Cohen Milstein represents participants and beneficiaries of the JJF Management Services, Inc. Employee Stock Ownership Plan (ESOP) in a putative class action against the J.J.F. Management Services, Inc.’s Board of Directors, the JJF ESOP Trustees, and the sellers of JJF stock. Plaintiffs allege violations of the Employee Retirement Income Security Act (ERISA) in connection with the sale of Company stock to the ESOP at an inflated price.
Specifically, plaintiffs allege that on or around January 31, 2023, defendants caused the ESOP to acquire one million shares of JJF stock from the seller defendants. The shares were sold for approximately $442 million, which plaintiffs say greatly exceeded their fair market value. Department of Labor filings reported the value of the JJF shares shortly after the ESOP’s purchase as $13.4 million—only 3 percent of the purchase price.
Case Background
Founded in 1974 by defendant Jack Fitzgerald, JJF is a Maryland corporation that owns and operates twelve Fitzgerald Auto Mall, Inc. car dealerships in Maryland, Pennsylvania, and Florida. Prior to the ESOP transaction, the Fitzgerald family owned the company.
On or around January 31, 2023, the seller defendants sold all of their shares of JJF stock to the ESOP. To purchase the shares, the ESOP entered two separate loans. Those loans were later refinanced as a loan of about $442 million from the company to the ESOP. This loan is to be repaid over 39 years. The loans created an enormous debt burden for the ESOP and the company. The employee participants had no input on the transaction or loan terms agreed to by the trustees and the seller defendants.
Plaintiffs allege that the $442 million purchase price for JJF stock was inflated. They say that the trustees and seller defendants ignored several risk factors that limited the value of the company at the time of the transaction.
Plaintiffs also allege that the Fitzgerald family kept control of JJF even after selling their stock and receiving associated tax benefits. The day before the ESOP transaction, the company’s Articles of Incorporation were amended. They were changed to guarantee that, until the loan was paid off, the seller defendants would control a majority of the Board. Plaintiffs claim that this provision would secure Fitzgerald family control of JJF for decades.
Due to defendants’ misconduct, plaintiffs claim that the JJF Management Services, Inc. ESOP Plan and its participants and beneficiaries have suffered tens of millions of dollars in losses.