District Court Judge Rules for DOL in ESOP Case
In Pizzella v. Vinoskey (2019 BL 288001, W.D. Va., No. 6:16-cv-00062, 8/2/19), a district court ruled that the ESOP at Sentry Equipment had overpaid in 2010 for shares of the company in a nearly $21 million transaction. The ruling was a victory for the Department of Labor, which argued that the trustee, Evolve Bank, had engaged in a prohibited transaction and breached its fiduciary duties of prudence and loyalty. The presiding judge, Senior Judge Norman K. Moon of the U.S. District Court for the Western District of Virginia, found that the trustee failed to adequately review the financial data used in the valuation and to negotiate over the price with the seller.
The DOL argued that the ESOP overpaid by $11.5 million, but the judge found the overpayment to be $6.5 million. This case and others like it have generated controversy about valuation methods for company shares in an ESOP transaction.