Employee Ownership Legal Digest
Corey Rosen (13)

Headshot of

NCEO founder and senior staff member

Corey Rosen

October 05, 2022

DOL and GreatBanc Reach Settlement in Wells Fargo Stock Case

The Department of Labor has reached a $145 million settlement over an investigation in which the DOL alleged that the company’s 401(k) plan paid between $1,033 and $1,090 per share from 2013 to 2018 for Wells Fargo preferred stock. The plan bought preferred shares created just for the plan that converted to $1,000 in Wells Fargo common stock when allocated to participants. The plan borrowed money from Wells Fargo to purchase the preferred stock. Dividends on the shares were used to repay the loan, and then were counted toward the company’s obligations to match employees’ 401(k) deferrals. The DOL believed the plan was set up in a way that employees would receive shares that were less than the value the plan paid for them. A total of $13.2 million of the settlement will be paid as a penalty to the DOL and the rest to participants. Wells Fargo will also redeem preferred shares still held by the plan and exchange them for common stock. GreatBanc is not part of the financial settlement.

Corey Rosen

September 13, 2022

KPC Workers Agree to $5 Million Settlement

In Gamino v. KPC Healthcare Holdings, Inc. et al., No. 5:20-CV-01126-SB-SHK (C.D. Cal. Jan. 15, 2021), employees agreed to a $5 million settlement with KPC Healthcare in an ERISA valuation case. The ESOP bought 100% of KPC in 2015. Plaintiffs allege that Alerus, the ESOP trustee, did not sufficiently question the valuation, which was 9 to 15 times higher than the price of company shares on the public market just two years before, when the company went private. The company had declining revenues during the ensuing two years, and the stock price fell after the transaction. The suit named both KPC and the trustee, Alerus, and that suit continues.

Corey Rosen

September 13, 2022

Symbria ESOP Valuation Lawsuit Can Continue, but Non-Trustee Defendants Dropped from Case

In Placht v. Argent et. al., No. 1:21-cv-05783 D (N.D. Ill., August 10, 2022), a district court allowed plaintiffs to proceed in an ESOP valuation case against the trustee, Argent Trust, but not the 12 other named defendants, who are all sellers in the transaction. Symbria provides rehabilitation services, wellness programs, pharmacy services, experience surveys, and strategic consulting services to senior-living and post-acute providers. The 2015 deal was for $66.5 million and was funded entirely with debt. Post-transaction, the value dropped to $9.3 million, and was valued at $8.65 million in 2020. Plaintiffs allege the ESOP overpaid for the shares. The court dropped 12 selling shareholders from the suit because they were not fiduciaries, but allowed claims against certain managers to continue.

Corey Rosen

September 13, 2022

Argent Wins Case on Arbitration Provision

In Robertson v. Argent Tr. Co., No. CV-21-01711-PHX-DWL (D. Ariz. Jul. 27, 2022), a district court ruled that an arbitration clause in the plan document applies and dismissed the case against the ESOP trustee, Argent Trust. Robertson alleged that the ESOP’s purchase of shares from the former owners of Isagenix was for an excessive price. Argent said the plan document stated all covered claims “must be brought solely in the Claimant’s individual capacity and not in a representative capacity or on a class, collective, or group basis. Each arbitration shall be limited solely to one Claimant’s Covered Claims and that Claimant may not seek or receive any remedy that has the purpose or effect of providing additional benefits or monetary or other relief to any Employee, Participant or Beneficiary other than the Claimant.” Robertson said that the provision overly restricts her rights under ERISA, a position some other courts have agreed with. She also argued Arizona law forbids this kind of arbitration clause.

Corey Rosen

September 13, 2022

Boeing Wins Stock-Drop Lawsuit

In Burke v. Boeing, No. 20-3389 (7th Cir., Aug. 8, 2022), the 7th Circuit agreed with the lower court that Boeing defendants could designate an outside fiduciary with responsibility for the management of plan assets in the company’s 401(k)/ESOP. Plaintiffs alleged that the stock price drop caused by the 737 Max problem should have led to changes in the plan’s investment options, one of which allowed them to buy Boeing shares. The court ruled that the Boeing defendants were not fiduciaries because they delegated that authority to an independent trustee. The trustee, in turn, was not an insider privy to this information, but rather was making decisions in line with that of a prudent outside investor.

Corey Rosen

August 11, 2022

Claims Dismissed in Sale Against Board, Trustee in Sale of ESOP Company

In Szalanski, Brenda v. Arnold, Mike et al., No. 3:2019cv00940 - Document 47 (W.D. Wis. 2022), a court ruled in favor of defendants in the sale of PDQ to Kwik Trip. PDQ set up a 100% ESOP in 2009. In 2017, it was sold to Kwik Trip. Plaintiffs alleged that members of the PDQ, Inc. board violated ERISA by incorporating $1 million in noncompete payments from Kwik Trip, Inc. for each board member, making payments of $4.9 million in SARs to holders of these awards, and creating an incentive agreement to certain individuals to successfully negotiate long-term leases, along with a variety of other unspecified additional compensation. In addition, Kwik Trip, Inc. was allowed to buy $2 million in property held by one of its directors. The board recommended that employees vote in favor of the deal. The company provided detailed information on the transaction to the board. GreatBanc, the ESOP trustee, also voted in favor of the deal for undirected or unallocated shares. The sale price was $17,500 per share, compared to the appraised value of $10,380 per share six months earlier.

Corey Rosen

August 11, 2022

DOL Files Amicus Brief Opposing Arbitration

The Department of Labor has filed an amicus brief in Cedeno v. Argent Tr. Co., No. 20-CV-9987 (JGK), (S.D.N.Y. Nov. 2, 2021). A district court had ruled that an arbitration agreement precluded participants “from seeking relief for the plan as a whole, a form of relief that is otherwise provided for by ERISA” and that such action is “contrary to the language and intent of the law.” Argent has appealed. In its brief on the appeal, the DOL wrote that it “is not here contending that ERISA claims are categorically non-arbitrable,” but “a participant cannot be compelled to arbitrate if they are deprived of the full range of ERISA remedies that would be available had they brought the same claim in federal court.” The DOL said because Cedeno alleged breaches that concern not just his account but that affect potential remedies that apply to the entire plan, the arbitration clause is too limiting.

Corey Rosen

July 12, 2022

McBride ESOP Case Settlement Reached

In Godfrey v. GreatBanc et al., No. 18 C 7918 (N.D. Ill., May 24, 2022) plaintiffs and defendants have reached a settlement agreement for $16.5 million. The court revolves around the 2013 reorganization that reduced the ESOP’s ownership from 100% to 60%, with officers of the company owning 40%. In 2017, the ESOP’s shares were sold back to the new holding company entity. Plaintiffs alleged that the reorganization deprived them of distribution rights and gave them shares with fewer control rights. Defendants argued that some of the plaintiffs lacked standing because they were not harmed by the transaction, including employees who may not have held stock at the time of the proposed transaction. The settlement must still be approved by the court.

Corey Rosen

July 12, 2022

EBSA Nominee Nears Approval

After a prolonged process, the Senate is poised to approve President Biden’s nominee to be the head of the Department of Labor’s Employee Benefit Security Administration. Lisa Gomez has been a partner at the law firm Cohen Millstein, where she has focused on unions, multiemployer pension plans, and health and welfare plans, not defined contribution plans. Cohen Millstein, however, has been one of the primary and most aggressive plaintiffs’ attorneys in ESOP litigation.

Corey Rosen

July 12, 2022

IRS Launches Pilot Audit Compliance Program

In the June 3, 2022, issue of the IRS Employee Plans News, the IRS announced a pre-examination retirement plan pilot compliance program that allows plan sponsors to voluntarily correct any errors prior to an audit. Under the program, the IRS will notify a plan sponsor by letter that its retirement plan has been selected for an examination. The sponsor then will have 90 days to reviews its plan for any errors and make corrections under the IRS voluntary corrections program, if allowed. If there are errors or if a plan sponsor does not respond within 90 days, the IRS will contact the plan sponsor to schedule an exam.

Page 13 of 26