Bruister and Associates, Inc. was a home service provider that installed and serviced satellite television equipment for a sole client, DirecTV. It set up an employee stock ownership plan (ESOP) for its employees. In a three-year period from 2002 to 2005, Bruister’s owner, Herbert C. Bruister, sold 100% of his shares (also representing 100% of the company’s outstanding shares) to the company’s employees through a series of transactions with the ESOP.  The Fifth Circuit found that – although he abstained from all votes concerning the transactions at issue – Mr. Bruister was a functional fiduciary, who breached his fiduciary duties to the plan.

Initially, the cound found that Mr. Bruister “‘exercised fiduciary authority’ by: (1) firing the first appraiser for being too thorough, (2) hiring Donnelly to replace him, (3) influencing the outcome of Donnelly’s valuations, (4) making his personal preferences known to Smith and Henry, and (5) actively participating in all of the meetings related to the subject transactions. Further, the findings show that David Johanson, Bruister’s personal lawyer, influenced the ESOP’s decisionmaking.”

With respect to the breach of loyalty: “Defendants contend that since Donnelly’s valuations (and thus the price the ESOP ultimately paid) were not inflated compared to the fair market value calculated by the Defendants’ expert at trial, and since the district court partially accepted their trial expert’s valuation in setting damages, the Defendants did not breach their duty of loyalty by relying on Donnelly’s valuations.  This ‘all’s well that ends well’ argument ignores that for liability under ERISA, the critical question is whether there was a conflict of interest, and whether it was avoided because the trustees’ decisions were ‘made with an eye single to the interests of the participants and beneficiaries.’ The trustees did not separate Bruister’s personal interests from Donnelly’s valuation process so as to avoid a conflict of interest. Their breach of the duty of loyalty turns on their failure to place the interests of participants and beneficiaries first and foremost, not on Donnelly’s qualifications or conclusions. The district court did not err in finding the Defendants breached their duty of loyalty.”


Perez v. Bruister, No.14-60811, 2016 WL 2343009 (5th Cir. May 3, 2016).