In 2003, the Segerdahl Corporation ESOP (the “Segerdahl ESOP”) was established, and the Segerdahl ESOP purchased 100% of the outstanding shares of common stock of Segerdahl Corporation (the “Company”), an Illinois-based “fully-integrated direct mail printer” that is the “largest company focused on medium and high volume direct mail printing,” from the other owners of the Company.
On December 7, 2016, ICV Capital Partners (“ICV”), an investment capital firm, purchased all of the shares of the Company held by the Segerdahl ESOP for $265 million (the “Transaction”).
Bruce Rush (“Rush”), a former employee of the Company, filed a class action complaint on February 5, 2019, alleging that, among other things, (i) the Company’s CEO and Chairman of the Board of Directors “engaged in a flawed sale process,” because they did not market the Company to many potential buyers, including competitors, who would have paid more for the shares held by the Segerdahl ESOP and who would have refused to allow the CEO and Chairman to maintain control over the Company’s day-to-day operations; (ii) GreatBanc Trust Company (“GreatBanc”), in its capacity as the Segerdahl ESOP’s trustee, and the Company’s ESOP Committee “relied on a valuation of the ESOP in approving the transaction that failed to consider the characteristics of likely potential buyers, including operating companies like competitors, and failed to consider what those likely potential buyers would have paid”; and (iii) the Company’s CEO and Chairman of the Board of Directors diverted “tens of millions of dollars” from the Segerdahl ESOP via transaction bonuses and “payment for stock appreciation rights that matured in the event of a change in control.”
Following a bench trial, on March 31, 2025, the Court issued a Memorandum Opinion and Order in which it concluded that Rush “failed to prove any of his claims” and, as a result, it entered judgment in favor of Defendants on all counts.1
More specifically, the Court held as follows:
- The “Board Defendants” were not fiduciaries of the Segerdahl ESOP in connection with the Transaction, because GreatBanc had the sole authority to approve the Transaction.
- GreatBanc did not breach its fiduciary duty by failing to prevent the disclosure of Stout’s June 30, 2016 valuation, because such disclosure was used by JPMorgan to increase the purchase price.
- GreatBanc did not breach its fiduciary duty by failing to advocate for the inclusion of strategic buyers in the sale process, since “every witness who testified regarding the sale process offered reasonable explanations for the decision to exclude [such] buyers.”
- GreatBanc conducted an adequate investigation into the outside Board members’ backgrounds prior to their election to the Company’s Board.
- GreatBanc independently investigated “the propriety of JPMorgan’s sale process,” and even if it failed to review JPMorgan’s engagement agreement, “every involved party’s interests pointed towards obtaining the highest sale price possible.”
- While GreatBanc was not involved in the “day-to-day” negotiations with respect to the Transaction, “it conducted a prudent investigation led by experienced advisors.”
- Rush did not present convincing evidence of damages incurred by the Segerdahl ESOP, because, among other things, ICV testified that it would not have paid more than $265 million, and Rush’s contention that JPMorgan’s representative stated that another strategic buyer would have paid $320 million was not corroborated by any other witness.
- The Transaction was not a prohibited transaction, because the Company’s CEO negotiated a reduction in the amount of sale proceeds to be invested in the post-Transaction entity, the Company’s former CEO did not use the Transaction as a means to increase his liquidity, and nothing in the record supported Rush’s contention that the Company’s CEO used the Transaction to gain control of the Company at the Segerdahl ESOP’s expense.
- The Transaction was for adequate consideration, as evidenced by GreatBanc’s reliance on Stout’s valuation report, GreatBanc’s investigation into Stout’s qualifications and experience with the Company, and GreatBanc’s consideration of ICV’s proposed 338(h)(10) election and a sale-leaseback involving the Company’s properties (and its ultimate decision not to factor those items into its valuation analysis).
- The Company’s CEO and former CEO did not benefit from an ERISA violation, because no such violation occurred in connection with the Transaction.
The Court’s decision is a significant victory for the ESOP community and sets forth the proper steps that an ESOP-owned company should take when considering a potential sale.
1 Memorandum Opinion and Order, Rush v. GreatBanc Trust Company, No. 1:19-cv-00738 (N.D. Ill. Mar. 31, 2025), ECF No. 444.
