Starkey Workers Advance Part of ERISA Suit Over Ex-Execs’ Fraud

Former employees of Minnesota hearing aid company Starkey Laboratories Inc. are advancing some of their claims against the company’s president and chief executive officer, who they say failed to protect their employee stock ownership plan from a $30 million fraud scheme committed by certain former executives.

Judge Patrick J. Schiltz of the U.S. District Court for the District of Minnesota on Tuesday trimmed Jaime Beck’s proposed class claims against Starkey, CEO William F. Austin, and president Brandon Sawalich. Austin and Sawalich won’t face liability for their alleged failure to file suit against the executives engaged in fraud, and the parties can engage in limited discovery to determine whether remaining claims are barred by a release agreement, Schiltz said.

Beck’s lawsuit seeks to hold the company, Austin, and Sawalich liable under the Employee Retirement Income Security Act for failing to protect the plan’s 2,000 participants from nearly $37 million in losses tied to a years-long scheme by certain former Starkey executives to embezzle and misappropriate money and business opportunities. After an eight-week trial in a Minnesota federal court, Starkey’s former president was convicted on charges related to embezzlement and sentenced to seven years in federal prison. Three other defendants were sentenced in connection with the scheme.

Austin and Sawalich say the ERISA claims against them are blocked by a broad release agreement for which the ESOP received $800,000. Schiltz said it was “quite likely” the claims were released, but he declined to dismiss the case on these grounds and instead ordered the parties to engage in limited discovery as to whether the release agreement is valid under ERISA.

Schiltz’s order didn’t consider the employees’ claims against the former executives convicted of fraud.

Lockridge Grindal Nauen PLLP represents the former employees. Henson & Efron PA represent Starkey, Austin, and Sawalich.

The case is Beck v. Austin, 2020 BL 292532, D. Minn., No. 0:19-cv-01453, 8/4/20.