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    DOL Brings Complaint Against ESOP in Arizona

    May 16, 2019, 09:40 AM

    On May 28, 2014, the RVR Inc. ESOP (the “RVR ESOP”) purchased 100% of the shares of common stock of RVR Inc. d/b/a Cruise America (RVR), a Florida corporation with its principal place of business in Mesa, Arizona that, with its subsidiaries, “is engaged in the rental of custom-built ‘Class C’ recreational vehicles . . . and the sale of used rental RVs in the U.S. and Canada,” from RVR’s “principal officers and sole shareholders,” Randall Smalley (“Smalley”), Robert Smalley, Jr. (“Smalley, Jr.”), and Eric Bensen (“Bensen”), for $105 million (the “Transaction”).

    The DOL filed a complaint on May 16, 2019, alleging that Reliance Trust Company (Reliance), the RVR ESOP’s trustee, (i) hired Stout Risius Ross, Inc. (SRR) as the “independent appraiser and financial advisor” for the Transaction, even though SRR was not truly independent (given the previous business relationship between Reliance, SRR, and Chartwell Business Valuation, LLC, which RVR had engaged to “provide financial advisory and investment banking services”); (ii) “rushed its investigation into the Transaction”; (iii) “failed to provide SRR with complete information necessary to produce a reliable valuation report”; (iv) did not “adequately scrutinize and critically question SRR’s valuation reports,” which included several “red flags,” such as “failing to sufficiently account for lack of market comparability in [SRR’s Guideline Company Method] model,” “applying an inappropriate discount rate,” “failing to account for the [RVR ESOP’s] lack of control over RVR,” and “failing to discount the fair market value of RVR’s stock to account for the dilutive effects of the Warrants [issued to Smalley and Smalley, Jr.] and SARs [, which Bensen was eligible to receive]”; and (v) “did not negotiate in good faith over the stock purchase price and other terms of the Transaction.”1 As a result of these actions, Reliance caused the RVR ESOP to overpay for RVR’s stock by “tens of millions of dollars.” The case is pending.

    1 Complaint, Acosta v. Reliance Trust Company, No. 2:19-cv-03178-JJT (D. Ariz. May 16, 2019), ECF No. 1.