Employee Ownership Legal Digest
Corey Rosen (2)

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Corey Rosen

Tax Court Lacks Jurisdiction in Appeal of Potential ESOP Disqualification Case

In Solid Ground Transportation v. Commissioner, No. 24-1184 (Mar. 18, 2025), the 7th Circuit dismissed a petition from Solid Grant Transportation over the potential disqualification of its ESOP.  The company received a letter from an IRS agent with questions about its plan from 2013 to 2018. That turned out to be an error; the agent meant to say 2018 and on. The company appealed to the Tax Court. Meanwhile, the IRS sent a separate letter disqualifying its plan from 2018 on. The company filed another Tax Court petition. The 7th Circuit ruled the Tax Court lacked jurisdiction over the first petition because the plan had not been disqualified at that point. The second petition is still pending.

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Corey Rosen

Plaintiffs Can Proceed with Case Over How Cash is Invested in ESOP

In Schultz v. Aerotech, Inc., No. 24-618 (W.D. Pa. Feb. 20, 2025), a court allowed a case to proceed over how an ESOP company invested cash in the trust. Plaintiffs allege the cash was too conservatively invested. This is one of several such cases that have been filed by the law firm Engstrom Lee. The court ruled at this stage plaintiffs have pled a sufficient case to raise questions about whether the investment strategy was sensible.

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Corey Rosen

Final Court Approval for Settlement Casino Queen Case

In Hensiek v. Bd. of Dirs. of Casino Queen Holding Co., 20-cv-377-DWD (S.D. Ill. Feb. 25, 2025), employees of Illinois-based Casino Queen Inc. received final court approval for a $7.1 million settlement resolving litigation over the company’s employee stock ownership plan. The workers alleged that company executives charged their ESOP $170 million for shares that ended up being worthless. The agreement represents about 20% of the workers’ most conservative estimate of damages and is expected to provide an average gross recovery of about $11,000 for each of more than 600 Casino Queen stock plan participants, although amounts will vary by employee.

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Corey Rosen

Rules Decisively Against DOL in Common Interest Case

In Harrison v. Envision Management, No. 21–cv–00304–CNS–MD (D.C. Colo. Jan. 13, 2025), a court confirmed a magistrate’s earlier ruling against the Department of Labor (DOL) in a case in which the plaintiff’s law firm received information from the DOL under a common interest agreement, even though the DOL was not a party to the suit. The attorneys for the defendants discovered the information-sharing only the night before an important deposition.
The magistrate ruled decisively that the defendants had a right to the information and expressed skepticism about common interest agreements, saying, “The DOL is not a party to this case, it continues to separately investigate other ESOPs, it has not reached conclusions, and it expressly takes no position on the merits of this litigation. This makes a common legal strategy with the plaintiffs not only improbable, but impossible. To hold otherwise in a case like this could set a dangerous precedent. It would allow a government agency to weaponize private litigation against some target before confirming the target should be a target. Moreover, the government could litigate in the shadows, without giving the opposing party an opportunity to adequately probe and defend itself. The inverse is also true. A private litigant could leverage government powers for its own use in private litigation.” The court has now affirmed the ruling, saying the plaintiffs lacked standing to contest the matter and that the law firm had agreed to turn over the material after the prior order.

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Corey Rosen

Class Certified in Envision Holdings ESOP Valuation Case

In Harrison v. Envision Management Holding Company, No. 22-1098 (D.C. Colo. Jan. 25, 2025), a district court certified a class in an ESOP valuation case. The plaintiff had alleged that the ESOP overpaid for the shares. The plan contained an arbitration clause, which Envision sought to enforce. An effort to enforce an arbitration clause in the plan document failed. The court ruled that “the claims of all class members, including the plaintiffs, are based on the same underlying allegation: that the ESOP paid an excessive price of $177 million for Envision stock. The ESOP Transaction affected all proposed class members (ESOP participants who hold vested Envision stock in their ESOP accounts) in the exact same manner, and Defendants’ liability, if any, will be resolved on a class-wide basis.”

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Corey Rosen

Settlement Approved in Advanced Diagnostics Case

In Colon v. Johnson, No. 8:22-cv-00888-TPB-TGW (Dec. 17, 2024), a $19 million settlement was given final approval in a case alleging diversion of assets in an ESOP company. the plaintiffs sued the executives and the trustee, GreatBanc Trust, contending the executives and former owners of Advanced Diagnostic (ADG) had deprived the ESOP of value by diverting contracts from ADG to other companies they owned, structuring the deal with an excessive amount of warrants (42% of the fully diluted value), and ultimately selling ADG in a transaction that excessively favored the executives and owners. The plaintiffs alleged the defendants at ADG set up shell companies to acquire a valuable management contract for multiple imaging centers, even though ADG performed all of the work under a subcontract. In 2019, ADG was sold for $215 million, with the ESOP receiving only $10 million of that amount, partly due to the exercise of warrants and partly due to the ESOP paying off remaining acquisition loan debt. The plaintiffs also alleged, however, much of the sale value was captured by the other entities the defendants had set up that were sold simultaneously, value the plaintiffs claim should have gone to the ESOP. The settlement will be divided among 285 plan participants, making it perhaps the largest per capita settlement in ESOP litigation history.

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Corey Rosen

RVNB ESOP Case Settled

In Su v. Peterson et al., No. 4:19-cv-00705 (E.D. Tex. Jan. 8, 2025), parties reached a $14 million settlement in a case involving the sale of an ESOP company. The plaintiffs alleged a trustee for the company, which operated as All My Sons Moving & Storage, allowed a sale of the assets of the ESOP trust back to the company at a price that was below what the stock was worth. Four days after the sale, a partnership formed by officers and an investment partnership agreed to pay a much higher price to buy the company. The plaintiffs contended the board replaced the prior trustee with a new trustee because the former trustee refused to approve the transaction. The company had an arbitration clause for the ESOP, but the court, relying on the same logic the circuit courts referenced above have used, said the clause did not prevent the case from moving forward.

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Corey Rosen

Second Circuit Confirms Fiduciary Breach Case Not Subject to Arbitration

In Lloyd v. Argent Trust, No. 22-3116 (2d Cir. Jan. 6, 2025), the Second Circuit granted an unopposed motion to keep an ESOP case in court despite an arbitration clause in the plan. In 2022, a district court in the same case No. 1:22-cv-04129-DLC (S.D.N.Y. Dec. 6, 2022) refused to send it to arbitration. The suit claimed Argent Trust allowed an ESOP to overpay for its purchase of stock in BBQ Holdings, Inc. The judge ruled the clause would deny the plaintiffs rights afforded under the Employee Retirement Income Security Act (ERISA).

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Corey Rosen

Settlement Approved in Symbria ESOP Case

In Placht v. Argent et al., No. 1:21-cv5783 D (N.D. Ill. Jan. 8, 2025), a court gave final approval for a settlement agreement in an ESOP valuation case against Argent Trust, the trustee for the ESOP at Symbria. Symbria provides rehabilitation services, wellness programs, pharmacy services, experience surveys, and other 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 in 2020, the value was $8.65 million. The plaintiffs alleged the ESOP overpaid for the shares. The parties struck a tentative deal during a virtual settlement conference and had until December 22, 2024, to submit the agreement for court approval. The document did not include details about the terms of the deal.

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Corey Rosen

Rules Decisively Against DOL in Common Interest Case

In Harrison v. Envision Management, No. 21–cv–00304–CNS–MD (D.C. Colo. Jan. 13, 2025), a court confirmed a magistrate’s earlier ruling against the Department of Labor (DOL) in a case in which the plaintiff’s law firm received information from the DOL under a common interest agreement, even though the DOL was not a party to the suit. The attorneys for the defendants discovered the information-sharing only the night before an important deposition.
The magistrate ruled decisively that the defendants had a right to the information and expressed skepticism about common interest agreements, saying, “The DOL is not a party to this case, it continues to separately investigate other ESOPs, it has not reached conclusions, and it expressly takes no position on the merits of this litigation. This makes a common legal strategy with the plaintiffs not only improbable, but impossible. To hold otherwise in a case like this could set a dangerous precedent. It would allow a government agency to weaponize private litigation against some target before confirming the target should be a target. Moreover, the government could litigate in the shadows, without giving the opposing party an opportunity to adequately probe and defend itself. The inverse is also true. A private litigant could leverage government powers for its own use in private litigation.” The court has now affirmed the ruling, saying the plaintiffs lacked standing to contest the matter and that the law firm had agreed to turn over the material after the prior order.

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