Plaintiffs in Rainbow ESOP class action ready to settle case
Last week, we reported on the resolution of two major ESOP litigations.
ESOP litigants play by their own valuation rules, speakers say
Imagine if you were playing on a baseball team and the opposing players argue that you are violating the rules of soccer.
Appeal in Lee ESOP case dismissed; ESOP class action also close to resolution
The last few weeks have seen the end of two ESOP litigations that have drawn a lot of attention from the ESOP community.
BVU News and Trends July 2020
A monthly roundup of key developments of interest to business valuation experts.
Raley v. Brinkman
In LLC member buyout dispute, the Court of Appeals finds the term “fair value” does not contemplate the use of shareholder-level discounts. However, tax affecting is relevant evidence when determining the going-concern value of subject S corp. Trial court must consider evidence on tax affecting.
Tennessee Appeals Court Clarifies Use of Discounts and Tax Affecting in Court-Ordered LLC Buyout
In LLC member buyout dispute, the Court of Appeals finds the term “fair value” does not contemplate the use of shareholder-level discounts. However, tax affecting is relevant evidence when determining the going-concern value of subject S corp. Trial court must consider evidence on tax affecting.
‘Particular facts’ justify discounts in mandatory buyback of minority interest, says Missouri high court
Context is “crucial,” the Supreme Court of Missouri recently said in upholding the use of discounts in the court-ordered buyout of a minority owner’s shares in a family business.
Court Finds ESOP Trustee’s Insurance Excludes Coverage for Defense Against DOL’s ERISA Claims
In bifurcated ESOP litigation centering on ERISA violations, court finds trustee defendants’ professional liability policy expressly excluded coverage for ERISA claims; under language of policy, insurer is not required to defend or indemnify trustee defendants fighting DOL’s ERISA allegations.
Gemini Ins. Co. v. Potts
In bifurcated ESOP litigation centering on ERISA violations, court finds trustee defendants’ professional liability policy expressly excluded coverage for ERISA claims; under language of policy, insurer is not required to defend or indemnify trustee defendants fighting DOL’s ERISA allegations.
Class-Action Litigation Involving ERISA/ESOP Valuation Issues
Join James F. Joyner and attorney Richard Pearl for unique insight into ESOPs and valuation principles. The general trend in ESOP transactions and valuation has been to acquiesce to fundamental changes because of the threat of litigation, even though ERISA or valuation principles do not require changes. Many defendants have been unable to adequately educate courts on some key issues. Get both the valuation and attorney perspective on how to address these issues.
ESOP Case Appeal Stokes Controversy Over DOL Valuations
A series of court cases have generated controversy over the tactics and valuation methods the Department of Labor (DOL) has been using, including claims that the DOL has improperly redefined the term “fair market value,” does not follow generally accepted valuation principles nor standards, and continually uses an expert the valuation community deems “unqualified.”
NCEO amicus brief supporting dismissal of case details benefits from ESOP participation
The National Center for Employee Ownership (NCEO) also filed an amicus brief in which it supports the dismissal of the Lee case that is currently on appeal with the 4th Circuit.
ASA files amicus brief in Lee case, discussing FMV concerns in ESOP litigation
Responding to the appeal in the Lee case, the American Society of Appraisers recently filed an amicus brief supporting the dismissal of the case.
ESOP trustee defends dismissal of lawsuit and rejects comparison to Brundle
In response to the plaintiff’s appeal in the Lee ESOP case, the defendant trustee said the district court’s dismissal of the case for lack of standing was appropriate.
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.
Projection Issues Raised in ESOP Litigation
Revenue growth rate, profit margins, and long-term growth rate can all meaningfully impact projections. Add in inconsistency with historical results, industry/economy impacts, and lack of adjustment for critical things such as compensation or capital expenditures, and it is easy to see how litigation can arise. Chip Brown, Chelsea Mikula, and Kyle Wishing help identify common issues raised in ESOP litigation cases (either by the Department of Labor or private plaintiffs) with respect to financial projections ...
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.