Employee Ownership Legal Digest (3) 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

Settlement Reached in New England Biolabs Case

A settlement has been reached in Jackson v. New England Biolabs Inc., No. 1:23-cv-12208-RGS (Feb. 14, 2025). The company had an ESOP until 2013, which it converted to a profit-sharing plan. Company stock remained one of the eligible investments employees could choose until 2019, when the plan was amended to prevent former employees from continuing to own shares in the plan prior to final distribution. Three employees sued on behalf of a class, saying that the company bought back the shares at an unfair price. The settlement was for $750,000.

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Corey Rosen

Settlement Reached in Morton Buildings Case

In Lysengen v. Argent Trust, et al., No. 1:20-cv-01177MMM-JEH (D.C. Ill. May 9, 2025), a court approved a $4 million settlement in a lawsuit over a 50% drop in the value of Morton Buildings in the year following the company’s taking on debt to fund the ESOP. The plan initially owned a minority of the shares in the company. When it bought the remaining shares, participants meeting eligibility rules were given floor price protection against the anticipated debt-related drop in share price. The valuation also changed the way it treated excess cash, which previously was counted as a liability, but now was treated as an asset. The company made payments to existing participants to compensate for that. 

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Corey Rosen

Ramirez v. AMPAM: ESOP Overvaluation Lawsuit Advances

In Ramirez et. al. v. AMPAM Parks Mech., Inc., No. EDCV 24-1038-KK-DTBx (C.D. Cal. Feb. 14, 2025), employees moved forward with most of their claims against AMPAM Parks Mechanical and the plan’s trustee. The lawsuit alleges the company’s ESOP overpaid for the stock, which was sold for a depressed price. The ESOP was set up in 2019, and the company was sold in 2023 at a much lower price. Plaintiffs allege the sale price did not accurately reflect business challenges, the debt the company would take on, and the lack of effective control by the trust in the 1,000-employee company. 

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Corey Rosen

Suit Against Alerus Dismissed, But Plaintiffs Can Amend Complaint

In Dalton v. Freeman, No. 2:22-cv-00847-DJC-DB (E.D. Cal. Mar. 24, 2025), a court ruled plaintiffs had not pled a specific enough case against Alerus, which was acting as a trustee at O.C. Communications when the ESOP company was sold. The company was sold for considerably less than the ESOP paid for the stock and considerably less than the most recent valuation. Plaintiffs sued Alerus, the ESOP trustee, members of the ESOP committee, and the company's board of directors. The court ruled the ESOP committee members could potentially be deemed as fiduciaries and the case against them could not be dismissed at this point. The court did not rule on the suit against board members. The court allowed the plaintiffs to amend their complaint against Alerus.

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Corey Rosen

Tax Court Lacks Jurisdiction in Appeal of Potential ESOP Disqualification Case

In Solid Ground Transportation v. Commissioner, No. 24-1184 (Mar. 18, 2025), the 7th Circuit dismissed a petition from Solid Grant Transportation over the potential disqualification of its ESOP.  The company received a letter from an IRS agent with questions about its plan from 2013 to 2018. That turned out to be an error; the agent meant to say 2018 and on. The company appealed to the Tax Court. Meanwhile, the IRS sent a separate letter disqualifying its plan from 2018 on. The company filed another Tax Court petition. The 7th Circuit ruled the Tax Court lacked jurisdiction over the first petition because the plan had not been disqualified at that point. The second petition is still pending.

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Corey Rosen

Plaintiffs Can Proceed with Case Over How Cash is Invested in ESOP

In Schultz v. Aerotech, Inc., No. 24-618 (W.D. Pa. Feb. 20, 2025), a court allowed a case to proceed over how an ESOP company invested cash in the trust. Plaintiffs allege the cash was too conservatively invested. This is one of several such cases that have been filed by the law firm Engstrom Lee. The court ruled at this stage plaintiffs have pled a sufficient case to raise questions about whether the investment strategy was sensible.

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Corey Rosen

Final Court Approval for Settlement Casino Queen Case

In Hensiek v. Bd. of Dirs. of Casino Queen Holding Co., 20-cv-377-DWD (S.D. Ill. Feb. 25, 2025), employees of Illinois-based Casino Queen Inc. received final court approval for a $7.1 million settlement resolving litigation over the company’s employee stock ownership plan. The workers alleged that company executives charged their ESOP $170 million for shares that ended up being worthless. The agreement represents about 20% of the workers’ most conservative estimate of damages and is expected to provide an average gross recovery of about $11,000 for each of more than 600 Casino Queen stock plan participants, although amounts will vary by employee.

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Corey Rosen

Court Rules Decisively Against DOL in Common Interest Case

In Harrison v. Envision Management, No. 21–cv–00304–CNS–MD (D.C. Colo. Jan. 13, 2025), a court confirmed a magistrate’s earlier ruling against the Department of Labor (DOL) in a case in which the plaintiff’s law firm received information from the DOL under a common interest agreement, even though the DOL was not a party to the suit. The attorneys for the defendants discovered the information-sharing only the night before an important deposition.

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Corey Rosen

Class Certified in Envision Holdings ESOP Valuation Case

In Harrison v. Envision Management Holding Company, No. 22-1098 (D.C. Colo. Jan. 25, 2025), a district court certified a class in an ESOP valuation case. The plaintiff had alleged that the ESOP overpaid for the shares. The plan contained an arbitration clause, which Envision sought to enforce. An effort to enforce an arbitration clause in the plan document failed. The court ruled that “the claims of all class members, including the plaintiffs, are based on the same underlying allegation: that the ESOP paid an excessive price of $177 million for Envision stock. The ESOP Transaction affected all proposed class members (ESOP participants who hold vested Envision stock in their ESOP accounts) in the exact same manner, and Defendants’ liability, if any, will be resolved on a class-wide basis.”

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Corey Rosen

Settlement Approved in Advanced Diagnostics Case

In Colon v. Johnson, No. 8:22-cv-00888-TPB-TGW (Dec. 17, 2024), a $19 million settlement was given final approval in a case alleging diversion of assets in an ESOP company. the plaintiffs sued the executives and the trustee, GreatBanc Trust, contending the executives and former owners of Advanced Diagnostic (ADG) had deprived the ESOP of value by diverting contracts from ADG to other companies they owned, structuring the deal with an excessive amount of warrants (42% of the fully diluted value), and ultimately selling ADG in a transaction that excessively favored the executives and owners. The plaintiffs alleged the defendants at ADG set up shell companies to acquire a valuable management contract for multiple imaging centers, even though ADG performed all of the work under a subcontract. In 2019, ADG was sold for $215 million, with the ESOP receiving only $10 million of that amount, partly due to the exercise of warrants and partly due to the ESOP paying off remaining acquisition loan debt. The plaintiffs also alleged, however, much of the sale value was captured by the other entities the defendants had set up that were sold simultaneously, value the plaintiffs claim should have gone to the ESOP. The settlement will be divided among 285 plan participants, making it perhaps the largest per capita settlement in ESOP litigation history.

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