Employee Ownership Legal Digest
Corey Rosen (18)

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Corey Rosen

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.

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Corey Rosen

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.

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Corey Rosen

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. 

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Corey Rosen

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.

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Corey Rosen

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.

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Corey Rosen

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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Corey Rosen

Starkey ESOP Case Settled

In Beck v. Austin, No. 19-CV-1453 (D.C., Minn., March 12, 2021), a court approved a $173,000 settlement against various defendants, including the CEO, of Starkey Laboratories, a hearing aid manufacturer. Defendants were accused of fraud against the company between at least 2006 and 2015, siphoning off $30 million in cash and harming the ESOP through the issuance of restricted stock to themselves, dramatically reducing the ESOP’s ownership of the company. Starkey hired an outside trustee to help reach an initial settlement agreement, which eventually paid the ESOP $800,000. Defendants claimed that released them from all claims, but the court allowed further litigation to resolve other issues, which this settlement resolved. Starkey has about 4,000 employees.

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Corey Rosen

Mixed Decision in ESOP Valuation Case

In Stewart v. Saakvitne, No. 18-00155 SOM-WRP, (D. Haw., March 12, 2021), a district court denied summary judgment to former members of the board of directors of an ESOP firm, Bowers + Kubota, over an ESOP valuation case. The court also denied a DOL claim that the two individuals could be considered plan fiduciaries prior to their formally adopting a decision to proceed with the plan and hire an outside fiduciary (that fiduciary has since deceased). The court also denied a DOL claim concerning the validity of an indemnification provision for the board members because the DOL did not show they actually benefitted from it. Finally, the court ruled that the directors could be held accountable as fiduciaries if at trial they are shown to have inadequately monitored or improperly influenced the trustee concerning the valuation.  

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Corey Rosen

Class Status Approved in ESOP Refinancing Case

In Gamache v. Hogue, No. 1:19-CV-21, (M.D. Ga. March 3, 2021), a court certified class to allowed plaintiffs to proceed with a lawsuit alleging that a refinancing of a 97% ESOP that resulted in the two principals of the firm ending up with 40% of the shares was a violation. Defendants argued this was a corporate transaction, not an ESOP transaction, among other contentions.

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