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

Churchill Mortgage Dividend Use Case Settled

A $580,000 settlement was reached in Arnold v. Paredes, No. 3:23-cv-00545 (M.D. Tenn., Apr. 17, 2025). Plaintiffs at Churchill Mortgage, an 800-employee company, alleged that part of the dividends paid on shares held by the 100% ESOP were used to offset required employer contributions to the plan. Defendants argued that is what the dividends are supposed to be used for. The ESOP acquired the shares in two transactions separated by several years. Plaintiffs alleged that the second transaction paid a control price that was unjustified because parties in interest retained effective control.

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Corey Rosen

ESOP Company Sale Case Dismissed

In Rush v. GreatBanc, No. 19-cv-00738 (N.D. Ill., Mar. 31, 2025), a district court ruled on all counts for defendants in a case involving the sale of the Segerdahl Corporation. The company was 100% ESOP-owned until sold after a long sales process in 2016 to ICV Partners, LLC ("ICV") for $265 million. Rush, a vice president at the company, alleged that the company could have sold for more and sued, arguing that the company could have sold for a significantly higher price. Rush sued the board members and the trustee (GreatBanc). Key issues in the lawsuit included whether the board approved a sale to ICV instead of to another potential buyer, which Ruch alleged would have paid about 20% more.

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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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