Trustee GreatBanc Trust, Company Executives Sued for Disputed ESOP Sale, Valuation

Two former workers and vested participants in the Buckeye Corrugated Inc. Employee Stock Ownership plan sued plan trustee GreatBanc Trust Co. and several Buckeye executives on July 21 for alleged losses suffered by the plan and its participants when they allege GreatBanc caused the plan to sell shares of Buckeye to the management purchasers for less than fair market value.

The plaintiffs, Eric Finkle and Justin Whipple, allege four counts of fiduciary breach under the Employee Retirement Income Security Act against the defendants in Finkle et al v. GreatBanc Trust Company et al., filed in U.S. District Court for the Northern District of Illinois, Eastern Division.

Doug Bosnik, Buckeye’s president and CEO; Mark Husted, its chief financial officer and executive vice president; and Jon McGurk, its COO, were also named in the litigation, as were 10 unnamed individuals.

“[The] Plaintiffs … suffered a diminution in the value of their Plan accounts, and an insufficient distribution of moneys from their Plan accounts upon termination of the Plan, because the Plan received less than fair market value for its Buckeye stock,” the complaint states. “The Management Purchasers are liable under ERISA for knowingly participating in the prohibited stock transactions and GreatBanc’s breaches of fiduciary duty, and as co-fiduciaries to GreatBanc who participated in, enabled, and did not make reasonable efforts to remedy GreatBanc’s breaches of fiduciary duty.”

Buckeye was a privately held company and was the ESOP sponsor until September 2018, when GreatBanc, in its capacity as trustee, caused the plan to sell 100% of the issued and outstanding shares of Buckeye common stock, directly or indirectly, to high-level Buckeye executives and management purchasers for approximately $231,854,904, the complaint shows.

The complaint alleges GreatBanc, with Buckeye management approval, executed the sale at an improper price below fair market value.

“At the time of the 2018 ESOP Transaction, GreatBanc improperly valued Buckeye stock on a liquidation basis, despite its being an ongoing concern that is in business to this day,” the complaint states. “Buckeye was a growing and consistently profitable company worth far more than its liquidation value. By valuing Buckeye on a liquidation basis, GreatBanc undervalued the value of Buckeye stock in the Plan, failed to use sound business principles in its 2018 valuation, and failed to negotiate for the Plan to receive fair market value for its stock.”

The complaint adds that the company in December 2018 “estimated the value of Buckeye stock as approximately $270.85/share, which is approximately 13% more per share than the average the Plan was paid per share in the [September] 2018 ESOP Transaction.”

GreatBanc Trust was targeted on the first two counts for permitting transactions prohibited under ERISA and for failing to discharge duties solely in the interest of participants and beneficiaries. The manager purchasers were charged with violating the ERISA provision against a party in interest engaging in a prohibited transaction with respect to an employee benefit or pension plan and for participating in such a breach.

“GreatBanc did not conduct adequate due diligence for the 2018 ESOP Transaction regarding Buckeye’s future growth prospects or industry trends for the corrugated packaging industry, including increasing demand from the e-commerce market,” the complaint alleges. “GreatBanc improperly relied on projections and financial information supplied by Buckeye management … without properly probing and questioning the projections and financial information or the assumptions and conclusions of GreatBanc’s financial advisors.”  

Husted was the plan administrator from 2009 through 2019, while Finkle and Whipple both worked for Buckeye at the firm’s Rochester, New York, division, for at least 20 years, according to the complaint.

The plaintiffs filed suit in Illinois because some of the acts or omissions occurred in that district, and the plan was administered in part in the district where plan trustee GreatBanc operated. The complaint asks the court to certify Finkle and Whipple as representative of the purported class of participants.

Fairlawn, Ohio-based Buckeye was founded in 1985 and produces a variety of corrugated board packaging and display products, with locations in eight states and more than 850 workers in the U.S. Buckeye adopted the ESOP on January 1, 1994, and it was terminated as of December 20, 2018.

The plaintiffs are represented by attorneys with the law offices of Bailey & Glasser LLP, based in Chicago, including Ryan Jenny and Gregory Porter, based in Washington, D.C.; and Feinberg, Jackson, Worthman & Wasow LLP, headquartered in Berkeley, California.  

Representatives for neither GreatBanc Trust Co. nor Buckeye Corrugated Inc. responded to a request for comment.