Summary of the Lawsuit

This was a class action lawsuit on behalf of participants and beneficiaries in the Tharaldson Motels, Inc. Employee Stock Ownership Plan (the “TMI ESOP”) alleging violations of the federal pension law (ERISA) in connection with breaches of fiduciary duty by Defendant Gary D. Tharaldson.  The lawsuit alleged that Gary Tharaldson, the then-President of TMI, caused an affiliate of TMI (the sole asset of the TMI ESOP) to pay his ex-wife, Linda Tharaldson, approximately $4 million in TMI assets under a settlement agreement related to their divorce in exchange for 20 years of unnecessary and worthless marketing and sales consulting services (the “Consulting Agreement”) which were never performed and were of no value to TMI or its affiliate.  The lawsuit also alleged that Gary Tharaldson, as the Trustee of the ESOP breached his duties owed to the ESOP by failing to bring a derivative action against himself as the sole Director, President, and Chief Executive Office of TMI for breaches of corporate fiduciary duties owed to the shareholders of TMI, including the ESOP.

Class Action Allegations

This action was certified as a class action and was brought on behalf of participants and beneficiaries in the TMI ESOP.  The certified class was defined as follows:

All persons who were participants of the TMI ESOP at any time from December 30, 1998 to the present and who received an allocation of Plan assets to their accounts which they did not subsequently forfeit under the terms of the Plan and the beneficiaries of such participants.

History of the Litigation

After Plaintiff filed the Complaint, the case was initially stayed during settlement discussions.  After the parties agreed that settlement discussions were no longer productive, Defendant filed an answer to the Complaint.  Fact discovery was thereafter completed and the parties began expert discovery.  On March 31, 2011, following a hearing on the motion for class certification, the Court entered an order certifying this case as a class action.  On January 5, 2012, the Court entered an order granting Defendant’s Motion for Summary Judgment and entered judgment against Plaintiff.  Plaintiffs appealed this decision to the Eighth Circuit Court of Appeals.  Before the appeal proceeded, the parties reached a settlement.


After lengthy negotiations, the parties reached a settlement of the case in principle on April 20, 2012.  After significant negotiations over the language of the settlement agreement, the parties finalized this agreement on October 10, 2012.  On October 16, 2012, the Plaintiffs filed a notice seeking preliminary approval of the settlement agreement and approval of a Notice of Class Action Settlement to be sent to participants of the ESOP.  The Court preliminarily approved the Settlement Agreement on October 23, 2012 and authorized the Plaintiffs to send the proposed Notice of Class Action Settlement to class members. After a hearing, the Court granted final approval of the settlement on February 25, 2013.

Under the Settlement the Plaintiff agreed to dismiss the fiduciary breach claims asserted against Defendant Tharaldson in exchange for a payment of $125,000 and a release for TMI for all claims of liability which it might have for any remaining payments due to Linda Tharaldson under the Consulting Agreement. After deduction of court-approved reimbursement of expenses to Plaintiff’s counsel, a $75,000 payment was made to TMI, which had paid the monies to Linda Tharaldson under the contract.

The settlement resolves all outstanding claims in McKay v. Tharaldson.  You may review the documents related to the settlement under “Case Documents.” 

Whom to Contact for More Information

If you would like more information about the case and the Settlement Agreement you may contact:

R. Joseph Barton, Esq., 
Grace Jang, Paralegal,
Cohen Milstein Sellers & Toll PLLC
1100 New York Avenue, N.W., Suite 500
Washington, D.C. 20005
Telephone: (202) 408-4600