Judge Certifies Class in Lawsuit Filed by ESOP Participants

Several employee stock ownership plan (ESOP) participants filed a lawsuit claiming they were duped into selling their shares at a steeply discounted price. And, last week, U.S. District Judge Nancy Torresen for the District of Maine certified the class in the lawsuit.

According to the second amended complaint filed in June, former Maine Oxy-Acetylene Supply Co. owner Bruce Albiston set up an ESOP in 2004 through which employees held 49% of the company’s stock. In 2012, Albiston decided to part from the company and entered negotiations to sell his family’s 51% share to the president of Maine Oxy at the time.

The Albiston family’s 25,500 shares were valued at a minimum of $654.62 dollars per share, totaling nearly $17 million dollars, according to the complaint. The lawsuit lists as defendants the ESOP, the president of the company who bought out the Albiston family and a man who reportedly financed the purchase.

The lawsuit says the new owner assured Maine Oxy’s employees that “nothing would change” with the ESOP and profit sharing plan. However, soon after acquiring ownership, he informed the ESOP committee that the company could not afford the ESOP and that it would have to be dissolved and its shares sold back to the company.

He told the committee that a stock repurchase was the only way that the company could stay independent, that the value of the employee owned stock was “frozen” and that the employee owners had no alternative but to sell the stock back to the company. The lawsuit says he also announced to all employee owners that the ESOP would be replaced by a 401(k) plan and that anyone who did not redeem their shares in the ESOP would be ineligible for a match under the new plan.

According to the complaint, in a “Special Diversification Eligibility Notice” dated August 9, 2013, employees were advised of the “opportunity” to “elect” to have their ESOP shares distributed to them so that they could “diversify” their investment into “alternatives other than investment in company stock for a portion of their ESOP balance.” The notice was a “one-time” offer that expired “no later than 30 days after receipt.”

If the employee chose to distribute his ESOP balance, he was given the following options: to have some or all of cash value of his eligible shares distributed directly to him; to roll over some or all of the eligible shares into Maine Oxy’s new 401(k) profit sharing plan; or to roll some or all of the eligible shares into an eligible retirement account, such as an individual retirement account (IRA).

The lawsuit says employees were concerned that their ability to participate in the 401(k) would be foreclosed or that they would be ineligible for an employer match if they did not exercise one of the options presented by the company within the 30-day deadline. Some employees did not want to surrender their shares, but, just as he told the ESOP committee, the new owner told them the company could not afford the ESOP plan and remain an independent company and that the value of the company was “frozen” and would “not go back up.”

The plaintiffs state in the lawsuit that the “value of the shares was most certainly not ‘frozen’ and continued to increase in value following the sale.” They claim that holdouts to selling their shares “were subject to threats, intimidation and harassment.”

The ESOP participants were collectively offered $134.92 dollars a share for their stock, totaling approximately $3,305,540. The employees were not provided with any information about the share price they were paid. In the meantime, according to the complaint, the terms of the ESOP were unilaterally amended to eliminate the employees’ right to receive common stock in the company upon dissolution of the plan.

Since the acquisition of the employees’ stock, the value of the company has substantially increased. “Among other things, subsequent acquisitions of and affiliations with other major gas and air entities in the industry have added to the company’s value and increased its profits,” the complaint states.

In addition, the complaint notes that in May or June of 2016, an ESOP participant met with Albiston, who revealed that had received $43 million for his 51% share of the company. The complaint says this was the first time that any of the ESOP participants learned that they might have sold their shares back to the company at a steep discount. Allegedly, the son of the man who financed the purchase for the new owner also told one or more employees that his father had paid $43 million for Albiston’s 51% share.

“As a result of defendants’ termination of the ESOP and the forced buyback of the ESOP shares, plaintiffs and the class were divested of the right to continue to hold Maine Oxy shares and they received less than fair market value for their Maine Oxy stock. Additionally, plaintiffs and the prospective class members have lost out on investment gains from the continued rise in Maine Oxy’s value, the dividends and tax distributions paid, and the opportunity for future investment gains, dividends and tax distributions of Maine Oxy stock,” the complaint states.

In a statement to PLANADVISER, counsel for the defendants said: “This case is a dispute about the valuation of Maine Oxy stock when it terminated its ESOP years ago. Maine Oxy relied on its long-time, independent, nationally respected appraisal firm, Atlantic Management, to value the stock, and the plaintiffs dispute that valuation. Maine Oxy Is anxious to resolve this disagreement and work with its valued employees to provide critical products to its customers in these trying times.”