Employee Stock Ownership Plan (ESOP) Litigation

Litigation

Plaintiffs in ESOP litigation often complain that the ESOP paid too much for its stock in the transactions that established them. When the stock’s value declines after such a transaction, litigation is almost sure to follow. These cases usually involve closely held companies, where there is no public market for the stock, so plaintiffs often sue not only the company and those who sold stock to the ESOP but also plan trustees and others involved in these transactions.

The ERISA Litigation Group has defended ESOP cases for more than two decades, against both private plaintiffs and the Department of Labor. We have defended companies themselves, individual officers and directors, and independent ESOP trustees. Our results are unmatched, with most cases either dismissed or resolved on very favorable terms.

Litigation

• Represented two former trustees of the Kingsdown Inc. Employee Stock Ownership Plan in a putative class action alleging breaches of various ERISA fiduciary duties arising from the company’s stock repurchase offer. The claims were settled on very favorable terms. Cecil, et al. v. Hinshaw, et al., No. 1:15-cv-00409 (M.D.N.C.).
• Represented the chairman of the board and others in this putative class action alleging breach of fiduciary duties in connection with a private company ESOP. After obtaining dismissal of most claims, the matter was settled on favorable terms. In re U.S. Sugar Corp. Litigation, 669 F. Supp. 2d 1301 (S.D. Fla.).
• Defeated RICO, fraud, and ERISA claims in a suit challenging a leveraged ESOP transaction. Cook v. Campbell, 482 F. Supp. 2d 1341 (M.D. Ala.).
• Prevailed on summary judgment on behalf of a clothing manufacturing company and its fiduciary administrative committee in a putative class action alleging breaches of fiduciary duty under ERISA related to the committee’s decision to cash out former participants from an ESOP. McCabe v. Capital Mercury Apparel, 752 F. Supp. 2d 396 (S.D.N.Y.).
• Represented the trustees of an ESOP against claims for breach of fiduciary duty and RICO based on alleged fraud and nondisclosure of various aspects of the structuring of a leveraged buyout and the subsequent operation of the entities involved. We obtained dismissal of all claims based on a statute of limitations defense. The dismissal was affirmed on appeal by the Second Circuit. Oechsner v. Connell Ltd. Partnership, 283 F. Supp. 2d 926 (S.D.N.Y.), aff’d, 101 F. App’x 849 (2nd Cir.).
• Defended the ESOP trustee in the “Polaroid ESOP Litigation” by the Department of Labor alleging breach of fiduciary duty in connection with participant-directed voting on the Polaroid Shamrock tender offer. Reich v. NationsBank of Georgia N.A., 19 E.B.C. (BNA) 1345 (N.D. Ga.). The decision was affirmed on appeal by the Eleventh Circuit. Herman v. NationsBank Trust Co. (Georgia), 126 F.3d 1354 (11th Cir.), cert. denied, 525 U.S. 816.
• Defended an ESOP trustee in a class action lawsuit by Burlington employees alleging numerous breaches of fiduciary duty arising from the Burlington Industries leveraged buyout. Atwood, et al. v. Burlington Industries Equity Inc., et al., 908 F. Supp. 319 (M.D.N.C.).
• Defended the company, its directors, and its fiduciaries against claims of nondisclosure of alleged merger negotiations that supposedly impacted the value of stock options and ESOP shares. We prevailed on state-law claims in the Georgia Court of Appeals. Flexible Products v. Ervast, 284 Ga. App. 178, 643 S.E.2d 560 (Ga. Ct. App.).
• Defended Highwoods (a REIT) and a prominent Kansas City developer (J.C. Nichols Company), as well as individual fiduciaries and directors, on both securities and ERISA class action claims based on disclosures related to Highwoods’s merger with J.C. Nichols. We obtained dismissal of certain ERISA claims and summary judgment against all others. Flake v. Hoskins, 55 F. Supp. 2d 1196 (D. Kan.).
• Represented Cambar Software Inc. and various individual defendants in two related lawsuits, one filed by individual plaintiffs on behalf of ESOP plan participants and the other by the Department of Labor in relation to a leveraged ESOP transaction. The lawsuits alleged numerous breaches of fiduciary duty relating to the supposed overvaluation of employer stock and subsequent spinoff of a subset of employees and plan assets into a separate ESOP. Register v. Cameron & Barkley Co., et al., 481 F. Supp 2d 479 and Chao v. Hagemeyer North America Inc., et al., No. 2:06-cv-01173 (D.S.C.).