Overview
On September 30, 2024, the Honorable Jennifer L. Thurston of the United States District Court for the Eastern District of California adopted the Magistrate Judge’s recommendations to deny Lite Star ESOP Committee’s motion to dismiss (with the exception of some defendants’ request for judicial notice).
Plaintiff claims that Prudent Fiduciary Services and Miguel Paredes, on behalf of the Lite Star ESOP, improperly negotiated and purchased 100% of B-K Lighting stock from Douglas W. Hagen, the chairman of B-K Lighting, for over $25,000,000, an overly inflated price, in violation of ERISA. Plaintiff also claims that the company’s board of directors and members of the ESOP Committee breached their fiduciary duties to the ESOP by failing to disclose all facts impacting the value of the company’s stock, failing to monitor the trustees, and failing to remedy the trustees’ breaches. Moreover, Prudent Fiduciary Services and Miguel Parades have permitted the Hagen Family defendants to continue to operate B-K Lighting as their personal piggy bank after the ESOP transaction at issue.
Case Background
The Lite Star ESOP is an employee stock ownership plan designed to invest primarily in the stock of its sponsor, B-K Lighting, Inc., a closely held company whose stock did not trade on any securities market.
Plaintiff alleges that the trustees of the Lite Star ESOP are Prudent Fiduciary Services, LLC and its owner, Miguel Paredes. As trustees, Prudent Fiduciary Services and Paredes had sole and exclusive authority to negotiate the terms of the ESOP transaction on behalf of the ESOP.
Plaintiff claims that Prudent Fiduciary Services and Paredes, on behalf of the Lite Star ESOP, negotiated and purchased 100% of B-K Lighting stock held by Douglas W. Hagen, the chairman of B-K Lighting and a member of the ESOP Committee, for $25,270,000 on December 31, 2017, in violation of ERISA. Plaintiff also claims that the Hagen Family defendants, negotiated an inflated sale price with the ESOP trustees, which unjustly enriched Mr. Hagen, and caused harm to the ESOP participants.
Plaintiff also claims that the company’s board members and members of the ESOP Committee, namely Kathleen Hagen and Nathan Sloan, failed in their fiduciary duties by not remedying Mr. Hagen’s violation and/or the resulting loss of millions of dollars by the ESOP and its participants. Moreover, Plaintiff alleges that the trustees permitted the Hagen Family defendants to continue to operate B-K Lighting as their personal piggy bank after the ESOP Transaction.
Finally, Plaintiff alleges that the sale price for the ESOP transaction failed to adequately account for B-K Lighting’s trend of declining revenue, failure to modernize its products and marketing strategy in step with its competitors, turnover and inexperience among the senior management team, and business decisions made for the benefit of the Hagen Family defendants to the detriment of the company.
As a result of these ERISA violations, Plaintiff claims that the Lite Star ESOP has been harmed and participants have not received all of their hard-earned retirement benefits or the loyal and prudent management of the ESOP to which they are entitled.
Case name: Chea v. Lite Star ESOP Committee, et al., Case No. 1:23-cv-00647, United States District Court for the Eastern District of California