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ESOP and 401(k) Plan Employer Stock Litigation Review 1990-2010

by Corey Rosen

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This 35-page publication categorizes court decisions in ESOP and 401(k) company stock cases since 1990 and provides brief summaries for the ESOP-related decisions. The cases are categorized by the kind of decision reached; cases where multiple issues were decided appear in multiple sections. The cases summarized are primarily those that appeared in the NCEO's Journal of Employee Ownership Law and Finance and in the NCEO's Employee Ownership Report, but also include others found through online sources. Over 300 decisions are included. We have tried to be comprehensive, but attorneys must always supplement this with this own research.

Publication Details

Format: Photocopied, 35 pages
Publication date: June 2010
Status: In stock

Introduction
Summary of ESOP Case Decisions
ESOP Cases: Claims Against Providers; Deferral of Gains Issues; Disclosure of Information; Distribution; Dividends; Employment Rights and Plan Eligibility Issues; ESOPs as a Takeover Defense; Executive Compensation; Indemnification and Insurance; Lenders as Fiduciaries; Management of Plan Assets: General; Management of Plan Assets: "Stop Drop" Cases; Parties in Interest Definitions; Securities Law Issues Other Than Disclosure; Settlements; Standing; State Law Claims; Valuation; Voting, Tendering Rights, and ESOP Governance Rights; Who Is a Fiduciary?
401(k) Cases: Issues with Offering and Holding Company Stock Other than Presumption of Prudence; Presumption of Prudence Issues; Securities Law and Required Disclosure Issues: Disclosure May Be Required; Securities Law and Required Disclosure Issues: Disclosure May Not Be Required; Settlements; Standing Affirmed for Former Participants; Standing Not Affirmed for Former Participants; Other Standing and Class Certification Issues; Who Is a Fiduciary?

Excerpts

From "ESOP Cases: Disclosure of Information"

Elmore v. Cone Mills Corporation, 23 F.3d 855 (4th Cir. 1994): Ruled that representations made to ESOP participants concerning terms of the funding of an ESOP prior to the plan's establishment were enforceable against Cone Mills under ERISA.

Olson v. Chem-Trend Inc., 1995 WL 866221 (E.D. Mich., May 30, 1995): On summary judgment, the court dismissed claim that participants should have been informed about impending sale of company before cashing out shares.

Sweeney v. Kroger Co., 773 F. Supp. 1266, 1269 (E.D. Mo. 1991): A district court ruled that a former participant who had been paid out did not have the right to be told about a possible potential acquisition of the company, nor did he have the right to distribution in cash, contrary to the terms of the ESOP.

Faircloth v. Lundy Packing Company, 91 F. 3rd 648 (4th Cir. 1996): Court affirmed lower court ruling that ESOP participants are not required to have access to the last IRS determination letter, the company's bonding policies, appraisal reports, and minutes of the ESOP committee, but reversed and remanded the court's decision that they did not need to have access to the investment, funding, cost-sharing, and trustee expense policies. The Supreme Court denied certiori for the case.

Brown v. American Life Holdings, Inc., 190 F.3d 856 (8th Cir. 1999): Ruled there is no right to disclosure of various ESOP documents, such as committee minutes and resolutions; there is only a requirement to make instruments of the plan available.

In Re Occidental Petroleum Corporation, 217 F.3d 293 (5th Cir. 2000): Ruled attorney-client privilege does not protect ESOP-related documents sought in disclosure.

Henry v. Champlain Enterprises Inc., N.D.N.Y., No. 01-CV-1681 (January 11, 2003): Ruled plaintiffs could not use discovery to obtain work products related to the company's ESOP valuation report.

In re McKesson ERISA Litigation, No. COO-020030 RMW (D.C., No. Calif. 2000): Ruled that fiduciaries did not have to inform participants of a likely impending drop in McKesson stock because to do so would have required them to disclose information about an accounting irregularity that they knew would be soon announced.

Williams Cos. ERISA Litigation, No. 02-CV-153-H(M) (N.D. Okla. July 14, 2003): Ruled that fiduciaries did not provide adequate information about the ESOP to participants.

Beauchem v. Rockford Products, 2004 WL 43232 (N.D. Ill., Feb. 2004): Ruled plaintiff could continue to pursue concealment claim over the company's failure to file 5500 forms when an ESOP was set up. The employee was time-barred, however, from pursuing other claims.

Hill v. BellSouth Corp., 313 F. Supp. 2d 1361 (N.D. Ga., March 2004): Ruled disclosure of accounting irregularities not required.

May v. Scott, No. 03-2112 M 1/P (W.D. Tenn., Aug. 2005): Ruled failure to disclose sale of stock in an ESOP to a participant and officer of the company led to an illegal conversion.

In re RCN ERISA Litigation, No. 04-5068 (D.C.N.J. Mar. 22, 2006): Ruled positive statements concerning company from the employee plan committee were not a per se ERISA violation; plaintiffs would have had to show they were misleading or factually incorrect.

Pension and Employee Stock Ownership Plan Administrative Committee of Community Bancshares Inc. v. Patterson, No. CV-04-BE-00531 (N.D. Ala., March 31): Ruled former CEO who was convicted in criminal trial of using ESOP assets for personal uses could be sued for not disclosing this to the plan committee.

Bacon et al. v. Stiefel Laboratories Inc., No. 09-21871-CV-KING (S.D. Fla., July 7, 2009): Ruled that plaintiffs could continue with lawsuit over whether fiduciaries should have disclosed possible sale of the company that ultimately was consummated and resulted in a much higher price than the employees received for their shares.

From "401(k) Cases: Issues with Offering and Holding Company Stock Other Than Presumption of Prudence"

Fiduciaries Not Required to Continue to Offer Company Stock
Tatum v. R.J. Reynolds Tobacco, 392 F. 3d 636 (4th Cir. 2004)
Noa v. Keyser, No. 05-CV-776 JEI (D.N.J. Oct. 30, 2007)
Lanfear v. Home Depot Inc., 536 F.3d 1217 (11th Cir. 2008)
Bunch v. W.R. Grace & Co., 555 F.3d 1 (1st Cir. 2009)