November 19, 2021

"Based on the above findings and conclusions, this court rules that the remaining defendants did not violate any provision of ERISA with respect to the sale of the Company to the Company's ESOP." 

This was the ruling on September 17th from Judge Susan Oki Mollway of the U.S. District Court of Hawaii in a landmark ESOP valuation case in the A/E industry. The ruling vindicated the principals of Bowers + Kubota, who had sold their stock to an ESOP in 2012, providing a significant new benefit plan for their staff. It also dealt the U.S. Department of Labor (DOL), whose complaint alleged that the stock had been overvalued, its first significant defeat in an ESOP transaction case. Hopefully, this decision will open the door to more reasonable and constructive dialog between the DOL and the ESOP community and comfort owners considering selling their stock to an ESOP.

For historical background, the Department of Labor has aggressively targeted ESOP transactions for investigation throughout the last two administrations. It has largely succeeded in winning judgments or securing settlement agreements with ESOP trustees and sellers. These actions have cast a pall over the ESOP community, causing many A/E company owners considering ESOPs to choose other exit strategies and some trustees to reconsider serving the ESOP transaction market.

But this case marks a turning point. After years of investigation, more than a year of litigation, and a week-long bench trial, the court dealt a significant blow to the DOL, rejecting its assertion that the defendants sold their shares to the ESOP at an inflated value. This ruling provides guidance and perhaps some comfort to sellers, companies, and their advisors as they consider the implementation of an ESOP as an ownership transition option and powerful employee benefit.

ROG senior appraiser Ian Rusk served as an expert witness for the defense and discussed the details of the case and ruling, along with fellow expert valuation witness Ken Pia, in a webinar for Business Valuation Resources. If you are interested in learning more, a synopsis of that webinar can be found here.