This 124-page 8.5 x 11" publication briefly summarizes decisions in ESOP and 401(k) company stock cases from 1990 through June 2023. The cases are organized by issue, so cases that involve multiple issues appear in more than one section. Eleven ESOP cases, all in private companies, were added for the 2023 edition. A total of 443 ESOP cases and a number of 401(k) cases are included. The publication categorizes all the court decisions in 401(k) company stock cases from 1990 through mid-2023 and provides brief summaries for decisions starting in 2010. Appendices discuss what the Supreme Court's Dudenhoeffer decision has meant for ESOPs, plus key elements in recent DOL fiduciary process agreements reached in settlements. We have tried to be comprehensive, but advisors must always supplement this with their own research.

Here's what's new in the 2023 edition: The last 12 months since June 2022 (the cutoff date for the 2022 edition) saw 11 new ESOP cases make it to court, all but one in private companies, although there were some additional decisions in some ongoing cases. Only two of the cases were either initiated by or had an amicus brief from the U.S. Department of Labor (DOL). Valuation continues to be the leading cause of new cases, but this last year, a number of new cases concerned arbitration clauses. Courts have generally been unfavorable to these provisions.

Special offer: You also may be interested in our companion publication ESOP Regulatory Rulings 1990-2023, which provides a summary of rulings and regulations on ESOPs and related plans, including private letter rulings, DOL advisory opinions, DOL field assistance bulletins, IRS Technical Assistance Memoranda, and similar pronouncements such as the "ESOP Cadre" guidance. To get ESOP Regulatory Rulings at a 50% discount from your price (member or nonmember), add both publications (Litigation Review and Regulatory Rulings) to your cart and enter the code 50reg in checkout.

Product Details

PDF, 124 pages
14th (August 2023)
Available for immediate purchase

Table of Contents

Special Note on the Presumption of Prudence Issue
DOL Process Agreements
Summary of ESOP Case Decisions
ESOP Cases
Claims Against Providers
Deferral of Gains Issues
Disclosure of Information
Distribution and Diversification
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: “Stock Drop” Cases pre-Dudenhoeffer (Including Presumption of Prudence)
Party-in-Interest Definitions
Plan Qualification
Qualification for Set-Asides
S Corporation Anti-Abuse Rules
Securities Law Issues Other Than Disclosure
Standard of Prudence After the 2014 Dudenhoeffer Case
State Law Claims
Voting, Tendering Rights, and ESOP Governance Rights
Who Is a Fiduciary?
401(k) Cases
Claims Against Providers
Issues with Offering and Holding Company Stock Other than Presumption of Prudence
Presumption of Prudence Issues
Right to Jury Trial
Securities Law and Required Disclosure Issues: Disclosure May Be Required
Securities Law and Required Disclosure Issues: Disclosure May Not Be Required
Standard of Prudence After the 2014 Dudenhoeffer Case
Standing Affirmed for Participants
Standing Not Affirmed for Participants
Other Standing and Class Certification Issues
Who Is a Fiduciary?
Appendix 1: What the Supreme Court's Dudenhoeffer Decision Means for ESOPs
Key Points
Standard of Prudence
Effect on ESOPs
Appendix 2: Key Issues in DOL Settlement Agreements in GreatBanc, First Bankers Trust, James Joyner, Alpha Investment, and Lubbock National Bank Cases
Valuation Assessment
Loan Structure
Providing the Right Information to the Appraiser


From "Arbitration"

Henry v. Wilmington Trust et al., No. C.A. 19-1925 DM (D.C. Del. Sept. 10, 2021): A district court ruled that a plaintiff could pursue his claim that an ESOP had overpaid for the shares at SSC Ventures. The plaintiff contends that he never knew about an arbitration clause affecting the ESOP until he filed a lawsuit and that he had never consented to it. The defendants argued that the clause was a condition of employment and this applied. The defendants also argued that Henry lacked standing because he did not “allege sufficient facts to support a plausible inference of harm by showing the ESOP in fact overpaid.”

The court ruled that at this stage, a plaintiff does not have to allege detailed facts about potential harm to allow the case to continue. On the second issue, the court ruled that the validity of the arbitration provision is a question for further investigation because there are issues about whether the arbitration clause in Henry violates ERISA by precluding plan-wide relief. The court also ruled that “the facts at this stage of proceedings plausibly support Henry’s assertion that he did not have notice and therefore did not have the necessary intent to manifest assent.”

Cedeno v. Argent Tr. Co., No. 20-CV-9987 (JGK) (S.D.N.Y. Nov. 2, 2021): A district court ruled that an arbitration agreement precluded participants “from seeking relief for the plan as a whole, a form of relief that is otherwise provided for by ERISA” and that such action is contrary to the language and intent of the law.

Best et al. v. James., No. 320-cv-299-JRW (W.D. Ky. Sept. 22, 2022): A district ruled that the plaintiffs must agree to arbitrate their claims against executives of ISCO Industries concerning the buyback of company shares from the ESOP. The judge ruled arbitration was applicable because there was nothing in ERISA to prevent arbitration clauses. The judge gave the employees 30 days to revise their claim, but in Best et al. v. James., No. 320-cv-299-JRW (W.D. Ky. Jan. 9, 2023), again ruled for the defendants.

From "Valuation"

Plutzer v. Bankers Trust Company of South Dakota et al., No. 1:21-cv-03632-MKV (S.D.N.Y. Feb. 28, 2022): A district court dismissed a claim against Bankers Trust of South Dakota, the trustee for the ESOP at Tharanco Group. In 2015, an ESOP bought 100% of Tharanco for $133 million. The sale was fully leveraged, and the stock value dropped to $13 million the next year. It rose in the following years, but dropped down to $9.8 million in 2019. The plaintiff essentially argued that was sufficient cause to move to the next stage of a trial. The court ruled that the mere statement of a claim followed by “threadbare” justification is insufficient to show the plaintiff could demonstrate actual harm. In Plutzer v. Bankers Trust Company of South Dakota et al., No. 22-561-cv (2nd Cir. Nov. 21, 2022), the Second Circuit court agreed, dismissing the claim. It wrote, “Plutzer has expressly disavowed any argument that the 2015 valuation gives rise to an inference of overpayment. Furthermore, given the up and down nature of the subsequent valuations, and the fact that the value first dropped significantly four years after the Plan purchased Tharanco, there is simply no reasonable inference to be drawn from those rises and falls, much less one in Plutzer’s favor.”

Novosel v. Azcon Inc. Employee Benefits Plan Committee, No. 21 C 3080 (N.D. Il. E.D. Mar. 8, 2022): A district court dismissed two claims concerning the valuation of stock for the plaintiff in Azcon’s ESOP, but allowed her to continue a breach of contract claim alleging that Azcon miscalculated her share value and distributed $50,000 less than she was owed. Novosel retired in 2015 and took advantage of a diversification option. She had understood the value of the diversified shares to be $1,840 per share, but a mid-year valuation that would serve as the actual basis for the diversification set the value at only $165 per share. While the court found the plan language confusing, it ruled that the intent was to provide participants with some certainty about the effective date of the share valuation. The court also dismissed the claim that the interim valuation was effectively a change in the plan rules, finding that the language was clear that the administrative committee had authority to determine when the effective date of a valuation for purposes of diversification or distribution should be. In Novosel v. Azcon Inc. Employee Benefits Plan Committee, No. 21 C 3080 (N.D. Il. E.D. Jan. 9, 2023), the employee was allowed to amend her complaint.