Opinion ID: 496811
Heading Depth: 2
Heading Rank: 1

Heading: The Consent Order

Text: 2 The instant appeal arises from proceedings initiated by the Secretary of the United States Department of Labor (the Secretary) 1 seeking civil contempt sanctions against Roland R. Pennington, Jr. (Pennington) and James M. Donnell (Donnell) for their failure to make certain payments required by a consent order. 2 In 1979, the Secretary began an investigation of the Retirement Plan for Employees of Control Specialties, Inc. (the Plan) 3 pursuant to section 504 of the Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. Sec. 1001 et seq. Pennington is the Chairman of the Board and the holder of all the voting stock in Control Specialties, Inc. (CSI). Pennington and Donnell served as trustees of the Plan. 4 The investigation was completed by the end of July, 1984. On September 7, 1984, the Secretary informed Pennington and Donnell of the findings of the investigation and offered them an opportunity to resolve the problems the investigation uncovered by agreeing to a consent decree. After months of negotiation, a complaint was filed with the United States District Court for the Southern District of Texas 5 and, on the same day, a proposed order and final judgment (consent order), signed by counsel for both parties, was submitted to the district court. 3 The complaint alleged that the trustees of the Plan had violated a number of the fiduciary and prohibited transaction provisions of ERISA. The relief sought included correction of the prohibited transactions and restitution to the Plan for losses incurred as a result of the trustees' alleged breaches of fiduciary duty. The consent order was submitted to the district court on April 17, 1985 and was entered on August 29, 1985. Among other things, the consent order required Pennington to purchase all common stock of the J.E. Lonergan Company, a former acquisition target of his, from the Plan for $301,616.02. Payment was to be made in three equal installments of $100,538.67 with payments due on June 1, 1985, March 1, 1986, and March 1, 1987. Moreover, Pennington and Donnell were jointly required to make restitution to the Plan in the amount of $140,000 with $46,667 due as an initial payment on June 1, 1985 and payments of $55,224.96 due on June 1, 1986 and June 1, 1987.