Facts

The Rainbow Disposal Co., Inc., Employee Stock Ownership Plan (Rainbow ESOP) was an employee pension benefit plan. Prior to October 1, 2014, Rainbow Disposal Co. employees owned 100 percent of Rainbow Disposal Co. through Rainbow ESOP.

On October 1, 2014, Republic Services Inc. purchased 100 percent of the stock of Rainbow Disposal Co. from the Rainbow ESOP (October 2014 transaction). After the sale, the plan participants were informed by the new plan administrators (New ESOP Committee) that the stock had been sold at a price of $17.66 per share and that plan participants would later receive the cash equivalents for their shares of stock at $16.67 price per share (June 14 valuation). The plan participants ultimately received approximately $15 per share.

Thereafter, current and former Rainbow Disposal Co. employees Antonio Hurtado, Christopher Ortega, Jose Quintero, Maritza Quintero, Jorge Urquiza, and Maria Valdez brought a class action on behalf of a class of participants in and beneficiaries of Rainbow ESOP. The action was brought against the former plan administrator (ESOP Committee) and the current plan administrator (New ESOP Committee); certain members of the board of directors for Rainbow Disposal Co.; GreatBanc Trust Company, the trustee of the ESOP; and Republic Services Inc., the parent corporation of Rainbow Disposal Co.

PLAINTIFFS' CONTENTIONS: Plaintiffs asserted fourteen claims against defendants for their respective roles in violations of the Employee Retirement Income Security Act (ERISA) in connection with the October 2014 transaction. Generally, plaintiffs contended that defendants breached their fiduciary duties or otherwise violated ERISA in connection with the sale of Rainbow Disposal Co. to Republic Services; management of the assets of Rainbow ESOP; or in performing their fiduciary duties to Rainbow ESOP. Among other things, plaintiffs argued that defendant GreatBanc was obligated to and failed to hire a qualified valuation advisor; oversee the valuation advisor; ensure proper documentation of a valuation report; engage in a thorough analysis of Rainbow Disposal Co.'s stock; document its vote for or against the sale; and ensure that any sale of Rainbow Disposal Co.'s stock was not for less than fair market value. Plaintiffs asserted that the ESOP Committee defendants failed to review any actions by defendant GreatBanc. Plaintiffs further claimed that, had the ESOP Committee defendants reviewed the actions of defendant GreatBanc, the ESOP Committee defendants would have determined that defendant Greatbanc was acting without proper direction, was improperly relying on an inappropriate valuation report and was not acting within its duties under ERISA. Plaintiffs contended that the acquisition of Rainbow Disposal Co. by defendant Republic Services was a corporate matter that required a vote by plaintiffs, and that plaintiffs were not provided an opportunity to vote on the October 2014 transaction. Plaintiffs alleged that the New ESOP Committee defendants failed to adequately disclose and explain the terms and circumstances surrounding the various payments and holdbacks so that the Rainbow ESOP participants could understand the benefits to which they may have been entitled and the circumstances that precluded them from obtaining benefits. Plaintiffs also contended that the New ESOP Committee defendants knew or was reckless in not knowing that there was no realistic possibility that plaintiffs would receive $17.66 per share for their shares.

DEFENDANTS' CONTENTIONS: Defendants denied all contentions. Defendants argued that plaintiffs failed to state a claim because the June 2014 valuation was not "stale" by the time of the October 2014 transaction; and that no facts plausibly supported the inference that the June 2014 valuation was an inaccurate appraisal for less than market value at the time the sale closed. Defendants contended that plaintiffs were not entitled to a vote in the October 2014 transaction; and plaintiffs lacked standing to pursue this claim because they could not show that the value of their shares would have increased if the October 2014 transaction had not been approved. Defendants also argued that their disclosures satisfied the disclosure requirements under ERISA and that plaintiffs had not shown that they were harmed by the alleged inadequate disclosures. Defendants asserted that plaintiffs did not plausibly allege the underlying breaches of fiduciary duty and that plaintiffs also failed to allege facts to demonstrate a deficient monitoring process.

Result

The case settled for $7.9 million.