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Reeling in the Lessons for Boards and ESOP Fiduciaries from Fish v. GreatBanc
Teachings from the Antioch Company Saga
by Michael L. Scheier, Brian P. Muething, and Tony Verticchio
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Format: PDF, 31 pages
Dimensions: 8.5 x 11 inches
Edition: 1st (May 2017)
Status: Available for electronic delivery
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II. Background Information
A. The Antioch Company and Its Creative Memories Division
B. The Antioch Employee Stock Ownership Plan
C. The 2003 Tender Offer Transaction
D. Post-transaction Events
III. The Litigation
IV. The Fish "Handbook" for a Prudent Transactional Process
A. Broad-Based Employee Ownership Culture
B. The Transaction Process
V. Defending the Prudent Process and the Fiduciaries
A. Expert Witnesses
VI. Antioch's Fiduciary Insurance Coverage
Appendix: Lessons Learned from Fish v. GreatBanc
Structural Protections for Fiduciaries
About the Authors
About the NCEO
From "The Fish 'Handbook' for a Prudent Transactional Process"For the almost 25 years of the ESOP's existence before the transaction, the board appointed internal trustees—either the corporate CEO or CFO. As of 2003, when the company chose to address the allocation and other ESOP-related issues set forth above, the company's long-time CFO was the ESOP trustee. As the evidence bore out at trial, Antioch's CFO at the time was a highly skilled ESOP administrator. He had solid working knowledge of ESOP valuation issues, repurchase obligation studies, and distribution methods and rules, among other areas of ESOP-specific knowledge and training. His integrity was proven. The facts left no questions that the CFO could have competently and fairly served as the ESOP trustee during the negotiation and consummation of the tender offer transaction. Yet despite these qualifications, the board chose to remove the internal trustee and engage an independent trustee because the internal trustee-CFO held Antioch shares outside the ESOP and stood to gain financially from the transaction. The board sought to avoid even the appearance of impropriety or conflict of interest. That decision paid off. The court recognized it as evidence of good faith.
From "Defending the Prudent Process and the Fiduciaries"The Fish opinion is a prime example of the importance of choosing expert witnesses early in the process, and of choosing the best. Why is this important? The court's comparative analysis of the credibility and merits of the plaintiffs' experts on the one hand, and the defense experts on the other (highlighted in detail below), provides the emphatic answer. In short, lining up the best experts puts the defense in the greatest position to win the case since so much turns on esoteric valuation and financial concepts, and matters unique to ESOPs that federal judges do not often see. In addition, exposing top-shelf experts to plaintiff's counsel during pretrial discovery increases the chances of settlement by highlighting the credibility that the witnesses will bring to court and trial. Such a record made during discovery can incentivize plaintiffs to settle reasonably, or at least within remaining insurance coverage limits.
The following sections will identify the expert witnesses, the topical areas of expertise, and a brief description of their reports and testimony, followed by the court's commentary on the relative credibility and reliability of the expert testimony. As the reader will see, the positive defense outcome can be attributed, in significant part, to the excellence of the defense experts and the reliance the court placed on their testimony as compared to the court's dour view of the plaintiffs' experts.