Case 4:16-cv-00650-RGE-SBJ Document 65 Filed 02/22/18 Page 1 of 26 IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF IOWA CENTRAL DIVISION DEBORAH INNIS, n/k/a DEE LANDRY DAWSON, on behalf of the Telligen, Inc. Employee Stock Ownership Plan, and on behalf of a class of all other persons similarly situated, v. Plaintiff, Case No. 4:16-cv-00650-RGE-SBJ DEFENDANT S ANSWER TO PLAINTIFF S FIRST AMENDED COMPLAINT AND AFFIRMATIVE DEFENSES BANKERS TRUST COMPANY OF SOUTH DAKOTA, a South Dakota Corporation, Defendant. Defendant Bankers Trust Company of South Dakota ( Bankers Trust ), * by and through its undersigned counsel, answers the First Amended Complaint ( Amended Complaint ) filed by Plaintiff Deborah Innis n/k/a Dee Landry Dawson ( Plaintiff ) on February 8, 2018 (Dkt. No. 59), as follows: BACKGROUND 1. Plaintiff brings this suit against Bankers Trust Company of South Dakota ( Bankers Trust ), the trustee for the Telligen, Inc. Employee Stock Ownership Plan when the Plan acquired shares of Telligen, Inc. ( Telligen ). 1 1 Unless a particular subsidiary or affiliate is referenced in the Complaint, Telligen includes Telligen s predecessor entities and the following subsidiaries and affiliates of Telligen: (i) Telligen Health Management Solutions; (ii) Telligen Illinois, LLC; (iii) Telligen New York, LLC; and (iv) Telligen Community Initiative. Bankers Trust admits the allegations in the first sentence of paragraph 1, but denies that Plaintiff is entitled to any relief. Bankers Trust admits that Plaintiff purports to * Plaintiff s Amended Complaint incorrectly describes Bankers Trust as a South Dakota Corporation. Bankers Trust s corporate status changed in 2016, and it is currently a South Dakota Limited Liability Corporation.
Case 4:16-cv-00650-RGE-SBJ Document 65 Filed 02/22/18 Page 2 of 26 define Telligen as set forth in footnote 1 to paragraph 1, and further admits that Telligen, Inc. is comprised of four legal entities, including Telligen Illinois, LLC, Telligen Health Management Solutions, Telligen New York, LLC, and Telligen Community Initiative. 2. Plaintiff is a participant in the Plan and has vested in shares of Telligen allocated to her accounts in the Plan. Bankers Trust denies that Plaintiff is a current participant in the Plan. Bankers Trust admits that Plaintiff was formerly vested in shares of Telligen stock allocated to her Plan account, but denies that Plaintiff is currently vested. Bankers Trust denies the remaining allegations in paragraph 2. 3. This action is brought under Sections 409, 502(a)(2), and 502(a)(3) of the Employee Retirement Income Security Act of 1974, as amended ( ERISA ), 29 U.S.C. 1109, 1132(a)(2) and 1132(a)(3), for losses suffered by the Plan, and other relief, caused by Bankers Trust when it authorized the Plan to buy shares of Telligen in 2013 for more than fair market value. Bankers Trust admits that this action purports to be brought under the Employee Retirement Income Security Act of 1974, as amended ( ERISA ). Bankers Trust denies the remaining allegations in paragraph 3, and denies that Plaintiff is entitled to the relief that is requested. 4. As alleged below, the Plan has been injured and its participants have been deprived of hard-earned retirement benefits as a result of Bankers Trust s violations of ERISA s prohibited transaction rules. Bankers Trust denies the allegations in paragraph 4. -2-
Case 4:16-cv-00650-RGE-SBJ Document 65 Filed 02/22/18 Page 3 of 26 5. Telligen is a privately-held company. On December 31, 2013, Telligen and/or its principal shareholders and/or other entities controlled by them sold all of the outstanding and issued shares in the company to the Plan and in exchange received a twenty-year note, accruing 6% (six percent) interest, of $37,500,000 (the ESOP Transaction or Transaction ). Bankers Trust admits that Telligen, Inc. ( Telligen or Company ) is a privately-held entity. Bankers Trust further admits that, on December 31, 2013, the Telligen, Inc. Employee Stock Ownership Plan ( Plan or ESOP ) purchased 1,000,000 shares of Company stock from Telligen Community Initiative ( TCI ) for a price per share of $37.50 (a total aggregate purchase of $37,500,000) (the Purchase Price ) in an arm s length transaction the ESOP Transaction or Transaction ). Bankers Trust further admits that the Purchase Price was 100% financed with a $37,500,000 subordinate note from TCI. Bankers Trust further admits that the subordinate note had a 20 year term, which re-amortized after the first year, and an interest rate of 6% initially. Bankers Trust further admits that the 6% initial interest rate reamortized after the second prepayment and the rate dropped to 5.25% for the remaining 19 years. Bankers Trust admits that, acting as the independent trustee of the ESOP in connection with the Transaction, it caused the ESOP to enter into the subordinate note. Bankers Trust denies the remaining allegations in paragraph 5. 6. Bankers Trust represented the Plan and its participants as Trustee in the ESOP Transaction. The ESOP Transaction allowed Telligen and/or its principal shareholders and/or other entities controlled by them to unload their shares in Telligen at an inflated price of $37.50 per share and saddle Plan participants with a loan to finance the transaction. Bankers Trust failed to fulfill its duties to the Plan and Plan participants, including Plaintiff. -3-
Case 4:16-cv-00650-RGE-SBJ Document 65 Filed 02/22/18 Page 4 of 26 Bankers Trust admits that it acted as the independent trustee of the ESOP in connection with the Transaction. Bankers Trust denies the remaining allegations in paragraph 6. 7. Telligen and/or its principal shareholders and/or other entities controlled by them, with Bankers Trust s authorization, caused Telligen to loan money to the Plan to buy their shares of Telligen. Bankers Trust authorized the Plan to borrow from the company the $37,500,000 payable in full over twenty years at a rate of 6% per annum. The selling shareholders therefore profited by saddling the Plan and Telligen employees with millions of dollars of debt, payable to Telligen and/or its principal shareholders and/or other entities controlled by them at unreasonably inflated interest rates. Bankers Trust denies the allegations in paragraph 7. 8. Plaintiff brings this action to recover the losses incurred by the Plan, and thus by each individual account in the Plan held by her and similarly situated participants, as a result of Bankers Trust s engaging in, and causing the Plan to engage in, prohibited transactions under ERISA. Bankers Trust denies the allegations in paragraph 8. JURISDICTION AND VENUE 9. This action arises under Title I of ERISA, 29 U.S.C. 1001 et seq., and is brought by Plaintiff under ERISA 502(a), 29 U.S.C. 1132(a), to enjoin acts and practices that violate the provisions of Title I of ERISA, to require Bankers Trust to make good to the Plan losses resulting from its violations of ERISA, to restore to the Plan any profits that have been made by the breaching fiduciaries and parties in interest through the use of Plan assets, and to -4-
Case 4:16-cv-00650-RGE-SBJ Document 65 Filed 02/22/18 Page 5 of 26 obtain other appropriate equitable and legal remedies in order to redress violations and enforce the provisions of ERISA. Bankers Trust admits that this action purports to be brought under ERISA 502(a), 29 U.S.C. 1132(a). Bankers Trust denies the remaining allegations in paragraph 9. 10. This Court has subject matter jurisdiction over this action pursuant to ERISA 502(e)(1), 29 U.S.C. 1132(e)(1). Bankers Trust denies that this Court has subject matter jurisdiction over this action. 11. Venue is proper in this District pursuant to ERISA 502(e)(2), 29 U.S.C. 1132(e)(2), because some or all of the events or omissions giving rise to the claims occurred in this District, Telligen is headquartered in this District and Plaintiff resides in this District. Bankers Trust denies that venue is proper in this District, and further denies that any of the events or omissions Plaintiff describes in paragraph 11 occurred. Bankers Trust admits that Telligen is headquartered in this District. Bankers Trust lacks sufficient knowledge or information to admit or deny whether Plaintiff resides in this District, and therefore denies this allegation. Bankers Trust denies the remaining allegations in paragraph 11. PARTIES 12. At all relevant times, Plaintiff Deborah Innis n/k/a Dee Landry Dawson has been a participant, as defined in ERISA 3(7), 29 U.S.C. 1002(7), in the Plan. Plaintiff resides in West Des Moines, Iowa. She is vested in shares of Telligen in her Plan account. Bankers Trust admits that Plaintiff was a former participant in the Plan, but denies that she is a current participant in the Plan. Bankers Trust lacks sufficient knowledge or information to admit or deny whether Plaintiff was a Plan participant at all relevant times, -5-
Case 4:16-cv-00650-RGE-SBJ Document 65 Filed 02/22/18 Page 6 of 26 and therefore denies this allegation. Bankers Trust lacks sufficient knowledge or information to admit or deny where Plaintiff resides, and therefore denies the allegations in the second sentence of paragraph 12. Bankers Trust denies that Plaintiff is vested in shares of Telligen stock in her Plan account, and denies the remaining allegations in paragraph 12. 13. Defendant Bankers Trust was the Trustee of the Plan at the time of the ESOP Transaction. Bankers Trust at all relevant times was a fiduciary under ERISA because it was the Trustee. As Trustee, Bankers Trust had exclusive authority to manage and control the assets of the Plan and had sole and exclusive discretion to authorize the ESOP Transaction. Bankers Trust was also a party in interest under ERISA 3(14), 29 U.S.C. 1002(14), at all relevant times. Bankers Trust is headquartered in Sioux Falls, South Dakota. Bankers Trust admits that it acted as the independent trustee of the Plan in connection with the Transaction. Bankers Trust lacks sufficient knowledge or information to admit or deny whether it was a fiduciary under ERISA at all relevant times, and therefore denies this allegation. Bankers Trust further admits that, in its capacity as independent trustee to the Plan, it had sole discretion to determine whether or not to enter into the Transaction on behalf of the Plan. Bankers Trust denies the allegations in the fourth sentence of paragraph 13. Bankers Trust admits the allegations in the fifth sentence of paragraph 13. Bankers Trust denies the remaining allegations in paragraph 13. FACTUAL ALLEGATIONS 14. Telligen is a privately held entity that, around the relevant period, had approximately 550 employees. Telligen bills itself as a population health management company that conducts its business in the federal, state and commercial markets and knows healthcare and how it s delivered better than anyone. In 2013, Telligen served four large -6-
Case 4:16-cv-00650-RGE-SBJ Document 65 Filed 02/22/18 Page 7 of 26 populations, including Iowa Medicaid, Oklahoma Medicaid, Iowa Medicare and Illinois Medicare. Telligen is headquartered at 1776 West Lakes Parkway, West Des Moines, Iowa 50266. Bankers Trust admits that Telligen is a privately held entity. Bankers Trust lacks sufficient knowledge or information to admit or deny whether Telligen had approximately 550 employees around the relevant period, and therefore denies this allegation. Bankers Trust lacks knowledge or information sufficient to admit or deny the way in which Telligen bills itself, and therefore denies the allegations in the second sentence of paragraph 14. In the second and third sentences of paragraph 14, Plaintiff appears to be referencing and/or directly quoting from the Disclosure Memorandum Offering for the Telligen, Inc. Employee Stock Ownership Plan dated December 31, 2013 ( Disclosure Memorandum Offering ). Bankers Trust admits that the Disclosure Memorandum Offering states that Telligen is a population health management company that conducts its business in the federal, state and commercial markets and that it serves four large populations, including Iowa Medicaid, Oklahoma Medicaid, Iowa Medicare, and Illinois Medicare. To the extent the allegations in the second and third sentences of paragraph 14 are inconsistent with or mischaracterize the Disclosure Memorandum Offering, Bankers Trust denies them. Bankers Trust admits that Telligen is headquartered at 1776 West Lakes Parkway, West Des Moines, IA 50266. 15. Telligen is the sponsor of the Plan within the meaning of ERISA 3(16)(B), 29 U.S.C. 1002(16)(B). Telligen adopted the Plan effective January 1, 2013. Employees of Telligen participate in the Plan. The Plan is a retirement plan governed by ERISA. Telligen is the Plan s administrator within the meaning of ERISA 3(16)(A), 29 U.S.C. 1002(16)(A). -7-
Case 4:16-cv-00650-RGE-SBJ Document 65 Filed 02/22/18 Page 8 of 26 Bankers Trust denies the allegations in the first sentence of paragraph 15. Bankers Trust admits that the Plan was adopted on December 31, 2013, and was made effective as of January 1, 2013. Bankers Trust admits that, at least for the period following the Transaction closing until April 29, 2016, when Bankers Trust s engagement as trustee ended, employees of Telligen who met eligibility requirements may have participated in the Plan, but denies the remaining allegations in the third sentence of paragraph 15. Bankers Trust admits that, at least for the period following the Transaction closing until April 29, 2016, when Bankers Trust s engagement as trustee ended, the Plan was an employee stock ownership plan subject to ERISA, but denies the remaining allegations in the fourth sentence of paragraph 15. Bankers Trust denies the allegations in the fifth sentence of paragraph 15. 16. Telligen s revenues declined every year from 2009 through 2012. Telligen nevertheless forecasted revenue growth for every year from 2014 through 2018. Bankers Trust admits the allegations in the first sentence of paragraph 16. Bankers Trust lacks sufficient knowledge or information to admit or deny the allegations in the second sentence of paragraph 16, and therefore denies them. 17. Telligen appointed Bankers Trust as Trustee of the ESOP in 2013 for the purpose of representing the Plan in the proposed ESOP Transaction. It is unknown whether Bankers Trust hired anyone to act as its financial advisor or provide valuation services for the proposed ESOP Transaction. Bankers Trust admits that Telligen, acting by and through its board of directors, appointed it to act as the independent trustee of the Plan in connection with the Transaction. Bankers Trust lacks knowledge or information sufficient to admit or deny what is unknown to Plaintiff, and therefore denies the allegations in the second sentence of paragraph 17. -8-
Case 4:16-cv-00650-RGE-SBJ Document 65 Filed 02/22/18 Page 9 of 26 50266. 18. The Plan was administered at 1776 West Lakes Parkway, West Des Moines, Iowa Bankers Trust lacks sufficient knowledge or information to admit or deny where the Plan is administered, and therefore denies the allegations in paragraph 18. 19. As Trustee for the Plan, it was Bankers Trust s exclusive duty to ensure that any transactions between the Plan, Telligen and/or its principal shareholders and/or other entities controlled by them, including loans to the Plan and acquisitions of Telligen stock by the Plan, were fair and reasonable and to ensure that the Plan paid no more than fair market value. Bankers Trust denies the allegations in paragraph 19. 20. In contemplation of the ESOP Transaction, Telligen set in motion a series of related events, as explained in the Telligen Disclosure Memorandum for the ESOP Investment Election. Telligen s plan was as follows: First, there was to be a two-step merger process under which Telligen ( Old Telligen ) merged into Telligen Interim, LLC. Telligen Community Initiative ( TCI ) was the sole member of Telligen Interim, LLC. Telligen Interim, LLC then merged into Telligen, Inc., in which TCI became the sole shareholder. Then, the Plan was to purchase all outstanding and issued shares (1,000,000) of Telligen, Inc. stock from TCI. In exchange, Telligen would receive a twenty-year promissory note in the amount of $37,500,000 from the Plan. The final event was the Plan s subscription from Telligen for newly issued Telligen shares using the proceeds from the ESOP Investment Election. Bankers Trust lacks knowledge or information sufficient to admit or deny the allegations in the first sentence of paragraph 20, and therefore denies them. Bankers Trust lacks knowledge or information sufficient to admit or deny what Telligen s plan was, and therefore denies the allegations in the first half of the second sentence of paragraph 20. In -9-
Case 4:16-cv-00650-RGE-SBJ Document 65 Filed 02/22/18 Page 10 of 26 paragraph 20, Plaintiff appears to be referencing and/or directly quoting from the Disclosure Memorandum Offering. Bankers Trust admits that the Disclosure Memorandum Offering includes the following statements: The ESOP Stock Purchase will be conducted in conjunction with a series of related events (including the ESOP Stock Purchase and referred to herein, collectively, as the ESOP Transaction ) which is comprised of: (a) a two step merger process under which Telligen ( Old Telligen ), an Iowa nonprofit corporation with tax-exempt status under Section 501(c)(6) of the Internal Revenue Code of 1986 as amended (the Code ), is merged into the Company (with the Company as the surviving entity), (b) the purchase by the ESOP of 1,000,000 of Company shares from Telligen Community Initiative ( TCI ) in exchange for a twenty-year promissory note in the amount of $37,500,000, as of December 31, 2013, representing all of the issued and outstanding stock of the Company (the 1 st Stock Purchase ), and (c) the ESOP s subscription from the Company for newly issued Company shares using the proceeds from the ESOP Investment Election. To the extent the allegations in paragraph 20 are inconsistent with or mischaracterize the Disclosure Memorandum Offering, Bankers Trust denies them. 21. On December 31, 2013, Bankers Trust, in its capacity as Trustee of the Plan, purchased all 1,000,000 outstanding and issued shares of Telligen Common Stock from TCI (and/or entities controlled by TCI and/or its principal shareholders) in consideration for payment of $37,500,000. The Plan paid $37.50 per share for the Telligen stock in the ESOP Transaction, and as a result Telligen is wholly owned by the Plan. Bankers Trust admits that, on December 31, 2013, the Plan purchased 1,000,000 shares of Company stock from TCI for a price per share of $37.50 (a total aggregate -10-
Case 4:16-cv-00650-RGE-SBJ Document 65 Filed 02/22/18 Page 11 of 26 purchase of $37,500,000) in an arm s length transaction. Bankers Trust admits that, as a result of the Transaction, the Plan became the 100% shareholder of the common stock of Telligen. 22. The sale was seller-funded by a $37,500,000 loan from TCI (and/or entities controlled by TCI and/or its principal shareholders) to the Plan to be used to buy Telligen stock. Bankers Trust caused the Plan to issue a note payable to TCI in the amount of $37,500,000 to purchase Telligen stock from TCI. It was payable in full over twenty years at a rate of 6% per annum. Bankers Trust admits that the Purchase Price was 100% financed with a $37,500,000 subordinate note from TCI. Bankers Trust further admits that the subordinate note had a 20 year term, which re-amortized after the first year, and an interest rate of 6% initially. Bankers Trust further admits that the 6% initial interest rate re-amortized after the second prepayment and the rate dropped to 5.25% for the remaining 19 years. Bankers Trust admits that, acting as the independent trustee of the ESOP in connection with the Transaction, it caused the ESOP to enter into the subordinate note. Bankers Trust denies the remaining allegations in paragraph 22. 23. In early 2014, employees eligible to participate in the Plan were given a one-time opportunity to transfer all or any portion of their eligible 401(k) Retirement Plan account balance to the Plan (the ESOP Investment Election ). Bankers Trust admits that the Disclosure Memorandum Offering includes a section 7 titled, The ESOP Investment Election. To the extent the allegations in paragraph 23 are inconsistent with or mischaracterize section 7 of the Disclosure Memorandum Offering, Bankers Trust denies them. -11-
Case 4:16-cv-00650-RGE-SBJ Document 65 Filed 02/22/18 Page 12 of 26 24. The ESOP Investment Election was intended to exploit Plan participants by convincing them to contribute additional retirement funds to an investment rapidly losing money. Bankers Trust denies the allegations in paragraph 24. 25. The ESOP Investment Election provided a way for the Plan s sponsor and trustee to inject money into the Plan and raise Plan assets. Bankers Trust denies the allegations in paragraph 25. 26. Bankers Trust has received consideration for its own personal account from Telligen for Bankers Trust s services in the ESOP Transaction in the form of fees, under a Transactional Trustee Engagement Agreement made between Bankers Trust and Telligen prior to the Plan s purchase of Telligen. Bankers Trust admits that, as trustee for the Plan, it received compensation from Telligen in exchange for its services with respect to the ESOP Transaction, as set forth in the Transactional Trustee Engagement Agreement between Telligen and Bankers Trust Company of South Dakota ( Engagement Agreement ). To the extent the allegations in paragraph 26 are inconsistent with or mischaracterize the Engagement Agreement, Bankers Trust denies them. 27. Under the Transactional Trustee Engagement Agreement (at page Bates stamped BTC_0000869 by Bankers Trust), Bankers Trust received a Transaction Responsibility Fee of many thousands of dollars. In paragraph 27, Plaintiff appears to be referencing the Engagement Agreement. Bankers Trust admits that the Engagement Agreement includes a subsection 8 titled Transaction Responsibility Fee and that Bankers Trust was compensated pursuant to that subsection but denies Plaintiff s subjective characterization thereof. To the extent the allegations -12-
Case 4:16-cv-00650-RGE-SBJ Document 65 Filed 02/22/18 Page 13 of 26 in paragraph 27 are further inconsistent with or mischaracterize the Engagement Agreement, Bankers Trust denies them. 28. Under the Transactional Trustee Engagement Agreement, Bankers Trust could also be due additional fees from Telligen for additional services or extraordinary services. In paragraph 28, Plaintiff alleges a hypothetical situation in apparent reference to subsection 9 of the Engagement Agreement, which Bankers Trust admits is titled Fees/Costs for Extraordinary Services. Without additional factual allegations, Bankers Trust is unable to respond to Plaintiff s hypothetical allegation and therefore denies such allegation. Further, to the extent the allegations in paragraph 28 are inconsistent with or mischaracterize the Engagement Agreement, Bankers Trust denies them. 29. The Transactional Trustee Engagement Agreement was made and entered into as of October 2013, and was signed on November 4, 2013, by Denise Sturm, Vice President, for Telligen. Debra Williams, Vice President and Managing Director, signed the Transactional Trustee Engagement Agreement for Bankers Trust. Bankers Trust admits the allegations in paragraph 29. 30. Under the Transactional Trustee Engagement Agreement (at pages Bates stamped BTC_0000871 to -873 by Bankers Trust), Telligen agreed to give Bankers Trust as Plan Trustee indemnification for Bankers Trust s loss, cost, expense, or other damage, including attorney s fees, in connection with ESOP Transaction. The indemnification agreement is something of value, potentially worth millions of dollars of defense costs and/or liability in ERISA private company ESOP litigation. The indemnification agreement is null and void under ERISA 410(a), 29 U.S.C. 1110(a), as against public policy. -13-
Case 4:16-cv-00650-RGE-SBJ Document 65 Filed 02/22/18 Page 14 of 26 In the first sentence of paragraph 30, Plaintiff appears to be referencing the Engagement Agreement. Bankers Trust admits that the Engagement Agreement includes a section titled Indemnification. To the extent the allegations in paragraph 30 are inconsistent with or mischaracterize the Engagement Agreement, Bankers Trust denies them. Bankers Trust denies the remaining allegations in paragraph 30. 31. Payment by Telligen, which the Plan owns, of millions of dollars of attorneys fees, costs and litigation expenses to Bankers Trust s counsel necessarily would adversely impact Telligen s equity value and therefore the value of Plan assets. Direct payment or reimbursement of Bankers Trust s defense costs by Telligen would adversely affect the Plan and Plaintiff s and other participants financial interests. In paragraph 31, Plaintiff alleges a hypothetical situation. Without additional factual allegations, Bankers Trust is unable to respond to Plaintiff s hypothetical allegation and therefore denies such allegations. 32. Payment by Telligen directly to the Plan or in reimbursement to Bankers Trust for any judgment this Court makes against Bankers Trust would result in no benefit to the Plan and its participants and would, in violation of ERISA 410(a), relieve Bankers Trust from responsibility or liability for its responsibility, obligation, or duty under ERISA. Bankers Trust denies the allegations in paragraph 32. FIRST CLAIM FOR RELIEF Engaging in Prohibited Transactions Forbidden by ERISA 406(a)-(b), 29 U.S.C. 1106(a)-(b) 33. Plaintiff incorporates the preceding paragraphs as though set forth herein. Bankers Trust incorporates its answers as though set forth herein. -14-
Case 4:16-cv-00650-RGE-SBJ Document 65 Filed 02/22/18 Page 15 of 26 34. ERISA 406(a)(1)(A), 29 U.S.C. 1106(a)(1)(A), prohibits a plan fiduciary, here Bankers Trust, from causing a plan, here the Plan, from engaging in a sale or exchange of any property, here Telligen stock, with a party in interest, here Telligen (the Plan s sponsor and administrator, whose employees participate in the Plan) or other party in interest sellers. ERISA 406(a)(1)(B), 29 U.S.C. 1106(a)(1)(B), prohibits Bankers Trust from causing the Plan to borrow money from a party in interest Telligen. ERISA 406(a)(1)(E), 29 U.S.C. 1106(a)(1)(E), prohibits Bankers Trust from causing the Plan to acquire Telligen securities. Bankers Trust denies the allegations in paragraph 34. 35. Bankers Trust engaged in prohibited transactions in violation of ERISA 406(a), 29 U.S.C. 1106(a), in the ESOP Transaction. Bankers Trust denies the allegations in paragraph 35. 36. The loan and stock transactions between the Plan and the Telligen and/or its principal shareholders and/or other entities controlled by them were authorized by Bankers Trust in its capacity as Trustee for the Plan. Bankers Trust denies the allegations in paragraph 36. 37. ERISA 406(b), 29 U.S.C. 1106(b), inter alia, mandates that a plan fiduciary shall not receive any consideration for his own personal account from any party dealing with such plan in connection with a transaction involving the assets of the plan. Bankers Trust admits that Plaintiff has quoted a portion of ERISA, but denies Plaintiff s interpretation of the statute or any wrongdoing thereunder. 38. Bankers Trust received from Telligen consideration, as Trustee for the Plan in the ESOP Transaction, in violation of ERISA 406(b)(3). -15-
Case 4:16-cv-00650-RGE-SBJ Document 65 Filed 02/22/18 Page 16 of 26 Bankers Trust admits that it received compensation from Telligen as trustee for the Plan. Bankers Trust denies any violations of ERISA, and denies the remaining allegations in paragraph 38. 39. ERISA 409, 29 U.S.C. 1109, provides, inter alia, that any person who is a fiduciary with respect to a plan and who breaches any of the responsibilities, obligations, or duties imposed on fiduciaries by Title I of ERISA shall be personally liable to make good to the plan any losses to the plan resulting from each such breach, and additionally is subject to such other equitable or remedial relief as the court may deem appropriate, including removal of the fiduciary. Bankers Trust admits that Plaintiff purports to quote a portion of ERISA 409, 29 U.S.C. 1109. Bankers Trust denies Plaintiff s interpretation of that provision or any wrongdoing thereunder. 40. ERISA 502(a)(2), 29 U.S.C. 1132(a)(2), permits a plan participant to bring a suit for relief under ERISA 409. Bankers Trust admits that ERISA 502(a)(2), 29 U.S.C. 1132(a)(2) authorizes certain civil claims, as set forth more fully in ERISA. Bankers Trust denies the remaining allegations in paragraph 40. 41. ERISA 502(a)(3), 29 U.S.C. 1132(a)(3), permits a plan participant to bring a suit to obtain appropriate equitable relief to enforce the provisions of Title I of ERISA or to enforce the terms of a plan. Bankers Trust admits that ERISA 502(a)(3), 29 U.S.C. 1132(a)(3) authorizes certain civil claims, as set forth more fully in ERISA. Bankers Trust denies the remaining allegations in paragraph 41. -16-
Case 4:16-cv-00650-RGE-SBJ Document 65 Filed 02/22/18 Page 17 of 26 42. Bankers Trust has caused millions of dollars of losses to the Plan by the prohibited transactions in an amount to be proven more specifically at trial. Bankers Trust denies the allegations in paragraph 42. SECOND CLAIM FOR RELIEF Violation of ERISA 410 and 404(a)(1)(A), (B), 29 U.S.C. 1110 and 1104(a)(1)(A), (B) 43. Plaintiff incorporates the preceding paragraphs as though set forth herein. Bankers Trust incorporates its answers as though set forth herein. 44. ERISA 410(a), 29 U.S.C. 1110(a), provides in relevant part (with exceptions not applicable here) that any provision in an agreement or instrument which purports to relieve a fiduciary from responsibility or liability for any responsibility, obligation, or duty under this part [Part IV of Subtitle B of Title I of ERISA] shall be void as against public policy. As ERISA 406 is under Part IV, any provision that attempts to relieve Bankers Trust, a Plan fiduciary, of responsibility or liability is void pursuant to ERISA 410(a) unless there is an exception or exemption. No such exception or exemption is applicable here. Bankers Trust admits that Plaintiff purports to quote a portion of ERISA 410(a), 29 U.S.C. 1110(a) in the first sentence of paragraph 44. Bankers Trust denies Plaintiff s interpretation of that provision or any wrongdoing thereunder. Bankers Trust further denies the remaining allegations in paragraph 44. 45. The indemnification agreement purports to provide payment or reimbursement for the benefit of Bankers Trust for its defense costs and/or liability, by Telligen, which the Plan owns. In paragraph 45, Plaintiff appears to be referencing the Engagement Agreement. Bankers Trust admits that the Engagement Agreement includes a section titled -17-
Case 4:16-cv-00650-RGE-SBJ Document 65 Filed 02/22/18 Page 18 of 26 Indemnification. To the extent the allegations in paragraph 45 are inconsistent with or mischaracterize the Engagement Agreement, Bankers Trust denies them. 46. The indemnification agreement effectively contains no limitation on indemnity by Telligen, at any time in the course of litigation or after final judgment, to or for the benefit of Bankers Trust of its losses, costs, expenses, or other damages, including attorneys fees. An exception contained in the indemnification agreement does not address violation of the per se rules under ERISA 406. Bankers Trust denies the allegations in paragraph 46. 47. To the extent that the indemnification agreement attempts to relieve Bankers Trust of its responsibility or liability to discharge its duties under ERISA, or attempts to have Telligen (a Plan-owned company) and thereby the Plan be responsible for Bankers Trust s liability for breaches of the statute, including but not limited to defense costs, such provision is void as against public policy. Bankers Trust denies the allegations in paragraph 47. 48. To the extent that any of the fiduciaries of the Plan would agree to the establishment or exercise of such a provision that is void against public policy under ERISA 410, they breached their fiduciary duties under ERISA by failing to discharge their duties with respect to the Plan solely in the interest of the participants and beneficiaries and with the care, skill, prudence and diligence under the circumstances then prevailing that a prudent person acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of like character and aims, in violation of ERISA 404(a)(1)(A) and (B), 29 U.S.C. 1104(a)(1)(A) and (B). See also ERISA 403(c)(1), 29 U.S.C. 1103(c)(1). Bankers Trust denies the allegations in paragraph 48. -18-
Case 4:16-cv-00650-RGE-SBJ Document 65 Filed 02/22/18 Page 19 of 26 49. As a result of the foregoing, the indemnification agreement should be declared void ab initio and Bankers Trust should be enjoined from seeking and accepting payment from Telligen under such provisions. Bankers Trust denies the allegations in paragraph 49. CLASS ACTION ALLEGATIONS 50. Plaintiff brings this action as a class action pursuant to Fed. R. Civ. P. 23(a) and (b), on behalf of the following class: All persons who were vested participants in the Telligen, Inc. Employee Stock Ownership Plan. Excluded from the Class are the shareholders and entities controlled by them who sold their Telligen stock to the Plan and their immediate families; the directors of Telligen; and legal representatives, successors, and assigns of any such excluded persons. Bankers Trust admits that Plaintiff purports to bring this action as a class action pursuant to Fed. R. Civ. P. 23(a) and (b). Bankers Trust denies that a class action is appropriate under the Federal Rules of Civil of Procedure or under ERISA 502(a)(2). 51. The Class is so numerous that joinder of all members is impracticable. Although the exact number and identities of Class Members are unknown to Plaintiff at this time, the Plan s Form 5500 filing for 2015 indicates that there were 661 participants in the ESOP as of December 31, 2015. Bankers Trust denies that the purported Plaintiff Class is so numerous that joinder of all members is impracticable. Bankers Trust lacks knowledge or information sufficient to admit or deny what is unknown to Plaintiff, and therefore denies the allegations in the second sentence of paragraph 51. Answering further, Bankers Trust denies that a class action is appropriate under the Federal Rules of Civil of Procedure or under ERISA 502(a)(2). 52. Questions of law and fact common to the Class as a whole include, but are not limited to, the following: -19-
Case 4:16-cv-00650-RGE-SBJ Document 65 Filed 02/22/18 Page 20 of 26 i. Whether Bankers Trust was an ERISA fiduciary of the Plan; ii. Whether Bankers Trust s fiduciary function to the Plan included serving as Trustee in the Plan s acquisition of Telligen stock; iii. Whether Bankers Trust engaged in prohibited transactions under ERISA by permitting the Plan to purchase Telligen stock and take a loan from Telligen; iv. Whether Bankers Trust engaged in a good faith valuation of the Telligen stock in connection with the ESOP Transaction; v. Whether Bankers Trust caused the Plan to pay more than fair market value for Telligen stock; vi. Whether Bankers Trust engaged in a prohibited transaction under ERISA by acting on behalf of a party adverse to the Plan and its participants in the ESOP Transaction; vii. Whether Bankers Trust engaged in a prohibited transaction under ERISA by receiving consideration for its own account in the ESOP Transaction; viii. Whether the seller or sellers of Telligen stock to the Plan were parties in interest; and ix. The amount of losses suffered by the Plan and its participants as a result of Bankers Trust s ERISA violations. Bankers Trust denies that there are questions of law and/or fact that are common to the purported Plaintiff Class. Bankers Trust denies the remaining allegations in this paragraph and its subparagraphs. Answering further, Bankers Trust denies that a class action is appropriate under the Federal Rules of Civil of Procedure or under ERISA 502(a)(2). -20-
Case 4:16-cv-00650-RGE-SBJ Document 65 Filed 02/22/18 Page 21 of 26 53. Plaintiff s claims are typical of those of the Class. For example, Plaintiff, like other Plan participants in the Class, suffered a diminution in the value of her Plan account because the Plan plunged in value after purchasing Telligen stock for more than fair market value, and she continues to suffer such losses in the present because Bankers Trust failed to correct the overpayment by the Plan in its time as trustee. Bankers Trust denies the allegations in paragraph 53. 54. Plaintiff will fairly and adequately represent and protect the interests of the Class. Plaintiff has retained counsel competent and experienced in complex class actions, ERISA, and employee benefits litigation. Bankers Trust admits that Plaintiff has retained counsel. Bankers Trust denies the remaining allegations in paragraph 54. 55. Class certification of Plaintiff s Claims for Relief for violations of ERISA is appropriate pursuant to Fed. R. Civ. P. 23(b)(1) because the prosecution of separate actions by individual Class members would create a risk of inconsistent or varying adjudications which would establish incompatible standards of conduct for Bankers Trust, and/or because adjudications with respect to individual Class members would as a practical matter be dispositive of the interests of non-party Class members. Bankers Trust denies the allegations in paragraph 55. 56. In the alternative, class certification of Plaintiff s Claim for Relief for violations of ERISA is appropriate pursuant to Fed. R. Civ. P. 23(b)(2) because Bankers Trust has acted or refused to act on grounds generally applicable to the Class, making appropriate declaratory and injunctive relief with respect to Plaintiff and the Class as a whole. The members of the Class are entitled to declaratory and injunctive relief to remedy Bankers Trust s violations of ERISA. -21-
Case 4:16-cv-00650-RGE-SBJ Document 65 Filed 02/22/18 Page 22 of 26 Bankers Trust denies the allegations in paragraph 56. 57. The names and addresses of the Plaintiff Class members are available from the Plan. Notice will be provided to all members of the Plaintiff Class to the extent required by Fed. R. Civ. P. 23. Bankers Trust denies the allegations in paragraph 57. PRAYER FOR RELIEF Wherefore, Plaintiff prays for judgment against Defendant and for the following relief: A. Declare that Defendant Bankers Trust caused the Plan to engage in prohibited transactions; B. Enjoin Defendant Bankers Trust from further violations of ERISA and its responsibilities, obligations, and duties; C. Order that Defendant Bankers Trust make good to the Plan and/or to any successor trust(s) the losses resulting from its breaches of ERISA and restore any profits it has made through use of assets of the Plan; D. Order that Defendant Bankers Trust provide other appropriate equitable relief to the Plan and its participants and beneficiaries, including but not limited to surcharge, providing an accounting for profits, and imposing a constructive trust and/or equitable lien on any funds wrongfully held by Defendant Bankers Trust; E. Award Plaintiff reasonable attorneys fees and costs of suit incurred herein pursuant to ERISA 502(g), 29 U.S.C. 1132(g), and/or for the benefit obtained for the common fund; F. Order Bankers Trust to disgorge any fees it received in conjunction with its services as Trustee for the Plan as well as any earnings and profits thereon; -22-
Case 4:16-cv-00650-RGE-SBJ Document 65 Filed 02/22/18 Page 23 of 26 G. Order Bankers Trust to pay prejudgment interest; H. Enter an order certifying this lawsuit as a class action; I. Order that the indemnification agreement is declared void ab initio, and that Bankers Trust is enjoined from seeking or accepting payment from Telligen, or the Plan that owns Telligen, under such agreement, and Bankers Trust and its agents must reimburse Telligen and the Plan for payments received; and J. Award such other and further relief as the Court deems equitable and just. In response to Plaintiff s Prayer for Relief and each subpart thereof, Bankers Trust denies that Plaintiff is entitled to any of the relief requested or to any relief whatsoever, and requests that Plaintiff s Amended Complaint be dismissed with prejudice. BANKERS TRUST S AFFIRMATIVE DEFENSES FIRST AFFIRMATIVE DEFENSE: Exemptions from Prohibited Transactions. 1. Plaintiff s prohibited transaction claims fail in whole or in part because the prohibited transaction rules in ERISA 406 do not apply to: a) The December 31, 2013 stock purchase transaction in which the ESOP purchased 1,000,000 shares of Company stock from TCI for a price per share of $37.50 (a total aggregate purchase of price of $37,500,000) in an arm s-length transaction (the Transaction ). b) The loan made by TCI and/or any other parties in interest to the ESOP in connection with the Transaction (the ESOP Loan ); and c) Compensation paid by Telligen to Bankers Trust. 2. The Transaction satisfies the exemptions set forth in ERISA 408(e) and ERISA 408(b)(12). -23-
Case 4:16-cv-00650-RGE-SBJ Document 65 Filed 02/22/18 Page 24 of 26 3. The ESOP Loan satisfies the exemption set forth in ERISA 408(b)(3). 4. The compensation paid by Telligen to Bankers Trust satisfies the exemptions set forth in ERISA 408(b)(2) and ERISA 408(c)(2). SECOND AFFIRMATIVE DEFENSE: Lack of Intent. 1. ERISA 406(a)(1)(D) prohibits transactions between a plan and a party in interest that constitute a direct or indirect transfer to, or use by or for the benefit of a party in interest, of any assets of the plan. 2. Courts have held that a prohibited use of plan assets for the benefit of a party in interest, as described by ERISA 406(a)(1)(D), requires a subjective intent to benefit a party in interest. 3. Plaintiff has not alleged and cannot establish that Bankers Trust had any subjective intent to benefit any party in interest. THIRD AFFIRMATIVE DEFENSE: Failure to State a Claim. 1. Plaintiff s Amended Complaint fails, in whole or in part, to state a cause of action upon which relief can be granted. FOURTH AFFIRMATIVE DEFENSE: Statute of Limitations. 1. Plaintiff s claims are barred, in whole or in part, by the applicable statutes of limitations or repose or by the doctrine of laches. FIFTH AFFIRMATIVE DEFENSE: Lack of Standing. 1. Plaintiff s claims are barred, in whole or in part, by Plaintiff s lack of standing to assert such claims. -24-
Case 4:16-cv-00650-RGE-SBJ Document 65 Filed 02/22/18 Page 25 of 26 SIXTH AFFIRMATIVE DEFENSE: Lack of Subject Matter Jurisdiction. 1. Plaintiff s claims are barred, in whole or in part, because the Court lacks subject matter jurisdiction over such claims. SEVENTH AFFIRMATIVE DEFENSE: Waiver and Release. 1. Plaintiff signed a Severance Agreement and General Release, attached hereto as Exhibit A. 2. Plaintiff s claims are barred, in whole or in part, because Plaintiff waived or released her claims. EIGHTH AFFIRMATIVE DEFENSE: Ripeness. 1. Plaintiff s claims are barred, in whole or in part, because they are not ripe for adjudication. RESERVATION OF DEFENSES Bankers Trust reserves the right to assert additional affirmative defenses as they may become evident during the course of discovery or during further investigation into the background of this matter. WHEREFORE, Bankers Trust respectfully requests that this Court enter judgment in its favor and against Plaintiff. Dated: February 22, 2018 Respectfully submitted, /s/ Lars C. Golumbic Lars C. Golumbic (admitted pro hac vice) Sarah M. Adams (admitted pro hac vice) Natasha S. Fedder (admitted pro hac vice) Paul J. Rinefierd (admitted pro hac vice) GROOM LAW GROUP, CHARTERED 1701 Pennsylvania Ave., NW Washington, DC 20006-25-
Case 4:16-cv-00650-RGE-SBJ Document 65 Filed 02/22/18 Page 26 of 26 Telephone: 202/861-6615 Facsimile: 202/659-4503 E-mail: lgolumbic@groom.com sadams@groom.com nfedder@groom.com prinefierd@groom.com John D. Hintze (AT0003507) Jason M. Craig (AT0001707) AHLERS & COONEY, P.C. 100 Court Avenue, Suite 600 Des Moines, Iowa 50309-2231 Telephone: 515/243-7611 Facsimile: 515/243-2149 E-mail: jhintze@ahlerslaw.com jcraig@ahlerslaw.com ATTORNEYS FOR DEFENDANT BANKERS TRUST COMPANY OF SOUTH DAKOTA Electronically filed. Electronically served on: Brad J. Brady Matthew L. Preston Brady Preston Brown, P.C. 2735 First Avenue, SE Cedar Rapids, IA 52402 BBrady@BPGlegal.com MPreston@BPGlegal.com Gregory Y. Porter Ryan T. Jenny Patrick O. Muench Bailey & Glasser, LLP 1054 31st Street, NW, Suite 230 Washington, DC 20007 gporter@baileyglasser.com rjenny@baileyglasser.com pmuench@baileyglasser.com CERTIFICATE OF SERVICE The undersigned certifies that the foregoing instrument was served upon all parties to the above cause to each of the attorneys of record herein at their respective addresses disclosed on the pleadings, on this date: February 22, 2018 By U.S. Mail Fax Signature Hand Delivery Private Carrier X Electronically through CM-ECF Other: /s/ Lars C. Golumbic ATTORNEYS FOR PLAINTIFF -26-