Johanson’s alleged contempt arose from a lawsuit, brought to establish insurance coverage of an Employee Retirement Income Security Act (ERISA) enforcement suit in which the department had sued Herbert Bruister and others under ERISA for various breaches of fiduciary duties that caused $6.5 million in losses to pension plans of Bruister & Associates Inc.

According to the ERISA lawsuit, during a three-year period, from December 2002 to December 2005, Bruister, the sole owner of BAI, sold 100% of BAI’s shares to the plans for $24 million. Bruister and other plan fiduciaries engaged in prohibited transactions by causing the plans to pay excessive prices for BAI stock purchased from Bruister. For each purchase, the fiduciaries used flawed valuations prepared by Matthew Donnelly and his firm, Business Appraisal Institute.

The court found Bruister and Johanson went so far as to fire the initial attorney representing the plans because that attorney was too thorough. Moreover, the court found that Bruister and Johanson exercised undue influence over Donnelly’s valuations, and that as a result, Donnelly was not sufficiently independent to provide valuations for the plans.

In the insurance suit, Johanson represented Bruister, as trustee of the Bruister and Associates Inc. pension plans, as well as those pension plans themselves. In doing so, he allegedly violated an original consent order, which prohibited him from representing any party other than the plan in a transaction involving a plan.

In the expanded consent order, Johanson agreed to some of the broadest restrictions the department has sought to date on an attorney’s ability to advise parties concerning transactions that involve employee benefit plans covered by ERISA, the DOL says.

The order also requires Johanson to disclose to certain clients specific limitations regarding his representation. In addition, in an out-of-court financial settlement, Johanson and his prior law firm will pay at least $2.5 million in restitution for the benefit of the pension plans of Bruister & Associates Inc.