ESOP case alive (for now), but court limits damages testimony under Daubert

Acosta v. Vinoskey, 2018 U.S. Dist. LEXIS 64094 (April 17, 2018)

In a developing ESOP case, the government recently suffered a setback when the court agreed with the trustee that portions of the damages testimony the government’s expert proposed failed to hold up under the Daubert reliability prong.

The court concluded that one damages theory the government proposed was “novel and underdeveloped” and, by extension, struck down one of the government’s allegations for lack of damages evidence. However, the court rejected the trustee’s argument that the government’s expert was not qualified. Accordingly, the government’s overpayment claim survives, for the time being.

This case arose out of a transaction that took place in late 2010 and in which the owners of a Virginia company sold their remaining 52% ownership interest to the ESOP. A few years earlier, the ESOP had already purchased 48% of the owners’ stock in the company. The owners entirely owned the company.

Following its playbook, the Department of Labor filed a complaint in which it essentially alleged that the trustee breached its fiduciary duties of prudence and loyalty to the ESOP by causing the plan to pay more than “adequate consideration.” In a separate count, the government also alleged the trustee violated its fiduciary duty by allowing the per-share value of stock held by the existing participants in the plan to decrease.

The trustee filed a Daubert motion to exclude the government’s damages testimony and also filed a motion for summary judgment. The premise was that, once the expert testimony was excluded, the government would lack damages evidence to support its claims and its case would collapse. The government filed its own summary judgment motion. 

Because the expert testimony was critical to the survival of the government’s case, the court first ruled on the Daubert motion. 

Read more about the case and the court’s response here.