Employee Ownership Legal Digest
Corey Rosen (18)

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NCEO founder and senior staff member

Corey Rosen

September 10, 2021

Plaintiffs Lose Another Stock-Drop Case

In Osborne et al. v. Employee Benefits Administration Board of Kraft Heinz et al., No. 1:20-cv-02256 (N.D. Ill., Aug. 23, 2021), plaintiffs in Kraft Heinz’s retirement plan failed to convince a court that a drop in the price of their company’s stock was a fiduciary violation. Plaintiffs alleged that fiduciaries knew or should have known that Kraft Heinz was recording inaccurate amounts of goodwill and intangible assets and should have disclosed that information to prevent the company’s stock price from being artificially inflated. The court ruled that “the amended complaint does not adequately allege that some earlier disclosure was so clearly beneficial that a prudent fiduciary could not conclude it would be more likely to harm the Plan than to help it” and thus the suit failed under the Dudenhoeffer doctrine that fiduciary actions must be shown to have likely done more good than harm.

Corey Rosen

September 10, 2021

Arbitration Clause Upheld in GM Stock Drop Case

In Webb v. Fid. Brokerage Servs., No. 354691 (Mich. Ct. App., 354691, July 29, 2021), a retired employee lost claim for a breach of fiduciary duty after his GM stock dropped within a rollover IRA managed by Fidelity. The retiree, Moses Webb, claimed that in 2009 Fidelity did not adequately respond to his questions about GM’s then-impending bankruptcy, which resulted in him losing all of the $79,000 he had invested. Webb argued that the GM stock he’d purchased throughout his long career at the company was part of an ESOP, and thus subject to the arbitration requirements enforced by ERISA. The trial court could not find evidence to back up this claim because his Fidelity account was a rollover IRA, making it impossible to prove that he purchased the shares outside an ERISA plan. The court did not address this, ruling that an arbitration clause governed his Fidelity IRA and stating that “all parties to this agreement are giving up the right to sue.” The court also noted that Webb needs to file ERISA claims in federal court, not state court.

Corey Rosen

July 08, 2021

Class Certified in Segerdahl ESOP Sale

In Rush v. GreatBanc, No. 19-cv-00738 (N.D. Ill., June 16, 2021), a district court granted class status to the plaintiff, saying that he could represent the class of participants in an ESOP at Segerdahl Corporation. The company was 100% ESOP owned until sold in 2016. Rush, who was a vice president at the time, contends that the board should have sought a higher bid. The defendants claim that Rush had a conflict of interest in that he sold $1.8 million in stock appreciation rights in the sale, knew about the proposed transaction, and was not typical of the class of plan participants. The court ruled that there were sufficient common interests of the class relative to how much the company was sold for to allow the case to continue.

Corey Rosen

July 08, 2021

Ninth Circuit Allows Current ESOP Trustee to Continue Claim Against former ESOP Trustee

In Wong v. Flynn-Kerper, No. 19-56289 (9th Cir., June 7, 2021), the Ninth Circuit overrode a lower court dismissal of a case in which plaintiffs sought to recover an alleged overpayment to the late Bernard Kerper from his widow. Kerper was the former trustee of an ESOP at Anaplex. David Wong is the current trustee for the Anaplex plan. Wong argued that Kerper caused an improper valuation through accounting fraud, including not counting debt owed by Kerper to the company for $1 million, roughly the amount Wong charges the ESOP overpaid. Kerper also failed to disclose an ongoing EPA investigation that would result in substantial costs to Anaplex.

Corey Rosen

July 08, 2021

Wilmington Trust Settlement Approval in Nation Safe Drivers Suit Approved

In Fink v. Wilmington Trust, NA, No. 1:19-cv-01193 (D-Del., motion for settlement approval June 8, 2021), Wilmington Trust NA agreed to pay $5.5 million to settle a proposed class action challenging Wilmington’s right in approving a 2014 $342 million transaction for an ESOP to purchase Nation Safe Drivers Corporation. The deal would provide an average of over $25,000 for about 215 people with vested account balances in the Nation Safe ESOP, with payments of $50 each for the 82 unvested plan participants.

Corey Rosen

May 10, 2021

DOL Cybersecurity Guidance Issued

On April 14, 2021, the U.S. Department of Labor (“DOL”) issued a cybersecurity guidance package for ERISA plan sponsors. This is DOL’s first guidance directly addressing cybersecurity. The guidance includes three separate documents:

Corey Rosen

May 10, 2021

Wilmington Trust Can Proceed on One Claim Against Valuation Firm

Wilmington Tr., N.A. v. Stout Risius Ross, Inc., No. 20 Civ. 2505 (S.D. NY, March 23, 2021). The lawsuit revolves around Stout’s role as the appraiser in Brundle v. Wilmington Trust, No. 17-1873 (4th Cir., March 21, 2019), which ended up in a $29.8 million judgment against Wilmington Trust over its role in the ESOP at Constellis. Wilmington sued Stout for breach of contract, negligence, and contribution over its decisions as the appraiser in the case.

Corey Rosen

May 10, 2021

Edison wins stock drop case

In Wilson v. Craver, No. 18-56139 (9th Cir, April 19, 2021), the 9th Circuit Court upheld a lower court ruling that the plaintiff did not state a plausible course of alternative action Edison Electric executives could have taken that would have done more good than harm in a case involving a drop in Edison’s stock value in the company’s ESOP.

Corey Rosen

May 10, 2021

Settlement Terms in IBM Case Revealed

Settlement terms in the long-running stock-drop case Retirement Plans Committee of IBM v. Jander et al., No. 18-165 (U.S., Jan. 14, 2020) have been revealed. IBM admitted no wrongdoing and the plaintiffs agreed to release all future claims. IBM agreed to pay $4.75 million into a qualified settlement fund. The funds will be distributed by an independent administrator among the IBM ESOP participants and beneficiaries and plaintiff attorneys.

Corey Rosen

May 10, 2021

Court Allows Insurer to Proceed with Claims It Does Not Have to Defend or Indemnify ESOP Appraisal Firm

In Great American Fidelity Insurance Company v. Stout Risius Ross, Inc. et al, No. 2:19-cv-11294 (E.D. Mi, March 4, 2021), a district court allowed Great American Insurance Company to proceed with claims it does not have to defend or indemnify the ESOP appraisal firm Stout Risius Ross over allegations about its valuation work for Appvion, an ESOP company that went bankrupt. All of the federal claims under ERISA have been dismissed in the case, but state securities laws claims are still being litigated.

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