This 118-page 8.5 x 11" publication briefly summarizes decisions in ESOP and 401(k) company stock cases from 1990 through June 2022. The cases are organized by issue, so cases that involve multiple issues appear in more than one section. Fifteen ESOP cases, all but one in private companies, were added for the 2022 edition. A total of 432 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-2022 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 2022 edition: The last 12 months since June 2021 (the cutoff date for the 2021 edition) saw 15 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.

ESOP Regulatory Rulings 1990-2022

Special offer: You also may be interested in our companion publication ESOP Regulatory Rulings 1990-2022, 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, 118 pages
13th (July 2022)
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 "Indemnification and Insurance"

Zander Group Holdings v. Katz, Sapper & Miller, No. 3:18-cv-00653 (M.D. Tenn. Oct. 20, 2020): A district court ruled that Katz, Sapper & Miller must defend allegations about the tax advice it gave to the Zander Group concerning an ESOP transaction. The Zander Group had entered into a settlement over the alleged improper valuation of its shares. Katz, Sapper & Miller argued the settlement covered their actions on tax issues related to the transaction, but the court ruled the agreement did not cover this issue.

Great American Fidelity Insurance Company v. Stout Risius Ross, Inc. et al., No. 2:19-cv-11294 (E.D. Mich. Mar. 4, 2021): A district court allowed Great American Insurance Company to proceed with claims it does not have to defend or indemnify the ESOP appraisal firm Stout Risius Ross over allegations about its valuation work for Appvion, an ESOP company that went bankrupt (see results for Appvion under valuation). All of the federal claims under ERISA have been dismissed in the case, but state securities laws claims are still being litigated.

Great American claims it is not liable because of an exclusion clause if the defendant company can be shown to have violated ERISA or securities laws. In a prior decision on the federal issues, the court ruled that Great American did have to defend under ERISA. Now that the state lawsuit is proceeding, the court said Great American can proceed with its claims for exemption in that matter.

Wilmington Tr., N.A. v. Stout Risius Ross, Inc., No. 20 Civ. 2505 (S.D.N.Y. Mar. 23, 2021): Wilmington Trust can proceed with its lawsuit over Stout’s role as the appraiser in Brundle v. Wilmington Trust, No. 17-1873 (4th Cir. Mar. 21, 2019), which ended up in a $29.8 million judgment against Wilmington Trust over its role in the ESOP at Constellis Corporation. Wilmington sued Stout for breach of contract, negligence, and contribution over its decisions as the appraiser in the case. The court ruled “ERISA does not bar Wilmington's contribution claim against a non-fiduciary (Stout) merely because the judgment for which Wilmington seeks recovery is based on an ERISA violation…a holding that ERISA preempts Wilmington's contribution claim would immunize Stout from liability for breaching its common law duties.”

Ahrendsen et al. v. Prudent Fiduciary Services, LLC, et al., No. 2:21-cv-02157 (E.D. Pa. Feb. 2, 2022): A district court allowed an ESOP valuation case against the sellers and the trustee on the case to proceed to trial. The court also allowed challenges to the indemnification for the trustee to proceed on the basis that the clause did not include an exemption for instances where the trustee was found to have violated ERISA.

From "Valuation"

Keach v. U.S. Trust Co., 419 F.3d 626 (Aug. 2005): Upheld lower court ruling (313 F. Supp. 2d 818 [2004]) that U.S. Trust acted prudently in the Foster & Gallagher ESOP case, even though the company went bankrupt after the ESOP purchase when its main business was severely damaged by changes in rules concerning “sweepstakes” contests, because U.S. Trust had conducted a thorough investigation of fair market value and relied on the advice of qualified independent experts.

Henry v. Champlain Enterprises, 445 F.3d 610 (2d Cir. 2006): An appeals court reversed and remanded a lower court ruling (Henry v. Champlain Enterprises, Inc., 342 F. Supp. 2d 122 [N.D.N.Y. 2003]) finding that U.S. Trust had not acted prudently in determining what the ESOP could pay for company stock and awarding over $8 million to participants. The district court was ordered to find what the specific errors in the valuation report were (if any) and reach a new conclusion. On remand, the court dismissed the plaintiffs’ claims (468 F. Supp. 2d 368 [N.D.N.Y. 2007]). Then, in In Henry v. U.S. Trust Co. of California, No. 07-0355-cv (2d Cir. June 19, 2009), the appeals court reversed the lower court, saying an ESOP debt cancellation in exchange for shares was not a reduction in the price, but the realization of a loss on the ESOP shares. Finally, in Henry v. Champlain Enterprises Inc., No. 1:01-CV-1681 (N.D.N.Y. May 25, 2010), a district court ruled that U.S. Trust had acted properly in coming to the valuation it did.

Armstrong v. LaSalle National Bank, 446 F.3d 728 (7th Cir. May 4, 2006): Reversed and remanded summary judgment from lower court in Armstrong v. Amsted Industries, saying that LaSalle had failed to provide evidence that it exercised required discretion over whether to consider the effect of repurchase obligation on value. The district court was ordered to investigate if such consideration was given and, if so, appropriately.