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Labor & Employment – Employee stock ownership plan denied windfall

Labor & Employment – Employee stock ownership plan denied windfall

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Where the owner of a company sold his shares to the employee stock ownership plan, or ESOP, but the ESOP paid an inflated price for the shares, the owner was liable for the price difference. But, because he forgave certain funds owned by the ESOP for the sale, the damages were offset by this amount.


Adam Vinoskey founded Sentry Equipment Erectors Inc. He and his wife, Carole Vinoskey, originally owned 90% of the company. In 1993, Sentry formed an ESOP. Sentry then periodically contributed to the ESOP. Those contributions were in turn used to purchase shares of Sentry stock.

By 2004, the ESOP owned 48% of Sentry, with the Vinoskeys owning the remaining 52% through the Adam Vinoskey Trust they had since formed. Around 2010, Vinoskey expressed his interest to sell the Vinoskeys’ remaining shares to the ESOP. But in such a sale Vinoskey would be on both sides of the transaction—as a seller of the Vinoskeys’ remaining shares and as a buyer since he was one of the ESOP’s trustees. To avoid a conflict of interest, Sentry entered into an agreement with Evolve Bank and Trust in which Evolve would serve as the ESOP’s independent fiduciary to review the transaction.

Ultimately, the ESOP purchased the rest of the Vinoskeys’ stock for $20,706,000. That purchase price represented a price of $406 per share of Sentry stock. Of the $20,706,000 payment, the ESOP paid the Vinoskeys $10,400,096 in cash and executed an interest-bearing promissory note to him in the amount of $10,305,904. Four years later, Vinoskey, presumably as trustee for the Adam Vinoskey Trust, forgave $4,639,467 of the ESOP’s outstanding debt.

The Department of Labor sued Evolve and Vinoskey, claiming the ESOP’s purchase of Vinoskey’s remaining Sentry stock was a prohibited transaction under ERISA as Vinoskey was a party in interest and the purchase price exceeded the fair market value. The district court found that the fair market value of Sentry’s stock was $278.50 per share. As such, the district court found Vinoskey jointly and severally liable with Evolve for $6,502,500 in damages. This amount is the difference between the per-share stock price of $406 and $278.50 times the 51,000 shares sold.

Although Evolve and Vinoskey moved for a reduction in the damages award by $4.6 million, which was approximately the amount of debt that Vinoskey forgave in 2014, the district court refused to do so because it considered itself to be “constrained by the weight of authority disfavoring any reduction of damages by the amount of subsequent debt forgiveness.”


The district court found that Vinoskey actually knew that the $406 per-share price exceeded the fair market value of Sentry’s per-share price. In reaching this conclusion, the district court relied on multiple pieces of circumstantial evidence indicating that Vinoskey reviewed the stock prices from 2004 to 2009, which ranged from $220 to $285 per share. Since those values are significantly below the $406 per-share value, the district court concluded Vinoskey should have been aware that the price offered was greater than the per-share fair market value of Sentry.

Vinoskey argues that he did not know Evolve’s offer price was above fair market value. And there is certainly evidence to support his position. But despite this evidence, the court cannot conclude that the district court’s finding to the contrary was clear error. Under clear error review, the district court’s conclusion that Vinoskey knew the offer price was above fair market value passes muster. And because § 502(a)(5) liability provides a sufficient and independent basis to affirm the district court’s decision on Vinoskey’s liability, the court declines to address whether Vinoskey was also liable as a “co-fiduciary” for Evolve’s fiduciary breaches.


The district court declined to reduce the damages award by $4.6 million, which was approximately the amount of loans that Vinoskey forgave the ESOP in 2014. Interestingly, the district court commented that absent “the weight of authority,” it would have offset the damages with the loan forgiveness. The district court’s prudence is much appreciated. Nevertheless, at least on these facts, the damages award could—in fact, should—be reduced by the amount Vinoskey forgave. Affirming the district court’s damages award would result in an inappropriate windfall for the ESOP.

Affirmed in part and reversed in part.

Walsh v. Vinoskey (Lawyers Weekly No. 001-207-21, 25 pp.) (A. Marvin Quattlebaum Jr., J.) Case No. 20-1252. Dec. 6, 2021. From W.D. Va. at Lynchburg (Norman K. Moon, S.J.) Lars Calvin Golumbic for Appellants. Stephen Silverman for Appellee.

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