This 102-page publication briefly summarizes decisions in ESOP and 401(k) company stock cases from 1990 through June 2020. The cases are organized by issue, so cases that involve multiple issues appear in more than one section. Three 401(k) public company cases and 15 ESOP private company cases were added for the 2020 edition. A total of 392 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-2019 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 2020 edition: The last 12 months (since the June 2019 cutoff for the 2019 edition) saw just 15 new ESOP cases make it to court, although there were some additional decisions in some ongoing cases. Only eight of the cases were either initiated by or had an amicus brief from the Department of Labor (DOL), but the DOL came to a sweeping settlement in 21 cases involving Wilmington Trust Company, 3 of which were at the trial stage and 18 of which were at the investigation stage. There were no specific trends that emerged in the last year, but valuation continues to be the most contested and consequential issue for ESOPs. There were only three new 401(k) plan employer stock cases, but the IBM case made it to the Supreme Court and has been remanded for further review.

You also may be interested in our related publication ESOP Regulatory Rulings 1990-2020, which provides a summary of rulings and regulations on ESOPs and related plans.

Product Details

PDF, 102 pages
11th (July 2020)
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 "Management of Plan Assets: General"

Brown v. Wilmington Tr., N.A., No. 3:17-cv-00250 (S.D. Ohio July 8, 2018) (order denying defendant’s motion to compel arbitration): Ruled that a former employee cannot be forced to go through an arbitration clause regarding her ESOP account. The company (Henny Penny) set up its ESOP in 2014, and the employee was allocated shares. Two years later, the company adopted an arbitration clause for disputes over distributions. By then, the employee had left. The company and the ESOP trust, Wilmington Trust, wanted to enforce the arbitration clause, but the court ruled that she had never agreed to it because she had left the company by then and had cashed out her plan. The plaintiff is one of a class of employees suing over an alleged overvaluation of the stock.

In re SunEdison, Inc. ERISA Litig, No. 16-mc-2744 (S.D.N.Y. Aug. 6. 2018): Ruled that offering employer stock within an ESOP in the company’s 401(k) plan was not an ERISA violation. SunEdison faced a variety of financial challenges that eventually led to bankruptcy. The plaintiff alleges that public information should have led the fiduciaries to view the stock as too risky and that inside information showing additional risk should have been disclosed. The court ruled the first claim required the trustees to outguess the market; the second proposed action could have driven the stock price down even further.

Cunningham v. Wawa, Inc., No. 2:18-cv-03355-PD (E.D. Pa. Ja. 10, 2019): Ruled employees could a lawsuit against Wawa over changes in its ESOP that resulted when Wawa ESOP amended the plan so that former employees who had stock in their accounts had to have the shares purchased and moved to cash investments. Wawa had previously settled with a group of plaintiffs but sought to dismiss the case from the second group. The judge agreed that the change did not violate the anti-cutback rule, but agreed that plaintiffs had sufficiently alleged a case that a change from stock to cash can, in effect, only be done prospectively, not for those who have already left employment under the prior terms of the plan. The lawsuit also alleged that their shares had been improperly valued, that plaintiffs relied on language from the SPD that seemed to prevent such a change, and that their rights had been misrepresented.

Gamache v. Hogue, No. 1:19-CV-21 (M.D. Ga. Mar. 16, 2020): Allowed plaintiffs to proceed with a lawsuit alleging that a refinancing of a 97% ESOP that resulted in the two principals of the firm ending up with 40% of the shares was a violation.

From "Tolling"

Preston v. Acosta, No. 17-1238 (U.S. June 25, 2018): The Supreme Court refused to hear a challenge to an 11th Circuit decision (Preston v. Acosta, Oct. 12, 2017) that ruled that the CEO and trustee of the ESOP at TPP Holdings could not invoke a tolling agreement to halt a DOL lawsuit alleging that he had caused the ESOP at the company to overpay for the purchase of his shares in 2006 and again in 2008. Before filing suit, the DOL and Preston tried to reach a settlement and entered into a series of “tolling agreements” that provided the DOL would delay any litigation while the efforts were pending. No settlement was reached, and the DOL sued in 2014, one day before the expiration of the agreed-upon tolling period. Despite their agreement not to assert a time bar to litigation, the defendants moved to assert one on the grounds that all alleged violations that occurred before December 30, 2008, six years prior to the filing, and thus were not permitted under ERISA’s limitation-of-actions provision. The court ruled that the agreements took precedence, and the Supreme Court let that ruling stand.

Foster v. Adams & Assocs., Inc., No. 3:18-cv-02723-JSC (N.D. Cal. Feb. 26, 2019): Ruled that employees can proceed with a lawsuit alleging the ESOP at Adams & Associates overpaid for the shares and that the trustee for the plan, a former felon, should not have been appointed. The defendants argued the three-year tolling period should have started in 2013 when the company filed its Form 5500, but the court ruled that employees did not have actual knowledge of the breach until later.