Employee Ownership Legal Digest (27) Archive

Corey Rosen

November 21, 2018

DOL settles lawsuit relating to Cactus Feeders ESOP transaction

In Acosta v. Cactus Feeders, Inc., et al., 2:16-cv-00049-J-BR (N.D., Tex., May 4, 2018), the insurers for Cactus Feeders, certain of its present and former directors, officers and members of its ESOP Committee, and Lubbock National Bank (the ESOP trustee) agreed to pay $5.4 million into the Cactus Feeders ESOP to settle a lawsuit initiated by the DOL alleging that the appraisal for a transaction that increased the ESOP’s ownership of Cactus Feeders from 30% to 100% did not adequately adjust for the alleged dilutive impact of warrants and stock options, did not apply a discount for lack of marketability, and did not include a discount for lack of control.

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Corey Rosen

November 21, 2018

Epic Systems Supreme Court Case May Impact Arbitration in ESOP Companies

In an online article “The Potential Impact of the Supreme Court’s Epic Systems Decision on ESOPs,” Chelsea Ashbrook McCarthy, Louis Joseph, and Jessica Farmer of Holland & Knight note that the Court’s analysis in the case indicates that it “would likely reject an argument that an arbitration provision with a class action waiver in an employee stock ownership plan (ESOP) is fundamentally unenforceable under ERISA.”

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Corey Rosen

November 21, 2018

ERISA Supersedes State Tax Law

In Matters of Patrick Murphy & Kathleen Murphy, DTA No. 825277 (N.Y.S. Tax App. Trib., Mar. 6, 2018), the New York State Tax Tribunal ruled that ERISA supersedes state tax law claims against what appears to be a sham ESOP. JJF Realty was 99% owned by an ESOP and 1% by the Triune Foundation.

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Corey Rosen

November 21, 2018

DOL, Court Argue for Limits on ESOP Fiduciary Indemnification

In Pfeifer v. Wawa, Inc., No. 2:16-cv-00497- PD (E.D. Pa., motion for settlement approval filed 12/29/17), a case we reported on previously, the Department of Labor argued, and the court agreed, that a company cannot indemnify an ESOP fiduciary.

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Corey Rosen

November 21, 2018

SEC Increases Limit on Rule 701 Exemption

On July 4, the SEC adopted new rules to increase the amount companies can offer in stock to employees without meeting reporting requirements applicable to public companies from $5 million to $10 million.

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Corey Rosen

November 21, 2018

Stock is Not Money Under Railroad Retirement Act

In Wis. Cent. Ltd. v. United States, U.S., No. 17-530, (U.S. June 17, 2018) the Supreme Court ruled that stock options paid to railroad employees are not taxable as “money” under the terms of Railroad Retirement Act. Wisconsin Central had paid taxes on the options, then decided it should not have because the Act states that only “money” received by employees is taxable.

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Corey Rosen

November 21, 2018

Chicago Bridge and Iron 401(k) Stock-Drop Case Dismissed

In Kinra v. Chicago Bridge & Iron, 17 CV-4251 (S.D.N.Y., May 24, 2018), the Second District Court for New York continued its pattern of denying stock-drop claims in public company 401(k) plans.

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Corey Rosen

November 21, 2018

Allergan Beats Stock-Drop Lawsuit

In In re Allergan ERISA Litigation, No. 2:17-cv-01554-SDW-LDW, (D.-N.J., July 2., 2018), a judge dismissed a suit against Allergan and its directors in a 401(k) stock-drop suit concluding that the plaintiffs did not show that the defendants were plan fiduciaries.

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Corey Rosen

November 21, 2018

Bank Should Have Allowed Employees to Transfer Shares Out of ESOP

In Bryant v. Community Bankshares, Inc., 17-15360 (11th. Cir., unpublished June 12, 2018) an appeals court ruled that plaintiffs were correct in alleging that the trustees of the Community Bankshares ESOP breached their fiduciary duty when they failed to follow the participants’ instructions to diversify shares, as the plan and the law provided they could do.

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Corey Rosen

November 21, 2018

Rainbow Disposal Case Must Proceed

In a detailed decision, in Hurtado et. al. v. Rainbow Disposal Co., Inc. Employee Stock Ownership Plan, 8:17-cv-01605-JLS-DFM (C.D. Cal, July 9, 2018) the judge refused to grant summary judgment to the executives and ESOP Committee of Rainbow Disposal, as well as GreatBanc Trust and various other individuals.

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