Stay informed on the latest legal developments impacting employee ownership. This page provides timely and concise summaries of key cases and rulings, contributed by experienced attorneys, to help the entire employee ownership community understand their implications, and also offers access to NCEO's archive of prior content.
Corey Rosen
In Rael & Letson v. Clark (Cal. Appeals Court, Unpublished, Apr. 14, 2021), a California court ruled that Michael Clark was liable as former CEO for misappropriating over $3 million from the company for his personal use by having the company pay personal credit card bills, charges for his home utilities, private airplanes, country club dues at four clubs, a car, and other items for his personal use.
Corey Rosen
The updated NCEO publication on the Department of Labor process agreements is now available. Authored by Theodore M. Becker, Richard J. Pearl, and Allison Wilkerson, The DOL Fiduciary Process Agreements for ESOP Transactions is an essential source for anyone involved in ESOPs.
Corey Rosen
Revenue Procedure 2021-30 lays out a number of changes to the Voluntary Correction Procedure process for the correction of plan qualification errors. The new procedures generally will make it easier to use the process. Some of the changes affect only 401(k) plans, but others affect ESOPs as well.
Corey Rosen
In Halperin v. Richards, No. 20-2793, WL 3184305 (7th Cir. July 28, 2021), the Seventh Circuit considered whether ERISA “preempts certain state-law claims brought by bankruptcy creditors on behalf of a company against its directors and officers and others alleged to have inflated the company’s stock value to conceal the company’s decline and to benefit corporate insiders.” The plaintiffs, who are co-trustees of the Appvion Liquidating Trust, argued that the defendants (the ESOP trustee, the appraisal firms, and the directors and officers of Appvion) overvalued the shares bought by the company’s ESOP, causing the company to eventually go bankrupt. An ERISA lawsuit in the case (Appvion v. Buth) over similar issues had been dismissed.
Corey Rosen
In Osborne et al. v. Employee Benefits Administration Board of Kraft Heinz et al., No. 1:20-cv-02256 (N.D. Ill., Aug. 23, 2021), plaintiffs in Kraft Heinz’s retirement plan failed to convince a court that a drop in the price of their company’s stock was a fiduciary violation. Plaintiffs alleged that fiduciaries knew or should have known that Kraft Heinz was recording inaccurate amounts of goodwill and intangible assets and should have disclosed that information to prevent the company’s stock price from being artificially inflated. The court ruled that “the amended complaint does not adequately allege that some earlier disclosure was so clearly beneficial that a prudent fiduciary could not conclude it would be more likely to harm the Plan than to help it” and thus the suit failed under the Dudenhoeffer doctrine that fiduciary actions must be shown to have likely done more good than harm.
Corey Rosen
In Webb v. Fid. Brokerage Servs., No. 354691 (Mich. Ct. App., 354691, July 29, 2021), a retired employee lost claim for a breach of fiduciary duty after his GM stock dropped within a rollover IRA managed by Fidelity. The retiree, Moses Webb, claimed that in 2009 Fidelity did not adequately respond to his questions about GM’s then-impending bankruptcy, which resulted in him losing all of the $79,000 he had invested. Webb argued that the GM stock he’d purchased throughout his long career at the company was part of an ESOP, and thus subject to the arbitration requirements enforced by ERISA. The trial court could not find evidence to back up this claim because his Fidelity account was a rollover IRA, making it impossible to prove that he purchased the shares outside an ERISA plan. The court did not address this, ruling that an arbitration clause governed his Fidelity IRA and stating that “all parties to this agreement are giving up the right to sue.” The court also noted that Webb needs to file ERISA claims in federal court, not state court.
Corey Rosen
In Rush v. GreatBanc, No. 19-cv-00738 (N.D. Ill., June 16, 2021), a district court granted class status to the plaintiff, saying that he could represent the class of participants in an ESOP at Segerdahl Corporation. The company was 100% ESOP owned until sold in 2016. Rush, who was a vice president at the time, contends that the board should have sought a higher bid. The defendants claim that Rush had a conflict of interest in that he sold $1.8 million in stock appreciation rights in the sale, knew about the proposed transaction, and was not typical of the class of plan participants. The court ruled that there were sufficient common interests of the class relative to how much the company was sold for to allow the case to continue.
Corey Rosen
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.
Corey Rosen
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.
Corey Rosen
On April 14, 2021, the U.S. Department of Labor (“DOL”) issued a cybersecurity guidance package for ERISA plan sponsors. This is DOL’s first guidance directly addressing cybersecurity. The guidance includes three separate documents:
