With that holding, U.S. District Judge David N. Hurd of the U.S. District Court for the Northern District of New York cleared U.S. Trust Co. of California of wrongdoing in connection with charges it violated the Employee Retirement Income Security Act (ERISA).

Hurd ruled that U.S. Trust had shown that it had acted in good faith when it determined a fair market value of company stock shares purchased by Champlain Enterprise’s ESOP, despite allegations U.S. Trust had allowed the ESOP to obtain the shares at an inflated price.

While repeating an earlier determination that the stock sale to the ESOP was a prohibited transaction under ERISA Section 406(a)(1)(A), Hurd nevertheless ruled that U.S. Trust had no liability for this prohibited transaction because its actions fell under ERISA Section 408(e)‘s prohibited transaction exception.

Hurd said that to qualify for the Section 408(e) exception, U.S. Trust had to show that the ESOP paid no more than the fair market value of the stock as determined “in good faith by the trustee or named fiduciary.” The court decided that U.S. Trust had acted in good faith and as such could rely on the Section 408(e) exception.

The court’s latest decision came in a case that has wended its way through the federal court system for nine years and taken has two trips to the 2nd U.S. Circuit Court of Appeals. Hurd’s ruling followed the second such appeal when, in 2009, the 2nd Circuit ordered the lower court to decide whether participants could recover damages from U.S. Trust for investment losses, which the participants claimed were driven by the overpriced share valuation for the 1994 company stock sale to the ESOP.

The legal battle over the disputed stock sale began when participants sued U.S. Trust and other defendants over allegations the 1994 ESOP purchase was a prohibited transaction under ERISA. In 2004, a judge found U.S. Trust had violated the prohibited transaction rules because it did not carry out an “adequate, good faith” inquiry into the proper value of the shares, according to court records.

That initial ruling was taken to the 2nd Circuit, which, in the first of two decisions in the case, threw out the ruling in 2006 and sent the case back with instructions to decide whether a prudent ERISA fiduciary would have discovered stock valuation errors in 2004 (see “Lack of Notes not Proof of Fiduciary Violation”).

The lower court in 2007 threw out allegations against U.S. Trust on the grounds that any award of damages to the participants would be a prohibited windfall to the ESOP. The 2007 lower court ruling was the basis of second of the two appeals.

The case is Henry v. Champlain Enterprises Inc., N.D.N.Y., No. 1:01-CV-1681.