United States: Further ESOP Transaction Guidance Set Forth In Latest DOL Settlement Agreement

Christopher K. Buch is an Associate, Greg Brown is a Partner and Louis Joseph is a senior counsel in Holland & Knight's Chicago office

On the heels of a recent settlement agreement with an institutional employee stock ownership plan (ESOP) trustee, the U.S. Department of Labor (DOL) and individual trustee James F. Joyner III (Joyner) entered into a settlement agreement (the Joyner Agreement) filed on Sept. 29, 2017, in the U.S. District Court for the Western District of Virginia. The Joyner Agreement settles claims against Joyner as a special trustee of the BAT Masonry Company Inc. Employee Stock Ownership Plan and Trust (the BAT ESOP).¹ In this case, the DOL alleged that Joyner approved a transaction that caused BAT ESOP participants to overpay for BAT Masonry Company Inc. stock by more than $13 million.²

The Joyner Agreement was filed little more than a week after the DOL entered into another settlement agreement, which we discussed in detail in a prior Holland & Knight alert (see " DOL Settlement Agreement Provides ESOP Transaction Guidance," Sept. 27, 2017). As was the case with the settlement agreement entered into on Sept. 21, 2017, between the DOL and First Bankers Trust Services Inc. (the FBTS Agreement)³, the Joyner Agreement largely mirrors a process agreement that the DOL entered into with GreatBanc Trust Company (the GBTC Agreement) in 2014.⁴ As with the prior agreements, the Joyner Agreement sets forth a number of policies and procedures that Joyner has agreed to follow when serving as an ESOP trustee in a stock purchase or sale transaction.

Differences in the Joyner Agreement

The Joyner Agreement is notable, however, in that it generally reverts back to the terms of the 2014 GBTC Agreement without incorporating most of the changes found in the more recent FBTS Agreement. There also are some features of the Joyner Agreement that appear to have been tailored to Joyner's status as an individual trustee, e.g., eliminating references to actions by the trustee's fiduciary committee, as well as substituting for references to "employees" of the trustee a broader formulation of "persons" involved in a transaction.

In addition, the Joyner Agreement includes a new requirement not found in either the GBTC Agreement or the FBTS Agreement. Under the Joyner Agreement, before agreeing to serve as fiduciary with respect to an ESOP stock purchase or sale transaction, the trustee must attempt to secure fiduciary insurance "sufficient to provide liability coverage" for the proposed transaction. If the trustee is unable to obtain such coverage, he must be included as a named insured under the ESOP sponsor's fiduciary insurance policy. In the absence of securing the required insurance coverage under either the trustee's own fiduciary insurance policy or that of the ESOP sponsor, the trustee will not be eligible to serve as a fiduciary for the ESOP transaction.

Footnotes

1 Acosta v. BAT Masonry Co., Inc., W.D. Va., No. 6:15-cv-00028-EKD-RSB, consent order filed Sept. 29, 2017.

2 The DOL's financial claims against Joyner were settled for a payment of $15,000 to the BAT ESOP. The DOL's case against a number of other defendants continues.

3 Acosta v. First Bankers Tr. Servs., Inc., S.D.N.Y., No. 1:12-cv-08648-GBD, consent order and judgment, Sept. 21, 2017.

4 Perez v. GreatBanc Tr. Co., C.D. Cal., No. 5:12-cv-01648-R-DTB, consent order and judgment, June 2, 2014.

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