Court Dismisses Amsted Industries Claims

In Armstrong v Amsted Industries, Inc., No. 01 C 2963, MDL 1417 (U.S. Dist. Ct. ND Ill, 7/29/04), ESOP fiduciaries and company officers won an important victory concerning fiduciary obligations, changes in repurchase rules, and business acquisition decisions. Amsted, a large industrial company and a 100% ESOP, acquired Varlen, Inc., in 1999. In 2000, the market for Amsted products, as with other companies in the industry, declined sharply (the company has since recovered). Its stock price fell by over 50%. A record number of employees left the company in order to receive distributions at the most recent valuation, which did not yet reflect the decline in company fortunes. Amsted then modified its repurchase plan to call for quarterly, not annual, valuations and to provide a longer time period for repurchase than had been in effect. Some employees sued LaSalle Bank (the ESOP's independent fiduciary), the company, two of its officers, and the ESOP committee, saying that the acquisition was improperly valued and that the repurchase plan should have been modified earlier to prevent a drain on corporate assets.

The court granted summary judgment to the defendants. Regarding the company, its officers, and the ESOP committee, the court ruled that they were not acting in a fiduciary capacity with respect to the decision to purchase Varlen. The court decided that the decision to change the repurchase plan was reasonable, and its analysis of its repurchase obligation could not have foreseen the unusual pattern of departures that occurred in 2000. As for LaSalle, the court made an important ruling that considerable deference was owed to a respected and qualified independent trustee, whereas actions of an inside trustee, especially where there is a potential conflict of interest, would merit much more scrutiny. It also ruled that the Varlen acquisition was not a fiduciary matter, although it noted that LaSalle had nonetheless investigated the issue responsibly. Finally, it ruled LaSalle had acted prudently in its review of the valuation and the repurchase obligation.