Employee Ownership Legal Digest
Corey Rosen (24)

Headshot of

NCEO founder and senior staff member

Corey Rosen

Employees Lose Case in Failed ESOP

In HC4, Inc. Employee Stock Ownership Plan v. HC4, Inc, 4:15-CV- 872 (S.D. TX, Houston Division, July 12, 2018), a district court granted summary judgment to HC4, which was sued as the fiduciary for the company’s failed ESOP. The president served as the plan trustee The company entered into a merger that included fraudulent payments, undisclosed tax liabilities, and other issues. The company also lost significant contracts prior to going bankrupt. The court ruled that the decisions were made not as a fiduciary, but under the business judgment rule, and that the company had done due diligence on the merger, even though it failed to find the problems. The judge suggested that employees might have had better success if they challenged the merger as a prohibited transaction.

Right-pointing arrow Continue Reading

Corey Rosen

Edison Electric 401(k) Stock-Drop Case Fails Again

In Wilson v. Edison Int’l Inc., C.D. Cal., No. 2:15-cv-09139- JAK-PJW (C.D. Cal., May 29, 2018), a district court again ruled that Edison Electric executives were not liable for not removing company stock in the 401(k) plan in the face of falling stock prices. The plaintiffs alleged this time the executives could have moved out of the stock or disclosed the issues to employee. The judge ruled either course not a plausible alternative course of action because it could have adversely affected the value of the stock in the plan already.

Right-pointing arrow Continue Reading

Corey Rosen

Idearc Employees Lose Case in 401(k) Stock-Drop Suit

In Kopp v. Klein, No. 16-11590 5th Cir., June 27, 2018), employees at Idearc lost an appeal of a lower court ruling over the loss of their company stock value in the bankruptcy of Idearc, a Verizon spinoff. Employees contended executives conspired to conceal information that should have led trustees to eliminate Idearc stock from the 401(k) plan. The court did not find sufficient courses of alternative action the defendants could have taken.

Right-pointing arrow Continue Reading

Corey Rosen

Target Employees Again Lose in Stock-Drop Case

In Dormani v. Target Corp., No. 0:17-cv-04049-JNESER (D-Minn, June, 15, 2018) a district court again ruled that Target’s not freezing company stock as a choice in the 401(k) plan was not a fiduciary violation. Plaintiffs had refiled after an earlier lawsuit was dismissed. Here they again argued the stock should have been frozen in light of problems Target was having in Canada. That argument had failed, in part, because the court ruled that under Dudenhoeffer, fiduciaries could not have known if this would have adversely affected the price of stock in the plan. Workers argued Target froze company stock as an option in 2017, with no effect on company stock price, but the court ruled that was not sufficient to overcome its prior conclusion. The court also rejected an alternative course of action that Target could have notified employees of the risks arising from the problems in Canada as also possibly adversely affecting stock price.

Right-pointing arrow Continue Reading

Corey Rosen

Executives in ESOP Have Standing to Sue for Plan

In TBM Consulting Grp., Inc. v. Lubbock Nat’l Bank, No. 5:17-cv-00460-FL (E.D.N.C, May 31, 2018), a court rejected Lubbock National Bank’s argument that the executives of TBM Consulting lacked standing to sue on behalf of the plan because they were unrepresentative of the class and/or they did not provide adequate procedural safeguards to demonstrate that they could be. The court concluded that although these issues might be contested later if adequate facts are shown, at this point the plaintiffs do have standing to sue on behalf of the plan. The plaintiffs also brought a claim of negligent misrepresentation against Lubbock National Bank under state law, but the court ruled ERISA preempted that claim. The lawsuit revolves around a purchase of stock from an owner of TBM that had a value based on projections that turned out to be excessively optimistic.

Right-pointing arrow Continue Reading

Corey Rosen

Supreme Court Declines to Hear Case Alleging Tolling Agreements Superseded by ERISA Limitation of Action Rules

In Preston v. Acosta No. 17-1238 (U.S., June 25, 2018), the Supreme Court refused to hear a challenge to an 11th Circuit decision (Preston v. Acosta, Oct. 12, 2017) that ruled that the CEO and trustee of the ESOP at TPP Holdings could not invoke a tolling agreement to halt a DOL lawsuit alleging that he had caused the ESOP at the company to overpay for the purchase of his shares in 2006 and again in 2008. Prior to filing suit, the DOL and Preston tried to reach a settlement and entered into a series of “tolling agreements” that provided the DOL would delay any litigation while the efforts were pending. No settlement was reached, and the DOL sued in 2014, one day before the expiration of the agreed-upon tolling period. Despite their agreement not to assert a time bar to litigation, the defendants moved to assert one on the grounds that all alleged violations that occurred before December 30, 2008, six years prior to the filing, and thus were not permitted under ERISA’s limitationof- actions provision. The court ruled that the agreements took precedence, and the Supreme Court let that ruling stand.

Right-pointing arrow Continue Reading

Corey Rosen

Bradford Group Workers Get Class Certification in ESOP Valuation Case

n Nistra v. Reliance Tr. Co., No. 1:16-cv-04773 (N.D. Ill, order granting class certification, Feb. 13, 2018), employees of the Bradford Group, an ESOP-owned catalog company, received class status in a suit contending the ESOP overpaid for the stock by $56 million. The company was purchased in 2013 for $275 million. Reliance acted as the trustee. Reliance argued that “several” employees in the proposed class had signed releases waiving their rights to claims under ERISA, a number that the court said did not meet the standard set in other rulings on class actions. More important, the suit seeks relief for the plan, not for individuals.

Right-pointing arrow Continue Reading

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