NCEO founder and senior staff member
Corey Rosen
Jones v. Zander Grp. Holdings, No. 8:24CV428 (D. Neb. May 27, 2025)
In Jones v. Zander Grp. Holdings, No. 8:24CV428 (D. Neb. May 27, 2025), a district court ruled that defendants at ESOP-owned Zander Group Holdings cannot subpoena the attorneys for the plaintiff or communications between the attorneys and the plaintiffs.
Corey Rosen
Oral Arguments Held, Decision Pending, in reference to: Bolton v. Inland Fresh Seafood Corp. of Am., Inc., 11th Cir., No. 24-10084
Corey Rosen
ESOP legal experts suspect that the recent unanimous Supreme Court decision in Cunningham v. Cornell University, No. 23-1007 (U.S. Apr. 17, 2025) will make it easier for plaintiffs to file lawsuits against ESOP fiduciaries. The issue in Cornell related to ERISA’s prohibited transaction provisions and the many statutory exemptions.
Corey Rosen
ESOP legal experts suspect that the recent unanimous Supreme Court decision in Cunningham v. Cornell University, No. 23-1007 (U.S. Apr. 17, 2025) will make it easier for plaintiffs to file lawsuits against ESOP fiduciaries. The issue in Cornell related to ERISA’s prohibited transaction provisions and the many statutory exemptions. Under ERISA, fiduciaries are prohibited from causing plans to engage in transactions with parties in interest, subject to exemptions, including the adequate consideration exemption that authorizes ESOP stock transactions in employer stock. The question in Cornell was whether plaintiffs could adequately plead a violation of ERISA’s prohibited transaction provisions by simply stating that a transaction with a party in interest occurred, or whether plaintiffs must also plead that an exemption does not apply. Federal circuit courts have been split on this question, with some holding that plaintiffs had to plead facts to plausibly state that an exemption did not apply and others holding that plaintiffs do not have to address the exemptions. In Allen v. GreatBanc (7th Cir. 2016), the Seventh Circuit held that the plaintiffs stated a plausible breach of ERISA’s prohibited transaction provisions merely by alleging that the ESOP’s stock value dropped after the sale, that the ESOP transaction was financed by the seller, and that the loan’s interest rate was high. The Seventh Circuit did not require the plaintiffs to plead the absence of any prohibited transaction exemptions.
Corey Rosen
A $580,000 settlement was reached in Arnold v. Paredes, No. 3:23-cv-00545 (M.D. Tenn., Apr. 17, 2025). Plaintiffs at Churchill Mortgage, an 800-employee company, alleged that part of the dividends paid on shares held by the 100% ESOP were used to offset required employer contributions to the plan. Defendants argued that is what the dividends are supposed to be used for. The ESOP acquired the shares in two transactions separated by several years. Plaintiffs alleged that the second transaction paid a control price that was unjustified because parties in interest retained effective control.
Corey Rosen
In Rush v. GreatBanc, No. 19-cv-00738 (N.D. Ill., Mar. 31, 2025), a district court ruled on all counts for defendants in a case involving the sale of the Segerdahl Corporation. The company was 100% ESOP-owned until sold after a long sales process in 2016 to ICV Partners, LLC ("ICV") for $265 million. Rush, a vice president at the company, alleged that the company could have sold for more and sued, arguing that the company could have sold for a significantly higher price. Rush sued the board members and the trustee (GreatBanc). Key issues in the lawsuit included whether the board approved a sale to ICV instead of to another potential buyer, which Ruch alleged would have paid about 20% more.
Corey Rosen
A settlement has been reached in Jackson v. New England Biolabs Inc., No. 1:23-cv-12208-RGS (Feb. 14, 2025). The company had an ESOP until 2013, which it converted to a profit-sharing plan. Company stock remained one of the eligible investments employees could choose until 2019, when the plan was amended to prevent former employees from continuing to own shares in the plan prior to final distribution. Three employees sued on behalf of a class, saying that the company bought back the shares at an unfair price. The settlement was for $750,000.
Corey Rosen
In Lysengen v. Argent Trust, et al., No. 1:20-cv-01177MMM-JEH (D.C. Ill. May 9, 2025), a court approved a $4 million settlement in a lawsuit over a 50% drop in the value of Morton Buildings in the year following the company’s taking on debt to fund the ESOP. The plan initially owned a minority of the shares in the company. When it bought the remaining shares, participants meeting eligibility rules were given floor price protection against the anticipated debt-related drop in share price. The valuation also changed the way it treated excess cash, which previously was counted as a liability, but now was treated as an asset. The company made payments to existing participants to compensate for that.
Corey Rosen
In Ramirez et. al. v. AMPAM Parks Mech., Inc., No. EDCV 24-1038-KK-DTBx (C.D. Cal. Feb. 14, 2025), employees moved forward with most of their claims against AMPAM Parks Mechanical and the plan’s trustee. The lawsuit alleges the company’s ESOP overpaid for the stock, which was sold for a depressed price. The ESOP was set up in 2019, and the company was sold in 2023 at a much lower price. Plaintiffs allege the sale price did not accurately reflect business challenges, the debt the company would take on, and the lack of effective control by the trust in the 1,000-employee company.
Corey Rosen
In Dalton v. Freeman, No. 2:22-cv-00847-DJC-DB (E.D. Cal. Mar. 24, 2025), a court ruled plaintiffs had not pled a specific enough case against Alerus, which was acting as a trustee at O.C. Communications when the ESOP company was sold. The company was sold for considerably less than the ESOP paid for the stock and considerably less than the most recent valuation. Plaintiffs sued Alerus, the ESOP trustee, members of the ESOP committee, and the company's board of directors. The court ruled the ESOP committee members could potentially be deemed as fiduciaries and the case against them could not be dismissed at this point. The court did not rule on the suit against board members. The court allowed the plaintiffs to amend their complaint against Alerus.
