Supermarket Chain Agrees to Restore Plan Assets

The suit, Solis v. C&K Market Inc. (civil action number 6:10-cv-06360-AA), was filed by the Department of Labor (DOL) against C&K Market in the U.S. District Court for the District of Oregon in Eugene. C&K Market operates approximately 50 supermarkets in southern Oregon and northern California.

According to a consent judgment agreed to by the company, C&K Market will restore $3 million in cash plus interest and sell property owned by the C&K Market Inc. 401(k) plan. These and other steps will be done to make restitution for a series of imprudent loans made with plan assets, which were found to be in violation of the Employee Retirement Income Security Act (ERISA).

The DOL had alleged that plan trustee Douglas A. Nidiffer and former company officer Rex Scoggins made a series of loans and extensions of credits totaling $2,185,000 from the plan to Gregg W. Boice between November 1998 and January 2001 (see “Supermarket Chain Agrees to Restore $8M to 401(k) Plan”). This was done in an effort to develop a proposed resort in Gold Beach, Oregon. However, Boice defaulted on his plan loans on several occasions and in March 2003, his property for the project was transferred to the plan in lieu of foreclosure on the property. The plan then assumed the costs of ownership of the property.

The suit also alleged that the plan entered into an agreement with the owners of property adjacent to the proposed resort to serve as consultants for development and management, and that it granted a right of first refusal option to another party to buy a restaurant on the resort property. Both actions were cited as imprudent in the suit.

In addition, the suit alleged that the plan trustee approved a $40,000 loan from the plan to purchase a convenience store and gas station near Astoria, Oregon. The station was found to be contaminated by leaking underground fuel tanks, making the property unsellable. When the borrower defaulted on the loan, the plan foreclosed on the property, making the plan responsible for the costs of environmental cleanup.

The DOL negotiated a consent judgment with the company prior to filing its lawsuit. In addition to the restitution, the settlement directs the sale of the plan-owned properties. Under the settlement, the 401(k) plan will recover no less than $4.5 million from any sale of the resort property. Nidiffer also agreed to resign as a trustee to the 401(k) plan.

The suit was based on an investigation by the DOL’s Employee Benefits Security Administration.