Employee Ownership Legal Digest (28) Archive

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

Reliance Trust Settles Tobacco Rag Processors Suit

In Acosta v. Reliance Trust Co., Inc., No. 5:17-cv-00214-D (E.D.N.C., consent judgment Sept. 18, 2018), Reliance Trust agreed to settle a 2017 lawsuit over a $82.5 million ESOP transaction to buy the stock of Tobacco Rag Processors. The DOL alleged that Reliance did not determine the stock price in good faith, in particular by not sufficiently questioning key assumptions and financial projections. The settlement is for $4.545 million, plus 10% of that in civil penalties. Reliance agreed not to seek contribution or indemnification from the company.

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Corey Rosen

Company and top executives must defend actions in excessive valuation complaint

In Acosta v. Zander Group Holdings, Inc., No. 3:17-cv-01187 (M.D. Tenn., Sept. 10, 2018, order to dismiss defendants’ motion to dismiss), a court ruled that the company and its top executives had to defend their actions in a case alleging excessive valuation for an ESOP.  Jeffrey Zander was the trustee and beneficiary of two trusts that owned Zander Group; he was also Zander Group’s CEO. Stephen Thompson was hired as the trustee. Plaintiffs allege that Zander pressured the valuation firm to come up with a price in excess of fair market value. The company was also named as a defendant. The company sought to have the case dismissed because it said it was not a fiduciary, but the court ruled that it was a fiduciary through its direction by Zander. Zander argued he was not a fiduciary and that the trustee was. But the court ruled that Zander’s alleged efforts to pressure Thompson and failure to monitor his assessment of the appraiser as to the valuation made him a co-fidiuciary.

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Corey Rosen

Sears defeats stock-drop lawsuit

In Catalfamo v. Sears Holdings Corp. No. 1:17-cv-05230, (N.D. Ill., order granting defendants’ motion to dismiss 8/21/18) a district court ruled that Sears and its top executives did not violate ERISA by allowing company stock to remain in the 401(k) plan despite a 76.3% decline in stock value. The plaintiffs alleged that publicly available information should have led the defendants to remove the shares, but the court, relying on Dudenhoeffer, said that would have required the defendants to, at any particular point, outguess the market.

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Corey Rosen

Henny Penny employee cannot be forced to agree to arbitration clause

In Brown v. Wilmington Tr., N.A., No. 3:17-cv-00250 (S.D. Ohio, order denying defendant’s motion to compel arbitration 7/24/18), a district court ruled that a former employee cannot be forced to go through an arbitration clause regarding her ESOP account. The company set up its ESOP in 2014, and the employee was allocated shares. Two years later, the company adopted an arbitration clause for disputes over distributions. By then, the employee had left. The company and the ESOP trust, Wilmington Trust, wanted to enforce the arbitration clause, but the court ruled that she had never agreed to it because she had left the company by then and had cashed out her plan. The plaintiff is one of a class of employees suing over an alleged overvaluation of the stock.

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Corey Rosen

Reliance Trust and DOL reach settlement on Tobacco Rag suit

In  Acosta v. Reliance Trust Co., Inc., E.D.N.C., No. 5:17-cv-00214-D, consent judgment 9/18/18, Reliance Trust agreed to pay $4.5 million to settle a DOL lawsuit that alleged the investment banking firm caused the ESOP at Tobacco Rag Processors, Inc. to overpay for company stock. The sale for $104 million took place in 2011. In that case, the DOL alleged that Reliance had “failed to ensure that the financial information provided to the appraiser and used in its valuation was accurate and complete, to thoroughly understand the appraiser’s valuation, and to meaningfully question the assumptions underlying the valuation.” Reliance Trust did not admit any wrongdoing.

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