In the closely watched Vinoskey ESOP litigation, the trial court recently issued a long decision that found all the defendants liable. The independent trustee was liable for causing the ESOP to overpay for company stock, the court said. It further held that the owner/seller was liable for accepting a price of his stock that he knew exceeded the stock’s fair market value.
This ruling represents the second major win for the DOL in ESOP cases in recent months. Not long ago, in the fiercely contested Brundle case, the 4th Circuit Court of Appeals upheld the trial’s liability and damages findings against the trustee. The court rulings in combination seem to validate the DOL’s litigation-driven enforcement strategy, an approach that has generated controversy in the ESOP community.
The Vinoskey case arose out of a 2010 transaction in which the owners (husband and wife) of a successful Virginia company sold the remaining 52% of company stock to an ESOP for $406 per share. A 2009 appraisal valued the stock at $285 per share. The DOL argued that the trustee, which was to represent the interests of the ESOP, breached its fiduciary duties to the plan by failing to properly oversee the underlying appraisal.
The trial court agreed with the DOL’s arguments. The court’s analysis was guided by the Brundle decisions, and particularly by the principle that the ESOP trustee had to act “solely in the interests” of the plan participants. In the instant case, the trustee failed to satisfy this requirement in many ways, the court determined.
Find out more about the Vinoskey court’s analysis here.
Find out more about the Brundle appeals court ruling here.