Overview
Cohen Milstein represents an employee participants of the BNBuilders, Inc. Employee Stock Ownership Plan (ESOP) in a class action, alleging that Brad Bastian and the former owners of BNBuilders created the ESOP for the express purposes of selling 100% of their shares of the company to provide themselves liquidity while retaining ownership and control of the company, in violation of the Employee Retirement Income Security Act of 1974 (ERISA).
Specifically, plaintiff claims that the owners sold 100% of their shares of BNBuilders to the ESOP for $206,508,990 on December 23, 2021. However, even after the ESOP transaction, plaintiff alleges Brad Bastian (the majority owner) has been and continues to be chair of BNBuilders, Inc. Board of Directors.
Case Background
Founded in 2000, BNBuilders, Inc. is a general contractor based in Seattle, WA that specializes in commercial construction projects. It has described itself as “one of the fastest growing construction firms along the West Coast.”
Brad Bastian and the former owners of BNBuilders reported that they sold 100% of their company to the BNBuilders ESOP for $206,508,990 or $29.13 per share on December 23, 2021, providing them a significant liquidity event. However, plaintiffs allege in the complaint that no point during or after the ESOP transaction did Brad Bastian give up control of the company.
Plaintiff claims that neither the owners of BNBuilders nor GreatBanc Trust Company, the trustee company hired by the owners to oversee the ESOP transaction. gave him or other employee-participants an opportunity to review, negotiate, or otherwise take part in the determination of the price that they paid for BNBuilders stock. Instead, plaintiff alleges that he learned of the ESOP transaction only after it was completed and the $206 million purchase price was approved, by which time the ESOP was left deeply in debt.
According to Department of Labor filings, because the ESOP did not have anywhere close to the $206 million the sellers received for BNBuilders stock, the ESOP had to borrow the entire purchase price from the seller defendants through the issuance of seller notes. These seller notes were subsequently reassigned to the company. As a result, the ESOP entered into a note payable with the company totaling $ 206,508,990, with a 40-year term, thereby requiring the company to divert a significant amount of its cash flow towards annual loan payments following the transaction. Consequently, this crippling debt hampered the company’s ongoing operations and profitability and was not in the best interest of the ESOP participants.
Under ERISA, the ESOP trustee is supposed to be an independent third party acting prudently with undivided loyalty to the ESOP and its participants. Plaintiff claims that the sellers specifically identified and hired GreatBanc as the ESOP trustee because they believed GreatBanc would approve the transaction and would not aggressively negotiate the purchase price.
Plaintiff also claims that Bastian along with other board members maintained control over GreatBanc by, among other things, requiring the trustee to execute the directions given by the board, without discretion to even “question the instructions.” Plaintiff also points out that the defendants set up an ESOP governance structure that allowed the board to fire the GreatBanc if it did not carry out the wishes of the board.
To cement this control over GreatBanc, the board agreed to indemnify the trustee for all ERISA fiduciary liability in connection with the ESOP transaction. These indemnification payments have been paid from the company’s assets, which are owned by the ESOP from at least 2021. Plaintiff asserts that this form of exculpation is illegal and void under ERISA.