10 things to know about federal lawsuit tied to SWFL's Margaritaville on Fort Myers Beach

A federal lawsuit filed last week against TPI Hospitality ties into its Fort Myers Beach Margaritaville resort under construction.

Work was delayed by Hurricane Ian and is now due for completion by the end of the year.

Here are 10 things to know in connection with the suit:

What is the legal action about and the aim of the suit?

That Minnesota-based builder, under the leadership of Co-CEO Tom Torgerson, forced its employees to sell their company stock, which means workers are going to miss out on profits from the 254-room resort they should have had, according to the proposed class action filing.

The legal action in Minnesota's U.S. District Court against TPI, Torgerson, retirement plan trustee Argent Trust and others seeks to "recover losses (and) obtain monetary and appropriate or remedial relief."

More:New federal lawsuit questions dealings tied to Fort Myers Beach Margaritaville profits

What is the background?

In 2015, TPI became 100% employee-owned after the TPI Hospitality Employee Stock Ownership Plan it formed, known as an ESOP, acquired 100% of its stock for $10 million or $50 per share.

After announcing plans for the Jimmy Buffett-themed compound, TPI terminated the ESOP plan, and the stock was sold for $500,000 or $2.50 per share to "Torgerson's long-time friend," John Dammermann, who is now co-CEO, at about a time the company had grown to 34 hotels and $130 million in annual revenue, according to the suit: "The 2020 transaction allowed Thomas Torgerson and Dammermann to reap the expected windfall from the Margaritaville Resort and excluded the plan and its participants from sharing in the anticipated profits."

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What is TPI, and what do the defendants say about the case?

Since 1991, Torgerson, a Fort Myers Beach resident, has been at the head of the firm that has roots to the Depression era and operates dozens of hotels and restaurants in Minnesota and Florida, with the $250 million Margaritaville serving as its biggest project.

"In the early 1930s (my) grandfather Raymond Edward started a clothing store in Kerkhoven, Minnesota," Torgerson has said. "When Ray became ill in the mid-1950s, my father, Thomas B., took over the store on behalf of the family. He later purchased the business and expanded it into banking and finally hotels. TPI has been the only company I ever worked for, and started at the age of 12. In 1979, I became a manager for the two hotels we owned. I later bought the hotels from my parents in 1991, which ironically is when I first started coming to Fort Myers Beach."

TPI has declined comment although Torgerson said in a statement via Facebook that, "frivolous claims, in my opinion, should not be allowed to come forth without first passing some sort of test for standing." Argent also has not replied to questions, and all have until the beginning of March to respond in federal court.

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What's the track record for an ESOP, and how often does the value drop?

In the Know asked Quarles & Brady Partner Michael Wieber, an ESOP and employment benefits expert who is not involved in the case, for his take.

"In my experience, ESOPs are generally very successful in creating wealth across their employee workforce," said Wieber, whose firm has a Naples office. "I don't think this is a uniquely ESOP-related situation. Like any business, however, employee-owned companies are at risk if the types of actions alleged in the complaint occur. And, like other businesses, ESOP-owned companies can face challenges in the marketplace. So, I think, in a case like this, we need to let the legal system do its job here to sort out why the entities involved here dropped so precipitously in value in such a short time."

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What role did the ESOP play in getting Margaritaville approved?

Torgerson and his staff touted the setup as part of the company's core values as he sought support, according to Town of Fort Myers Beach documents.

"It was around 2013 that I started to explore ways to set TPI up to perpetuate into the future. I finally concluded that selling the company to the employees was the option that best fit," Torgerson said in 2018. The ESOP "has grown in its first three years from a zero starting value to over $22 million today, all to the employee/owners' benefit."

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Who filed the suit?

Ivy League-educated Jessica Kloss of Forest Lake, Minnesota, who served in key roles related to revenue and strategy for TPI for more than 11 years through 2020.

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Who's on her team?

Founded in 1974, the Nichols Kaster law firm, which has offices in Minnesota and California and handles cases throughout the country. It settled one of the largest fiduciary duty cases in U.S. history when American Airlines doled out $22 million after claims it mismanaged retirement plans. Nichols Kaster is also part of a similar suit against Wells Fargo, which so far has settled with the U.S. Labor Department for more than $131 million.

The attorneys on this case include Paul J. Lukas, a partner who has appeared at the U.S. Supreme Court and Brock J. Specht, who is on the Board of Governors for the Minnesota Association for Justice and does pro bono work as a Special Assistant State Public Defender representing clients before the Minnesota Court of Appeals.

Joining them is the West Coast firm of Feinberg, Jackson, Worthman & Wasow, which was involved in a similar ESOP case against Wawa that has had settlements totaling more than $46 million.

Its lawyers on this case include: Partner Dan Feinberg, who last week was part of an Illinois settlement involving GreatBanc Trust and Triad Manufacturing, which was accused of selling inflated company shares in a $106 million deal; and Partner Todd Jackson, who has recovered millions in wages and benefits in cases against IBM, Perdue Chicken, Masco Contractors, Farmers Insurance, American Families Insurance, Kelly Moore Paint Company, Corrections Corporation of America, Wells Fargo and others.

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How often is an ESOP terminated?

The setup remains rare in the United States, with about 6,200 out of the nation's 33 million businesses having them and 3% to 4% of all ESOPs terminated annually, according to the National Center for Employee Ownership.

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Why do companies usually dissolve an ESOP?

An employer "usually terminates" an ESOP when the company is going out of business, or when the owners retire, according to the Internal Revenue Service.

"ESOPs have been known to own companies for decades before the subject company is sold, and some may never sell to an unrelated buyer," Wieber told In the Know. "One reason we do see for sales of ESOP companies is the so-called 'offer that you can't refuse' — when a suitor offers a significant premium. (The) ESOP's trustee must determine what is in the best interest of employees/plan participants in the long run, from a financial point of view. 

"And once the company is sold, the employee ownership goal has been achieved so the ESOP typically terminates and pays out employee-participants. Those individuals may rollover their distributions to a retirement vehicle like an IRA or an employer's 401(k) plan to continue to build their nest eggs."

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What other updates tied to the project have occurred since 2023's start?

∎ Margaritaville's builders purchased land of the wrecked Silver Sands Villas, the oldest hotel on Fort Myers Beach.

More:Margaritaville builders buy land of oldest FMB hotel that was hammered by Hurricane Ian

∎ Margaritaville plans to expand as a Torgerson relative sells an adjacent house in Lee's fifth biggest January home buy.

More:In the Know: What thousands of you told me about FMB Margaritaville expansion; and new housing rules

∎ The rising Margaritaville hosted a "topping off" ceremony for the final structural beam raised into place.

More:Rising SWFL pay still not keeping up with higher prices; Margaritaville marks milestone

∎ A News-Press investigation found Margaritaville's seawall may have made Ian damage worse for Times Square.

More:Did Margaritaville seawall cause more damage to Times Square?

Based at the Naples Daily News, Columnist Phil Fernandez (pfernandez@gannett.com), who grew up in Southwest Florida, writes In the Know as part of the USA TODAY NETWORK. Support Democracy and subscribe to a newspaper.