Employee Ownership Legal Digest (8) 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

Former CEO and Owner of ESOP Company Sentenced to Prison for Fraud

In USA v. Corl et al., Docket No. 5:18-cr-00576 (N.D. Cal. Mar. 19, 2024), Harry Corl, former owner and CEO of Nu-Metal Finishing, was sentenced to serve 30 months in prison and pay $253,625 in restitution to 30 former employees of a company he and his wife had partially owned. The Corls sold part of the company to the ESOP, while the other part was owned by a separate owner. The Corls also served as plan fiduciaries. Corl and his wife were convicted of wire fraud and embezzlement, including spending company funds on extravagant jewelry and a Ferrari. The Corls arranged the sale of Nu-Metal, but they did not tell the buyer that there was an ESOP or another owner. The sentencing follows a four-year investigation by the Department of Labor.

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Corey Rosen

Plaintiff Must Arbitrate ESOP Claim

In Harris v. Paredes, No. 3:23-cv-50231 (N.D. Ill. Feb. 26, 2024), a district court ruled that an arbitration in a plaintiff in an ESOP valuation lawsuit requires the plaintiff to pursue arbitration. The clause was written so that it would not apply if the issue was an ERISA violation subject to a class action but was instead focused on the claims of an individual. The court agreed with the plaintiff that arbitration claims cannot vitiate the rights of a plaintiff to sue for equitable or monetary relief on behalf of the plan but agreed with the defendants that the clause does not as written do that. It therefore ruled that “to the extent that Harris brings section 502(a)(2) claims that are to be pursued solely by her on behalf of the Plan—that is, in her ‘individual capacity’ within the meaning of the arbitration agreement—arbitrating them is compulsory. To the extent that Harris purports to bring claims on behalf of a class under section 502(a)(2), the Plan has validly agreed to waive that right, and she may not pursue them in arbitration.”

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Corey Rosen

Casino Queen Employees Cannot Be Certified as Class in ESOP Valuation Suit

In Hensiek v. Bd. of Dirs. of Casino Queen Holding Co., No. 3:20-CV-377-DWD (S.D. Ill. Feb. 26, 2024), a federal judge denied class certification in a long-running dispute over the valuation of shares in the sale of Casino Queen to an ESOP in 2012. Plaintiffs allege the ESOP’s 2012 purchase of the company for $170 million was based on excessively optimistic projections. They also allege the company sold and then leased back real property it owned for too low a price and that the two trustees for the deal were insiders with conflicts of interest and subject to direction from the board and ESOP administrative committee. The court said the actions in question occurred at different times over three years and affected participants in the suit in different ways. Of special concern was that some of the complaints are subject to a tolling limitation that can only be overcome by showing that fraud and concealment prevented plaintiffs from knowing an abuse had occurred. In this case, different members of the proposed class were not involved in the ESOP at the time of the alleged violations. The court agreed with the defense that the proposed class “includes a large subset of participants who cannot rely on the FAC’s concealment exceptions to toll ERISA’s six-year limitations period.” As a result, the court ruled the plaintiffs can only proceed individually.

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Corey Rosen

Case Over Valuation of Terminated ESOP Shares Can Continue

In Bowers, et al. v. Russell, et al. No. 22-10457 (D. Mass., Feb. 15, 2024), a district court allowed plaintiffs to continue their case against the defendants in a valuation and release of claims dispute. Russelectric became a 30% ESOP in 2010. In 2013, the founder died, and ensuing disputes between the family members and an ex-wife over probate resulted in a settlement that led to terminating the ESOP in 2016. As part of the termination, shares in the suspense account were sold back to the company, and employees received the remaining value after the loan was paid on the unallocated shares. For the allocated shares, employees were paid $134 per share plus an agreement that participants would be paid the difference between $134 and any price paid for any sale of the company should one take place over the next three years. That sale did occur in 2019 for $676 per share.

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Corey Rosen

Wells Fargo KSOP Litigation Settled

In Randall et al v. Greatbanc Trust Company et al., No. 0:2022cv02354 (D. Minn. Nov. 13, 2025), the parties reached an $84 million settlement in a case concerning the use of dividends on preferred shares in a 401(k)/ESOP at Wells Fargo. Wells Fargo previously reached a settlement with the DOL on the plan, but the court allowed an amended complaint from these plaintiffs to continue. Wells Fargo matched employer contributions to the 401(k) plan at 6% per year. The match could be made on shares released to participants in the ESOP from the suspense account. Wells Fargo used preferred stock in the plan, and used the dividends on the shares to help repay the ESOP loan and meet the match requirement. Plaintiffs allege the preferred stock was undervalued and that the use of the dividends to repay the loan did not benefit the participants. GreatBanc and the company officer defendants argued that “[t]here is nothing inherently suspicious, much less unlawful, about using dividends paid on stock held by an ESOP to pay down the sponsoring company’s loan to its ESOP, and then using the shares generated by the paydown of the loan to satisfy corporate matching obligations.” In 2022, Wells Fargo reached a $145 million settlement over how much the 401(k) paid for the company's shares.

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Corey Rosen

Electric Supply Company of Tampa ESOP Litigation Settled

In Cothran v. Adams, No. 8:23-cv-00518-CEH-CPT (M.D. Fl. Feb. 16, 2024), a settlement has been reached in another case of an ESOP termination. In 2011, Electric Supply (ESI) set up a non-leveraged ESOP with the intention of the ESOP becoming the majority owner over time. After some years, the family owners decided to stop buying shares, although they continued to put in cash.

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Corey Rosen

Valuation Case Against B-K Lighting Can Continue

In Chea v. Lite Star ESOP Committee, No. 1:23-cv-00647-JLT-SAB (E.D. Cal., Jan. 25, 2025), a magistrate court ruled that a lawsuit over the valuation of shares sold to an ESOP at B-K Lighting was overstated, largely because of allegedly excessively optimistic forecasts and because the ESOP paid for control it did not functionally have. The plaintiffs did not actually see the valuation, and defendants argue they suffered no harm from the transaction and had no factual basis for the allegations, but the judge ruled that at this stage, it was too early to dismiss the claims. The judge made a similar ruling as to whether the sellers and executives, not just the independent trustee, could be parties to the suit. The court also ruled that nontrustee defendants could have exercised some degree of control over the valuation through their financial projections and other actions and thus could not be dismissed from the case at this point.

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Corey Rosen

Valuation, Use of Dividends Case Against Churchill Mortgage Can Continue

Churchill became a 49% ESOP in 2023, with the ESOP owning convertible preferred shares. In Arnold v. Paredes, No. 3:23-cv-00545 (M.D. Tenn., Jan. 31, 2024), plaintiffs allege that part of the dividends paid on the shares were used to pay off the ESOP debt and offset required employer contributions to the plan, which the defendants argue is what the dividends are supposed to be used for. In 2020, the ESOP acquired the remaining shares. Plaintiffs also allege that the 2020 valuation was three times the prior valuation. The difference, the defendants claim, was due to improved performance, the conversion of preferred to common, and the ESOP gaining control. Plaintiffs say that the prior CEO and owner retained effective control as well as stock appreciation rights and that the debt taken on to purchase the shares was both imprudent and caused the share price to drop. Defendants argued that two of the plaintiffs had signed arbitration waivers and could not claim to be part of a class. The court ruled that plaintiffs cannot waive claims owed to the ESOP.

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Corey Rosen

Former Employee and Plan Fiduciary Can Pursue Lawsuit Over Improper Firing Over ESOP Valuation Dispute Issues

In Johns v. Morris, No. 5:23-CV-324-D (E.D.N.C. Feb. 6, 2024), a district court ruled that Johns, the former COO and CEO of Morris & Associates, had standing to sue under ERISA over allegations that he was improperly dismissed from his job because as the ESOP fiduciary. John questioned the validity of the valuation of company stock and the company’s allowing the excessive use of company assets for the personal use of other individuals at the company. After he filed suit, the company also dismissed him as trustee. The company moved for dismissal, arguing that Johns was no longer an employee and did not have standing. The court ruled that because he was still a plan participant (he was fired in 2023), he did have standing. The company also argued that the “complaint fails to allege he [Johns] gave information, testified, or was about to testify in any inquiry or proceeding relating to ERISA,” a standard set in King v. Marriott International, Inc. for what an employee needs to show in order to file a claim under Section 510 of ERISA, which is intended to protect employees from being fired over complaints about their plan (but only under narrowly defined circumstances). In this case, the court ruled that Johns was also acting as a fiduciary, so this standard did not apply. The case is one of the very few ESOP cases filed under Section 510, in part because it does set such a high bar for plaintiffs.

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Corey Rosen

Tax Case Over ESOP and Synthetic Equity Rollover Must Go to Court

In Couturier v. Comm’r of Internal Revenue, No. 19714-16, (U.S.T.C. Jan. 22, 2024), a tax court ruled that a case must go to trial over a dispute over whether Claire Couturier made an excess contribution of $25,132,892 of the $26 million paid to an individual retirement account (IRA) during 2004–2005. Couturier filed for summary judgment, contending that there was no “excess contribution” because the property for which the $26 million was allegedly paid was from his ESOP. Couturier had owned 4,586 shares of stock through Noll Corporation’s ESOP. He also had stock options for at least 80,000 shares, participated in another incentive plan through which he held at least 500 more shares, plus “tax bonus units,” and through a deferred compensation plan, was entitled on retirement to monthly payments of $30,000 as of 2004. He was bought out for $256 million for all these accounts and rolled them into an IRA. The IRS failed to challenge his tax return for income tax deficiencies before the statute of limitations expired. However, in 2016, the IRS issued a notice that claimed Couturier was liable for roughly $8.5 million in excise taxes because the 4,586 shares of stock that could legitimately be rolled over to his IRA had been worth only $830,392, and the vast majority of the $26 million was a buyout of the three incentive and compensation plans noted above, none of which were qualified plans eligible for nontaxable IRA rollovers. The case has moved in and out of court since its filing. The ESOP transaction was also the subject of litigation and was ultimately settled in Solis v. Couturier (Civ. 2:08-cv-02732-RRB-GGH, E.D. Ca., filed Mar. 10, 2010).

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