The U.S. Court of Appeals for the Fifth Circuit, which includes Texas, upheld a district court judgment that the former owner of a privately-held company engaged in a prohibited transaction and breached his fiduciary duties of loyalty and prudence when selling shares of company stock to his former company’s leveraged employee stock ownership plan (“ESOP”) at prices in excess of the stock’s fair market value. Specifically, the court found that the owner influenced the outcome of the appraiser’s valuation of the stock to achieve a higher stock price, which resulted in the ESOP overpaying for the stock. The Fifth Circuit disagreed with the district court’s holding that the owner, who was also a trustee of the ESOP, breached his fiduciary duty to monitor the other two plan trustees whom he had appointed and whom he knew had breached their duties of loyalty and care.
Perez v. Bruister, No. 14-60811 (5th Cir. May 3, 2016).