Employee Ownership Legal Digest
Corey Rosen (25)

Headshot of

NCEO founder and senior staff member

Corey Rosen

Supreme Court asks DOL to file a brief in Pioneer Holding Case

In Pioneer Centres Holding Co. Stock Ownership Plan v. Alerus Fin., No. 17-667, N.A., (U.S., invitation to solicitor general to file brief March 19, 2018), the Supreme Court asked the Department of Labor to file a brief concerning the issue of burden-shifting in cases alleging a fiduciary breach. Circuits have split on the issue. The Sixth, Ninth, and Tenth Courts of Appeal have said that plaintiffs have the burden of proof for fiduciary violations, of who has to prove each element of their claims, while the Fourth, Fifth, and Eight say after a valid case for a fiduciary breach has been made the defendants have the burden of proof. The Pioneer Holdings Case involved whether a fiduciary acted correctly in deciding not to pursue an ESOP transaction (see correction on this below). The fact that the Court asked for the brief does not mean it will take up the case.

Right-pointing arrow Continue Reading

Corey Rosen

SunTrust Settles Employer Stock Claims

In In Re SunTrust Banks, Inc. ERISA Litigation, No. 1:08-cv-03384- RWS, (N.D.-Ga., unopposed motion for settlement March 9, 2018), SunTrust Banks agreed to settle a 10-year-old lawsuit alleging that plan fiduciaries allowed employees to invest in SunTrust Banks stock when they knew or should have known that the stock was artificially inflated. Some of the claims had been dismissed over the course of the litigation, but the courts allowed plaintiffs to proceed with their key allegation concerning the shares. SunTrust agreed to pay $4.75 million as well as provide faster vesting on matching contributions and guarantee that the vesting schedule will not become less generous for at least three years. SunTrust will also now make matching contributions in cash and change the composition of its fiduciary committee.

Right-pointing arrow Continue Reading

Corey Rosen

Wilmington Trust Must Defend Itself in ESOP Lawsuit

In Swain v. Wilmington Tr., N.A., No. 1:17-cv-00071- RGA-MPT, (D. Del., order adopting in part report and recommendation Feb. 16, 2018) a district court rejected a magistrate’s decision that recommended that charges against ISCO and Wilmington Trust, the ESOP trustee, be dismissed because the plaintiffs had not sold any stock in the ESOP yet and thus lacked standing because they had not suffered any injury. Plaintiffs allege that ISCO stock dropped from $98 million to $39 million less than two weeks after the transaction. The stock had been appraised before and after the sale, which involved substantial leverage. Stock value normally drops post-transaction in leveraged ESOPs, but the magistrate did not address this issue or the allegation that the ESOP paid for control but the former owner effectively retained it.

Right-pointing arrow Continue Reading

Corey Rosen

Another Loss for Plaintiffs in Stock Drop Case

In Usenko v. SunEdison Semiconductor LLC, No. 4:17-cv-02227-AGF (E.D.-Mo., order granting defendants’ motion to dismiss Feb. 21, 2018), a district judge ruled that alleging that a trustee knew or should have known that the stock of SunEdison was overvalued and too risky was insufficient to state a claim. The case is a bit different from other stock drop cases in that SunEdison Semicondictor (SEMI) was spun off from Sun Energy, but the SEMI retirement plan continued to hold Sun Energy shares. Plaintiffs allege that trustees should not have allowed the plan to continue to hold these shares because they were excessively risky. The court relied on Dudenhoeffer to conclude that defendants could not be expected to outguess the market.

Right-pointing arrow Continue Reading

Corey Rosen

DOL Enters into New Settlement Agreement on ESOPs

The Department of Labor entered into a new settlement agreement with an ESOP fiduciary, in this case, Alpha Investment Consulting Group. The settlement arises out of a case alleging improper valuation and loan terms in the case of Acosta v. Mueller et al., Civil Action No.: 2:13-cv- 01302, (E.D. Wis., Dec. 27, 2017). The DOL alleged that the ESOP at Omni Resources overpaid for the shares by using a valuation done four months prior that did not reflect changed financial projections. In the settlement with Omni, the former owners agreed to repay the plan $1.523 million, reduce the amount due on the loan by $3.5 million, and pay an ERISA penalty of $479,000 to the DOL. Allocations from the payments to the ESOP will be retroactive to 2008, and former vested participants will receive part of the settlement as well. 

Right-pointing arrow Continue Reading

Corey Rosen

Another Stock-drop Case Fails

In Gernandt v. SandRidge Energy, Inc., No. 5:15-cv-00834-D (W.D. Okla., Nov. 18, 2018) a district court ruled that plaintiffs had not met the Dudenhoeffer standards of providing a plausible alternative course of action. The court issued separate rulings dismissing claims against SandRidge, Reliance Trust, and the company’s CEO. SandRidge’s employees lost the entire value of their accounts when the company went into bankruptcy. The judge said that the result “may seem harsh under the circumstances,” but is correct given the new standards for employer stock lawsuits.

Right-pointing arrow Continue Reading

Corey Rosen

Lifetouch Lawsuit Dismissed

In Vigeant v. Meek, No. 0:18-cv-00577-JNETNL (D-Minn., Nov. 17, 2018), a judge dismissed a lawsuit against plaintiffs who alleged that Lifetouch stock dropped by more than $840 million between 2015 and 2018, resulting in an average loss of $22,000 per participant. This decline happened while several Lifetouch executives retired and cashed out their stock at favorable prices, the lawsuit claimed. Employees argued that executives at Lifetouch, which had been one of the largest and most successful ESOPs, artificially inflated the company’s value. Lifetouch was sold in 2017 to Shutterfly. The judge ruled that the actions of the defendants were reasonable given the financial hardships the photography company experienced in the changing market for its products. The judge also ruled against the argument that Lifetouch stock was too risky to be in a retirement plan.

Right-pointing arrow Continue Reading

Corey Rosen

Selway Agrees to Settlement

In Barker v. Selway Corp., No. 9:18-cv- 00179 (D. Mont., petitioners’ motion for preliminary approval of settlement, Nov. 16, 2018) the parties agreed to an arbitrated $5.5 million settlement. Plaintiffs contended that a former owner of Selway continued as CEO, board member, and fiduciary of the ESOP, and took actions that harmed company value.

Right-pointing arrow Continue Reading

Corey Rosen

WaWa Agrees to Settlement in Account Segregation Case

In Pfeifer v. Wawa, Inc., No. 2:16-cv-00497-PD (E.D. Pa., motion for settlement approval filed 12/29/17), the trustees of WaWa’s ESOP agreed to pay about 2,300 current and former employees $25 million ($5 million of which will go to attorney’s fees) in a case involving a plan amendment at WaWa that segregated account values for employees when they left the company. Plaintiffs said that Wawa had allowed them to keep their stock until they retired or turn 68, the point at which all beneficiaries are required to cash out. In 2015, WaWa changed that so that the shares were purchased after termination and held until normal distribution in other investments. Plaintiffs allege that that ended up costing them a lot of money because WaWa stock grew quickly. They also alleged WaWa used a prior value for the stock when it did this instead of what they allege was a more accurate recent number. Segregation is a common plan feature in which employee shares are cashed out at termination within the ESOP and invested prudently in other investments until distribution eventually occurs. The theory behind segregation is that it keeps the stock in the hands of current plan participants and decreases risk for former participants. WaWa’s ESOP owns about 43% of the shares. The iconic East Coast gas and convenience store chain employs over 30,000 people.

Right-pointing arrow Continue Reading