Willamette’s spring 2020 Insights focuses on ESOP valuations
The spring 2020 Insights from Willamette Management Associates focuses on ESOP employer stock valuations and contains a number of articles, such as “Employee Stock Ownership Plan Financial Feasibility Analysis: Financial Considerations for Shareholders” (Robert F. Reilly), “Valuation Treatment of the Repurchase Obligation Liability” (Kyle J. Wishing), “The Fiduciary Process for the Annual Update of the ESOP Share Value” (Frank “Chip” Brown), “Pizzella v. Vinoskey: A Costly Lesson to Learn” (Lisa H. Tran), and more.
Robinson v. Langenbach
State high court upholds trial court’s use of DLOM and minority discount in buyout of minority interest resulting from shareholder oppression; court says there is no “fixed set of factors” trial court must consider for fair value calculation; “context is crucial” and here justified discounts.
High Court Says Context Supports Use of Discounts in Buyout From Shareholder Oppression
State high court upholds trial court’s use of DLOM and minority discount in buyout of minority interest resulting from shareholder oppression; court says there is no “fixed set of factors” trial court must consider for fair value calculation; “context is crucial” and here justified discounts.
Pension Rights Center files amicus brief in support of ESOP plaintiff
A nonprofit consumer organization whose mission is “to protect and promote the retirement security of American workers, retirees, and their families” recently filed an amicus curiae brief in support of the appeal the plaintiff in Lee filed with the 4th Circuit (see above).
DOL announces big ESOP settlement with Wilmington Trust
In yet another ESOP development, the Secretary of Labor recently announced that it reached a settlement with Wilmington Trust NA, an international financial services firm with expertise in serving as trustee in major ESOP transactions.
ESOP plaintiff appeals dismissal of lawsuit, leaning heavily on controversial Brundle case
In appealing the dismissal of her lawsuit with the 4th Circuit Court of Appeals, an ESOP plaintiff frequently invokes the Brundle case in which the same appeals court affirmed a $30 million judgment for the ESOP.
New DOL process agreement confronts control issue in ESOP valuations
The Department of Labor recently settled ESOP litigation with the trustee Farmers National Bank of Danville (FNB).
Valuation underpinning contested stock sale reflects fair value, Court of Chancery says
In a breach of fiduciary duty action arising out of a controversial stock sale, the Delaware Court of Chancery dismissed the plaintiff’s attacks on the underlying valuation, noting the appraiser was “exceptionally knowledgeable about the industry” and held “informed beliefs” as to the company’s specific structure.
DOL Processing Agreement Contains Stringent Rules on Controlling Interest Transactions, Indemnification
Under new processing agreement between DOL and specific ESOP trustee, trustee is bound by strict rules on how to handle controlling-interest acquisitions and indemnification issues; trustee must ensure ESOP plan acquires a series of specified rights before approving payment of a control premium.
Scalia v. Farmers National Bank of Danville & Weddle Bros. Const. Co.
Under new processing agreement between DOL and specific ESOP trustee, trustee is bound by strict rules on how to handle controlling-interest acquisitions and indemnification issues; trustee must ensure ESOP plan acquires a series of specified rights before approving payment of a control premium.
Attack on DOL’s ability to seek monetary damages in Vinoskey ESOP case fails
In the contentious Vinoskey ESOP case, the trustee recently asked for a new trial, arguing the Secretary of Labor, representing the plaintiff, lacked the statutory authority to seek monetary damages on behalf of the ESOP and the court lacked the authority to hear this claim.
DOL’s Valuation-Related Claims Against Individual Actors Survive Motion to Dismiss
Court denies individual defendants’ motion to dismiss DOL’s claims that defendants breached duties as co-fiduciaries, violated a duty to monitor the co-defendant trustee, and knowingly participated in the trustee’s breaches; DOL’s complaint states sufficient facts to support claims, court finds.
Pizzella v. Reliance Trust Co.
Court denies individual defendants’ motion to dismiss DOL’s claims that defendants breached duties as co-fiduciaries, violated a duty to monitor the co-defendant trustee, and knowingly participated in the trustee’s breaches; DOL’s complaint states sufficient facts to support claims, court finds.
Asset-based appraisal unsuitable for fair value determination, court says
In a bitter fight between siblings over the buyout of the minority shareholder’s interest in a successful construction business, the trial court found the asset-based valuation the majority shareholder’s expert proposed was fatally flawed for at least two reasons.
Trustee’s Post-Trial Attack on DOL’s Pursuit of Monetary Relief on Plan’s Behalf Crumbles
District court denies trustee’s motion for a new trial based on argument that Secretary of Labor lacked authority to pursue monetary relief against defendants; court says the plain language of the statute on which the DOL’s claims are based allows secretary to obtain damages on behalf of the ESOP.
Pizzella v. Vinoskey (II)
District court denies trustee’s motion for a new trial based on argument that Secretary of Labor lacked authority to pursue monetary relief against defendants; court says the plain language of the statute on which the DOL’s claims are based allows secretary to obtain damages on behalf of the ESOP.
Coster v. UIP Companies, Inc.
In breach of fiduciary duty action, court says stock sale passes enhanced fairness review; appraiser valuing real estate investment services company before sale is eminently qualified and knowledgeable about industry; capitalized cash flow method “generated a reliable indicator” of company’s value.
Valuation Underlying Controversial Stock Sale Satisfies Highest Scrutiny
In breach of fiduciary duty action, court says stock sale passes enhanced fairness review; appraiser valuing real estate investment services company before sale is eminently qualified and knowledgeable about industry; capitalized cash flow method “generated a reliable indicator” of company’s value.
ESOP defendants sue for indemnification to limit financial exposure
In the face of several key rulings against ESOP fiduciaries, ESOP defendants, concerned about incurring substantial financial obligations, have begun to pursue claims for indemnification and/or contribution against other defendants or third parties to limit their exposure, as a recent case illustrates.
Novel issue of law raised in ESOP case that pits trustee against appraiser
A fairly routine ESOP case that is being litigated in the 4th Circuit has raised a novel legal issue in this jurisdiction as to the financial liability of co-fiduciaries and nonfiduciaries, including the ESOP appraiser.
Helen Ziegler Benjamin v. Island Management
In a family dispute featuring related closely held companies and claims of breach of fiduciary duty and mismanagement, court, based on financial testimony from plaintiffs’ expert, orders inspection of defendant company’s records, including general ledger, fee agreements, and executive compensation.
Financial Expert Testimony Persuades Court to Order Inspection of Company Records
In a family dispute featuring related closely held companies and claims of breach of fiduciary duty and mismanagement, court, based on financial testimony from plaintiffs’ expert, orders inspection of defendant company’s records, including general ledger, fee agreements, and executive compensation.
BVU News and Trends October 2019
A monthly roundup of key developments of interest to business valuation experts.
Linde v. Linde
Appellate court upholds trial court’s finding that majority shareholder breached fiduciary duty to minority shareholder and buyout order; trial court performed careful valuation analysis finding defense expert’s asset-based approach was “simply an improper method of valuation in the present case.”
Court Says Asset Approach ‘Is Simply an Improper Method’ in Present Appraisal Proceeding
Appellate court upholds trial court’s finding that majority shareholder breached fiduciary duty to minority shareholder and buyout order; trial court performed careful valuation analysis finding defense expert’s asset-based approach was “simply an improper method of valuation in the present case.”