Employee Ownership Legal Digest
Corey Rosen (13)

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Corey Rosen

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.

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Corey Rosen

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.

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Corey Rosen

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.

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Corey Rosen

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.

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Corey Rosen

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.

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Corey Rosen

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.

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Corey Rosen

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.

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Corey Rosen

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.

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Corey Rosen

Alabama Telecommunications Company Settles ESOP Lawsuit

In Threadford, et al. v. Horizon Trust & Investment Management, et al. (Case No. 20-cv-00750 (W.D. Okla., May 18, 2022) a district court approved a $2.1 million settlement between Horizon Trust and two of McKinney Communication Company’s founders and the plaintiffs, who represented 309 ESOP participants. The ESOP purchased the shares for $65,485,225 in 2016, which the plaintiffs claimed exceeded fair market value. Plaintiffs based their complaint largely on the argument that the plan did not receive a discount for lack of control even though the plan did not obtain control because the selling shareholders retained their executive positions in the firm, had warrants, and could designate board members.

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Corey Rosen

Seventy Seven Energy 401(k) Stock Drop Case Settled

In Snider v. Administrative Committee Seventy Seven Energy Retirement Plan, Cov29-977-D (W.D. Okla., May 21, 2022), a district court approved a $15 million settlement for 4,000 employees covered by a 401(k) plan at Seventy Seven Energy that had invested in the stock of Chesapeake Energy, Seventy Seven Energy’s previous parent. Plaintiffs argued Chesapeake stock was not suitable for the Seventy Seven’s 401(k) plan because it was too risky and that the plan should have further diversified. The defendant in that case, Principal Trust, argued that it was a directed trustee and the terms of the plan required it to invest in Chesapeake stock.

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