RVNB class action alleging breach of fiduciary duty by ESOP trustee hurtles toward final settlement

BVWireIssue #216-1
September 2, 2020

ESOP valuations
breach of fiduciary duty, fair market value (FMV), prohibited transaction, trustee, employee stock ownership plan (ESOP), erisa

ESOP litigation watchers can add one more case to the number of actions that recently have been resolved. This case, Casey v. Reliance Trust Company, involves a proposed class action in which the plaintiffs sued the trustee, Reliance, alleging ERISA violations related to a 2012 transaction, including breach of fiduciary duty by causing the plan to overpay for company stock. The plaintiffs recently asked the court for final approval of settlement.

Disagreement on damages: The case involved RVNB Holdings Inc., a company providing moving and storage services throughout the U.S. In October 2012, RVNB formed an ESOP to acquire the common stock of RVNB. RVNB retained Reliance as ESOP trustee. An independent appraiser performed the underlying valuations. The purchase price was $85 million. In June 2017, RVNB’s board of directors approved the termination of the ESOP and all participants’ interests became immediately fully vested. In fall 2017, RVNB was sold to a private equity firm.

In June 2018, the plaintiffs filed a class action in which they alleged the plan overpaid for RVNB stock by approximately $42.5 million. Reliance engaged in a prohibited transaction, as defined under ERISA, causing the plan to buy the RVNB shares and to borrow money from RVNB for the purchase. Further, Reliance acted for the benefit of RVNB and the selling shareholders by approving a purchase price that was more than fair market value.

In their recent motion for final approval of the settlement, the plaintiffs state that, as part of the litigation, both sides engaged in extensive “fact discovery and expert discovery.” Further, both parties retained high-caliber valuation and damages experts. The parties also “vigorously engaged in the mediation process.”

The motion notes that Reliance denied the allegations and the facts on which the plaintiffs’ liability allegations rested. The contested facts include “the accuracy of RVNB’s projections, whether the valuation methods employed by Reliance Trust and its advisors were proper, and whether there were negative facts that were ignored by or not sufficiently investigated by Reliance Trust during the due diligence and negotiation process.”

The motion notes that Reliance has maintained the plan and its participants suffered no harm at all from the 2012 transaction. In negotiating a resolution, the parties exchanged “position papers supporting their differing views of what a proper measure of damages should be and presented their theories extensively in the mediation.” However, they were unable to resolve this “core dispute” by the time they reached a settlement in January 2020.

In asking for approval of the final settlement, the plaintiffs’ motion notes the settlement “provides significant relief and constitutes an excellent result for the Class.” Under the agreement, Reliance will pay $6.25 million. Each class member will obtain about $5,300 (before court-approved deductions), which is “well above the range for similar cases.” The named plaintiffs each will receive a $25,000 “case contribution award.” In exchange, the court will dismiss the case against Reliance on the merits. The plaintiffs’ motion says the settlement agreement is “fair, reasonable, and adequate,” as required under the applicable law.

The case, which is litigated in federal court, eastern district of Texas, is Casey v. Reliance Trust Company, Case No.: 4:18-cv-000424-ALM.

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